UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June~~December 25, 2010

¨	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. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

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):


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

¨ Yes þ 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 ~~June~~December 25, 2010
Class A, Voting Class B, Non-Voting		2,686 Shares 26,860 Shares

THE MONEY TREE INC.

FORM 10-Q

~~June~~December 25, 2010

TABLE OF CONTENTS

Index to Financial Statements

Item No.		~~Page~~	Page
	PART I – FINANCIAL INFORMATION
1	Financial Statements
	Consolidated Balance Sheets as of June 25, 2010 (Unaudited) and September 25, 2009	3
	Consolidated Balance Sheets as of December 25, 2010 (Unaudited) and September 25, 2010		3
	Consolidated Statements of Operations for the three and nine months ended June 25, 2010 and 2009 (Unaudited)	4
	Consolidated Statements of Operations for the three months ended December 25, 2010 and 2009 (Unaudited)		4
	Consolidated Statements of Cash Flows for the nine months ended June 25, 2010 and 2009 (Unaudited)	5
	Consolidated Statements of Cash Flows for the three months ended December 25, 2010 and 2009 (Unaudited)		5
	Notes to Consolidated Financial Statements (Unaudited)	7	6
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19	18
3	Quantitative and Qualitative Disclosures About Market Risk	34	32
4	Controls and Procedures	34	32
	PART II – OTHER INFORMATION
1	Legal Proceedings	35	33
1A	Risk Factors	35	33
2	Unregistered Sales of Equity Securities and Use of Proceeds	35	33
3	Defaults Upon Senior Securities	35	33
4	(Removed and Reserved)	35	33
5	Other Information	35	33
6	Exhibits	35	33

PART I

Item 1 – Financial Statements

The Money Tree Inc. and Subsidiaries

Consolidated Balance Sheets

	June 25, 2010			September 25, 2009
	December 25, 2010			September 25, 2010
	(Unaudited)
Assets
Cash and cash equivalents	$	1,~~360~~124,~~040~~676		$	2,~~921~~115,~~777~~538
Finance receivables, net		3933,~~755~~855,~~925~~425			4735,~~356~~448,~~095~~066
Other receivables		~~464~~510,~~301~~116			~~716~~492,~~661~~696
Inventory		1,~~007~~239,~~331~~537			21,201,~~966~~953
Property and equipment, net		3,~~696~~214,~~429~~218			43,~~226~~369,~~555~~242
Other assets		~~650~~528,~~721~~410			1598,~~831,146~~286
Total assets	$	4640,~~934~~472,~~747~~382		$	5943,~~254~~225,~~200~~781
Liabilities and Shareholders’ Deficit
Liabilities
Accounts payable and other accrued liabilities	$	21,~~091~~906,~~319~~794		$	21,~~489~~835,~~269~~034
Accrued interest payable		1312,~~458~~570,~~094~~377			1312,~~462~~733,~~931~~503
Senior debt		~~447~~216,~~737~~950			~~326~~164,~~517~~625
Variable rate subordinated debentures		6872,~~819~~436,~~538~~562			7371,~~602~~226,~~821~~698
Demand notes		3,~~192~~354,~~427~~953			3,~~146~~174,~~707~~913
Total liabilities		8890,~~009~~485,~~115~~636			9389,~~028~~134,~~245~~773
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		(4251,~~752~~690,~~015~~901	)		(3547,~~451~~586,~~692~~639	)
Total shareholders’ deficit		(4150,~~074~~013,~~368~~254	)		(3345,~~774~~908,~~045~~992	)
Total liabilities and shareholders’ deficit	$	4640,~~934~~472,~~747~~382		$	5943,~~254~~225,~~200~~781

See accompanying notes to consolidated financial statements.

The Money Tree Inc. and Subsidiaries

Consolidated Statements of Operations

	Three months ended June 25,						Nine months ended June 25,
Three months ended December 25,	2010			2009
	2010			2009			2010			2009
	(Unaudited)
	(Unaudited)						(Unaudited)
Interest and fee income	$	2,461,268		$	3,304,672
				(Restated)						(Restated)
Interest expense		(1,760,018	)		(1,809,971	)
Interest and fee income	$	2,845,052		$	3,872,277		$	9,236,616		$	12,172,715
Net interest and fee income before provision for credit losses		701,250			1,494,701
Interest expense		(1,687,079	)		(1,939,546	)		(5,265,680	)		(5,725,612	)
Provision for credit losses		(2,362,223	)		(2,927,709	)
Net interest and fee income before provision for credit losses		1,157,973			1,932,731			3,970,936			6,447,103
Net loss from interest and fees after provision for credit losses		(1,660,973	)		(1,433,008	)
Provision for credit losses		(703,524	)		(2,641,942	)		(2,993,497	)		(7,532,463	)
Insurance commissions		1,276,270			1,753,864
Net revenue (loss) from interest and fees after provision for credit losses		454,449			(709,211	)		977,439			(1,085,360	)
Commissions from motor club memberships from company owned by related parties		375,979			454,326
Insurance commissions		1,146,861			1,818,195			3,916,997			6,649,854
Delinquency fees		279,462			334,586
Commissions from motor club memberships from company owned by related parties		279,907			479,391			1,041,465			1,268,941
Other income		54,931			122,736
Delinquency fees		288,452			364,710			1,020,557			1,199,443
Net revenue before retail sales		325,669			1,232,504
Other income		78,665			117,817			342,600			451,642
Retail sales		2,287,566			3,427,973
Net revenue before retail sales		2,248,334			2,070,902			7,299,058			8,484,520
Cost of sales		(1,491,720	)		(2,100,071	)
Retail sales		1,810,228			3,946,598			7,927,868			12,389,036
Gross margin on retail sales		795,846			1,327,902
Cost of sales		(1,114,053	)		(2,505,061	)		(4,895,239	)		(8,004,609	)
Net revenues		1,121,515			2,560,406
Gross margin on retail sales		696,175			1,441,537			3,032,629			4,384,427
Operating expenses
Net revenues		2,944,509			3,512,439			10,331,687			12,868,947
Personnel expense		(2,773,921	)		(3,705,940	)
Operating expenses
Facilities expense		(960,673	)		(1,042,087	)
Personnel expense		(2,872,421	)		(3,942,382	)		(10,017,032	)		(12,111,242	)
General and adminstrative expenses		(577,081	)		(670,799	)
Facilities expense		(903,500	)		(955,614	)		(2,896,650	)		(2,971,855	)
Other operating expenses		(840,266	)		(905,453	)
General and adminstrative expenses		(543,047	)		(791,917	)		(1,806,969	)		(2,422,799	)
Total operating expenses		(5,151,941	)		(6,324,279	)
Other operating expenses		(969,300	)		(1,203,066	)		(2,930,410	)		(4,322,056	)
Net operating loss		(4,030,426	)		(3,763,873	)
Total operating expenses		(5,288,268	)		(6,892,979	)		(17,651,061	)		(21,827,952	)
Gain (loss) on sale/disposal of property and equipment		(73,836	)		15,721
Net operating loss		(2,343,759	)		(3,380,540	)		(7,319,374	)		(8,959,005	)
Loss before income tax benefit		(4,104,262	)		(3,748,152	)
Gain on sale of property and equipment		4,909			465			19,051			84,958
Income tax benefit		-			-
Loss before income tax expense		(2,338,850	)		(3,380,075	)		(7,300,323	)		(8,874,047	)
Net loss	$	(4,104,262	)	$	(3,748,152	)
Income tax expense		-			-			-			-
Net loss per common share, basic and diluted	$	(138.91	)	$	(126.86	)
Net loss	$	(2,338,850	)	$	(3,380,075	)	$	(7,300,323	)	$	(8,874,047	)
Weighted average shares outstanding		29,546			29,546
Net loss per common share, basic and diluted	$	(79.16	)	$	(114.40	)	$	(247.08	)	$	(300.35	)
Weighted average shares outstanding		29,546			29,546			29,546			29,546

See accompanying notes to consolidated financial statements.

The Money Tree Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Nine months ended June 25,	2010			2009
Three months ended December 25,	2010			2009
	(Unaudited)
				(Restated)
Cash flows from operating activities
Net loss	$	(74,~~300~~104,~~323~~262	)	$	(83,~~874~~748,~~047~~152	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for credit losses		2,~~993~~362,~~497~~223			72,~~532~~740,~~463~~331
Depreciation		~~572~~173,~~490~~717			~~670~~197,~~073~~967
Amortization		~~254~~-			~~3,452~~254
Gain on sale of property and equipment		(19,051	)		(84,958	)
Loss (gain) on sale/disposal of property and equipment		73,836			(15,721	)
Change in assets and liabilities:
Other receivables		~~252~~(17,~~360~~420	)		(20112,~~319~~803	)
Inventory		1(37,~~194,635~~584	)		~~611~~712,~~123~~902
Other assets		169,~~180,171~~876			~~115~~41,~~830~~958
Accounts payable and other accrued liabilities		~~(397~~71,~~950~~760	)		~~(902~~141,~~819~~662	)
Accrued interest payable		(4163,~~837~~126	)		(1130,~~120,008~~546	)
Net cash used in operating activities		(1,~~528~~570,~~754~~980	)		(2172,~~069,210~~148	)
Cash flows from investing activities
Finance receivables originated		(3210,~~526~~058,~~417~~822	)		(4513,~~583~~373,~~370~~253	)
Finance receivables repaid		379,~~133~~289,~~090~~240			4612,~~305~~614,~~444~~033
Purchase of property and equipment		(~~123~~92,~~944~~529	)		(~~568~~77,~~779~~736	)
Proceeds from sale of property and equipment		~~100,631~~-			~~487~~24,~~215~~800
Net cash provided by investing activities		4,583,360			640,510
Net cash used in investing activities		(862,111	)		(812,156	)
Cash flows from financing activities
Net proceeds (repayments) on:
Senior debt		~~121~~52,~~220~~325			~~176~~(273,~~746~~572	)
Demand notes		45180,~~720~~040			~~(640~~466,~~012~~056	)
Proceeds-variable rate subordinated debentures		43,~~693~~769,~~866~~172			53,~~141~~611,~~731~~092
Repayments-variable rate subordinated debentures		(92,~~477~~559,~~149~~308	)		(133,~~366~~939,~~336~~348	)
Net cash used in financing activities		(4,616,343	)		(8,687,871	)
Net cash provided by (used in) financing activities		1,442,229			(135,772	)
Net change in cash and cash equivalents		(1990,~~561,737~~862	)		(101,~~116~~120,~~571~~076	)
Cash and cash equivalents, beginning of period		2,~~921~~115,~~777~~538			122,~~541~~921,~~302~~777
Cash and cash equivalents, end of period	$	1,~~360~~124,~~040~~676		$	21,~~424~~801,~~731~~701
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	1,902,692		$	1,920,065

See accompanying notes to consolidated financial statements.

