Money Tree 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 25, 2008

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number 333-122531

THE MONEY TREE INC

(Exact name of registrant as specified in its charter)

Georgia	58-2171386
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

114 South Broad Street

Bainbridge, Georgia 39817

(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code (229) 246-6536

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  x  (Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     ¨  Yes    x  No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the last practicable date.

Class	Outstanding at December 25, 2008
Class A, Voting	2,686 Shares
Class B, Non-Voting	26,860 Shares

THE MONEY TREE INC.

FORM 10-Q

December 25, 2008

TABLE OF CONTENTS

Index to Financial Statements

Item No.		Page
	PART I – FINANCIAL INFORMATION
1	Financial Statements	3
	Consolidated Balance Sheets as of December 25, 2008 (Unaudited) and September 25, 2008	3
	Consolidated Statements of Operations for the three months ended December 25, 2008 and 2007 (Unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended December 25, 2008 and 2007 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	7
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
3	Quantitative and Qualitative Disclosures About Market Risk	28
4	Controls and Procedures	28
	PART II – OTHER INFORMATION
1	Legal Proceedings	30
1A	Risk Factors	30
2	Unregistered Sales of Equity Securities and Use of Proceeds	30
3	Defaults Upon Senior Securities	30
4	Submission of Matters to a Vote of Security Holders	30
5	Other Information	30
6	Exhibits	30

2

Item 1. Financial Statements

The Money Tree Inc. and Subsidiaries

Consolidated Balance Sheets

	December 25, 2008			September 25, 2008
	(Unaudited)
Assets
Cash and cash equivalents	$	5,260,284		$	12,541,302
Finance receivables, net		67,213,838			67,730,473
Other receivables		1,904,061			956,752
Inventory		2,766,017			3,167,021
Property and equipment, net		4,823,540			4,906,189
Other assets		2,410,452			2,498,205
Total assets	$	84,378,192		$	91,799,942
Liabilities and Shareholders’ Deficit
Liabilities
Accounts payable and other accrued liabilities	$	3,498,124		$	3,278,870
Accrued interest payable		14,359,353			14,854,877
Senior debt		422,505			694,890
Variable rate subordinated debentures		77,410,936			82,209,211
Demand notes		3,212,204			3,658,160
Total liabilities		98,903,122			104,696,008
Commitments and contingencies (see Note 10)
Shareholders’ deficit
Common stock:
Class A voting, no par value; 500,000 shares authorized, 2,686 shares issued and outstanding		1,677,647			1,677,647
Class B non-voting, no par value; 1,500,000 shares authorized, 26,860 shares issued and outstanding		—			—
Accumulated deficit		(16,202,577	)		(14,573,713	)
Total shareholders’ deficit		(14,524,930	)		(12,896,066	)
Total liabilities and shareholders’ deficit	$	84,378,192		$	91,799,942

See accompanying notes to the consolidated financial statements.

3

The Money Tree Inc. and Subsidiaries

Consolidated Statements of Operations

Three months ended December 25,	2008			2007
	(Unaudited)
Interest and fee income	$	4,594,648		$	4,988,192
Interest expense		(1,917,223	)		(2,065,513	)
Net interest and fee income before provision for credit losses		2,677,425			2,922,679
Provision for credit losses		(2,234,641	)		(2,042,673	)
Net interest and fee income after provision for credit losses		442,784			880,006
Insurance commissions		2,564,830			2,563,014
Commissions from motor club memberships from company owned by related parties		463,840			512,316
Delinquency fees		403,578			411,814
Other income		133,108			151,863
Net revenue before retail sales		4,008,140			4,519,013
Retail sales		4,593,979			5,034,915
Cost of sales		(2,980,207	)		(3,078,292	)
Gross margin on retail sales		1,613,772			1,956,623
Net revenues		5,621,912			6,475,636
Operating expenses
Personnel expense		(4,008,695	)		(3,881,470	)
Facilities expense		(1,045,556	)		(994,432	)
General and administrative expenses		(850,520	)		(769,487	)
Other operating expenses		(1,346,005	)		(1,185,854	)
Total operating expenses		(7,250,776	)		(6,831,243	)
Net operating loss		(1,628,864	)		(355,607	)
Loss on sale of property and equipment		—			(14,637	)
Loss before income tax expense		(1,628,864	)		(370,244	)
Income tax expense		—			(210,243	)
Net loss	$	(1,628,864	)	$	(580,487	)
Net loss per common share, basic and diluted	$	(55.13	)	$	(19.65	)
Weighted average shares outstanding		29,546			29,546

See accompanying notes to the consolidated financial statements.

4

The Money Tree Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Three months ended December 25,	2008			2007
	(Unaudited)
Cash flows from operating activities
Net loss	$	(1,628,864	)	$	(580,487	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for credit losses		2,234,641			2,042,673
Depreciation		237,873			195,912
Amortization		1,310			1,429
Loss on sale of property and equipment		—			14,637
Change in assets and liabilities:
Other receivables		(947,309	)		(252,658	)
Inventory		401,004			211,240
Other assets		86,443			90,516
Accounts payable and other accrued liabilities		219,254			388,519
Accrued interest payable		(495,524	)		613,515
Net cash provided by operating activities		108,828			2,725,296
Cash flows from investing activities
Finance receivables originated		(17,293,604	)		(20,730,328	)
Finance receivables repaid		15,575,598			17,104,131
Purchase of property and equipment		(155,224	)		(152,092	)
Proceeds from sale of property and equipment		—			14,785
Net cash used in investing activities		(1,873,230	)		(3,763,504	)
Cash flows from financing activities
Net proceeds (repayments) on:
Senior debt		(272,385	)		118,464
Demand notes		(445,956	)		(928,569	)
Proceeds-variable rate subordinated debentures		1,596,418			3,214,603
Repayments-variable rate subordinated debentures		(6,394,693	)		(2,928,465	)
Net cash used in financing activities		(5,516,616	)		(523,967	)
Net change in cash and cash equivalents		(7,281,018	)		(1,562,175	)
Cash and cash equivalents, beginning of period		12,541,302			17,854,277
Cash and cash equivalents, end of period	$	5,260,284		$	16,292,102

See accompanying notes to the consolidated financial statements.

