The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes in "Item 1. Financial Statements." This discussion contains forward-looking statements that involve risks and uncertainties such as our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated by these forward-looking statements. Please see Item 1A of Part II of this Quarterly Report and "Forward-Looking Statements" at the end of this section for further discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

Headquartered in Spartanburg, South Carolina, we are the largest provider of payday cash advance services in the United States as measured by the number of centers operated. Our centers provide short-term, unsecured cash advances that are typically due on the customers' next payday. As of June 30, 2008, we operated 2,832 centers in 35 states in the United States, 14 centers in the United Kingdom and 10 centers in Canada, and had 82 limited licensees in the United Kingdom.

We conduct our business in most states under the authority of a variety of enabling state statutes including payday advance, deferred presentment, check-cashing, small loan, credit service organization and other state laws. In Texas, where we operate as a credit services organization ("CSO"), we refer customers to a third-party lender that may approve and fund advances to customers. Under the terms of our agreement with this lender, we process customer applications and are contractually obligated to reimburse the lender for the full amount of the loans and certain related fees that are not collected from the customers. During 2006, we began offering the Advance America Choice-Line of Credit to customers in Pennsylvania and installment loans to customers in Illinois. As a result of a July 2007 ruling in Pennsylvania, we ceased offering the Choice-Line of Credit. In the United Kingdom, we have recently started offering short-term advances, check-cashing and other related financial products and providing limited licenses of our services to independent contractors.

We provide advances and charge fees and/or interest as specified by the laws of the jurisdictions where we operate. The permitted size of an advance varies by jurisdiction and ranges from $50 to $1,000. The permitted fees and/or interest on an advance also vary by jurisdiction and range from 10% to 22% of the amount of a payday cash advance. Fees and interest for the line of credit product in Pennsylvania consisted of a monthly service fee for the line of credit plus interest on the average outstanding balance. Fees and interest for installment loans are larger relative to the size of the advance because of the longer term of this product.

Additional fees that we may collect include fees for returned checks and late fees. The returned check fee varies by state and ranges up to $30. We charge a customer this fee if a deposited check is returned due to non-sufficient funds ("NSF") in the customer's account or other reasons. In three states, we are also permitted to charge a late fee, the amount of which varies by state. In Texas, the third-party lender charges a late fee on its loans in accordance with state law.

Although there are numerous differences under the various enabling regulations, the application and approval process, underwriting criteria, delivery method, repayment and collection practices, customer and market characteristics and underlying economics of our principal products and services are substantially similar in most jurisdictions.

In order for a new customer to be approved for an advance, he or she is required to have a bank account and a regular source of income, such as a job.

º •
º completes an application and presents the required documentation:
usually proof of identification, a pay stub or other evidence of income, and a bank statement;

º •
º enters into an agreement governing the terms of the advance, including the customer's agreement to repay the advance in full on or before a specified due date (usually the customer's next payday), and our agreement to defer the presentment or deposit of the customer's check until the due date of the advance;

º •
º writes a personal check to cover the amount of the advance plus charges for applicable fees and/or interest; and

º •
º makes an appointment to return on the specified due date of the advance to repay the advance plus the applicable charges and to reclaim his or her check.

We determine whether to approve an advance to our customers (except in Texas, where the third-party lender makes this determination). We do not undertake any evaluation of the creditworthiness of our customers in determining whether to approve customers for advances, other than requiring proof of identification, bank account and income source, as described above. We also consider the customer's income in determining the amount of the advance.

Generally, when customers return to a center to repay their advances they may: (1) pay their outstanding advances in full; (2) pay their outstanding advances in full and enter into a new advance on the same date; or (3) in some states, extend their outstanding advance by paying only the applicable charges (which is often referred to in our industry as a rollover). Our policies regarding repayment options are based on the Community Financial Services Association of America's ("CFSA") Best Practices and the various applicable state laws, which do not make a consistent distinction among stand-alone, rollover and other types of consecutive transactions.

Currently, we generally limit transactions to the lower of either four rollovers or the applicable state limit. Other than in regard to compliance with this policy, we do not systematically gather, review or analyze whether a transaction may be considered a rollover transaction because this distinction is not consistent under the various applicable statutes and we do not believe this distinction is relevant to our revenue analysis.