The Money Tree Inc. and Subsidiaries

~~Consolidated~~Notes ~~Statements~~to ofConsolidated ~~Cash~~Financial ~~Flows~~Statements (~~continued~~Unaudited)

Nine months ended June 25,	2010		2009
	(Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	5,209,161	$	6,784,264

NOTE 1 – BASIS OF PRESENTATION

~~See~~The ~~accompanying~~consolidated ~~notes~~financial statements of The Money Tree Inc., a Georgia corporation, and all of its subsidiaries (collectively, the “Company”) included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the United States (U.S.) Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) 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 fiscal year 2010 Annual Report on Form 10-K.

The consolidated financial statements include the accounts of the Company 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 GAAP for the interim periods reported. The results of operations for the three months ended December 25, 2010 and 2009 are not necessarily indicative of the results for the full fiscal year.

Certain reclassifications have been made to the prior period financial statements to conform with the method of presentation used in fiscal year 2011.

NOTE 2 – NATURE OF BUSINESS

The business of The Money Tree Inc. and subsidiaries consists of: the operation of finance company offices in 91 locations throughout Georgia, Alabama, Louisiana and Florida; sales of merchandise (principally furniture, appliances, and electronics) at certain finance company locations; and the operation of two 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 of prepaid telephone service.

The Company’s loan portfolio consists of consumer sales finance contracts receivables, auto sales finance contracts and direct consumer loan receivables. Consumer sales finance contracts receivables consist principally of retail installment sale contracts collateralized primarily by consumer goods sold by our consumer good dealerships, subject to credit approval, in the locations where the Company operates offices. Auto sales finance contracts are motor vehicle installment contracts collateralized by motor vehicles sold by our auto segment dealerships. 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.

The accompanying consolidated 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 operations of the Company reflect continued pressure from an uncertain economy and the negative impact of the turmoil in the credit markets. For the fiscal year ended September 25, 2010, the Company incurred net losses of $12,134,947 and a deficiency in net interest margin (net loss from interest and fees after provision for credit losses) of $851,341. For the three months ended December 25, 2010 and 2009 the Company incurred net losses of $4,104,262 and 3,748,152, respectively. The Company had a deficiency in net interest margin of $1,660,973 and $1,433,008 for the three months ended December 25, 2010 and 2009, respectively. As of December 25, 2010 and September 25, 2010, the Company had a shareholders’ deficit of $50,013,254 and $45,908,992, respectively. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – ~~BASIS~~NATURE OF ~~PRESENTATION~~BUSINESS (CONTINUED)

The ~~consolidated~~Company’s ~~financial~~continuation ~~statements~~as ~~of The Money Tree Inc.,~~ a ~~Georgia~~going ~~corporation,~~concern ~~and~~is ~~all~~dependent ofupon its ~~subsidiaries~~ability ~~(collectively,~~to ~~the “Company”)~~generate ~~included~~sufficient ~~herein~~cash ~~have~~flow ~~been~~to ~~prepared~~meet byits ~~the~~obligations on ~~Company~~a ~~without~~timely ~~audit~~basis, ~~pursuant~~originate tonew ~~the~~loans ~~rules~~ and ~~regulations~~ultimately ofattain ~~the~~successful ~~United States (U~~operations.~~S.)~~ ~~Securities~~The ~~and~~Company ~~Exchange~~has ~~Commission~~closely ~~(SEC).~~monitored ~~Certain information~~ and ~~footnote~~managed ~~disclosure~~its ~~normally included~~liquidity inposition, ~~consolidated~~understanding ~~financial~~that ~~statements~~this ~~prepared~~is inof ~~accordance~~critical ~~with~~importance ~~U.S.~~in ~~generally~~the ~~accepted~~current ~~accounting~~economic ~~principles~~environment; ~~(GAAP)~~however, the ~~have~~current ~~been~~economic ~~omitted.~~environment ~~For~~makes athe ~~description~~cash offorecast ~~significant~~difficult ~~accounting~~to ~~policies~~predict. ~~used~~Therefore, bywe ~~the~~have ~~Company~~substantially incurtailed the ~~preparation~~amount of ~~its consolidated~~funds ~~financial~~we ~~statements,~~have ~~see~~been ~~Note~~loaning 2 to ~~the~~our ~~Consolidated~~customers ~~Financial~~and ~~Statements~~are infocusing ~~the~~on ~~Company’s~~collections ~~fiscal~~to ~~2009~~increase ~~Annual~~cash ~~Report~~flow onand ~~Form~~address ~~10-K/A~~our current cash flow problems.

The ~~consolidated~~recessionary ~~financial~~economy ~~statements~~has ~~include~~negatively ~~the~~impacted ~~accounts~~investor ofconfidence ~~the Company after eliminating all significant intercompany transactions~~ and ~~reflect all normal~~, ~~recurring~~on ~~adjustments~~two ~~which~~occasions ~~are, in~~ during the ~~opinion~~past oftwo ~~management~~years, ~~necessary~~we totemporarily ~~present~~suspended ~~a fair statement of~~ the ~~results~~offering of ~~operations~~our ofdebt ~~the~~securities ~~Company~~to ~~in conformity with GAAP for~~ the ~~interim~~public ~~periods~~while ~~reported.~~we ~~The~~restated ~~results~~previously ofissued ~~operations for~~financial ~~the~~statements ~~three~~to ~~and~~correct ~~nine~~errors ~~months~~detected ~~ended~~in ~~June 25,~~those ~~2010 and 2009 are not necessarily indicative of the results for the full fiscal year~~statements.

~~Restated~~Our ~~Results~~obligations with respect to the debentures and demand notes are governed by the terms of ~~Operations~~indenture agreements with U.S. Bank National Association, as trustee. Under the indentures, in addition to other possible events of default, if we fail to make a payment of principal or interest under any debenture or demand note and this failure is not cured within 30 days, we will be deemed in default. Upon such a default, the trustee or holders of 25% in principal of the outstanding debentures or demand notes could declare all principal and accrued interest immediately due and payable. Since our total assets do not cover these debt payment obligations, we would most likely be unable to make all payments under the debentures or demand notes when due, and we might be forced to cease our operations.

The ~~Company~~average ~~restated~~term ~~its~~of ~~previously~~direct ~~reported~~consumer ~~consolidated~~loans ~~financial~~is ~~information~~less ~~for~~than seven months; therefore, if management anticipates having short-term cash flow problems, we could curtail the ~~three~~amount of funds we loan to our customers and ~~nine~~focus on collections to increase cash flow. During the three months ended ~~June~~December 25, 252010, ~~2009~~the ~~to correct~~Company ~~errors~~tightened inits ~~the~~risk ~~consolidated~~management ~~financial~~controls ~~statements~~ related to ~~the~~new ~~determination~~loans, ofresulting ~~provision~~in ~~for~~a ~~credit~~decrease ~~losses~~in ~~and~~loan ~~net~~originations ~~loss~~of $3.3 Inmillion from ~~addition,~~ the ~~following~~same ~~Notes~~period toin the ~~Consolidated~~prior ~~Financial~~year. ~~Statements~~The ~~contain~~Company’s ~~restated~~continuation ~~consolidated~~as ~~financial~~a ~~data related~~going concern is dependent upon its ability to ~~the~~generate ~~above~~sufficient ~~periods:~~cash 1,flow 2to meet its obligations on a timely basis, 4originate new loans and ~~12.~~to ~~Summarized~~ultimately ~~restated~~attain successful ~~amounts~~operations. ~~for~~Management believes the ~~three~~cash ~~and~~flow ~~nine~~from ~~months~~our ~~ended~~operations ~~June 25,~~coupled ~~2009~~with ~~have~~sales ~~previously~~of ~~been~~our ~~included~~variable inrate ~~the~~subordinated ~~amended~~debentures ~~Annual~~and ~~Report~~subordinated ~~filed~~demand onnotes ~~Form~~will ~~10-K/A~~be onsufficient ~~May 28,~~to ~~2010.~~cover ~~These~~our ~~restated~~liquidity needs and cash flow requirements ~~consolidated~~during ~~financial~~fiscal ~~statements~~year ~~supersede~~2011. However, there can be no assurances that the Company’s ~~previously~~actions ~~issued~~will be successful. The consolidated financial statements ~~reported~~do innot ~~the~~include ~~Company’s~~any ~~Form~~adjustments ~~10-Q~~that ~~filed~~might ~~with~~result from the ~~SEC~~outcome onof ~~August 10,~~this ~~2009~~uncertainty. ~~These changes are summarized below:~~

		As reported			Adjustment			As restated
For the three months ended June 25, 2009
Provision for credit losses	$	(2,506,052	)	$	(135,890	)	$	(2,641,942	)
Net loss	$	(3,244,185	)	$	(135,890	)	$	(3,380,075	)
For the nine months ended June 25, 2009
Provision for credit losses	$	(6,639,178	)	$	(893,285	)	$	(7,532,463	)
Net loss	$	(7,980,762	)	$	(893,285	)	$	(8,874,047	)

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

~~The~~In ~~adjustments~~July to2010, ~~net loss~~the ~~above~~Financial ~~resulted~~Accounting inStandards aBoard ~~corresponding~~(FASB) ~~decrease~~issued inAccounting ~~finance~~Standards ~~receivables~~Update (ASU) No. 2010-20, ~~net~~“Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the ~~accumulated~~Allowance ~~deficit~~for Credit Losses.” The ~~Company~~amendments ~~determined~~to ~~that~~the ~~its~~FASB ~~policy~~Accounting ~~with~~Standards ~~respect~~Codification™ (FASB ASC) will enhance the current disclosure requirements to ~~consumer~~assist ~~bankrupt~~users ~~accounts~~of ~~did~~financial ~~not~~statements ~~sufficiently~~in ~~reserve~~assessing an entity’s credit risk exposure and evaluating the adequacy of an entity’s allowance for ~~loan~~credit losses. atASU 2010-20 requires entities to disclose the ~~time~~nature ~~that customers~~of ~~filed~~credit risk inherent in their finance receivables, the procedure for ~~bankruptcy~~analyzing and assessing credit risk, and ~~thus~~the ~~did~~changes ~~not~~in ~~accurately~~both ~~reflect~~the receivables and the ~~likelihood~~allowance ~~that~~for ~~such~~credit ~~accounts~~losses ~~eventually~~by ~~would~~portfolio besegment ~~charged~~and ~~off~~class. ~~After~~ASU ~~analyzing~~2010-20 ~~its~~is ~~consumer~~effective ~~bankruptcy~~for ~~portfolio,~~interim ~~management~~and ofannual ~~the~~reporting ~~Company~~periods ~~has~~ending ~~decided~~on ~~that~~or ~~consumer~~after ~~bankrupt~~December 15, 2010. We ~~accounts~~adopted ~~should~~this beguidance ~~charged~~for ~~off~~the ~~fully~~quarter ~~(i.e.~~ended ~~removed~~December 25, ~~from~~2010 ~~the~~and ~~loan~~its ~~portfolio)~~adoption ~~within~~did 30not ~~days~~have ~~after~~a ~~receipt~~material ofimpact ~~the~~on ~~notice~~our ofconsolidated ~~bankruptcy~~financial ~~filing~~statements.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 23 – ~~NATURE~~RECENT OFACCOUNTING ~~BUSINESS~~PRONOUNCEMENTS (CONTINUED)