5

The Money Tree Inc. and Subsidiaries

Consolidated Statements of Cash Flows (continued)

Three months ended December 25,	2008		2007
	(Unaudited)
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the quarter for:
Interest	$	2,392,295	$	1,402,672
Income taxes	$	—	$	181,488

See accompanying notes to the consolidated financial statements.

6

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The consolidated financial statements of The Money Tree Inc., a Georgia corporation (the “Parent”) and subsidiaries (collectively with the Parent, the “Company”) included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, see Note 1 to the Consolidated Financial Statements in the Company’s 2008 Annual Report on Form 10-K.

The consolidated financial statements include the accounts of the Company and all of its subsidiaries after eliminating all significant intercompany transactions and reflect all normal, recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the results of operations of the Company in conformity with U.S. generally accepted accounting principles for the interim periods reported. The results of operations for the three months ended December 25, 2008 and 2007 are not necessarily indicative of the results for the full fiscal year.

NOTE 2 – NATURE OF BUSINESS

The business of The Money Tree Inc. and subsidiaries (“the Company”) consists of: the operation of finance company offices in 103 locations throughout Georgia, Alabama, Louisiana and Florida; sales of merchandise (principally furniture, appliances, and electronics) at certain finance company locations; and the operation of three used automobile dealerships in Georgia. The Company also earns revenues from commissions on premiums written for certain insurance products, when requested by loan customers, as an agent for a non-affiliated insurance company. Revenues are also generated from commissions on the sales of automobile club memberships from a company owned by related parties and commissions from sales prepaid telephone service and prepaid cellular services.

The Company’s loan portfolio consists of consumer sales finance contracts receivables and direct consumer loan receivables. Consumer sales finance contracts receivables consist principally of retail installment sale contracts collateralized by used automobiles and consumer goods which are initiated by automobile and consumer good dealerships, subject to credit approval, in the locations where the Company operates offices. Direct consumer loan receivables are loans originated directly to customers for general use which are collateralized by existing automobiles or consumer goods, or are unsecured.

As of December 1, 2008, the Company’s registration of and ability to offer debentures and demand notes expired and has not been renewed. As a result, for the quarter ended December 25, 2008, the Company redeemed $4.8 million more in debentures than it sold and $0.4 million more in demand notes than it sold. The Company has historically depended on the sale of debentures and demand notes to investors and the collection of finance receivables to fund its obligations to redeem debentures and demand notes, make interest payments on debentures and demand notes, and to fund other company capital needs. The Company’s continued liquidity is therefore dependent on the registration and sale of debentures and demand notes and the continued collection of finance receivables or its ability to secure other financing sources. The deteriorating economy continues to negatively impact the credit quality of the Company’s finance receivables and may impact the Company’s ability to sell debentures and demand notes once its ability to offer is renewed. In the event additional debentures or demand notes are not registered and sold to investors or the Company otherwise fails to secure additional financing or capital sources, the Company’s liquidity and capital needs will be severely and negatively affected. Management believes its business is structured to mitigate the effects of adverse economic conditions and believes its retail operations will benefit from its established customer base and will provide sufficient liquidity for growth.

7

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 2 – NATURE OF BUSINESS (CONTINUED)

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a net loss of $11,966,366 for the year ended September 25, 2008, a net loss of $1,628,864 for the quarter ended December 25, 2008 and had a shareholders’ deficit of $14,524,930 as of December 25, 2008. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, originate new loans and to ultimately attain successful operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.157,Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and accordingly, the Company adopted this pronouncement on September 26, 2008 with no material effect on the consolidated financial statements. As of December 25, 2008, the Company does not measure any assets or liabilities at fair value.

In February 2007, the FASB issued SFAS No.159,The Fair Value Option for Financial Assets and Liabilities – Including an Amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure certain financial assets and liabilities at fair value (the “fair value option”). Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and accordingly, the Company adopted this pronouncement on September 26, 2008 with no material effect on the consolidated financial statements.

In December 2007, the FASB issued SFAS No.141(R),Business Combinations. This Statement replaces SFAS No.141,Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called thepurchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) will apply prospectively to business combinations for which the acquisition date is on or after September 26, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 25, 2009.

In December 2007, the FASB issued SFAS No.160,Noncontrolling Interests in Consolidated Financial Statements. This Statement amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The Company has not yet determined the impact, if any, that SFAS 160 will have on its consolidated financial statements. SFAS 160 is effective for the Company’s fiscal year beginning September 26, 2009.

8

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Management does not expect SFAS 161 to have a material impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 163,Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60 (“SFAS 163”). SFAS 163 interprets Statement 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. The Company does not expect that SFAS 163 will have a material impact on its consolidated financial statements.

NOTE 4 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

Finance receivables consisted of the following:

	December 25, 2008			September 25, 2008
	(Unaudited)
Finance receivables, direct consumer	$	40,622,009		$	41,654,302
Finance receivables, consumer sales finance		17,222,368			16,793,743
Finance receivables, auto sales finance		30,260,514			30,707,329
Total gross finance receivables		88,104,891			89,155,374
Unearned insurance commissions		(2,614,316	)		(2,793,425	)
Unearned finance charges		(10,575,567	)		(10,621,034	)
Accrued interest receivable		898,059			865,885
Finance receivables, before allowance for credit losses		75,813,067			76,606,800
Allowance for credit losses		(8,599,229	)		(8,876,327	)
Finance receivables, net	$	67,213,838		$	67,730,473

9

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 4 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

An analysis of the allowance for credit losses is as follows:

	As of and for the three months ended December 25, 2008			As of and for the year ended September 25, 2008			As of and for the three months ended December 25, 2007
	(Unaudited)						(Unaudited)
Beginning balance	$	8,876,327		$	3,710,679		$	3,710,679
Provisions for credit losses		2,234,641			13,812,192			2,042,673
Charge-offs		(2,614,501	)		(8,825,129	)		(1,518,043	)
Recoveries		63,914			196,208			47,616
Other		38,848			(17,623	)		24,733
Ending balance	$	8,599,229		$	8,876,327		$	4,307,658

