UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2008		Commission File No. 000-19424

EZCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware		74-2540145
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1901 Capital Parkway
Austin, Texas 78746
(Address of principal executive offices)
Registrant’s telephone number: (512) 314-3400

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. Yes þ No o

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by one record holder who is an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.

As of June 30, 2008, 38,470,731 shares of the registrant’s Class A Non-voting Common Stock, par value $.01 per share and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share were outstanding.

 

 

EZCORP, INC.
INDEX TO FORM 10-Q

				Page
PART I. FINANCIAL INFORMATION
		Item 1. Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets as of June 30, 2008, June 30, 2007 and September 30, 2007			1
		Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2008 and 2007			2
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2008 and 2007			3
		Notes to Interim Condensed Consolidated Financial Statements			4
		Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
		Item 3. Quantitative and Qualitative Disclosures about Market Risk			32
		Item 4. Controls and Procedures			33
PART II. OTHER INFORMATION
		Item 1. Legal Proceedings			34
		Item 1A. Risk Factors			34
		Item 5. Other Information			34
		Item 6. Exhibits			35
SIGNATURE					36
EXHIBIT INDEX					37
CERTIFICATIONS
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I

Item 1.		Financial Statements

Condensed Consolidated Balance Sheets

		June 30,				June 30,				September 30,
		2008				2007				2007
		(Unaudited)				(Unaudited)
		(In thousands)
Assets:
Current assets:
Cash and cash equivalents		$	29,812			$	31,686			$	22,533
Pawn loans			68,022				58,053				60,742
Payday loans, net			6,598				4,514				4,814
Pawn service charges receivable, net			10,061				8,150				10,113
Signature loan fees receivable, net			5,086				5,439				5,992
Inventory, net			39,444				33,641				37,942
Deferred tax asset, net			9,007				7,344				8,964
Federal income taxes receivable			454				—				—
Prepaid expenses and other assets			5,622				5,197				6,146
Total current assets			174,106				154,024				157,246
Investment in unconsolidated affiliate			37,248				21,250				35,746
Property and equipment, net			38,661				31,895				33,806
Deferred tax asset, non-current			5,620				4,536				4,765
Goodwill			24,779				16,211				16,211
Other assets, net			5,585				3,448				3,412
Total assets		$	285,999			$	231,364			$	251,186
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable and other accrued expenses		$	24,120			$	21,658			$	25,592
Customer layaway deposits			2,254				1,888				1,988
Federal income taxes payable			—				1,255				4,795
Total current liabilities			26,374				24,801				32,375
Deferred gains and other long-term liabilities			2,909				2,977				2,886
Commitments and contingencies
Stockholders’ equity:
Preferred Stock, par value $.01 per share; 5 million shares authorized; none issued and outstanding			—				—				—
Class A Non-voting Common Stock, par value $.01 per share; 50 million shares authorized; 38,497,830 issued and 38,470,731 outstanding at June 30, 2008; 38,356,436 issued and 38,329,337 outstanding at June 30, 2007; 38,363,176 issued and 38,336,077 outstanding at September 30, 2007			385				383				383
Class B Voting Common Stock, convertible, par value $.01 per share; 3 million shares authorized; 2,970,171 issued and outstanding			30				30				30
Additional paid-in capital			134,598				130,236				131,098
Cumulative effect of adopting a new accounting principle			(106	)			—				—
Retained earnings			118,245				70,692				81,847
			253,152				201,341				213,358
Treasury stock, at cost (27,099 shares)			(35	)			(35	)			(35	)
Accumulated other comprehensive income			3,599				2,280				2,602
Total stockholders’ equity			256,716				203,586				215,925
Total liabilities and stockholders’ equity		$	285,999			$	231,364			$	251,186

See Notes to Condensed Consolidated Financial Statements (unaudited).

Condensed Consolidated Statements of Operations (Unaudited)

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(In thousands, except per share amounts)
Revenues:
Sales		$	53,635			$	42,676			$	170,472			$	141,688
Pawn service charges			22,691				16,978				67,384				51,496
Signature loan fees			31,223				27,024				94,917				74,132
Other			521				315				1,228				1,007
Total revenues			108,070				86,993				334,001				268,323
Cost of goods sold			31,460				25,421				101,732				85,618
Net revenues			76,610				61,572				232,269				182,705
Operating expenses:
Operations			38,593				31,595				113,185				94,087
Signature loan bad debt			8,545				10,142				24,847				19,086
Administrative			9,807				8,033				29,541				23,528
Depreciation and amortization			3,081				2,495				9,027				7,194
Total operating expenses			60,026				52,265				176,600				143,895
Operating income			16,584				9,307				55,669				38,810
Interest income			(165	)			(618	)			(359	)			(1,499	)
Interest expense			72				67				228				214
Equity in net income of unconsolidated affiliate			(997	)			(720	)			(3,162	)			(2,185	)
(Gain) / loss on sale / disposal of assets			284				(155	)			527				(131	)
Other			11				—				11				—
Income before income taxes			17,379				10,733				58,424				42,411
Income tax expense			6,552				3,971				22,026				15,692
Net income		$	10,827			$	6,762			$	36,398			$	26,719
Net income per common share:
Basic		$	0.26			$	0.16			$	0.88			$	0.65
Diluted		$	0.25			$	0.16			$	0.84			$	0.62
Weighted average shares outstanding:
Basic			41,419				41,282				41,380				40,943
Diluted			43,325				43,482				43,269				43,393