~~The~~In ~~business~~June 2009, ofthe ~~The~~FASB ~~Money~~issued ~~Tree~~revised ~~Inc.~~guidance ~~and~~to ~~subsidiaries~~improve ~~consists~~the reporting for the transfer of: financial assets resulting from (1) practices that have developed since the ~~operation~~issuance of ~~finance~~previous ~~company~~guidance ~~offices~~that inare 93not ~~locations~~consistent ~~throughout Georgia,~~with ~~Alabama,~~the ~~Louisiana~~original intent and ~~Florida;~~key ~~sales~~requirements of ~~merchandise~~that guidance and (~~principally~~2) concerns ~~furniture,~~of ~~appliances,~~financial statement users that many of the financial assets (and ~~electronics~~related obligations) atthat ~~certain~~have ~~finance~~been ~~company~~derecognized ~~locations;~~should ~~and~~continue to be reported in the ~~operation~~financial statements of ~~two~~transferors. ~~used~~These ~~automobile~~revisions ~~dealerships~~to inFASB ~~Georgia.~~ASC ~~The~~860, ~~Company~~“Transfers ~~also~~and ~~earns~~Servicing,” ~~revenues from~~must ~~commissions~~be onapplied ~~premiums~~as ~~written~~of ~~for~~the ~~certain~~beginning ~~insurance~~of ~~products,~~each reporting ~~when~~entity’s ~~requested~~first byannual ~~loan~~reporting ~~customers,~~period asthat anbegins ~~agent~~after November 15, 2009, for ainterim ~~non-affiliated~~periods ~~insurance~~within ~~company.~~that ~~Revenues~~first ~~are~~annual ~~also~~reporting ~~generated~~period ~~from~~and ~~commissions~~for oninterim ~~the~~and ~~sales~~annual ofreporting ~~automobile~~periods ~~club~~thereafter. ~~memberships~~Earlier ~~from~~application is prohibited. aWe ~~company~~adopted ~~owned~~this byguidance ~~related~~on ~~parties~~September 26, 2010 and ~~commissions~~its ~~from~~adoption ~~sales~~did ofnot ~~prepaid~~have ~~telephone~~a ~~service~~material ~~and~~impact ~~prepaid~~on ~~cellular~~our ~~services~~consolidated financial statements.

~~The Company’s~~In ~~loan~~June 2009, ~~portfolio~~the ~~consists~~FASB ofissued ~~consumer~~revised ~~sales~~guidance ~~finance~~to ~~contracts~~improve ~~receivables,~~financial ~~auto~~reporting ~~sales~~by ~~finance~~enterprises ~~contracts~~involved ~~and~~with ~~direct~~variable ~~consumer~~interest ~~loan~~entities ~~receivables.~~and ~~Consumer~~to ~~sales~~provide ~~finance~~more ~~contracts~~relevant ~~receivables~~and ~~consist~~reliable ~~principally~~information ofto ~~retail~~users ~~installment sale~~of ~~contracts~~financial ~~collateralized~~statements. ~~primarily~~These byrevisions ~~consumer~~to ~~goods~~FASB ~~sold~~ASC ~~by our consumer good dealerships~~810, ~~subject to credit approval~~“Consolidation,” inare ~~the~~effective ~~locations~~as ~~where~~of the ~~Company~~beginning ~~operates~~of ~~offices.~~an ~~Auto~~entity’s ~~sales~~first ~~finance~~annual ~~contracts~~reporting ~~receivables~~period ~~are~~that ~~motor~~begins ~~vehicle~~after ~~installment contracts~~November 15, ~~collateralized~~2009, byfor ~~motor~~interim ~~vehicles~~periods ~~sold~~within bythat ~~our~~first annual ~~auto~~reporting ~~segment~~period, ~~dealerships.~~and ~~Direct~~for ~~consumer~~interim ~~loan~~and ~~receivables~~annual ~~are~~reporting ~~loans~~periods ~~originated~~thereafter. ~~directly~~Earlier toapplication ~~customers~~is ~~for~~prohibited. ~~general~~We ~~use,~~adopted ~~which~~this ~~are~~guidance ~~collateralized~~on ~~by existing automobiles or consumer goods~~September 26, or2010 ~~are unsecured.~~and ~~The~~its ~~average~~adoption ~~term~~did ofnot ~~direct~~have ~~consumer~~a ~~loans~~material isimpact ~~less~~on ~~than~~our ~~seven~~consolidated ~~months~~financial statements.

~~The~~NOTE ~~accompanying~~4 ~~consolidated~~– ~~financial statements~~FINANCE ~~have~~RECEIVABLES ~~been~~AND ~~prepared~~ALLOWANCE onFOR aCREDIT ~~going~~LOSSES concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The operations of the Company reflect continued pressure from an uncertain economy and the negative impact of the turmoil in the credit markets. For the nine months ended June 25, 2010 and 2009, respectively, the Company incurred net losses of $7,300,323 and $8,874,047 and as of June 25, 2010 and September 25, 2009, had a shareholders’ deficit of $41,074,368 and $33,774,045, respectively. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

~~The~~Finance ~~Company’s~~receivables ~~continuation~~consisted 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 ultimately attain successful operations. The Company has closely monitored and managed its liquidity position, understanding that this is of ~~critical importance, especially in~~ the ~~current~~ ~~economic~~following: environment; however, the current economic environment makes the cash forecast difficult to predict. Therefore, we have substantially curtailed the amount of funds we have been loaning to our customers and are focusing on collections to increase cash flow and address our current cash flow problems.

During the nine months ended June 25, 2010, two items impacted our ability to generate cash flows. First, the Company tightened its risk management controls related to new loans, resulting in a decrease in loan originations of $13.1 million from the same period in the prior year. Second, for the period from January 26, 2010 through the date on which our registration statements on Form S-1 were declared effective by the SEC (July 2, 2010), the Company temporarily suspended our offerings of variable rate subordinated debentures and subordinated demand notes for sale in compliance with Section 10(a)(3) of the Securities Act of 1933, as amended.


	December 25, 2010			September 25, 2010
		(Unaudited)

Finance receivables, direct consumer	$	15,080,718		$	14,790,670
Finance receivables, consumer sales finance		11,792,000			12,192,962
Finance receivables, auto sales finance		21,034,417			22,584,170
Total gross finance receivables		47,907,135			49,567,802
Unearned insurance commissions		(1,652,233	)		(1,662,796)
Unearned finance charges		(5,575,208	)		(5,926,738)
Accrued interest receivable		354,348			341,173

Finance receivables, before allowance for credit losses		41,034,042			42,319,441
Allowance for credit losses		(7,178,617	)		(6,871,375)
Finance receivables, net	$	33,855,425		$	35,448,066

We believe the cash flow from our operations, coupled with sales of the debentures and demand notes, will be sufficient to cover our liquidity needs and cash flow requirements during fiscal 2010. However, there can be no assurances that the Company will sell any debentures or demand notes or that our other actions to preserve cash flows will be successful. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 34 – ~~RECENT~~FINANCE ~~ACCOUNTING~~RECEIVABLES ~~PRONOUNCEMENTS~~AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

InAn ~~July~~analysis ~~2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality~~ of ~~Financing Receivables and~~ the Allowance for Credit Losses.” The amendments to the FASB Accounting Standards Codification™ (FASB ASC) will enhance the current disclosure requirements to assist users of financial statements in assessing an entity’s credit risk exposure and evaluating the adequacy of an entity’s allowance for credit losses. ASU 2010-20 requires entities to disclose the nature of credit risk inherent in their finance receivables, the procedure for analyzing and assessing credit risk, and the changes in both the receivables and the allowance for credit losses by portfolio segment and class. ASU 2010-20 is ~~effective~~as ~~for interim~~follows: ~~and annual reporting periods ending on or after December 15, 2010. We are currently evaluating the impact, if any, this guidance will have on our consolidated financial statements.~~

In April 2010, the FASB issued ASU No. 2010-18, “Receivables (Topic 310): Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset”. This ASU codifies the consensus reached in EITF Issue No. 09-I, “Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset.” The amendments to the FASB ASC provide that modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. ASU 2010-18 is effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. Early application is permitted. Upon initial adoption of ASU 2010-18, an entity may make a one-time election to terminate accounting for loans as a pool under Subtopic 310-30. This election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration. We are currently evaluating the impact, if any, this guidance will have on our consolidated financial statements.


	As of and for the three months ended December 25, 2010		As of and for the year ended September 25, 2010		As of and for the three months ended December 25, 2009
	(Unaudited)				(Unaudited)

Beginning balance	$	6,871,375	$	8,925,381	$	8,925,381

Provisions for credit losses		2,362,223		5,682,584		2,927,709

Charge-offs
Direct consumer		(1,030,620)		(5,447,963)		(1,592,460	)
Consumer sales finance		(953,042)		(2,519,125)		(737,350	)
Auto sales finance		(727,109)		(1,942,229)		(397,232	)
Write-downs incurred on the transfer of loans to loans held for sale		-		(528,157)		(187,378	)

Recoveries - non-file insurance (direct consumer)		417,308		1,874,343		544,900
Recoveries - other		244,605		854,203		202,781

Other		(6,123)		(27,662)		695

Ending balance	$	7,178,617	$	6,871,375	$	9,687,046

In June 2009, the FASB issued revised guidance to improve the reporting for the transfer of financial assets resulting from (1) practices that have developed since the issuance of previous guidance that are not consistent with the original intent and key requirements of that guidance and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. These revisions to FASB ASC 860, “Transfers and Servicing,” must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.