NOTE 5 – INVENTORY

Inventory consisted of the following:

	December 25, 2008		September 25, 2008
	(Unaudited)
Used automobiles	$	1,391,418	$	1,529,078
Home furnishings and electronics		1,374,599		1,637,943
Total inventory	$	2,766,017	$	3,167,021

10

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 6 – ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

Accounts payable and other accrued liabilities consisted of the following:

	December 25, 2008		September 25, 2008
	(Unaudited)
Accounts payable	$	176,304	$	271,815
Insurance payable, loan related		786,886		639,167
Accrued payroll		528,339		507,484
Accrued payroll taxes		39,380		38,420
Money orders		370,199		530,888
Sales tax payable		1,241,411		1,210,579
Other liabilities		355,605		80,517
Total accounts payable and other accrued liabilities	$	3,498,124	$	3,278,870

NOTE 7 – DEBT

Debt consisted of the following:

	December 25, 2008		September 25, 2008
	(Unaudited)
Senior debt: due to banks and commercial finance companies, collateralized by inventory and certain automotive equipment, and certain notes include personal guarantees of a shareholder, interest at prime plus 2%, due 2009. The carrying values of the collateral at December 25, 2008 and September 25, 2008 were $458,621 and $725,910, respectively.	$	422,505	$	694,890
Total senior debt		422,505		694,890
Variable rate subordinated debentures issued by The Money Tree of Georgia Inc.: due to individuals, unsecured, interest at 4.25% to 9.6%, due at various dates through 2011.		41,575,953		45,020,194
Variable rate subordinated debentures issued by The Money Tree Inc.: due to individuals, unsecured, interest at 6.0% to 8.7%, due at various dates through 2012.		35,834,983		37,189,017
Total subordinated debentures		77,410,936		82,209,211

11

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 7 – DEBT (CONTINUED)

	December 25, 2008		September 25, 2008
	(Unaudited)
Demand notes issued by The Money Tree of Georgia Inc.: due to individuals, unsecured, interest at 3.0% to 4.0%, due on demand.		507,800		613,442
Demand notes issued by The Money Tree Inc.: due to individuals, unsecured, interest at 3.0% to 4.0%, due on demand.		2,704,404		3,044,718
Total demand notes		3,212,204		3,658,160
Total debt	$	81,045,645	$	86,562,261

NOTE 8 – INCOME TAXES

At the end of each quarter, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year and uses that rate in providing for income taxes on current year-to-date basis. For the three months ended December 25, 2008 and 2007, the Company increased the valuation allowance for its deferred income tax asset by $0.6 million and $0.3 million, respectively, resulting in a difference between income taxes calculated using expected annual federal and state rates and actual income tax expense.

NOTE 9 – RELATED PARTY TRANSACTIONS

Martin Family Group, LLLP owns the real estate of thirteen branch offices, one used car lot, and the Company’s principal executive offices. The estate of the Company’s founder and former CEO is a limited partner of Martin Family Group, LLLP. A Company shareholder is the president of Martin Investments, Inc. which is the managing general partner of Martin Family Group LLLP. The Company has entered into lease agreements whereby rent is paid monthly for use of these locations. In addition, Martin Sublease LLC, leases, and then subleases to the Company, another 54 branch office locations and two used car lots for amounts greater than are paid in the underlying leases. This spread is generally to cover property operating cost or improvements made directly by these entities. In the opinion of management, rates paid for these are comparable to those obtained from third parties. A Company shareholder is the President of Martin Investments, Inc., the company which ultimately controls Martin Sublease LLC. Total rents paid were $555,976 and $519,825 for the three months ended December 25, 2008 and 2007, respectively and are included in operating expense in the Accompanying Unaudited Consolidated Statements of Operations.

The Company receives commissions from sales of motor club memberships from an entity, owned by the Company’s President and late founder’s three children (of which one is a Director), pursuant to an Agency Sales Agreement. Commissions earned on the sale of these memberships were $463,840 and $512,316 for the three months ended December 25, 2008 and 2007, respectively.

The Company also engages from time to time in other transactions with related parties. Refer to the “Related Party Transactions” disclosure in the notes to the Company’s Consolidated Financial Statements as of and for the year ended September 25, 2008.

12

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 10 – CONTINGENT LIABILITIES

The Company is a party to litigation arising in the normal course of business. With respect to all such lawsuits, claims, and proceedings, the Company establishes reserves when it is probable a liability has been incurred and the amount can reasonably be estimated. In the opinion of management, the resolution of such matters will not have a material effect on the financial position or results of operations of the Company.

NOTE 11 – DISCRETIONARY BONUSES

From time to time, the Company pays discretionary bonuses to its employees. The amount of these bonuses charged to operating expenses was $589,466 and $578,655 for the three months ended December 25, 2008 and 2007, respectively.

NOTE 12 – SEGMENT FINANCIAL INFORMATION

Statement of Financial Accounting Standards No. 131, “Disclosure about Segments of an Enterprise and Related Information” (SFAS 131), requires companies to determine segments based on how management makes decisions about allocating resources to segments and measuring their performance.

The Company has two reportable segments: Consumer Finance and Sales and Automotive Finance and Sales.

Consumer finance and sales segment

This segment is comprised of original core operations of the Company: the small consumer loan business in the four states in which the Company operates. The 103 offices that make up this segment are similar in size and in the markets they serve. All, with few exceptions, offer consumer goods for sale acting as an agent for another subsidiary of the Company, Home Furniture Mart Inc., which is aggregated in this segment since its sales are generated through these finance offices. This segment is structured with branch management reporting through a regional management level to an operational manager and ultimately to the chief operating decision maker.