If a customer does not return to repay the amount due, the center manager has the discretion to either: (1) commence past-due collection efforts, which typically may proceed for up to 14 days in most states, or (2) deposit the customer's personal check. If the center manager has decided to commence past-due collection efforts in lieu of depositing the customer's personal check, center employees typically contact the customer by telephone or in person to obtain a payment or a promise to pay and attempt to exchange the customer's check for a cashier's check, if funds are available.

If a customer is unable to meet his or her current repayment for an advance, they may qualify for an extended payment plan ("Payment Plan"). In most states, the terms of our Payment Plan conform to the CFSA's Best Practices and guidelines. Certain states have specified their own terms and eligibility requirements for Payment Plans. Generally, a customer may enter into a Payment Plan for no additional fee once every twelve months and the Payment Plan will call for scheduled payments that coincide with the customer's next four paydays. In some states, a customer may enter into a Payment Plan more frequently. We will not engage in collection efforts while a customer is enrolled in a Payment Plan. If a customer misses a scheduled payment under a Payment Plan, center personnel may resume normal collection procedures. We do not offer a Payment Plan for installment loans, nor does the third-party lender in Texas offer a Payment Plan for advances to its customers.

     Selected Operating Data

    The following table presents key operating data for our business:

                                       Three Months Ended           Six Months Ended
                                            June 30,                    June 30,
                                       2007          2008          2007          2008
  Number of centers open at end
  of period                               2,909         2,856         2,909         2,856
  Number of customers served-all
  credit products (thousands)               881           820         1,097         1,042
  Number of payday cash advances
  originated (thousands)                  2,936         2,864         5,640         5,645
  Aggregate principal amount of
  payday cash advances originated
  (thousands)                       $ 1,045,306   $ 1,045,174   $ 2,013,534   $ 2,065,964
  Average amount of each payday
  cash advance originated           $       356   $       365   $       357   $       366
  Average charge to customers for
  providing and processing a
  payday cash advance               $        56   $        56   $        55   $        56
  Average duration of a payday
  cash advance (days)                      16.4          16.7          16.4          16.7
  Average number of lines of
  credit outstanding during the
  period (thousands) (1)                     24             -            24             -
  Average amount of aggregate
  principal on lines of credit
  outstanding during the period
  (thousands) (1)                   $    10,185   $         -   $    10,193   $         -
  Average principal amount on
  each line of credit outstanding
  during the period (1)             $       433   $         -   $       428   $         -
  Number of installment loans
  originated (thousands)                      9             8            15            14
  Aggregate principal amount of
  installment loans originated
  (thousands)                       $     3,812   $     4,049   $     6,157   $     6,374
  Average principal amount of
  each installment loan
  originated                        $       410   $       482   $       412   $       460
  Average charge to customers for
  providing and processing an
  installment loan (2)              $       562   $       118   $       565   $       497


--------------------------------------------------------------------------------
   º (1)

º (2)
º We modified the terms of our installment loans in late March 2008. Due to these changes and the short period we have been offering installment loans under the modified terms, the average charge between periods is not comparable.

Our revenues consist of fees and/or interest paid to us directly by our customers. Our expenses relate primarily to the operation of our centers. These expenses include salaries and related payroll costs, occupancy expense related to our leased centers, center depreciation expense, advertising expense and other center expenses that consist principally of costs related to center closings, communications, delivery, supplies, travel, bank charges, various compliance and collection costs and costs associated with theft.

The effective income tax rate as a percentage of income before income taxes was 40.2% and 43.8% for the three months ended June 30, 2007 and 2008, respectively. The effective income tax rate as a percentage of income before income taxes was 41.3% and 42.9% for the six months ended June 30, 2007 and 2008, respectively. The increase in the current year tax rate is primarily due to losses from our foreign operations and an increase in non-deductible expenses for the three and six months ended June 30, 2008.

During the last few years, legislation that prohibits or severely restricts payday cash advances and similar services has been introduced or adopted in a number of states, and we expect that trend to continue in other states for the foreseeable future. For example, legislation has been adopted recently in Virginia and New Hampshire that will require us to change our product offerings. If we are able to develop legally-viable alternative products, we will likely incur a reduction in our revenues and profitability in those states. Further, legislation permitting payday cash advances in certain states, such as Arizona, is scheduled to expire over the next few years. This legislation may not be renewed or could be modified in a manner that effects our operations negatively. At any point in time, we are refining our product offerings and developing new products or business models to address recent or anticipated legislative and regulatory changes. Some of these legislative and regulatory changes may result in our discontinuing operations in a state, while other changes may result in less significant short- or long-term changes, interruptions in revenues, and lower operating margins. Until and unless we are able to develop legally-viable alternative products, we generally cannot estimate in advance the actual effect of operational changes we make in response to legislative and regulatory changes.