In June 2009, the FASB issued revised guidance to require an enterprise to qualitatively assess the determination of the primary beneficiary of a variable interest entity (VIE) based on whether the entity (1) has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. These revisions to FASB ASC 810, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” also require an ongoing reconsideration of the primary beneficiary, and amend the events that trigger a reassessment of whether an entity is a VIE. Enhanced disclosures are also required to provide information about an enterprise’s involvement in a VIE. This guidance is effective at the start of an entity’s first annual reporting period beginning after November 15, 2009. We are currently evaluating the impact, if any, this guidance will have on our consolidated financial statements.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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

~~Finance~~An ~~receivables~~analysis ~~consisted~~ of the ~~following:~~allowance for credit losses and recorded investment for the three segments of financing receivables is as follows:

	June 25, 2010			September 25, 2009
	As of and for the three months ended December 25, 2010
	(Unaudited)	~~(Unaudited)~~
Finance receivables, direct consumer	$	15,485,288		$	20,098,661
	DirectConsumer			ConsumerSales Finance			Auto Sales Finance			Total
Finance receivables, consumer sales finance		13,510,348			16,663,172
Allowance for credit losses
Finance receivables, auto sales finance		25,818,056			30,151,923
Beginning balance	$	2,215,745		$	2,418,333		$	2,237,297		$	6,871,375
Total gross finance receivables		54,813,692			66,913,756
Provisions for credit losses		452,109			1,188,352			721,762			2,362,223
Unearned insurance commissions		(1,815,765	)		(1,996,614)
Charge-offs		(1,030,620	)		(953,042	)		(727,109	)		(2,710,771	)
Unearned finance charges		(6,989,275	)		(9,243,875)
Recoveries - non-file insurance		417,308			-			-			417,308
Accrued interest receivable		404,532			608,209
Recoveries - other		244,605			-			-			244,605
Finance receivables, beforeallowance for credit losses		46,413,184			56,281,476
Other		(9,882	)		-			3,759			(6,123	)
Allowance for credit losses		(6,657,259	)		(8,925,381)
Ending balance	$	2,289,265		$	2,653,643		$	2,235,709		$	7,178,617
Finance receivables, net	$	39,755,925		$	47,356,095
Financing receivables, net
Ending balance:
Collectively evaluated for impairment	$	13,611,403		$	9,246,143		$	18,176,496		$	41,034,042

AnDue ~~analysis~~to the nature of the Company’s ~~allowance~~finance ~~for~~receivable portfolio, which consists of a large number of homogenous loans with similar credit ~~losses~~quality characteristics at the time of origination, individual impairment analysis is not performed; rather finance receivables are evaluated collectively as a group within each segment of the portfolio. Different loss rates are not applied to impaired or non-impaired loans since the adjusted benchmark percentage is applied to each segment of the net finance receivable portfolio ~~follows:~~in total.

	As of and for the nine months ended June 25, 2010		As of and for the year ended September 25, 2009		As of and for the nine months ended June 25, 2009
	(Unaudited)				(Unaudited)
					(Restated)
Beginning balance	$	8,925,381	$	8,813,728	$	8,813,728
Provisions for credit losses		2,993,497		10,613,619		7,532,463
Charge-offs
Direct consumer		(4,049,347)		(8,589,238)		(6,139,126	)
Consumer sales finance		(2,036,727)		(3,966,748)		(3,694,777	)
Auto sales finance		(1,189,851)		(1,768,170)		(1,129,519	)
Recoveries - non-file insurance (direct consumer)		1,440,782		2,795,483		2,397,583
Recoveries - other		672,221		963,918		728,607
Other		(98,697)		62,789		60,409
Ending balance	$	6,657,259	$	8,925,381	$	8,569,368

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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

The table below illustrates the net carrying amount of loans by credit quality indicator at December 25, 2010:


	Performing		Non-performing		Total

Direct consumer	$	10,676,981	$	2,934,422	$	13,611,403
Consumer sales finance		6,827,017		2,419,126		9,246,143
Auto sales finance		14,268,096		3,908,400		18,176,496
	$	31,772,094	$	9,261,948	$	41,034,042

The table below provides an aging analysis of past due loans and non-accrual loans by segment at December 25, 2010. Amounts are show at gross loan balance:


	As of December 25, 2010
	31 - 90 days		Over 90 days		Total		Non-accrual		Current		Total loans

Direct consumer	$	1,072,942	$	2,934,422	$	4,007,364	$	2,934,422	$	11,073,354	$	15,080,718
Consumer sales finance		818,397		2,419,126		3,237,523		2,419,126		8,554,477		11,792,000
Auto sales finance		1,021,676		1,484,000		2,505,676		1,484,000		18,528,741		21,034,417
	$	2,913,015	$	6,837,548	$	9,750,563	$	6,837,548	$	38,156,572	$	47,907,135

NOTE 5 – INVENTORY

Inventory consisted of the following:

	June 25, 2010		September 25, 2009
	December 25, 2010			September 25, 2010
	(Unaudited)
Used automobiles	$	~~423~~627,~~910~~493	$	~~1,159,473~~$	622,296
Home furnishings and electronics		~~583~~612,~~421~~044		~~1,042,493~~	579,657
Total inventory	$	1,~~007~~239,~~331~~537	$	~~2,201,966~~$	1,201,953

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:

	June 25, 2010		September 25, 2009
	December 25, 2010			September 25, 2010
	(Unaudited)
Accounts payable	$	~~441~~447,~~404~~072	$	~~150,144~~$	242,878
Insurance payable, loan related		~~335~~356,~~345~~636		~~414,470~~	369,753
Accrued payroll		~~396~~361,~~587~~074		~~472,772~~	367,218
Accrued payroll taxes		2926,~~985~~822		~~35,642~~	28,007
Sales tax payable		~~827~~610,~~805~~349		~~1,072,007~~	670,021
Other liabilities		60104,~~193~~841		~~344,234~~	157,157
Total accounts payable and other accrued liabilities	$	21,~~091~~906,~~319~~794	$	~~2,489,269~~$	1,835,034

1112

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 7 – DEBT

Debt consisted of the following:

	June 25, 2010		September 25, 2009
	December 25, 2010			September 25, 2010
	(Unaudited)
Senior debt: due to banks and commercial finance companies, collateralized by inventory and finance receivables, and certain notes include personal guarantees of a shareholder, interest at prime plus 2%, due 2010. The carrying values of the collateral at June 25, 2010 and September 25, 2009 were $4,144,160 and $362,206, respectively.	$	447,737	$	326,517
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 2011. The carrying values of the collateral at December 25, 2010 and September 25, 2010 were $216,950 and $164,625, respectively.	$	216,950		$	164,625
Total senior debt		~~447~~216,~~737~~950		~~326,517~~	164,625
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 2013.		25,395,841		30,730,844
Variable rate subordinated debentures issued by The Money Tree of Georgia Inc.: due to individuals, unsecured, interest at 4.0% to 8.7%, due at various dates through 2014.		21,168,349			22,490,296
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 2013.		43,423,697		42,871,977
Variable rate subordinated debentures issued by The Money Tree Inc.: due to individuals, unsecured, interest at 5.0% to 8.7%, due at various dates through 2014.		51,268,213			48,736,402
Total subordinated debentures		6872,~~819~~436,~~538~~562		~~73,602,821~~	71,226,698
Demand notes issued by The Money Tree of Georgia Inc.: due to individuals, unsecured, interest at 3.0% to 4.0%, due on demand.		~~313~~258,~~386~~343		~~441,747~~	303,746
Demand notes issued by The Money Tree Inc.: due to individuals, unsecured, interest at 3.0% to 4.0%, due on demand.		23,~~879~~096,~~041~~610		~~2,704,960~~	2,871,167
Total demand notes		3,~~192~~354,~~427~~953		~~3,146,707~~	3,174,913
Total debt	$	7276,~~459~~008,~~702~~465	$	~~77,076,045~~$	74,566,236

1213

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

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 a current year-to-date basis.

NOTE 9 – RELATED PARTY TRANSACTIONS

Martin Family Group, L.L.L.P. owns the real estate of thirteen branch offices, one used car lot, and the Company’s principal executive offices. ~~The~~A ~~estate~~shareholder and director of the Company’s ~~founder~~ and ~~former~~his ~~CEO~~two issiblings aare limited ~~partner~~partners of Martin Family Group, L.L.L.P. ~~and~~A ~~also~~former ~~is the holder of the majority of the~~ Company’s ~~common stock (see Note 13 – Subsequent Events for the current ownership of the Company’s common stock). A Company~~ shareholder is the president of Martin Investments, Inc., which is the managing general partner of Martin Family Group, L.L.L.P. The Company has entered into lease agreements whereby rent is paid monthly for use of these locations. In addition, Martin Sublease, L.L.C., leases, and then subleases to the Company, another 4237 branch office locations, one ~~used~~auto ~~car~~finance ~~lot~~collection office and one used car ~~administrative~~lot ~~office~~ 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 ~~leases~~ are comparable to those obtained from third parties. AsA ~~noted~~former ~~above, a~~ Company shareholder is the ~~President~~president of Martin Investments, Inc., the company which ultimately controls Martin Sublease, L.L.C. Total rents paid were $1407,~~485,573~~946 and $1538,~~642,956~~586 for the ~~nine months and $445,471 and $540,272 for the~~ three months ended ~~June~~December 25, 2010 and 2009, 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~~majority ~~and~~shareholder ~~late~~and ~~founder’s~~President, ~~three~~a ~~children~~shareholder (and director of ~~which~~the ~~one~~Company isand athat ~~Director)~~shareholder’s two siblings, pursuant to an Agency Sales Agreement. Commissions earned on the sale of these memberships were $1375,~~041,465~~979 and $1454,~~268,941~~326 for the ~~nine months and $279,907 and $479,391 for the~~ three months ~~ended~~ ~~June~~ended December 25, 2010 and 2009, respectively.

The Company also engages from time to time in other transactions with ~~related~~ 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, ~~2009~~2010.

1314

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 consolidated financial position, consolidated cash flows or consolidated 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 ~~$1,137,529~~ ~~and~~ $1178,~~817,239~~576 ~~for the nine months~~ and $~~179~~561,~~520~~920 ~~and $520,490~~ for the three months ended ~~June~~December 25, 2010 and 2009, respectively.

NOTE 12 – SEGMENT FINANCIAL INFORMATION

FASB ASC 280, “Segment Reporting,” 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 the original core operations of the Company representing the small consumer loan business in the four states in which the Company operates. The 9391 offices that make up this segment are similar in size and in the markets they serve. All, with a 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 two used automobile sales locations and offers financing in conjunction with these sales. These locations target similar customers in the Bainbridge, 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 in the Company’s Annual Report on Form 10-K/A. 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.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)

Nine months ended June 25, 2010	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands	(Unaudited)			(Unaudited)
Net revenues (loss) before retail sales	$	7,956		$	(657	)	$	7,299
Gross margin on retail sales		1,765			1,268			3,033
Operating expenses		(15,409	)		(2,242	)		(17,651	)
Operating loss	$	(5,688	)	$	(1,631	)	$	(7,319	)
June 25, 2010
In Thousands
Assets:
Total assets for reportable segments	$	23,962		$	21,288		$	45,250
Cash and cash equivalents at corporate level								(269	)
Other receivables at corporate level								464
Property and equipment, net at corporate level								839
Other assets at corporate level								651
Consolidated Assets							$	46,935

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)

Nine months ended June 25, 2009	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
Three months ended December 25, 2010	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands	(Unaudited)			~~(Unaudited)~~
	(Restated)						(Restated)
Net revenues (loss) before retail sales	$	1,053		$	(727	)	$	326
Net revenues (loss) before retail sales	$	8,805		$	(320	)	$	8,485
Gross margin on retail sales		508			288			796
Gross margin on retail sales		2,335			2,049			4,384
Segment operating expenses		(4,491	)		(661	)		(5,152	)
Operating expenses		(19,155	)		(2,673	)		(21,828	)
Segment operating loss	$	(2,930	)	$	(1,100	)	$	(4,030	)
Operating loss	$	(8,015	)	$	(944	)	$	(8,959	)
December 25, 2010
June 25, 2009
In Thousands
	(Restated)						(Restated)
Assets
Assets:
Total segment assets	$	21,925		$	17,062		$	38,987
Total assets for reportable segments	$	33,811		$	25,803		$	59,614
Cash and cash equivalents at corporate level								(374	)
Cash and cash equivalents at corporate level								258
Other receivables at corporate level								510
Other receivables at corporate level								977
Property and equipment, net at corporate level								821
Property and equipment, net at corporate level								1,044
Other assets at corporate level								528
Other assets at corporate level								2,379
Consolidated Assets							$	40,472
Consolidated Assets							$	64,272