Automotive finance and sales segment

This segment is comprised of three used automobile sales locations and offers financing in conjunction with these sales. These locations target similar customers in the Bainbridge, GA, Columbus, GA and Dublin, GA markets and surrounding areas who generally cannot qualify for traditional financing. The sales and the financing organizations are aggregated in the segment. A general manager is responsible for sales and finance administration at each of the locations and reports to an operational manager and ultimately to the chief operating decision maker.

Accounting policies of the segments are the same as those described in the summary of significant accounting policies. Performance is measured by various factors such as segment profit, loan volumes and delinquency and loss management. All corporate expenses are allocated to the segments. Provision for income taxes are not allocated to segments.

13

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)

Three months ended December 25, 2008	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands	(Unaudited)
Net revenues (expense) before retail sales	$	4,111		$	(103	)	$	4,008
Gross margin on retail sales		943			671			1,614
Segment operating expenses		(6,353	)		(898	)		(7,251	)
Segment operating loss	$	(1,299	)	$	(330	)	$	(1,629	)
December 25, 2008
In Thousands
Assets
Total segment assets	$	51,626		$	25,902		$	77,528
RECONCILIATION:							December 25, 2008
							(Thousands)
Assets:
Total assets for reportable segments							$	77,528
Cash and cash equivalents at corporate level								1,228
Other receivables at corporate level								1,904
Property and equipment, net at corporate level								1,308
Other assets at corporate level								2,410
Consolidated Assets							$	84,378

14

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)

Three months ended December 25, 2007	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands	(Unaudited)
Net revenues before retail sales	$	4,326		$	193		$	4,519
Gross margin on retail sales		1,187			770			1,957
Segment operating expenses		(5,904	)		(928	)		(6,832	)
Segment operating profit	$	(391	)	$	35		$	(356	)
December 25, 2007
In Thousands
Assets
Total segment assets	$	62,881		$	28,010		$	90,891
RECONCILIATION:							December 25, 2007
							(Thousands)
Assets:
Total assets for reportable segments							$	90,891
Cash and cash equivalents at corporate level								9,518
Other receivables at corporate level								1,116
Property and equipment, net at corporate level								1,288
Deferred income taxes at corporate level								1,210
Other assets at corporate level								1,658
Consolidated Assets							$	105,681

15

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The discussion set forth below, as well as other portions of this quarterly report, contains forward-looking statements within the meaning of federal securities law. Words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue,” “predict,” or other similar words, identify forward-looking statements. Forward-looking statements include statements regarding our management’s intent, belief or current expectation about, among other things, trends affecting the markets in which we operate, our business, our financial condition and our growth strategies. Although we believe that the expectation reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those predicted in the forward-looking statements as a result of various factors, including, but not limited to, those risk factors set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 3, 2009. Other factors not identified herein could also have such an effect. If any of these risk factors occur, they could have an adverse effect on our business, financial condition and results of operations. When considering forward-looking statements keep these risks in mind. These forward-looking statements are made as of the date of this filing. You should not place undo reliance on any forward-looking statement. We are not obligated to update forward-looking statements and will not update any forward-looking statements in this quarterly report to reflect future events or developments.

The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other financial data included elsewhere in this report. See also the notes to our consolidated financial statements, Selected Consolidated Financial Data and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended September 25, 2008.

Overview

We make consumer finance loans and provide other financial products and services through our branch offices in Georgia, Alabama, Louisiana and Florida. We sell retail merchandise, principally furniture, appliances and electronics, at certain of our branch office locations and operate three used automobile dealerships in the State of Georgia. We also offer insurance products, prepaid phone services and automobile club memberships to our loan customers.

We fund our consumer loan demand through a combination of cash collections from our consumer loans, proceeds raised from the sale of debentures and demand notes and loans from various banks and other financial institutions. Our consumer loan business consists of making, purchasing and servicing direct consumer loans, consumer sales finance contracts and motor vehicle installment sales contracts. Direct consumer loans generally serve individuals with limited access to other sources of consumer credit, such as banks, savings and loans, other consumer finance businesses and credit cards. Direct consumer loans are general loans made typically to people who need money for some unusual or unforeseen expense, for the purpose of paying off an accumulation of small debts or for the purchase of furniture and appliances. The following table sets forth certain information about the components of our finance receivables for the periods presented:

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Description of Loans and Contracts

	As of, or for, the Three Months Ended December 25,
	2008			2007
Direct Consumer Loans:
Number of Loans Made to New Borrowers		15,666			5,498
Number of Loans Made to Former Borrowers		12,441			15,162
Number of Loans Made to Existing Borrowers		13,794			20,660
Total Number of Loans Made		41,901			41,320
Total Volume of Loans Made	$	15,792,769		$	19,941,082
Average Size of Loans Made	$	377		$	483
Number of Loans Outstanding		68,072			78,905
Total of Loans Outstanding*	$	33,498,425		$	41,477,349
Percent of Loans Outstanding		41.37	%		46.13	%
Average Balance on Outstanding Loans	$	492		$	526
Motor Vehicle Installment Sales Contracts:
Total Number of Contracts Made		184			190
Total Volume of Contracts Made	$	3,323,862		$	3,496,254
Average Size of Contracts Made	$	18,064		$	18,401
Number of Contracts Outstanding		2,703			2,799
Total of Contracts Outstanding*	$	30,260,514		$	31,895,347
Percent of Total Loans and Contracts		37.37	%		35.47	%
Average Balance on Outstanding Contracts	$	11,195		$	11,395
Consumer Sales Finance Contracts:
Number of Contracts Made to New Customers		860			38
Number of Loans Made to Former Customers		30			1,008
Number of Loans Made to Existing Customers		890			1,046
Total Contracts Made		1,780			2,092
Total Volume of Contracts Made	$	5,902,407		$	6,421,213
Number of Contracts Outstanding		7,439			7,638
Total of Contracts Outstanding*	$	17,222,368		$	16,543,773
Percent of Total Loans and Contracts		21.26	%		18.40	%
Average Balance of Outstanding Contracts	$	2,315		$	2,166

* Contracts outstanding are exclusive of the following aggregate amounts of bankrupt accounts: $7,123,584 as of December 25, 2008 and $6,367,294 as of December 25, 2007.