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

Condensed Consolidated Statements of Cash Flows (Unaudited)

		Nine Months Ended
		June 30,
		2008				2007
		(In thousands)
Operating Activities:
Net income		$	36,398			$	26,719
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			9,027				7,194
Payday loan loss provision			5,666				3,316
Deferred taxes			(856	)			(787	)
Net (gain)/loss on sale or disposal of assets			527				(131	)
Share-based compensation			2,826				2,726
Income from investment in unconsolidated affiliate			(3,162	)			(2,185	)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net			1,196				(432	)
Inventory, net			(120	)			407
Prepaid expenses, other current assets, and other assets, net			271				(1,160	)
Accounts payable and accrued expenses			(1,327	)			(951	)
Customer layaway deposits			198				(79	)
Deferred gains and other long-term liabilities			(46	)			(272	)
Excess tax benefit from stock-based compensation			(352	)			(895	)
Federal income taxes			(5,003	)			2,756
Net cash provided by operating activities			45,243				36,226
Investing Activities:
Pawn loans made			(187,831	)			(150,656	)
Pawn loans repaid			102,841				80,530
Recovery of pawn loan principal through sale of forfeited collateral			80,751				69,824
Payday loans made			(57,449	)			(32,708	)
Payday loans repaid			49,999				27,427
Additions to property and equipment			(13,094	)			(9,234	)
Acquisitions, net of cash acquired			(15,467	)			(23,201	)
Dividends from unconsolidated affiliate			1,745				1,274
Proceeds from sale of assets			—				200
Net cash used in investing activities			(38,505	)			(36,544	)
Financing Activities:
Proceeds from exercise of stock options and warrants			189				1,453
Excess tax benefit from stock-based compensation			352				895
Debt issuance costs			—				(283	)
Net cash provided by financing activities			541				2,065
Change in cash and equivalents			7,279				1,747
Cash and equivalents at beginning of period			22,533				29,939
Cash and equivalents at end of period		$	29,812			$	31,686
Non-cash Investing and Financing Activities:
Pawn loans forfeited and transferred to inventory		$	81,115			$	66,521
Foreign currency translation adjustment		$	(997	)		$	(1,055	)
Issuance of common stock to 401(k) plan		$	135			$	27
Cumulative effect of adopting a new accounting principle		$	106			$	—

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
June 30, 2008

Note A: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Management has included all adjustments it considers necessary for a fair presentation. These adjustments are of a normal, recurring nature except for those related to an acquired business (described in Note C) and the adoption of a new accounting principle for uncertain tax positions (described in Note K). The accompanying financial statements should be read with the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2007. The balance sheet at September 30, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period balances have been reclassified to conform to the current presentation.

Our business is subject to seasonal variations, and operating results for the three and nine-month periods ended June 30, 2008 (the “current quarter” and “current year-to-date period”) are not necessarily indicative of the results of operations for the full fiscal year.

Note B: Significant Accounting Policies

CONSOLIDATION: The consolidated financial statements include the accounts of EZCORP, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. We account for our interest in Albemarle & Bond Holdings, plc using the equity method.

PAWN LOAN AND SALES REVENUE RECOGNITION: We record pawn service charges using the interest method for all pawn loans we believe to be collectible. We base our estimate of collectible loans on several factors, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following two to three months. Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our earnings and financial condition. If a pawn loan is not repaid, we value the forfeited collateral (inventory) at the lower of cost (pawn loan principal) or market (net realizable value) of the property. We record sales revenue and the related cost when this inventory is sold.

CREDIT SERVICE REVENUE RECOGNITION: We earn credit service fees when we assist customers in obtaining a loan from unaffiliated lenders. We initially defer recognition of the fees we expect to collect, net of direct expenses, and recognize that deferred net amount over the life of the related loans. We reserve the percentage of credit service fees we expect not to collect. Accrued fees related to defaulted loans reduce credit service fee revenue upon loan default, and increase credit service fee revenue upon collection. Credit service revenue is included in “Signature loan fees” on our statements of operations.

CREDIT SERVICE BAD DEBT: We issue letters of credit to enhance the creditworthiness of our credit service customers seeking loans from unaffiliated lenders. The letters of credit assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal and accrued interest owed it by the borrowers plus any insufficient funds fee. Although amounts paid under letters of credit may be collected later, we charge those amounts to signature loan bad debt upon default. We record recoveries under the letters of credit as a reduction of bad debt at the time of collection. After attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company as another method of recovery. We account for the sale of defaulted accounts in the same manner as internal collections of defaulted accounts.