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)

Three months ended June 25, 2010	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
Three months ended December 25, 2009	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands	(Unaudited)			~~(Unaudited)~~
Net revenues (loss) before retail sales	$	21,~~605~~492		$	(~~357~~259	)	$	21,~~248~~233
Gross margin on retail sales		~~286~~1,017			~~410~~311			~~696~~1,328
Operating expenses		(4,659	)		(629	)		(5,288	)
Segment operating expenses		(5,637	)		(688	)		(6,325	)
Operating loss	$	(1,768	)	$	(576	)	$	(2,344	)
Segment operating loss	$	(3,128	)	$	(636	)	$	(3,764	)
June 25, 2010
December 25, 2009
In Thousands
Assets:
Assets
Total assets for reportable segments	$	23,962		$	21,288		$	45,250
Total segment assets	$	28,338		$	23,637		$	51,975
Cash and cash equivalents at corporate level								(~~269~~219	)
Other receivables at corporate level								~~464~~829
Property and equipment, net at corporate level								~~839~~1,007
Other assets at corporate level								~~651~~1,789
Consolidated Assets							$	4655,~~935~~381

NOTE 13 – SUBSEQUENT EVENTS

The Company has registered with the Securities and Exchange Commission on Form S-1 Registration Statements, $75,000,000 of Series B Variable Rate Subordinated Debentures (Commission File No. 333-157701) and $35,000,000 of Subordinated Demand Notes (Commission File No. 333-157700). The latest Post-Effective Amendments to these Registration Statements were declared effective on January 11, 2011. These securities have also been registered with the State of Georgia.

Between December 26, 2010 and January 25, 2011, the Company sold $1.5 million of debentures and $0.2 million of demand notes. For the same period the Company redeemed $0.8 million of debentures and $0.2 million of demand notes. These include amounts that were redeemed through our subsidiary, The Money Tree of Georgia Inc.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)

Three months ended June 25, 2009	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands	(Unaudited)			(Unaudited)
	(Restated)						(Restated)
Net revenues (loss) before retail sales	$	2,215		$	(144	)	$	2,071
Gross margin on retail sales		736			705			1,441
Operating expenses		(5,993	)		(900	)		(6,893	)
Operating loss	$	(3,042	)	$	(339	)	$	(3,381	)
June 25, 2009
In Thousands
	(Restated)						(Restated)
Assets:
Total assets for reportable segments	$	33,811		$	25,803		$	59,614
Cash and cash equivalents at corporate level								258
Other receivables at corporate level								977
Property and equipment, net at corporate level								1,044
Other assets at corporate level								2,379
Consolidated Assets							$	64,272

NOTE 13 – SUBSEQUENT EVENTS

The Company has registered with the Securities and Exchange Commission on Form S-1 Registration Statements $75,000,000 of Series B Variable Rate Subordinated Debentures (Commission File No. 333-157701) and $35,000,000 of Subordinated Demand Notes (Commission File No. 333-157700). The Post-Effective Amendments to these Registration Statements were declared effective on July 2, 2010. These securities have also been registered with the State of Georgia.

Between July 2, 2010 and July 25, 2010, the Company sold $3.8 million of debentures and $0.8 million of demand notes. For the period from June 26, 2010 to July 25, 2010 the Company redeemed $2.5 million of debentures and $0.5 million of demand notes. These include amounts that were redeemed through our subsidiary, The Money Tree of Georgia Inc.

On August 2, 2010, Bradley D. Bellville, the Company’s President and current Chairman, purchased a controlling equity interest in the Company. Mr. Bellville purchased 1,962 shares of our Class A voting common stock and 8,954 shares of our Class B non-voting common stock, which represents 73.05% and 33.34%, respectively, of the total of such shares outstanding. Mr. Bellville purchased the shares from the Vance R. Martin GST Exempt Family Trust f/b/o W. Derek Martin, our former Chairman and the son of the Company’s founder.

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/A filed with the Securities and Exchange Commission on ~~May~~December 2823, 2010. 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/A as of and for the fiscal year ended September 25, ~~2009~~2010.

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 two used automobile dealerships in the State of Georgia. We also offer insurance products, prepaid phone services and automobile club memberships to our loan customers. Over the past few months, we consolidated eight of our branch offices into other locations due to overlapping service coverage. These consolidations occurred in cities where we operated either two or three branch offices or had one branch office that was in close proximity to another branch office and believed operational cost savings would be realized in these consolidations. We believe that this had a minimal effect on overall revenues or customer loyalty and allowed us to allocate capital resources more efficiently. We will continue to evaluate other locations for future consolidations.

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:

Description of Loans and Contracts

	As of, or for, the Three MonthsEnded June 25,						As of, or for, the Nine MonthsEnded June 25,
	As of, or for, the Three MonthsEnded December 25,
	2010			2009			~~2010~~			~~2009~~
				(Restated)						(Restated)
Direct Consumer Loans:
Direct Consumer Loans:
Number of Loans Made to New Borrowers		7,296			7,905
Number of Loans Made to New Borrowers		4,578			6,569			17,461			26,811
Number of Loans Made to Former Borrowers		12,435			15,518
Number of Loans Made to Former Borrowers		14,684			18,482			44,228			48,309
Number of Loans Made to Existing Borrowers		9,611			12,869
Number of Loans Made to Existing Borrowers		10,942			12,602			35,464			38,028
Total Number of Loans Made		29,342			36,292
Total Number of Loans Made		30,204			37,653			97,153			113,148
Total Volume of Loans Made	$	8,884,093		$	12,124,724
Total Volume of Loans Made	$	7,775,824		$	12,449,295		$	28,495,693		$	38,976,533
Average Size of Loans Made	$	303		$	334
Average Size of Loans Made	$	257		$	331		$	293		$	344
Number of Loans Outstanding		39,222			48,975
Number of Loans Outstanding		38,889			56,363			38,889			56,363
Total of Loans Outstanding	$	15,080,718		$	21,145,450
Total of Loans Outstanding	$	15,485,288		$	25,188,384		$	15,485,288		$	25,188,384
Percent of Loans Outstanding		31.48	%		32.27	%
Percent of Loans Outstanding		28.25	%		35.31	%		28.25	%		35.31	%
Average Balance on Outstanding Loans	$	384		$	432
Average Balance on Outstanding Loans	$	398		$	447		$	398		$	447
Auto Sales Finance Contracts:
Auto Sales Finance Contracts:
Total Number of Contracts Made		86			100
Total Number of Contracts Made		91			191			342			576
Total Volume of Contracts Made	$	1,442,946		$	1,736,191
Total Volume of Contracts Made	$	1,492,396		$	3,571,697		$	5,706,762		$	10,619,059
Average Size of Contracts Made	$	16,778		$	17,362
Average Size of Contracts Made	$	16,400		$	18,700		$	16,686		$	18,436
Number of Contracts Outstanding		2,204			2,658
Number of Contracts Outstanding		2,576			2,767			2,576			2,767
Total of Contracts Outstanding	$	21,034,417		$	28,359,756
Total of Contracts Outstanding	$	25,818,056		$	30,492,713		$	25,818,056		$	30,492,713
Percent of Total Loans and Contracts		43.91	%		43.28	%
Percent of Total Loans and Contracts		47.10	%		42.75	%		47.10	%		42.75	%
Average Balance on Outstanding Contracts	$	9,544		$	10,670
Average Balance on Outstanding Contracts	$	10,023		$	11,020		$	10,023		$	11,020
Consumer Sales Finance Contracts:
Consumer Sales Finance Contracts:
Number of Contracts Made to New Customers		506			689
Number of Contracts Made to New Customers		223			483			1,231			1,801
Number of Loans Made to Former Customers		4			15
Number of Loans Made to Former Customers		8			19			31			61
Number of Loans Made to Existing Customers		869			1,121
Number of Loans Made to Existing Customers		466			919			2,142			2,611
Total Contracts Made		1,379			1,825
Total Contracts Made		697			1,421			3,404			4,473
Total Volume of Contracts Made	$	3,800,832		$	5,908,107
Total Volume of Contracts Made	$	2,022,451		$	4,436,879		$	10,470,506		$	13,470,769
Number of Contracts Outstanding		5,520			6,665
Number of Contracts Outstanding		6,098			6,745			6,098			6,745
Total of Contracts Outstanding	$	11,792,000		$	16,024,957
Total of Contracts Outstanding	$	13,510,348		$	15,644,082		$	13,510,348		$	15,644,082
Percent of Total Loans and Contracts		24.61	%		24.45	%
Percent of Total Loans and Contracts		24.65	%		21.94	%		24.65	%		21.94	%
Average Balance of Outstanding Contracts	$	2,136		$	2,404
Average Balance of Outstanding Contracts	$	2,216		$	2,319		$	2,216		$	2,319

2019

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

	As of June 25,
	As of December 25,
	2010		~~2009~~	2009
			(Restated)
Total Finance Receivables Outstanding (gross):
Total Finance Receivables
Direct Consumer Loans	$	15,080,718		$	21,145,450
Outstanding (gross):
Consumer Sales Finance		11,792,000			16,024,957
Direct Consumer Loans	$	15,485,288	$	25,188,384
Auto Sales Finance		21,034,417			28,359,756
Auto Sales Finance		25,818,056		30,492,713
Total Gross Outstanding	$	47,907,135		$	65,530,163
Consumer Sales Finance		13,510,348		15,644,082
Total Gross Outstanding	$	54,813,692	$	71,325,179

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. Rebates/other adjustments primarily represent reductions to gross loan amounts of precomputed interest and insurance premiums resulting from loans refinanced and other loans paid off before maturity.