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Below is a table showing our total gross outstanding finance receivables and bankrupt accounts:

	As of December 25,
	2008		2007
Total Finance Receivables Outstanding (gross):
Direct Consumer Loans	$	33,498,425	$	41,477,349
Motor Vehicle Installment		30,260,514		31,895,347
Consumer Sales Finance		17,222,368		16,543,773
Bankrupt Accounts		7,123,584		6,367,294
Total Gross Outstanding	$	88,104,891	$	96,283,763

Below is a roll-forward of the balance of each category of our outstanding finance receivables. Loans originated reflect the gross amount of loans made or purchased during the period presented inclusive of pre-computed interest, fees and insurance premiums. Collections represent cash receipts in the form of repayments made on our loans as reflected in our Consolidated Statements of Cash Flows. Refinancings represent the amount of the pay off of loans refinanced. Charge offs represent the gross amount of loans charged off as uncollectible (charge offs are shown net of non-file insurance receipts in our Allowance for Credit Losses). Rebates represent reductions to gross loan amounts of precomputed interest and insurance premiums resulting from loans refinanced and other loans paid off before maturity. Other adjustments primarily represent accounts transferred to and from the department that administers bankrupt accounts.

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	For the Three Months Ended December 25,
	2008			2007
Direct Consumer Loans:
Balance—beginning	$	34,859,944		$	40,719,291
Finance receivables originated		15,792,769			19,941,082
Collections		(10,694,706	)		(12,145,282	)
Refinances		(3,424,774	)		(4,639,566	)
Charge offs, gross		(2,111,910	)		(1,393,669	)
Rebates / other adjustments		(922,898	)		(1,004,507	)
Balance—end	$	33,498,425		$	41,477,349
Consumer Sales Finance Contracts:
Balance—beginning	$	16,793,743		$	14,466,682
Finance receivables originated		5,902,407			6,421,213
Collections		(1,881,695	)		(1,619,504	)
Refinances		(1,879,975	)		(1,783,135	)
Charge offs, gross		(1,229,080	)		(238,958	)
Rebates / other adjustments		(483,032	)		(702,525	)
Balance—end	$	17,222,368		$	16,543,773
Motor Vehicle Installment Sales Contracts:
Balance—beginning	$	30,707,329		$	32,259,968
Finance receivables originated		3,323,862			3,496,254
Collections		(2,999,197	)		(3,339,345	)
Refinances		—			—
Charge offs, gross		(429,750	)		(304,684	)
Rebates / other adjustments		(341,730	)		(216,846	)
Balance—end	$	30,260,514		$	31,895,347
Total Active Accounts:
Balance—beginning	$	82,361,016		$	87,445,941
Loans originated		25,019,038			29,858,549
Collections		(15,575,598	)		(17,104,131	)
Refinances		(5,304,749	)		(6,422,701	)
Charge offs, gross		(3,770,740	)		(1,937,311	)
Rebates / other adjustments		(1,747,660	)		(1,923,878	)
Balance—end	$	80,981,307		$	89,916,469
Total Bankrupt Accounts:
Balance—beginning	$	6,794,358		$	6,115,375
Charge offs, gross		(302,329	)		(179,340	)
Adjustments		631,555			431,259
Balance—end	$	7,123,584		$	6,367,294
Total Gross Outstanding Receivables	$	88,104,891		$	96,283,763

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Below is a reconciliation of the amounts of the loans originated and repaid (collections) from the receivable roll-forward to the amounts shown in our Consolidated Statements of Cash Flows.

	Three Months Ended December 25,
	2008			2007
Finance Receivables Originated:
Direct consumer	$	15,792,769		$	19,941,082
Consumer sales finance		5,902,407			6,421,213
Motor vehicle installment sales		3,323,862			3,496,254
Total gross finance receivables originated		25,019,038			29,858,549
Non-cash items included in gross finance receivables*		(7,725,434	)		(9,128,221	)
Finance receivables originated—cash flows	$	17,293,604		$	20,730,328
Finance Receivables Repaid:
Collections
Direct consumer	$	10,694,706		$	12,145,282
Consumer sales finance		1,881,695			1,619,504
Motor vehicle installment sales		2,999,197			3,339,345
Finance receivables repaid—cash flows	$	15,575,598		$	17,104,131

* Includes precomputed interest and fees (since these amounts are included in the gross amount of finance receivables originated but are not advanced in the form of cash to customers) and refinanced receivables balances (since there is no cash generated from the repayment of original finance receivables refinanced).

Segments and Seasonality

We segment our business operations into the following two segments:

• consumer finance and sales; and

• automotive finance and sales.

The consumer finance and sales segment is comprised primarily of small consumer loans and sales of consumer goods such as furniture, appliances and electronics. We typically experience our strongest financial performance for the consumer finance and sales segment during the holiday season, which is our first fiscal quarter ending December 25.

The automotive finance and sales segment is comprised exclusively of used vehicle sales and their related financing. We typically experience our strongest financial performance for the automotive finance and sales segment during our second fiscal quarter ending March 25 when demand for used cars is at its highest. Please refer to Note 12 in the “Notes to Consolidated Financial Statements” for a breakdown of our operations by segment.

Net Interest Margin

A principal component of our profitability is our net interest margin, which is the difference between the interest that we earn on finance receivables and the interest that we pay on borrowed funds. In some states, statutes regulate the interest rates that we may charge our customers, while, in other locations, competitive market conditions establish interest rates that we

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may charge. Differences also exist in the interest rates that we earn on the various components of our finance receivable portfolio.

Unlike our interest income, our interest expense is sensitive to general market interest rate fluctuations. These general market fluctuations directly impact our cost of funds. Our general limited ability to increase the interest rates earned on new and existing finance receivables restricts our ability to react to increases in our cost of funds. Accordingly, increases in market interest rates generally will narrow our interest rate spread and lower our profitability, while decreases in market interest rates generally will widen our interest rate spread and increase our profitability. Significant increases in market interest rates will likely result in a reduction in our liquidity and profitability and impair our ability to pay interest and principal on the debentures. See “Quantitative and Qualitative Disclosures About Market Risk” below.