The majority of our credit service customers obtain short-term loans with a single maturity date. These short-term loans, with maturity dates averaging about 18 days, are considered defaulted if they have not been repaid or renewed by the maturity date. Other credit service customers obtain installment loans with a series of payments due over as

much as a five-month period. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire loan is considered defaulted.

CREDIT SERVICE ALLOWANCE FOR LOSSES: We also provide an allowance for losses we expect to incur under letters of credit for loans that have not yet matured. The allowance is based on recent loan default experience adjusted for seasonal variations. It includes all amounts we expect to pay to the unaffiliated lenders upon loan default, including loan principal, accrued interest, and insufficient funds fees, net of the amounts we expect to collect from borrowers (“Expected LOC Losses”). Changes in the allowance are charged to signature loan bad debt expense. We include the balance of Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheet. At June 30, 2008, the allowance for Expected LOC Losses was $1.3 million. At that date, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none was collected, was $23.7 million. This amount includes principal, interest, and insufficient funds fees. Based on the expected loss and collection percentages, we also provide an allowance for the credit service fees we expect not to collect, and charge changes in this allowance to signature loan fee revenue.

PAYDAY LOAN REVENUE RECOGNITION: We accrue fees in accordance with state laws on the percentage of payday loans we believe to be collectible. Accrued fees related to defaulted loans reduce fee revenue upon loan default, and increase fee revenue upon collection. Payday loan fee revenue is included in “Signature loan fees” on our statements of operations. Loan terms are generally less than 30 days, averaging about 18 days.

PAYDAY LOAN BAD DEBT: We consider a loan defaulted if it has not been repaid or renewed by the maturity date. Although defaulted loans may be collected later, we charge the loan principal to signature loan bad debt upon default, leaving only active loans in the reported balance. We record collections of principal as a reduction of signature loan bad debt when collected. After attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company as another method of recovery. We account for the sale of defaulted accounts in the same manner as internal collections of defaulted accounts.

PAYDAY LOAN ALLOWANCE FOR LOSSES: We also provide an allowance for losses on payday loans that have not yet matured and related fees receivable, based on recent loan default experience adjusted for seasonal variations. We charge any changes in the principal valuation allowance to signature loan bad debt. We record changes in the fee receivable valuation allowance to signature loan fee revenue.

INVENTORY: If a pawn loan is not redeemed, we record the forfeited collateral at cost. We do not record loan loss allowances or charge-offs on the principal portion of pawn loans, as they are fully collateralized. In order to state inventory at the lower of cost (specific identification) or market (net realizable value), we record an allowance for shrinkage and excess, obsolete, or slow-moving inventory. The allowance is based on the type and age of merchandise and recent sales trends and margins. At June 30, 2008, the inventory valuation allowance was $4.3 million, or 9.8% of gross inventory. We record changes in the inventory valuation allowance as cost of goods sold.

INTANGIBLE ASSETS: Goodwill and other intangible assets having indefinite lives are not subject to amortization. They are tested for impairment each July 1^st, or more frequently if events or changes in circumstances indicate that they might be impaired. We recognized no impairment of our intangible assets in the current or prior year-to-date periods. We amortize intangible assets with definite lives over their estimated useful lives, using the straight-line method.

PROPERTY AND EQUIPMENT: Property and equipment is shown net of accumulated depreciation of $92.5 million at June 30, 2008.

VALUATION OF TANGIBLE LONG-LIVED ASSETS: We assess the impairment of tangible long-lived assets whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable. The following factors could trigger an impairment review: significant underperformance relative to historical or projected future cash flows; significant changes in the manner of use of the assets or the strategy for the overall business; or significant negative industry trends. When we determine that the net recorded amount of tangible long-lived assets may not be recoverable, we measure impairment based on the excess of the assets’ net recorded amount over the estimated fair value. No impairment of tangible long-lived assets was recognized in the current or prior year-to-date periods.

INCOME TAXES: We calculate the provision for federal income taxes based on our estimate of the effective tax rate for the full fiscal year. As part of the process of preparing the financial statements, we estimate income taxes in each jurisdiction in which we operate. This involves estimating the actual current tax liability and assessing temporary differences in recognition of income for tax and accounting purposes. These differences result in deferred tax assets and liabilities that we include in our balance sheet. We must then assess the likelihood that the deferred tax assets will be recovered from future taxable income. If we determined we would not be able to realize all or part of our net deferred tax assets in the future, an increase to the valuation allowance would be charged to the income tax provision in that period. Likewise, if we determined we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, a decrease to the valuation allowance would decrease the tax provision in that period. We assess the need for a deferred tax asset valuation allowance quarterly. Our valuation allowance was unchanged from the prior year-to-date period at $0.4 million at June 30, 2008.

Effective October 1, 2007, we adopted Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). See Note K for further discussion and related disclosures.