	For the Three Months Ended December 25,
	2010			2009
*Direct Consumer Loans:*
Balance - beginning	$	14,790,670		$	20,098,661
Finance receivables originated		8,884,093			12,124,724
Collections		(5,682,918	)		(8,001,700	)
Refinancings		(1,852,037	)		(2,756,330	)
Charge offs, gross		(1,030,620	)		(1,592,460	)
Rebates / other adjustments		(28,470	)		1,272,555

Balance - end	$	15,080,718		$	21,145,450

*Consumer Sales Finance Contracts:*
Balance - beginning	$	12,192,962		$	16,663,172
Finance receivables originated		3,800,832			5,908,107
Collections		(1,406,998	)		(1,921,439	)
Refinancings		(1,469,240	)		(1,957,432	)
Charge offs, gross		(953,042	)		(737,350	)
Rebates / other adjustments		(372,514	)		(1,930,101	)

Balance - end	$	11,792,000		$	16,024,957

*Auto Sales Finance Contracts:*
Balance - beginning	$	22,584,170		$	30,151,923
Finance receivables originated		1,442,946			1,736,191
Collections		(2,199,324	)		(2,690,894	)
Charge offs, gross		(727,109	)		(397,232	)
Rebates / other adjustments		(66,266	)		(440,232	)

Balance - end	$	21,034,417		$	28,359,756

*Total:*
Balance - beginning	$	49,567,802		$	66,913,756
Loans originated		14,127,871			19,769,022
Collections		(9,289,240	)		(12,614,033	)
Refinancings		(3,321,277	)		(4,713,762	)
Charge offs, gross		(2,710,771	)		(2,727,042	)
Rebates / other adjustments		(467,250	)		(1,097,778	)

Balance - end	$	47,907,135		$	65,530,163

	For the Three MonthsEnded June 25,						For the Nine MonthsEnded June 25,
	2010			2009			2010			2009
				(Restated)						(Restated)
Direct Consumer Loans:
Balance - beginning	$	17,940,537		$	26,857,819		$	20,098,661		$	33,068,727
Finance receivables originated		7,775,824			12,449,295			28,495,693			38,976,533
Collections		(6,950,803	)		(9,558,085	)		(23,359,579	)		(31,705,371	)
Refinancings		(1,801,497	)		(2,750,290	)		(6,669,333	)		(8,580,261	)
Charge offs, gross		(1,159,458	)		(1,565,832	)		(4,049,347	)		(6,139,126	)
Rebates / other adjustments		(319,315	)		(244,523	)		969,193			(432,118	)
Balance - end	$	15,485,288		$	25,188,384		$	15,485,288		$	25,188,384
Consumer Sales Finance Contracts:
Balance - beginning	$	15,003,653		$	15,967,366		$	16,663,172		$	17,373,830
Finance receivables originated		2,022,451			4,436,879			10,470,506			13,470,769
Collections		(1,828,151	)		(1,923,246	)		(5,693,939	)		(5,852,897	)
Refinancings		(773,434	)		(1,561,628	)		(3,591,107	)		(4,406,600	)
Charge offs, gross		(724,361	)		(834,094	)		(2,036,727	)		(3,694,777	)
Rebates / other adjustments		(189,810	)		(441,195	)		(2,301,557	)		(1,246,243	)
Balance - end	$	13,510,348		$	15,644,082		$	13,510,348		$	15,644,082
Auto Sales Finance Contracts:
Balance - beginning	$	27,544,879		$	30,329,656		$	30,151,923		$	30,707,329
Finance receivables originated		1,492,396			3,571,697			5,706,762			10,619,059
Collections		(2,706,347	)		(2,798,302	)		(8,079,572	)		(8,747,176	)
Charge offs, gross		(430,942	)		(310,499	)		(1,189,851	)		(1,129,519	)
Rebates / other adjustments		(81,930	)		(299,839	)		(771,206	)		(956,980	)
Balance - end	$	25,818,056		$	30,492,713		$	25,818,056		$	30,492,713
Total:
Balance - beginning	$	60,489,069		$	73,154,841		$	66,913,756		$	81,149,886
Loans originated		11,290,671			20,457,871			44,672,961			63,066,361
Collections		(11,485,301	)		(14,279,633	)		(37,133,090	)		(46,305,444	)
Refinancings		(2,574,931	)		(4,311,918	)		(10,260,440	)		(12,986,861	)
Charge offs, gross		(2,314,761	)		(2,710,425	)		(7,275,925	)		(10,963,422	)
Rebates / other adjustments		(591,055	)		(985,557	)		(2,103,570	)		(2,635,341	)
Balance - end	$	54,813,692		$	71,325,179		$	54,813,692		$	71,325,179

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

	Nine Months Ended June 25,
	Three Months Ended December 25,
	2010			2009
Finance Receivables Originated:
Direct consumer	$	288,~~495~~884,~~693~~093		$	3812,~~976~~124,~~533~~724
Consumer sales finance		103,~~470~~800,~~506~~832			135,~~470~~908,~~769~~107
Auto sales finance		51,~~706~~442,~~762~~946			101,~~619~~736,~~059~~191
Total gross finance receivables originated		4414,~~672~~127,~~961~~871			6319,~~066~~769,~~361~~022
Non-cash items included in gross finance receivables*		(124,~~146~~069,~~544~~049	)		(176,~~482~~395,~~991~~769	)
Finance receivables originated per statement of cash flows	$	3210,~~526~~058,~~417~~822		$	4513,~~583~~373,~~370~~253
Finance Receivables Repaid:
Collections
Direct consumer	$	235,~~359~~682,~~579~~918		$	318,~~705~~001,~~371~~700
Consumer sales finance		51,~~693~~406,~~939~~998			51,~~852~~921,~~897~~439
Auto sales finance		82,~~079~~199,~~572~~324			82,~~747~~690,~~176~~894
Finance receivables repaid per statement of cash flows	$	379,~~133~~289,~~090~~240		$	4612,~~305~~614,~~444~~033

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

2322

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 generally 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.

The decrease in the net interest margin (before provision for credit losses) for the ~~nine~~three months ended ~~June~~December 25, ~~2010~~ 2010 was primarily a result of the ~~suppressed average rate earned on and the~~ decrease in outstanding finance receivables. Our liquidity issues have caused us to tighten our lending guidelines and significantly decrease our direct consumer loans, while we experienced only slight decreases in consumer sales finance contracts and motor vehicle installment contracts. These contracts generally yield a lower interest rate as compared to direct consumer loans.

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

	As of, or for, the ThreeMonths Ended June 25,						As of, or for, the NineMonths Ended June 25,
	As of, or for, the ThreeMonths Ended December 25,
	2010			~~2009~~	2009		~~2010~~		~~2009~~
				(Restated)					(Restated)
Average net finance receivables (1)	$	41,366,282			$	55,899,520
Average net finance receivables (1)	$	47,949,104		$	61,344,331		$	51,785,032	$	64,931,645
Average notes payable (2)	$	75,787,306			$	76,833,663
Average notes payable (2)	$	73,255,907		$	77,450,074		$	75,177,785	$	79,204,854
Interest income	$	1,716,124			$	2,319,434
Interest income	$	2,078,967		$	2,837,302		$	6,781,356	$	8,957,111
Loan fee income, excluding delinquency fees		745,144				985,238
Loan fee income, excluding delinquency fees		766,085			1,034,975			2,455,260		3,215,604
Total interest and fee income		2,461,268				3,304,672
Total interest and fee income		2,845,052			3,872,277			9,236,616		12,172,715
Interest expense		1,760,018				1,809,971
Interest expense		1,687,079			1,939,546			5,265,680		5,725,612
Net interest and fee income before provision for credit losses	$	701,250			$	1,494,701
Net interest and fee income before provision for credit losses	$	1,157,973		$	1,932,731		$	3,970,936	$	6,447,103
Average interest rate earned (annualized)		23.8	%			23.6	%
Average interest rate earned (annualized)		23.7%			25.2%			23.8%		25.0%
Average interest rate paid (annualized)		9.3	%			9.4	%
Average interest rate paid (annualized)		9.2%			10.0%			9.3%		9.6%
Net interest rate spread (annualized)		14.5	%			14.2	%
Net interest rate spread (annualized)		14.5%			15.2%			14.4%		15.4%
Net interest margin (annualized) (3)		6.8	%			10.7	%
Net interest margin (annualized) (3)		9.7%			12.6%			10.2%		13.2%

⁽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

At the end of each reporting period, management is required to take a “snapshot” of the risk of probable losses inherent in the finance receivables portfolio and to reflect that risk in our allowance calculations. We use a systematic approach to calculate the allowance for credit losses whereby we apply historical charge-off benchmarks to groups of loans and then adjust (either ~~positively or negatively), as and if applicable, for relevant factors. This method prevents the~~

positively or negatively), as and if applicable, for relevant factors. This method prevents the calculation from becoming simply a mathematical exercise, but instead addresses matters affecting loan collectibility. Historically, the relevant items impacting our allowance have included, but are not limited to, a variety of factors, such as historic loan loss experience, borrowers’ ability to repay, collateral considerations and non-file insurance recoveries, levels of and trends in delinquencies, effects of any changes in risk selection and lending policies and practices, and general economic conditions impacting our portfolio.

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 21. Recoveries represent receipts from non-file insurance claims and cash and bankruptcy recoveries. The benchmark charge-off ratio is calculated using a rolling average of data from the previous 12 months as shown below.

calculation from becoming simply a mathematical exercise, but instead addresses matters affecting loan collectibility. Historically, the relevant items impacting our allowance have included, but are not limited to, a variety of factors, such as historic loan loss experience, borrowers’ ability to repay, collateral considerations and non-file insurance recoveries, levels of and trends in delinquencies, effects of any changes in risk selection and lending policies and practices, and general economic conditions impacting our portfolio.


	As of, or for the 12 Months Ended December 25,
	2010			2009
*Direct Consumer Loans*

Ending net finance receivables	$	13,611,403		$	19,487,005
Average net finance receivables(1)	$	14,495,970		$	22,268,569

Charge-offs, gross(3)	$	5,005,898		$	7,674,845
Recoveries (2)		(2,643,473	)		(1,881,815	)

Charge-offs, net of recoveries	$	2,362,425		$	5,793,030

% of net charge offs to average net receivables
12 month trend		16.3	%		26.0	%
Actual allowance %		16.8	%		26.0	%
Actual allowance	$	2,289,265		$	5,068,621

*Consumer Sales Finance Contracts:*

Ending net finance receivables	$	9,246,143		$	11,800,009
Average net finance receivables(1)	$	10,452,844		$	12,854,988

Charge-offs, gross	$	2,734,817		$	3,211,722

% of net charge offs to average net receivables
12 month trend		26.2	%		25.0	%
Actual allowance %		28.7	%		25.0	%
Actual allowance	$	2,653,643		$	2,952,002

*Auto Sales Finance Contracts:*

Ending net finance receivables	$	18,176,496		$	23,775,106
Average outstanding finance receivables(1)	$	21,081,969		$	25,180,457

Charge-offs, gross(3)	$	2,493,110		$	1,955,548

% of net charge offs to average net receivables
12 month trend		11.8	%		7.8	%
Actual allowance %		12.3	%		7.0	%
Actual allowance	$	2,235,709		$	1,666,422

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 23. Recoveries represent receipts from non-file insurance claims and cash and bankruptcy recoveries. The benchmark charge-off ratio is calculated using a rolling average of data from the previous 12 months as shown below.