The following table presents important data relating to our net interest margin:

	As of, or for, the Three Months Ended December 25,
	2008			2007
Average net finance receivables(1)	$	75,908,452		$	80,248,602
Average notes payable(2)	$	81,867,040		$	88,314,374
Interest income	$	3,349,011		$	3,591,153
Loan fee income, excluding delinquency fees		1,245,637			1,397,039
Total interest and fee income		4,594,648			4,988,192
Interest expense		1,917,223			2,065,513
Net interest and fee income before provision for credit losses	$	2,677,425		$	2,922,679
Average interest rate earned (annualized)		24.2	%		24.9	%
Average interest rate paid (annualized)		9.4	%		9.4	%
Net interest rate spread (annualized)		14.8	%		15.5	%
Net interest margin (annualized)(3)		14.1	%		14.6	%

⁽¹⁾ Averages are computed using month-end balances of finance receivables (net of unearned interest/fees, unearned insurance commissions, and unearned discounts) during the period presented.

⁽²⁾ Averages are computed using month-end balances of interest bearing debt during the period presented.

⁽³⁾ Net interest margin represents net interest income (before provision for credit losses) divided by the average net finance receivables.

Analysis of Allowance for Credit Losses

An allowance for credit losses is maintained to account for the probable losses inherent in the finance receivable portfolio. The allowance is calculated based upon management’s estimate of the expected collectability of loans outstanding based upon a variety of factors, including, without limitation, periodic analysis of the loan portfolio, historic loan loss experience,

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borrowers’ ability to repay and collateral considerations. We maintain an allowance for credit losses at a level that we consider adequate to provide for probable losses based on historical ratios of charge-offs to average notes receivable.

The following table shows these ratios of charge offs to average notes receivable for the categories of our finance receivables. The average net finance receivables are computed using monthly balances, net of unearned interest, unearned insurance commissions and unearned discounts. Charge offs are shown at gross amounts as presented in the receivable roll-forward on page 19. Recoveries represent receipts from non-file insurance claims and cash recoveries.

	As of, or for, the Three Months Ended December 25,
	2008			2007
Direct Consumer Loans and Consumer Sales Finance Contracts:
Average net finance receivables	$	50,708,516		$	54,314,901
Charge offs—direct consumer	$	2,111,910		$	1,393,669
Charge offs—consumer sales finance		1,229,080			238,958
Charge offs—bankruptcy		302,329			179,340
Total gross charge offs		3,643,319			1,811,967
Recoveries (all direct consumer)		(1,522,482	)		(646,224	)
Charge offs, net	$	2,120,837		$	1,165,743
Percent of net charge offs to average receivables		4.2	%		2.1	%
Motor Vehicle Installment Sales Contracts:
Average outstanding finance receivables	$	25,199,936		$	25,933,701
Charge offs, gross	$	429,750		$	304,684
Recoveries		—			—
Charge offs, net	$	429,750		$	304,684
Percent of net charge offs to average receivables		1.7	%		1.2	%
Total Receivables:
Average outstanding finance receivables	$	75,908,452		$	80,248,602
Charge offs, gross	$	4,073,069		$	2,116,651
Recoveries (all direct consumer)		(1,522,482	)		(646,224	)
Charge offs, net	$	2,550,587		$	1,470,427
Percent of net charge offs to average receivables		3.4	%		1.8	%

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As of December 25, 2008 and September 25, 2008, our allowance for credit losses was $8.6 million and $8.9 million, respectively. This was attributable to the decrease in net outstanding finance receivables during the three months ended December 25, 2008. Net finance receivables outstanding provide the basis for the determination of the allowance for credit losses.

Delinquency Information

Our delinquency levels reflect, among other factors, changes in the mix of loans in the portfolio, the quality of receivables, the success of collection efforts, bankruptcy trends and general economic conditions. The delinquency information in the following tables is computed on the basis of the amount past due in accordance with the original payment terms of the loan (contractual method). We use the contractual method for all external reporting purposes. Management closely monitors delinquency using this method to measure the quality of our loan portfolio and the probability of credit loss. We also use other tools, such as a recency report, which shows the date of the last full contractual payment received on the loan, to determine a particular customer’s willingness to pay. For example, if a delinquent customer has made a recent payment, we may decide to delay more serious collection measures, such as repossession of collateral. However, such a payment will not change the non-accrual status of the account until all of the principal and interest amounts contractually due are brought current (we receive one or more full contractual payments and the account is less than 60 days contractually delinquent), at which time we believe future payments are reasonably assured. Below is certain information relating to the delinquency status of each category of our receivables for the quarters ended December 25, 2008 and 2007:

	As of December 25, 2008
	Direct Consumer Sales			Consumer Sales Finance Contracts			Motor Vehicle Installment Sales Contracts			Bankruptcy Accounts			Total
Gross Loans and Contracts Receivables	$	33,498,425		$	17,222,368		$	30,260,514		$	7,123,584		$	88,104,891
Loans and Contracts 60 - 90 days past due	$	935,140		$	406,198		$	565,597		$	265,496		$	2,172,431
Percentage of Outstanding		2.8	%		2.4	%		1.9	%		3.7	%		2.5	%
Loans and Contracts greater than 90 days past due	$	6,864,709		$	2,890,506		$	539,810		$	4,411,767		$	14,706,792
Percentage of Outstanding		20.5	%		16.8	%		1.8	%		61.9	%		16.7	%
Loans and Contracts greater than 60 days past due	$	7,799,849		$	3,296,704		$	1,105,407		$	4,677,263		$	16,879,223
Percentage of Outstanding		23.3	%		19.1	%		3.7	%		65.7	%		19.2	%