SHARE-BASED COMPENSATION: We account for share-based compensation in accordance with the fair value recognition provisions of SFAS No. 123(R), “Share-based Payment.” We estimate the grant-date fair value of options using the Black-Scholes-Merton option-pricing model and amortize that fair value to compensation expense on a straight-line basis over the options’ vesting periods.

SEGMENTS: We account for our operations in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Effective October 1, 2007, we reorganized to manage our business operations and internal reporting as three reportable segments. Prior to October 1, 2007, we had two reportable segments. See Note L for further discussion and separate data for each segment.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” Among other requirements, SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure about the use of fair value to measure assets and liabilities. We must adopt SFAS No. 157 in our fiscal year ending September 30, 2009. We are currently evaluating the impact, if any, of SFAS No. 157 on our financial position and results of operations. It will not impact our cash flows.

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”) and requires an entity to report in earnings at each subsequent reporting date those unrealized gains and losses on items for which the fair value option has been elected. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS No. 159 will be effective beginning in our fiscal year ending September 30, 2009. We expect adoption of SFAS No. 159 to have no impact on our financial position, results of operations or cash flows.

In December 2007, FASB issued SFAS No. 141, “Business Combinations — Revised” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements for how an acquirer in a business combination: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in an acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase price, and (3) determines what information to disclose to enable users of the consolidated financial statements to evaluate the nature and financial effects of the business combination. Among other changes, SFAS No. 141(R) will require us to immediately expense transaction costs that have historically been included in the purchase price allocation under existing guidance. SFAS No. 141(R) will apply prospectively to any acquisitions we complete on or after October 1, 2009.

In March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures concerning (1) the manner in which an entity uses derivatives (and the reasons it uses them), (2) the manner in which derivatives and related hedged items are accounted for under SFAS No. 133 and interpretations thereof, and (3) the effects that derivatives and related hedged items have on an entity’s financial position, financial performance, and cash flows. We must adopt SFAS No. 161 by January 1, 2009. We do not expect SFAS No. 161 to have a material effect on our financial position, results of operations, or cash flows. We do not currently use any derivative financial instruments.

Note C: Acquisitions

On October 22, 2007, we completed the acquisition of twenty Mexico pawnshops from MMFS Intl., S.A. de C.V, a subsidiary of Mister Money Holdings, Inc. for $15.5 million cash and direct transaction costs. The estimated fair values of the assets acquired and liabilities assumed are preliminary, and may be refined within a year of the acquisition. The initial valuation of $15.3 million increased to $15.5 million in the current year-to-date period due to additional professional fees related to the acquisition. The increase was recorded as an increase to goodwill. In the quarter ended March 31, 2008, we also refined our estimated fair value of the non-compete agreement, which increased the non-compete agreement by $0.4 million, and decreased goodwill by an offsetting amount.

The purchase price is preliminarily allocated as follows, including the adjustments discussed above (in thousands):

Current assets:
Pawn loans		$	3,230
Pawn service charges receivable, net			224
Inventory, net			940
Deferred tax asset			41
Prepaid expenses and other assets			40
Total current assets			4,475
Property and equipment			800
Non-compete agreement			2,000
Goodwill			8,156
Other assets, net			131
Total assets		$	15,562
Liabilities:
Accrued liabilities		$	(30	)
Customer deposits			(65	)
Total liabilities			(95	)
Net assets acquired		$	15,467

The results of the acquired stores have been consolidated with our results since their acquisition. Pro forma results of operations have not been presented because the acquisition was not material in relation to our consolidated financial position or results of operations.

Note D: Earnings Per Share

We compute basic earnings per share on the basis of the weighted average number of shares of common stock outstanding during the period. We compute diluted earnings per share on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options, warrants and restricted stock awards.

Components of basic and diluted earnings per share are as follows (in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Net income (A)		$	10,827			$	6,762			$	36,398			$	26,719
Weighted average outstanding shares of common stock (B)			41,419				41,282				41,380				40,943
Dilutive effect of stock options, warrants, and restricted stock			1,906				2,200				1,889				2,450
Weighted average common stock and common stock equivalents (C)			43,325				43,482				43,269				43,393
Basic earnings per share (A/B)		$	0.26			$	0.16			$	0.88			$	0.65
Diluted earnings per share (A/C)		$	0.25			$	0.16			$	0.84			$	0.62

We excluded anti-dilutive options, warrants and restricted stock grants from the computation of diluted earnings per share because the assumed proceeds upon exercise, as defined by SFAS No. 123(R), were greater than the cost to re-acquire the same number of shares at the average market price, and therefore the effect would be anti-dilutive.

Note E: Investment in Unconsolidated Affiliate

At June 30, 2008, we owned 16,298,875 common shares of Albemarle & Bond Holdings, plc (“A&B”), or approximately 29.95% of A&B’s total outstanding shares. The investment is accounted for using the equity method. Since A&B’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. A&B files interim and annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our current year-to-date period ended June 30, 2008 represents our percentage interest in the results of A&B’s operations from July 1, 2007 to March 31, 2008, including the results of 26 stores A&B acquired from a competitor on July 12, 2007.