	As of, or for the 12 MonthsEnded June 25,
	As of, or for the 12 MonthsEnded December 25,
	2010			2009
				(Restated)
Direct Consumer Loans
Ending net finance receivables	$	13,887,673		$	22,852,261
Average net finance receivables	$	17,913,528		$	26,927,558
Charge-offs, gross	$	6,499,459		$	8,362,759
Recoveries		(2,716,991	)		(4,277,764	)
Charge-offs, net	$	3,782,468		$	4,084,995
12 month benchmark of net charge offs to average net receivables		21.1	%		15.2	%
Consumer Sales Finance Contracts:
Ending net finance receivables	$	10,520,120		$	12,791,883
Average net finance receivables	$	11,720,987		$	13,092,905
Charge-offs, gross	$	2,308,698		$	4,325,089
12 month benchmark of net charge offs to average net receivables		19.7	%		33.0	%
Auto Sales Finance Contracts:
Ending net finance receivables	$	22,005,391		$	25,284,637
Average outstanding finance receivables	$	23,791,119		$	25,267,218
Charge-offs, gross	$	1,828,501		$	1,542,487
12 month benchmark of net charge offs to average net receivables		7.7	%		6.1	%
Total Receivables:
Ending net finance receivables	$	4641,~~413~~034,~~184~~042		$	6055,~~928~~062,~~781~~120
Average outstanding finance receivables	$	53,425,634		$	65,287,681
Average outstanding finance receivables(1)	$	46,030,783		$	60,304,014
Charge-offs, gross	$	10,636,658		$	14,230,335
Charge-offs, gross(3)	$	10,233,825		$	12,842,115
Recoveries		(2,716,991	)		(4,277,764	)
Recoveries (2)		(2,643,473	)		(1,881,815	)
Charge-offs, net	$	7,919,667		$	9,952,571
Charge-offs, net of recoveries	$	7,590,352		$	10,960,300
12 month benchmark of net charge offs to average net receivables		14.8	%		15.2	%
% of net charge offs to average net receivables
12 month trend		16.5	%		18.2	%
Actual allowance %		17.5	%		17.6	%
Actual allowance	$	7,178,617		$	9,687,045

(1)

Average net outstanding finance receivables are computed using the monthly balances net of unearned interest/fees, unearned insurance commissions and unearned discounts.

(2)

Recoveries represent receipts from non-file insurance claims, cash recoveries and bankruptcy recoveries.

(3)

Includes write downs incurred on the transfer of loans to loans held for sale.

During the three months ended December 25, 2010, there were no significant signs of economic recovery. We noted during this period an increase in delinquencies in all three segments of our loan portfolio. After consideration of the benchmark percentages, the delinquency increases, and other relevant factors, we increased the allowance percentage over the 12-month trend in each segment as follows: for net outstanding direct consumer loans, increase of 50 basis points to 16.8%; for net outstanding consumer sales finance contracts, increase of 250 basis points to 28.7%; and for net outstanding auto sales finance contracts, increase of 50 basis points to 12.3%, in each case as a percentage of the ending balance at December 25, 2010. The allowance for credit losses was $7.2 million (17.5% of the net outstanding finance receivables) at December 25, 2010 and $9.7 million (17.6%) at December 25, 2009.

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 expected. Below is certain information relating to the delinquency status of each category of our receivables as of December 25, 2010 and 2009:

Taking into consideration the benchmark percentages and other relevant factors, we established an allowance of 21.1% of average net outstanding direct consumer loans, 19.7% of the average net outstanding consumer sales finance contracts, and 7.7% of the average net outstanding auto sales finance contracts at June 25, 2010. The allowance for credit losses was $6.7 million (14.3% of the net outstanding finance receivables) at June 25, 2010 and $8.6 million (14.3%) at June 25, 2009.


	As of December 25, 2010
	Direct Consumer Sales			Consumer Sales Finance Contracts			Auto Sales Finance Contracts*			Total
Gross Loans and Contracts Receivable	$	15,080,718		$	11,792,000		$	21,034,417		$	47,907,135
Loans and Contracts greater than 180 days past due	$	1,635,000		$	1,294,030		$	788,025		$	3,717,055
Percentage of Outstanding		10.8	%		11.0	%		3.7	%		7.8	%
Loans and Contracts greater than 90 days past due	$	2,934,422		$	2,419,126		$	1,484,000		$	6,837,548
Percentage of Outstanding		19.5	%		20.5	%		7.1	%		14.3	%
Loans and Contracts greater than 60 days past due	$	3,387,474		$	2,774,938		$	1,832,570		$	7,994,982
Percentage of Outstanding		22.5	%		23.5	%		8.7	%		16.7	%

Delinquency Information


	As of December 25, 2009
	Direct Consumer Sales			Consumer Sales Finance Contracts			Auto Sales Finance Contracts*			Total
Gross Loans and Contracts
Receivable	$	19,585,101		$	17,585,306		$	28,359,756		$	65,530,163
Loans and Contracts greater than 180 days past due	$	2,712,368		$	1,179,509		$	0		$	3,891,877
Percentage of Outstanding		13.8	%		6.7	%		0.0	%		5.9	%
Loans and Contracts greater than 90 days past due	$	4,156,816		$	1,963,519		$	921,731		$	7,042,066
Percentage of Outstanding		21.2	%		11.2	%		3.3	%		10.7	%
Loans and Contracts greater than 60 days past due	$	4,710,767		$	2,261,894		$	1,362,982		$	8,335,643
Percentage of Outstanding		24.1	%		12.9	%		4.8	%		12.7	%

~~Our~~* ~~delinquency~~Auto ~~levels~~Sales ~~reflect, among other factors, changes in the mix of loans in the portfolio, the quality of~~Finance ~~receivables,~~Contracts ~~the~~aging ~~success~~categories ofexclude ~~collection~~accounts ~~efforts, bankruptcy trends and general economic conditions. The delinquency information~~ in ~~the~~legal ~~following~~or ~~tables~~repossession isprocess ~~computed on the basis of the amount past due~~ in ~~accordance with~~ the ~~original~~amounts ~~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$3, ~~such as a recency report~~120,375 ~~which~~at ~~shows the date of the last full contractual payment received on the loan~~December 25, to2010 ~~determine~~and ~~a particular customer’s willingness to pay. For example~~$5, ~~if a delinquent customer has made a recent payment~~211,007 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 expected. Below is certain information relating to the delinquency status of each category of our receivables as of June~~December 25, ~~2010 and~~ 2009:.

	As of June 25, 2010
	Direct Consumer Sales		Consumer Sales Finance Contracts		Auto Sales Finance Contracts*		Total
Gross Loans and ContractsReceivable	$	15,485,288	$	13,510,348	$	25,818,056	$	54,813,692
Loans and Contracts greaterthan 180 days past due	$	2,197,666	$	1,203,250	$	-	$	3,400,916
Percentage of Outstanding		14.2%		8.9%		0.0%		6.2%
Loans and Contracts greaterthan 90 days past due	$	3,189,857	$	1,983,137	$	855,741	$	6,028,735
Percentage of Outstanding		20.6%		14.7%		3.3%		11.0%
Loans and Contracts greaterthan 60 days past due	$	3,727,596	$	2,426,622	$	1,143,187	$	7,297,405
Percentage of Outstanding		24.1%		18.0%		4.4%		13.3%

	As of June 25, 2009
	Direct Consumer Sales		Consumer Sales Finance Contracts		Auto Sales Finance Contracts*		Total
	(Restated)		(Restated)				(Restated)
Gross Loans and Contracts
Receivable	$	25,188,384	$	15,644,082	$	30,492,713	$	71,325,179
Loans and Contracts greater than 180 days past due	$	4,200,538	$	1,976,723	$	0	$	6,177,261
Percentage of Outstanding		16.7%		12.6%		0.0%		8.7%
Loans and Contracts greater than 90 days past due	$	5,682,757	$	2,656,551	$	546,786	$	8,886,094
Percentage of Outstanding		22.6%		17.0%		1.8%		12.5%
Loans and Contracts greater than 60 days past due	$	6,243,480	$	2,957,967	$	851,641	$	10,053,088
Percentage of Outstanding		24.8%		18.9%		2.8%		14.1%

* Auto Sales Finance Contracts aging categories exclude accounts in legal or repossession process in the amounts of $4,567,952 at June 25, 2010 and $5,470,133 at June 25, 2009.

Results of Operations

Comparison of ~~Nine~~Three Months Ended ~~June~~ December 25, 2010 and 2009

Net Revenues

Net revenues were $101.31 million and $122.96 million for the ~~nine~~three months ended ~~June~~December 25, 2010 and 2009, respectively. ~~Interest~~We ~~and~~have ~~fee~~experienced ~~income~~significant ~~and~~liquidity ~~other~~issues ~~ancillary~~over ~~product~~the ~~income~~past ~~were~~two ~~down~~years ~~from~~due to the ~~prior~~lack ~~year as a result~~ of anet ~~significant~~sales ~~decrease~~ in ~~finance~~our ~~receivable~~debt ~~originations~~offerings. ~~Due~~Because toof this and the current economic environment ~~and our liquidity issues~~, ~~which have been compounded by our inability~~ to ~~offer~~preserve ~~debentures and demand note for sale since January 26~~cash, ~~2010,~~ we implemented tighter risk management controls in fiscal year 2009, which continued through the ~~nine~~three months ended ~~June~~December 25, 2010, ~~to preserve cash,~~ resulting in fewer loans being ~~made.~~originated ~~Retail sales~~ and ~~the~~causing ~~associated~~decreases ~~gross margin on these sales were also down from prior year levels. A significant decrease~~ in the provision for credit losses partially offset the income and commission decreases. Although we expect our components of income to continue to fall short of prior year levels, we also expect the provision for credit losses to decrease as we realize the benefits of the tighter risk management controls over lending implemented during fiscal year 2009. Over the past few months, we consolidated eight of our branch offices into other branch office locations due to overlapping service coverage. The primary objective of these consolidations was to reduce operating expenses. We believe that this had a minimal effect on overall revenues.

~~Net~~27 ~~Interest and Fee Income Before Provision for Credit Losses~~

Net interest income before provision for credit losses was $4.0 million and $6.4 million for the nine months ended June 25, 2010 and 2009, respectively. Gross interest and fee income decreased $3.0 million to $9.2 million from $12.2 million. This was a result of an approximate 29% decrease in finance receivables originated compared to the same period last year. Interest income was also impacted by a decrease in the average interest rate earned on finance receivables caused by a significant decrease in higher-earning direct consumer loans. We expect interest and fee income to continue to be down in relation to comparable periods last year until we can sell sufficient quantities of debentures and demand notes to provide cash to increase originations of direct consumer loans and consequently increase interest and fee income. Interest expense was $5.3 million and $5.7 million for the nine-month periods ended June 25, 2010 and 2009, respectively, due primarily to decreased amounts of variable rate subordinated debentures outstanding.

~~Provision~~earned amounts of interest, fees and other components of income connected with our lending. Gross finance receivable originations decreased by $5.6 million (29%) as compared to the same period last year. Retail sales and the gross margin on those sales also decreased by $1.1 million and $0.5 million, respectively, for ~~Credit~~the ~~Losses~~three months ended December 25, 2010 compared to 2009.