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	As of December 25, 2007
	Direct Consumer Sales			Consumer Sales Finance Contracts			Motor Vehicle Installment Sales Contracts			Bankruptcy Accounts			Total
Gross Loans and Contracts Receivables	$	41,477,349		$	16,543,773		$	31,895,347		$	6,367,294		$	96,283,763
Loans and Contracts 60 - 90 days past due	$	764,940		$	284,550		$	133,411		$	241,933		$	1,424,834
Percentage of Outstanding		1.8	%		1.7	%		0.4	%		3.8	%		1.5	%
Loans and Contracts greater than 90 days past due	$	10,879,986		$	3,382,797		$	81,777		$	3,611,602		$	17,956,162
Percentage of Outstanding		26.2	%		20.4	%		0.3	%		56.7	%		18.6	%
Loans and Contracts greater than 60 days past due	$	11,644,926		$	3,667,347		$	215,188		$	3,853,535		$	19,380,996
Percentage of Outstanding		28.1	%		22.2	%		0.7	%		60.5	%		20.1	%

Results of Operations

Comparison of Three Months Ended December 25, 2008 and 2007

Net Revenues

Net revenues were $5.6 million and $6.5 million for the three months ended December 25, 2008 and 2007, respectively. Decreases in interest and fee income and gross margin on retail sales along with increases in the provision for credit losses resulted in the decrease in net revenues for the first quarter of the fiscal year ending September 25, 2009 compared to the first quarter of last year.

Net Interest and Fee Income Before Provision for Credit Losses

Net interest and fee income before provision for credit losses was $2.7 million and $2.9 million for the three months ended December 25, 2008 and 2007, respectively. During the first quarter of the fiscal year ending September 25, 2009, gross interest income decreased $0.4 million, from $5.0 million to $4.6 million, as a result of a slight decrease in the yield earned on our loans outstanding. Interest expense was $1.9 million and $2.1 million for the three-month periods ended December 25, 2008 and 2007, respectively.

Provision for Credit Losses

Provision for credit losses was $2.2 million and $2.0 million for the three months ended December 25, 2008 and 2007, respectively. Net finance receivables charged off increased approximately $1.0 million over the same period last year. Economic conditions continue to negatively impact our customer base which has resulted in an increased level of defaults on loans. For the three months ended December 25, 2007, we provided for additional credit losses by increasing the allowance for credit losses by approximately $0.6 million.

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Insurance and Other Products

Income from commissions on insurance products, motor club memberships, delinquency fees and other income were approximately the same for the three months ended December 25, 2008 and 2007.

Gross Margin on Retail Sales

Gross margins on retail sales were $1.6 million and $2.0 million for the three months ended December 25, 2008 and 2007, respectively. Sales in the automotive segment decreased approximately $0.2 million compared to the same period last year while gross margin decreased $0.1 million. Sales and gross margin in the consumer segment were down $0.4 million and $0.3 million, respectively, compared to last year’s first quarter sales and margins. The decrease in our retail sales is consistent with the downturn in consumer spending currently being experienced in the overall U.S. economy.

Operating Expenses

Operating expenses were $7.3 million and $6.8 million for the three months ended December 25, 2008 and 2007, respectively. Personnel expenses were $0.1 million higher than last year due to higher health benefit cost. General & administrative expenses increased $0.1 million primarily due to higher communications cost associated with our new branch computer software system installed during fiscal year 2008. Other operating expenses increased $0.2 million (approximately 13%) from prior year levels. Legal fees increased due to cost associated with preparing to register securities for sale. Travel related cost were slightly higher than the previous year due to additional personnel required to travel.

Income Tax Expense

Income tax expense was $0.0 million and $0.2 million, respectively for the three months ended December 25, 2008 and 2007, respectively. For the three months ended December 25, 2008 and 2007, we increased the valuation allowance for our deferred income tax asset by $0.6 million and $0.3 million, respectively, resulting in a difference between income taxes calculated using expected annual federal and state expected rates and actual income tax expense.

Liquidity and Capital Resources

General

Liquidity is our ability to meet short-term financial obligations whether through collection of receivables, potential registration to sale Debentures and Demand Notes or similar debt instruments or by generating additional funds through sales of assets to our competitors (such as our finance receivables or vehicle inventory). Continued liquidity is, therefore, largely dependent on the collection of our receivables and the potential future sale of debt securities that meet the investment requirements of the public. We believe the cash flow from our operations coupled with potential sales of the Debentures and Demand Notes or similar debt instruments will be sufficient to cover our liquidity needs and cash flow requirements during 2009.

Liquidity management refers to our ability to generate sufficient cash to fund the following primary uses of cash:

• Meet all of our debenture and demand note redemption obligations;

• pay interest on all of our debentures and demand notes;

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• pay operating expenses; and

• fund consumer finance loan demand and used automobile vehicle inventory.

The primary objective for liquidity management is to ensure that at all times we can meet the redemption obligations of our note holders. A secondary purpose of liquidity management is profit management. Because profit and liquidity are often conflicting objectives, we attempt to maximize our net interest margin by making adequate, but not excessive, liquidity provisions. To the extent we have adequate cash to meet our redemption obligations and pay interest to our note holders, we will use remaining cash to make consumer finance loans, purchase used automobile vehicle inventory and invest in other sources of potential revenues.

Changes in our liquidity position result from operating, investing and financing activities. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of our net income, including, without limitation, purchases of used automobiles, electronics, furnishings and other consumer goods for resale to our customers. The primary investing activities include consumer loan originations and purchases and collections on such consumer loans. Our financing activities focus almost entirely on the sale of Debentures and Demand Notes.

Cash and cash equivalents decreased $11.0 million to $5.3 million at December 25, 2008 from $16.3 million at December 25, 2007. During the three months ended December 25, 2008, cash and cash equivalents decreased $7.3 million, primarily as a result of a $5.5 million of net cash used in financing activities and $1.9 million of cash used in investing activities. We redeemed an unusually high amount of debentures ($6.4 million) while the proceeds from the sale of debentures were $1.6 million. We also redeemed $0.4 million more in demand notes than were sold. Finance receivables originated exceeded finance receivables repaid by approximately $1.7 million. Cash and cash equivalents decreased $1.6 million during the three months ended December 25, 2007 primarily as a result of an increase in funds used in investing activities. Funds used in originating finance receivables exceeded repayments by $3.6 million. During the first quarter of the fiscal year ended September 25, 2008, the primary sources of cash were net cash provided by operating activities of $2.7 million. Net cash used in financing activities was $0.5 million. Although we issued $3.2 million in debentures, we redeemed $2.9 million of debentures and demand note redemptions exceed proceeds by $0.9 million.