On July 1, 2007, A&B discontinued use of U.K. GAAP and adopted International Financial Reporting Standards, or IFRS. The prior year figures shown below are restated on IFRS for comparability to the current year presentation. Below is summarized financial information for A&B’s most recently reported results (using average exchange rates for the periods indicated):

		Six Months Ended December 31,
		2007				2006 (Restated)
		(in thousands)
Turnover (gross revenues)		$	50,660			$	32,669
Gross profit			36,574				23,447
Profit after tax (net income)			7,230				5,239

Note F: Contingencies

Currently and from time to time, we are defendants in legal and regulatory actions. While we cannot determine the ultimate outcome of these actions, after consultation with counsel, we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity. However, we cannot give any assurance as to their ultimate outcome.

In May 2007, the State of Texas filed suit against EZCORP, Inc. and our Texas affiliates in state district court alleging violations of the Texas Identity Theft statute, Deceptive Trade Practices Act, and a provision of the Business and Commerce Code by allegedly failing to safeguard and properly dispose of customers’ sensitive personal information. We are not aware of any customer that was harmed by our alleged actions, and have reviewed and enhanced our information security polices to address the State’s concerns. In cooperation with the Attorney General’s office, we reached a $0.6 million settlement of the lawsuit, and agreed to a permanent injunction regarding the safeguarding and disposal of the customer information. The settlement was recorded as a charge to Administrative Expense in the current quarter.

The Florida Office of Financial Regulation previously filed an administrative action against us alleging that our Florida credit service organization business model used in eleven stores adjoining EZPAWN locations violated state usury law. After a contested administrative hearing, the Office of Financial Regulation issued a cease and desist order against our credit services operations in Florida on June 12, 2008. On June 13, 2008 we filed a Notice of Appeal with the First District Court of Appeal of Florida. To comply with the Office of Financial Regulation’s order pending the final outcome on appeal, we closed our eleven EZMONEY credit service organization stores in Florida. As a result of the closure of these stores, we recorded in the current quarter a loss on disposal of property and equipment of $0.2 million and a $0.5 million charge to EZMONEY Operating Income. The Operating income charge was comprised of a $0.2 million reduction of fees, a $0.3 million bad debt charge for expected increases in loan defaults resulting from the closure, and a $38,000 charge for employee severance payments. We expect no further charges as a result of these store closures.

Note G: Comprehensive Income

Comprehensive income includes net income and other revenues, expenses, gains and losses that are excluded from net income but are included as a component of total stockholders’ equity. Comprehensive income for the current quarter and current fiscal year-to-date periods ended June 30, 2008 was $11.5 million and $37.4 million. For the comparable 2007 periods, comprehensive income was $6.8 million and $27.8 million, respectively. The difference between comprehensive income and net income results primarily from the effect of foreign currency translation adjustments determined in accordance with SFAS No. 52, “Foreign Currency Translation.” At June 30, 2008, the accumulated balance of foreign currency activity excluded from net income was $5.5 million, net of tax of $1.9 million. The net $3.6 million is presented as “Accumulated other comprehensive income” in the current quarter balance sheet.

Note H: Long-term Debt

While we had no debt at June 30, 2008 and 2007, we have a $40.0 million Fourth Amended and Restated Credit Agreement containing a revolving credit facility secured by our assets, which matures October 1, 2009. For any borrowed funds, we may choose a Eurodollar rate plus 100 to 200 basis points (depending on the leverage ratio) or the agent bank’s base rate. On the unused amount of the revolving facility, we pay a commitment fee of 25 to 30 basis points depending on the leverage ratio calculated at the end of each quarter. Terms of the agreement require, among other things, that we meet certain financial covenants. We were in compliance with all covenants at June 30, 2008. Payment of dividends and additional debt are allowed but restricted.

Note I: Goodwill and Other Intangible Assets

The following table presents the balance of each major class of indefinite-lived intangible asset at the specified dates:

		June 30, 2008				June 30, 2007				September 30, 2007
						(In thousands)
Pawn licenses		$	1,549			$	1,549			$	1,549
Goodwill			24,779				16,211				16,211
Total		$	26,328			$	17,760			$	17,760

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:

		June 30, 2008								June 30, 2007								September 30, 2007
		Carrying				Accumulated				Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization				Amount				Amortization
		(In thousands)
License application fees		$	345			$	(311	)		$	345			$	(281	)		$	345			$	(288	)
Real estate finders’ fees			556				(340	)			556				(323	)			556				(327	)
Non-compete agreements			2,998				(712	)			898				(293	)			898				(324	)
Customer list			—				—				20				—				—				—
Total		$	3,919			$	(1,383	)		$	1,819			$	(897	)		$	1,819			$	(959	)

Total amortization expense from definite-lived intangible assets for the current quarter and year-to-date periods ended June 30, 2008 was approximately $146,000 and $414,000. For the comparable 2007 periods, amortization expense was approximately $17,000 and $52,000. The following table presents our estimate of amortization expense for definite-lived intangible assets for each of the five succeeding fiscal years as of October 1, 2007 (in thousands):

Fiscal Year		Amortization Expense
2008		$	571
2009		$	579
2010		$	565
2011		$	558
2012		$	525
Thereafter		$	163

As acquisitions and dispositions occur in the future, amortization expense may vary from these estimates.