In 2006, we began providing check-cashing services to customers in Arkansas pursuant to the Arkansas Check Cashers Act. In March 2008, the Attorney General of Arkansas distributed letters to 60 companies operating under the Check Cashers Act. The letter demanded that we cease and desist offering deferred presentment transactions within the state of Arkansas. Although we are defending the legality of our check-cashing operations in other litigation in Arkansas, we have voluntarily cooperated with the Attorney General's demands. We believe we have strictly complied with the Check Cashers Act while operating in Arkansas. We now offer consumer loans for personal, family, and household purposes at interest rates below the usury cap and continue to offer check cashing services from all centers located in Arkansas. We believe our operations in Arkansas will be economically viable on a going-forward basis.

For the three months ended June 30, 2007 and 2008, 0.8% and 0.5%, respectively, of our total revenues were generated from our operations in Arkansas. For the six months ended June 30, 2007 and 2008, 0.8% and 0.7%, respectively, of our total revenues were generated from our operations in

Arkansas. The following is a summary of financial information for our operations in Arkansas for the three and six months ended June 30, 2007 and 2008 (in thousands):

                                       Three Months Ended       Six Months Ended
                                            June 30,                June 30,
                                        2007         2008        2007       2008
        Total revenues                $   1,426     $   822    $   2,709   $ 2,351
        Total center expenses             1,135       1,398        2,161     2,749

        Center gross profit (loss)    $     291     $  (576 )  $     548   $  (398 )

Included in total center expenses for the three and six months ended June 30, 2008 are charges of approximately $248,000 and $485,000, respectively, for the write down of receivables related to the change in our operations in Arkansas.

In June 2008, the Governor of Ohio signed into law a bill that would cap interest rates on payday loans and limit the number of advances a customer may take in any one year. This law is scheduled to become effective on September 1, 2008. If our legal challenges and ballot initiatives are not successful in delaying or defeating this law and this law becomes effective, we do not expect it to be economically viable for us to continue operations in Ohio. Presently, we continue to serve our existing customers who are in good standing.

For the three months ended June 30, 2007 and 2008, 9.4% and 8.3%, respectively, of our total revenues were generated from our operations in Ohio. For the six months ended June 30, 2007 and 2008, 9.3% and 8.8%, respectively, of our total revenues were generated from our operations in Ohio. The following is a summary of financial information for our operations in Ohio for the three and six months ended June 30, 2007 and 2008 (in thousands):

                                     Three Months Ended       Six Months Ended
                                          June 30,                June 30,
                                      2007         2008       2007        2008
           Total revenues           $   16,316   $ 13,415    $ 31,756   $ 28,967
           Total center expenses        11,250     10,563      20,799     21,625

           Center gross profit      $    5,066   $   2852    $ 10,957   $  7,342

If it is not economically viable to continue operations in Ohio and we decide to close our Ohio centers our estimated range of closing costs, including severance, center tear-down costs, lease termination costs and the write-down of fixed assets would be approximately $6.9 million to $18.5 million. The collectibility of advances and fees receivable in Ohio would most likely be impaired. As of June 30, 2008, the net receivable balance in Ohio was approximately $17.4 million. The Company has not quantified the amount of goodwill impairment, if any, that would result from the cessations of operations in Ohio.

Closing of Operations in New Mexico. Legislation in New Mexico became effective in 2007 that limits fees and interest on all consumer loans and gives borrowers a 130 day interest-free and fee-free extension. As a result of this legislation, we determined that it was not economically viable to continue operating in New Mexico and we expect to close the remaining nine New Mexico centers during the third quarter of 2008.