During 2009, we expect to continue to use a significant amount of cash to fund redemption obligations and pay interest on our securities. We will either have to (i) register to sell additional debentures and demand notes or similar debt instruments or (ii) substantially curtail our loan originations to customers during 2009 in order to meet our liquidity needs.

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Debentures and Demand Notes

Historically, we or our subsidiary, The Money Tree of Georgia Inc., have offered Debentures and Demand Notes to investors as a significant source of our required capital. We rely on the sale of Debentures and Demand Notes to fund redemption obligations, make interest payments and to fund other company working capital. Currently, we do not have any Debenture or Demand Notes registered for sale to investors. While we anticipate raising additional debt capital in the form of debentures and demand notes or other similar debt instruments, there can be no assurance that we will be able to do so. Please see “Risk Factors – We are not currently offering any Debentures and Demand Notes and, to the extent we do not register additional Debentures and Demand Notes or similar debt instruments for sale to investors or otherwise raise capital in the future, our liquidity and capital needs will be severely and negatively affected” found in our Annual Report on Form 10-K for the year ended September 25, 2008.

During the three months ended December 25, 2008, we (1) received gross proceeds of $1.6 million from the sale of debentures, (2) paid $6.4 million for redemption of debentures issued by us and our subsidiary, The Money Tree of Georgia Inc. and (3) paid $0.4 million for net redemptions of demand notes issued by us and this subsidiary. As of December 25, 2008, we had $77.4 million of debentures and $3.2 million of demand notes outstanding compared to $82.2 million of debentures and $3.7 million of demand notes outstanding, as of September 25, 2008.

Recent Accounting Pronouncements

Recent accounting pronouncements have been issued that may have a future effect on operations. Refer to Note 3 to the unaudited consolidated financial statements for a discussion of these pronouncements and their possible effects.

Critical Accounting Policies

Our accounting and reporting policies conform with U.S. generally accepted accounting principles (GAAP) and predominant practice within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

We believe that the determination of our allowance for credit losses involves a higher degree of judgment and complexity than our other significant accounting policies. The Allowance for Credit Losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, loss given default, the amounts and timing of expected future cash flows on impaired loans, and general amounts for historical loss experience. We also consider economic conditions, uncertainties in estimating losses and inherent risks in the loan portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.

Finance receivables are considered impaired, i.e. income recognition ceases, as a result of past-due status or a judgment by management that, although payments are current, such action is prudent. Finance receivables on which payments are past due 90 days or more are considered impaired unless they are well-secured and in the process of collection or renewal. Related accrued interest and fees are reversed against current period income.

When a loan is impaired, interest accrued but uncollected is generally reversed against interest income. Cash receipts on impaired loans are generally applied to reduce the unpaid principal balance.

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We recognize deferred tax assets and liabilities for the future tax effects of temporary differences, net operating loss carry-forwards and tax credits. Deferred tax assets are subject to management’s judgment based upon available evidence that future realization is more likely than not. If management determines that we may be unable to realize all or part of net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the expected realizable amount.

We have not substantially changed any aspect of our overall approach in the application of the foregoing policies. There have been no material changes in assumptions or estimation techniques utilized as compared to previous years.

Impact of Inflation

Although inflation has not had a material adverse effect on our financial condition or results of operations, increases in the inflation rate are generally associated with increased interest rates. A significant and sustained increase in the interest rates would likely unfavorably impact our profitability by reducing the interest rate spread between the rate of interest we receive on our customer loans and interest rates we pay to our note holders, banks and finance companies. Inflation may also negatively affect our operating expenses.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our profitability and financial performance are sensitive to changes in the U.S. Treasury yields and the spread between the effective rate of interest we receive on customer loans and the interest rates we pay on our borrowings. Our finance income is generally not sensitive to fluctuations in market interest rates. The primary exposure that we face is changes in interest rates on our borrowings. A substantial and sustained increase in market interest rates would likely adversely affect our growth and profitability since we will be required to increase the interest rates we pay to holders of debentures at the end of each interest adjustment period. We would also face pressure to increase interest rates on our demand notes to stay competitive. The overall objective of our interest rate risk management strategy is to mitigate the effects of changing interest rates on our interest expense through the utilization of short-term variable rate debt and medium and long term fixed rate debt. We have not entered into any derivative instruments to manage our interest rate risk. Please see Note 7 in the notes to our unaudited consolidated financial statements for information on our debt, including maturities and interest rates.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

As discussed in Management’s Report on Internal Controls over Financial Reporting included in the Company’s Annual Report on Form 10-K for the year ended September 25, 2008, the Company discovered that summary reports related to unearned interest, unearned insurance, and accrued interest receivable were not complete. To remedy this material weakness, the Company implemented the following measures during the quarter ended December 25, 2008:

• Additional communication to system service provider to ensure report parameters are correct.

• Monthly reconciliation of reports provided by the new finance receivable system to ensure their completion.

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In connection with the presentation of this Form 10-Q, management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal quarter which is the subject of this Quarterly Report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that the design and operation of our disclosure controls and procedures are effective as of December 25, 2008.

Changes in Internal Control Over Financial Reporting

Except as noted above relative to the review of information provided by the new finance system, there have been no changes in our internal control over financial reporting during the quarter ended December 25, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We were not involved in any material legal proceedings during the quarter ended December 25, 2008 requiring disclosure under item 103 of Regulation S-K.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 25, 2008, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

31.1	Certification of Principal Executive Officers pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE MONEY TREE INC.
February 17, 2009	/s/ Bradley D. Bellville
Date	Bradley D. Bellville
	President (Principal Executive Officer)
February 17, 2009	/s/ Steven P. Morrison
Date	Steven P. Morrison
	Chief Financial Officer (Principal Financial Officer)

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