Note J: Common Stock, Warrants, Options, and Share-based Compensation

Our income includes the following share-based compensation expense, determined in accordance with the fair value provisions of SFAS No. 123(R):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(in thousands)
Gross compensation cost		$	902			$	1,061			$	2,826			$	2,726
Income tax benefit			(275	)			(322	)			(874	)			(858	)
Share-based compensation cost, net of tax benefit		$	627			$	739			$	1,952			$	1,868

Stock option and warrant exercises resulted in the issuance of 31,114 shares of Class A Non-voting Common Stock in the current quarter for total proceeds of $42,000. For the current year-to-date period, 122,813 shares of Common Stock were issued for total proceeds of $189,000.

Note K: Adoption of a New Accounting Principle for Income Taxes

Effective October 1, 2007, we adopted Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). To be recognized in the financial statements, FIN 48 requires that a tax position is more-likely-than-not to be sustained upon examination, based on the technical merits of the position. In making the determination of sustainability, we must presume the appropriate taxing authority with full knowledge of all relevant information will examine tax positions. FIN 48 also prescribes how the benefit should be measured, including the consideration of any penalties and interest. It requires that the new standard be applied to the balances of tax assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of equity. As a result of the adoption of FIN 48, we recognized a $106,000 liability, including $8,600 of penalties and interest, for unrecognized state income tax benefits net of federal taxes, and recorded this as a cumulative adjustment to our beginning equity at October 1, 2007. This balance has not been adjusted since adoption. We will record future changes in FIN 48 tax liabilities and related interest and penalties as federal income tax expense on our statement of operations and in federal income taxes payable on our balance sheet.

Below is a reconciliation of the beginning and ending unrecognized tax benefits for the current year-to-date period (in thousands):

Unrecognized tax benefits at September 30, 2007		$	—
Addition upon initial adoption of FIN 48 October 1, 2007			106
Additions based on current year tax positions			—
Reductions based on settlements with taxing authorities			—
Reductions due to lapse in statute of limitations			—
Unrecognized tax benefits at June 30, 2008		$	106

We are subject to U.S. and Mexican income taxes as well as to income taxes levied by various other state and local jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years before the tax year ended September 30, 2003. The statutes of limitations related to our recorded liability expire between June 15, 2009 and June 15, 2011.

Note L: Operating Segment Information

We manage our business and internal reporting as three reportable segments with operating results reported separately for each segment. Prior to October 1, 2007, we had two reportable segments. Effective October 1, 2007, we broke our previously immaterial Mexico pawn operations, called Empeño Fácil, into a reportable segment separate from other pawn operations, and have restated prior year amounts on a comparable basis. The three reportable segments are:

	•		EZPAWN U.S. Operations: This segment offers pawn loans and related sales in our 294 U.S. EZPAWN stores and offers signature loans in six U.S. EZMONEY stores and 71 of our U.S. EZPAWN stores.
	•		Empeño Fácil: This segment offers pawn loans and related sales in 30 Empeño Fácil pawn stores in Mexico.
	•		EZMONEY Operations: This segment operates only in the United States and offers signature loans in 455 of our EZMONEY stores.

There are no inter-segment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements. The following tables present operating segment information:

		EZPAWN
		U.S.				Empeño				EZMONEY
		Operations				Fácil				Operations				Consolidated
		(in thousands)
Three Months Ended June 30, 2008:
Revenues:
Sales		$	51,799			$	1,836			$	—			$	53,635
Pawn service charges			21,378				1,313				—				22,691
Signature loan fees			650				—				30,573				31,223
Other			521				—				—				521
Total revenues			74,348				3,149				30,573				108,070
Cost of goods sold			30,301				1,159				—				31,460
Net revenues			44,047				1,990				30,573				76,610
Operating expenses:
Operations expense			24,371				1,059				13,163				38,593
Signature loan bad debt			202				—				8,343				8,545
Total direct expenses			24,573				1,059				21,506				47,138
Store operating income		$	19,474			$	931			$	9,067			$	29,472
Three Months Ended June 30, 2007:
Revenues:
Sales		$	42,623			$	53			$	—			$	42,676
Pawn service charges			16,955				23				—				16,978
Signature loan fees			782				—				26,242				27,024
Other			315				—				—				315
Total revenues			60,675				76				26,242				86,993
Cost of goods sold			25,395				26				—				25,421
Net revenues			35,280				50				26,242				61,572
Operating expenses:
Operations expense			21,481				117				9,997				31,595
Signature loan bad debt			559				—				9,583				10,142
Total direct expenses			22,040				117				19,580				41,737
Store operating income		$	13,240			$	(67	)		$	6,662			$	19,835