                                       Three Months Ended        Six Months Ended
                                            June 30,                 June 30,
                                      2007          2008          2007        2008
       Total revenues                $    528     $      124    $   1,068    $  224
       Total center expenses              455            318          890       649

       Center gross profit (loss)    $     73     $     (194 )  $     178    $ (425 )

Closing of Operations in Pennsylvania. In June 2006, we began offering the Advance America Choice-Line of Credit ("Choice-Line") in Pennsylvania. The Choice-Line product allowed customers access to up to $500 in credit for which we charged a monthly participation fee plus interest on outstanding loan balances. In July 2007, an unfavorable ruling was issued by the Commonwealth Court of Pennsylvania directing our subsidiary operating in Pennsylvania to immediately suspend its operations. See "Item 1. Financial Statements-Notes to Interim Unaudited Consolidated Financial Statements-Note 5. Commitments and Contingencies." During the third and fourth quarters of 2007, we closed all of our remaining centers in Pennsylvania.

The following is a summary of financial information for our operations in Pennsylvania for the three and six months ended June 30, 2007 and 2008 (in thousands):

                                     Three Months Ended       Six Months Ended
                                          June 30,                June 30,
                                       2007         2008       2007        2008
           Total revenues           $    10,770    $    -    $   21,814    $   -
           Total center expenses          5,957      (309 )      11,254      (16 )

           Center gross profit      $     4,813    $  309    $   10,560    $  16

Closing of Operations in Oregon. Legislation in Oregon became effective in 2007 that limits fees and interest on all consumer loans. As a result of this legislation, we determined that it was no longer economically viable to continue to operate in Oregon and we closed all of our remaining Oregon centers in the fourth quarter of 2007.

The following is a summary of financial information for our operations in Oregon for the three and six months ended June 30, 2007 and 2008 (in thousands):

                                       Three Months Ended       Six Months Ended
                                            June 30,                June 30,
                                         2007         2008       2007        2008
        Total revenues                $     2,079     $   -    $    4,068    $   7
        Total center expenses               1,886        17         3,943       70

        Center gross profit (loss)    $       193     $ (17 )  $      125    $ (63 )

During the six months ended June 30, 2008, we acquired two centers in the United Kingdom for an aggregate purchase price, including transaction-related costs, of approximately $0.8 million in cash and an increase in goodwill of approximately $0.7 million.

     Centers

    The following table illustrates the composition of our center network at
December 31, 2007 and June 30, 2008:

                                        December 31,     June 30,
                  State                     2007           2008
                  Alabama                         145          145
                  Arizona                          56           56
                  Arkansas                         30           30
                  California                      286          291
                  Colorado                         72           70
                  Delaware                         15           16
                  Florida                         261          260
                  Idaho                            11           11
                  Illinois                         81           81
                  Indiana                         117          116
                  Iowa                             36           36
                  Kansas                           59           59
                  Kentucky                         42           43
                  Louisiana                        85           87
                  Michigan                        150          151
                  Mississippi                      61           61
                  Missouri                         90           91
                  Montana                           7            6
                  Nebraska                         24           24
                  Nevada                           14           14
                  New Hampshire                    24           24
                  New Mexico                       10            9
                  North Dakota                      8            8
                  Ohio                            244          246
                  Oklahoma                         65           68
                  Rhode Island                     18           21
                  South Carolina                  136          138
                  South Dakota                     12           12
                  Tennessee                        63           63
                  Texas                           256          255
                  Utah                              6            6
                  Virginia                        150          151
                  Washington                      103          103
                  Wisconsin                        66           69
                  Wyoming                          10           11

                  Total United States           2,813        2,832
                  Canada                            7           10
                  United Kingdom                   12           14

                  Total                         2,832        2,856

We opened 67 and 9 new centers during the three months ended June 30, 2007 and 2008, respectively. We opened 106 and 36 new centers during the six months ended June 30, 2007 and 2008, respectively.

Closed centers

We closed 30 and 8 centers during the three months ended June 30, 2007 and 2008, respectively. We closed 51 and 14 centers during the six months ended June 30, 2007 and 2008, respectively. The expenses related to closing centers typically include the undepreciated costs of fixtures and signage that cannot be moved and reused at another center, moving costs, severance payments and any lease cancellation costs. We recorded expenses related to center closures of approximately $0.3 million and $0.2 million in the three months ended June 30, 2007 and 2008, respectively. We recorded expenses related to center closures of approximately $0.9 million and $0.8 million in the six months ended June 30, 2007 and 2008, respectively.

Critical Accounting Policies and Use of Estimates

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of our results of operations and financial condition in the preparation of our financial statements in conformity with generally accepted accounting principles in the United States ("GAAP"). We evaluate these estimates on an ongoing basis and we base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results could vary from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect the more significant estimates and assumptions used in the preparation of our financial . . .