		EZPAWN
		U.S.								EZMONEY
		Operations				Empeño Fácil				Operations				Consolidated
		(in thousands)
Nine Months Ended June 30, 2008:
Revenues:
Sales		$	165,749			$	4,723			$	—			$	170,472
Pawn service charges			64,089				3,295				—				67,384
Signature loan fees			2,131				—				92,786				94,917
Other			1,224				4				—				1,228
Total revenues			233,193				8,022				92,786				334,001
Cost of goods sold			98,853				2,879				—				101,732
Net revenues			134,340				5,143				92,786				232,269
Operating expenses:
Operations expense			71,399				2,781				39,005				113,185
Signature loan bad debt			741				—				24,106				24,847
Total direct expenses			72,140				2,781				63,111				138,032
Store operating income		$	62,200			$	2,362			$	29,675			$	94,237
Nine Months Ended June 30, 2007:
Revenues:
Sales		$	141,621			$	67			$	—			$	141,688
Pawn service charges			51,464				32				—				51,496
Signature loan fees			2,486				—				71,646				74,132
Other			1,006				1				—				1,007
Total revenues			196,577				100				71,646				268,323
Cost of goods sold			85,583				35				—				85,618
Net revenues			110,994				65				71,646				182,705
Operating expenses:
Operations expense			64,641				243				29,203				94,087
Signature loan bad debt			1,043				—				18,043				19,086
Total direct expenses			65,684				243				47,246				113,173
Store operating income		$	45,310			$	(178	)		$	24,400			$	69,532

The following table reconciles store operating income, as shown above, to our consolidated income before income taxes:

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(in thousands)
Consolidated store operating income		$	29,472			$	19,835			$	94,237			$	69,532
Administrative expenses			9,807				8,033				29,541				23,528
Depreciation and amortization			3,081				2,495				9,027				7,194
Interest income			(165	)			(618	)			(359	)			(1,499	)
Interest expense			72				67				228				214
Equity in net income of unconsolidated affiliate			(997	)			(720	)			(3,162	)			(2,185	)
Loss on sale / disposal of assets			284				(155	)			527				(131	)
Other			11				—				11				—
Consolidated income before income taxes		$	17,379			$	10,733			$	58,424			$	42,411

     The following table presents separately identified segment assets:

		EZPAWN U.S.								EZMONEY
		Operations				Empeño Fácil				Operations				Consolidated
		(in thousands)
Assets at June 30, 2008:
Pawn loans		$	63,741			$	4,281			$	—			$	68,022
Payday loans, net			421				—				6,177				6,598
Inventory, net			37,303				2,141				—				39,444
Total separately identified recorded segment assets		$	101,465			$	6,422			$	6,177			$	114,064
Brokered loans outstanding from unaffiliated lenders		$	390			$	—			$	22,009			$	22,399
Assets at June 30, 2007:
Pawn loans		$	57,973			$	80			$	—			$	58,053
Payday loans, net			452				—				4,062				4,514
Inventory, net			33,519				122				—				33,641
Total separately identified recorded segment assets		$	91,944			$	202			$	4,062			$	96,208
Brokered loans outstanding from unaffiliated lenders		$	486			$	—			$	21,023			$	21,509
Assets at September 30, 2007:
Pawn loans		$	60,602			$	140			$	—			$	60,742
Payday loans, net			457				—				4,357				4,814
Inventory, net			37,749				193				—				37,942
Total separately identified recorded segment assets		$	98,808			$	333			$	4,357			$	103,498
Brokered loans outstanding from unaffiliated lenders		$	477			$	—			$	22,834			$	23,311

Brokered loans are not recorded as an asset on our balance sheet, as we do not own a participation in the loans made by independent lenders. We monitor the principal balance of these loans, as our credit service fees and bad debt are directly related to their volume due to the letters of credit we issue on these loans. The balance shown above is the gross principal balance of the loans outstanding.

Note M: Subsequent Event

Through a merger agreement, we agreed to acquire 100% of the equity ownership of Value Financial Services, Inc. (“VFS”), a pawn store chain based in Florida, for approximately $110 million. We had filed a registration statement on Form S-3 related to 1,625,015 of our shares to be issued and used as part of the purchase price. VFS terminated the merger agreement on August 9, 2008. As a result, we anticipate recording a $0.9 million charge in the quarter ending September 30, 2008 to expense previously capitalized costs related to the acquisition and the renegotiation of our credit agreement, the completion of which is contingent upon the closing of the VFS acquisition. Also as a result of VFS’ termination of the acquisition, we expect to request that the registration statement be withdrawn and that no additional shares will be issued.

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

The discussion in this section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in this section and throughout this report.

Third Quarter Ended June 30, 2008 vs. Third Quarter Ended June 30, 2007

The following table presents selected, unaudited, consolidated financial data for our three-month periods ended June 30, 2008 and 2007 (the “current quarter” and “prior year quarter”):

		Three Months Ended June 30,								Percentage
		2008				2007				Change
		(in thousands)
Net revenues:
Sales		$	53,635			$	42,676				25.7	%
Pawn service charges			22,691				16,978				33.6	%
Signature loan fees			31,223				27,024				15.5	%
Other			521				315				65.4	%
Total revenues			108,070				86,993				24.2	%
Cost of goods sold			31,460				25,421				23.8	%
Net revenues		$	76,610			$	61,572				24.4	%
Net income		$	10,827			$	6,762				60.1	%

Nine Months Ended June 30, 2008 vs. Nine Months Ended June 30, 2007

The following table presents selected, unaudited, consolidated financial data for our nine-month periods ended June 30, 2008 and 2007 (the current and prior year-to-date periods):

		Nine Months Ended June 30,								Percentage
		2008				2007				Change
		(in thousands)
Net revenues:
Sales		$	170,472			$	141,688				20.3	%
Pawn service charges			67,384				51,496				30.9	%
Signature loan fees			94,917				74,132				28.0	%
Other			1,228				1,007				21.9	%
Total revenues			334,001				268,323				24.5	%
Cost of goods sold			101,732				85,618				18.8	%
Net revenues		$	232,269			$	182,705				27.1	%
Net income		$	36,398			$	26,719				36.2	%

Consolidated signature loan data (combined payday loan and credit service activities) are as follows:

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(Dollars in thousands)
Fee revenue		$	31,223			$	27,024			$	94,917			$	74,132
Bad debt:
Net defaults, including interest on brokered loans			8,054				8,692				23,578				17,353
Insufficient funds fees, net of collections			267				318				862				775
Change in valuation allowance			177				1,059				191				758
Other related costs			47				73				216				200
Net bad debt			8,545				10,142				24,847				19,086
Fee revenue less bad debt		$	22,678			$	16,882			$	70,070			$	55,046
Average signature loan balance outstanding during period (a)		$	27,514			$	23,779			$	28,311			$	22,222
Signature loan balance at end of period (a)		$	28,997			$	26,023			$	28,997			$	26,023
Participating stores at end of period			532				470				532				470
Signature loan bad debt, as a percent of fee revenue			27.4	%			37.5	%			26.2	%			25.7	%
Net default rate (a)(b)			5.0	%			6.1	%			4.8	%			4.6	%

Overview

We lend or provide credit services to individuals who do not have cash resources or access to credit to meet their short-term cash needs. As of June 30, 2008, we offer pawn loans in our 294 domestic EZPAWN stores and 30 Mexico Empeño Fácil stores. Pawn loans are non-recourse loans collateralized by tangible personal property. At these stores, we also sell merchandise, primarily collateral forfeited from our pawn lending operations, to customers looking for good value. In 461 EZMONEY stores and 71 of our domestic EZPAWN stores open June 30, 2008, we offer short-term non-collateralized loans, often called payday loans, or fee-based credit services to customers seeking loans (collectively, “signature loans”).

We manage our business as three segments. The EZPAWN U.S. Operations segment offers pawn related activities in all 294 domestic EZPAWN stores, and offers signature loans in 71 of our domestic EZPAWN stores and six EZMONEY stores. The Empeño Fácil segment offers pawn related activities in 30 Mexico pawn stores. The EZMONEY Operations segment offers signature loans in 455 EZMONEY stores, and accounts for approximately 98% of our signature loan revenues. The following tables present store data by operating segment:

		Three Months Ended June 30, 2008
		EZPAWN U.S. Operations				Empeño Fácil				EZMONEY Operations				Consolidated
Stores in operation:
Beginning of period			300				26				456				782
New openings			—				4				13				17
Acquired			—				—				—				—
Sold, combined, or closed			—				—				(14	)			(14	)
End of period			300				30				455				785
Average number of stores during the period			300				28				459				787

		Nine Months Ended June 30, 2008
		EZPAWN U.S. Operations				Empeño Fácil				EZMONEY Operations				Consolidated
Stores in operation:
Beginning of period			300				4				427				731
New openings			—				6				47				53
Acquired			—				20				—				20
Sold, combined, or closed			—				—				(19	)			(19	)
End of period			300				30				455				785
Average number of stores during the period			300				24				446				770
Composition of ending stores:
EZPAWN — United States			294				—				—				294
Empeño Fácil — Mexico			—				30				—				30
EZMONEY signature loan stores adjoining EZPAWNs			6				—				150				156
EZMONEY signature loan stores — free standing			—				—				305				305
Total stores in operation			300				30				455				785
Total stores offering signature loans			77				—				455				532