Provision for credit losses was $3.0 million and $7.5 million for the nine months ended June 25, 2010 and 2009, respectively. Net finance receivables charged off decreased approximately $2.7 million compared to the previous year, which we believe is a result of the implementation of tighter risk management controls over lending. This decrease has also reduced the benchmark percentages used in determining the allowance for credit losses. The allowance was $6.7 million (14.3% of net outstanding finance receivables) at June 25, 2010 compared to $8.9 million (15.9%) at September 25, 2009. We expect this trend to continue throughout fiscal year 2010.

Insurance and Other Products

Income from commissions on insurance products and motor club memberships decreased $2.9 million, to $5.0 million from $7.9 million for the nine months ended June 25, 2010 and 2009, respectively. The decrease in volume of finance receivables originated during this nine-month period compared to last year resulted in lower commissions earned on the sale of these products. We expect these commissions to continue to be down in relation to comparable periods last year until we can sell sufficient quantities of debentures and demand notes to provide cash to increase originations of loans and consequently increase commissions. Other income, including delinquency fees, decreased approximately $0.3 million from last year.

Gross Margin on Retail Sales

Gross margins on retail sales were $3.0 million and $4.4 million for the nine months ended June 25, 2010 and 2009, respectively. Margins in the consumer segment in the nine months of this year were down $0.6 million over the same period last year while margins in the automotive segment were down $0.8 million. Sales in the consumer segment were approximately $1.5 million lower than last year while vehicle sales were down approximately $2.9 million. These decreases are consistent with the current retail industry as economic conditions are having a negative impact on consumer spending. We do not expect to see any significant increase in retail sales in the near term, thus our margin on retail sales for the balance of fiscal year 2010 will continue to be down in relation to comparable periods last year.

Operating Expenses

Operating expenses were $17.7 million and $21.8 million for the nine months ended June 25, 2010 and 2009, respectively. Over the past few months, we have consolidated eight branch offices into other branch office locations due to overlapping service coverage. The primary objective of these consolidations was to reduce operating expenses. Personnel expenses were approximately $2.1 million lower than the previous year, due primarily to decreases in staffing levels and associated costs, including health insurance expenses. General and administrative expenses were down $0.6 million due to decreases in telecommunications and general office-related costs. Other operating expenses were down $1.4 million due to overall cost-saving measures implemented during the latter part of fiscal year 2009. In fiscal year 2009 we also incurred legal costs for defending and settling two lawsuits that contributed to the increased costs in fiscal year 2009 compared to fiscal year 2010.

Comparison of Three Months Ended June 25, 2010 and 2009

Net Revenues

Net revenues were $2.9 million and $3.5 million for the three months ended June 25, 2010 and 2009, respectively. As discussed above, interest and fee income and other ancillary product income were down from the prior year as a result of a significant decrease in finance receivable originations. Retail sales and the associated gross margin on these sales were also down from prior year levels. However, we realized a significant decrease in the provision for credit losses (discussed below) that partially offset the decreases in the other components of income and commissions, which resulted in the $0.6 million decrease in net revenues. Although we expect our components of income to continue to fall short of prior year levels, we also expect the provision for credit losses to decrease as we realize the benefits of the tighter risk management controls over lending implemented during fiscal year 2009.

Net Interest and Fee Income Before Provision for Credit Losses

Net interest and fee income before provision for credit losses was $10.27 million and $1.95 million for the three months ended ~~June~~December 25, 2010 and 2009, respectively. During the ~~third~~three ~~quarter~~months ofended ~~fiscal~~December 25, ~~year~~ 2010, gross interest ~~and fee~~ income decreased $1.0.8 million, ~~compared~~from to$3.3 million for the ~~third~~three ~~quarter~~months ofended December 25, 2009, ~~due~~ to $2.5 million, as a result of the decrease in ~~gross~~ finance ~~receivable~~receivables originated as mentioned above. We are exploring options to raise capital that will allow us to increase originations of ~~approximately~~ ~~$9.2~~direct ~~million~~consumer ~~(45%) compared~~loans in order to ~~the~~increase ~~same~~interest ~~period~~and ~~last~~fee ~~year~~income. However, Wewe expect interest and fee income to continue to be ~~down~~lower inthan ~~relation to~~ comparable periods last year until we can sell sufficient ~~quantities~~amounts of ~~debentures~~our ~~and~~debt ~~demand~~offerings ~~notes to~~or ~~provide~~secure ~~cash~~other tocapital ~~increase originations of direct consumer loans and consequently increase interest and fee income~~resources. Interest expense was $1.78 million ~~and~~for ~~$1.9~~each ~~million~~of ~~for~~ the three-month periods ended ~~June~~December 25, 2010 and 2009, respectively.

Provision for Credit Losses

~~The~~Provision ~~provision~~ for credit losses was $02.74 million and $2.69 million for the three months ended ~~June~~ December 25, 2010 and 2009, respectively. Net finance receivables charged off were approximately $02.80 million ~~lower~~for ~~than~~each ~~the previous year, which we believe is a result~~ of the ~~implementation~~three-month ofperiods ~~tighter~~ended ~~risk~~December 25, ~~management~~2010 ~~controls~~and ~~on lending~~2009. ~~This~~However, ~~decrease~~additional ~~has~~provisions ~~also~~were ~~reduced~~made ~~the benchmark~~to ~~percentages used in determining~~ the allowance for credit losses. ~~The~~as ~~allowance~~of ~~was~~December 25, ~~$6.7~~2009 ~~million~~based ~~(14.3%~~on ofour ~~net~~charge-off ~~outstanding~~analysis ~~finance~~and ~~receivables)~~other atrelevant ~~June 25,~~factors. ~~2010,~~We ~~compared~~expect tothe ~~$7.7~~provision ~~million~~for ~~(15.2%) at~~credit ~~March 25,~~losses ~~2010.~~to Wecontinue ~~expect this~~to ~~trend~~be toless ~~continue~~than the prior year throughout fiscal year ~~2010~~2011.

Insurance and Other Products

Income from commissions on insurance products, ~~and~~ motor club memberships, ~~was~~delinquency ~~$1.4~~fees ~~million~~ and other income decreased approximately $20.37 million for the three months ended ~~June~~December 25, 2010 ~~and~~as ~~2009,~~compared to ~~respectively. As previously discussed,~~ the ~~significant decrease in volume of finance receivables originated during this~~ three~~-month~~ ~~period~~months ~~compared~~ended toDecember 25, ~~last~~2009. ~~year~~This ~~resulted~~is ina ~~lower~~result ~~commissions~~of ~~earned on~~ the ~~sale~~ ofaforementioned ~~these~~decrease ~~products.~~in ~~Other~~finance ~~income,~~receivable ~~including delinquency fees, was approximately $0~~originations.1 ~~million lower than last year.~~ We expect this decrease to continue until we finalize and execute our plan to increase loan volumes, as mentioned above.

Gross Margin on Retail Sales

Gross margins on retail sales were $0.78 million and $1.43 million for the three months ended ~~June~~December 25, 2010 and 2009, respectively. Sales in the automotive segment ~~for~~decreased ~~the~~approximately ~~three-month period in 2010 were down by~~ $10.21 million compared to the same period last year while gross margins ~~decreased~~were ~~$0.3~~approximately ~~million~~the same. ~~Sales~~In ~~and margins in~~ the consumer segment sales were down by $01.9 0 million and gross margins decreased $0.45 million inas ~~the~~compared ~~three~~to ~~months~~the ~~this~~prior year’s ~~compared~~first toquarter ~~last~~sales ~~year~~and margins. WeWeak dodemand ~~not~~for ~~expect~~consumer togoods ~~see~~continues ~~any~~to ~~significant~~impact ~~increase~~our insales ~~retail~~and ~~sales~~margins. inWe ~~the~~do ~~near~~not ~~term,~~expect ~~thus~~a ~~our~~significant ~~margin~~increase onin retail sales ~~for~~in the ~~balance~~near ~~of fiscal year 2010 will likely be down to comparable periods last year~~term.

Operating Expenses

Operating expenses were $5.32 million and $6.93 million for the three months ended ~~June~~December 25, 2010 and 2009, respectively. ~~Over~~Personnel ~~the~~expenses ~~past~~were ~~few months, we have consolidated eight branch offices into other branch office locations due to overlapping service coverage~~$0.9 ~~The~~million ~~primary~~lower ~~objective~~than ofin ~~these~~the ~~consolidations~~previous ~~was~~year ~~to reduce operating expenses. Personnel~~while ~~expenses~~facilities ~~were~~expense ~~approximately~~was $1.0.1 million lower ~~during~~, ~~the~~as ~~third~~we ~~quarter~~realized ofthe ~~fiscal~~cost ~~year~~savings ~~2010~~of ~~versus~~the ~~2009,~~branch ~~due~~consolidations ~~primarily to decreases in staffing levels~~ and ~~associated~~other ~~costs,~~cutbacks ~~including~~implemented ~~health~~during ~~insurance~~fiscal ~~expenses~~year 2010. General and administrative ~~expense~~expenses ~~was $0.3 million lower than last year due to decreases in telecommunications~~ and ~~general~~other ~~office-related costs. Other~~ operating expenses ~~were~~decreased ~~down by~~ $0.21 million as ~~due~~compared to ~~overall~~the ~~cost-saving~~prior ~~measures~~year. ~~implemented~~We ~~during~~continue ~~the~~to ~~latter~~closely ~~part~~monitor ofexpenses ~~fiscal~~and ~~year~~plan ~~2009~~to reduce spending wherever possible.

3028

Liquidity and Capital Resources

General

Liquidity is our ability to meet short-term financial obligations whether through collection of receivables, sales of debentures and demand notes 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 sale of debt securities that meet the investment requirements of the public. 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. We believe the cash flow from our operations coupled with sales of the debentures and demand notes will be sufficient to cover our liquidity needs and cash flow requirements during ~~2010~~2011. However, there can be no assurances that we will sell any debentures or demand notes or that our other actions to ~~preserve~~generate cash ~~flows~~flow will be successful.

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;

•

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. However, as noted elsewhere in this report, during the nine months ended June 25, 2010, the Company tightened its risk management controls related to new loans, resulting in a decrease in gross loan originations of $18.4 million from the same period in the prior year, and we received gross proceeds of $4.7 million from the sale of debentures and paid $9.5 million for redemption of debentures issued by us and our subsidiary, The Money Tree of Georgia Inc. Consequently, our operations and other sources of funds may not provide sufficient available cash flow to meet our continued redemption obligations if the amount of redemptions continues at its current pace or we continue to suffer losses and use funds from operations to fund redemptions.

~~Changes~~However, as indicated in ~~our~~the notes to the accompanying consolidated financial statements included in this report, we have experienced significant liquidity ~~position~~issues ~~result~~due ~~from~~to ~~operating~~the lack of net sales in our debt offerings during the fiscal year ended September 25, ~~investing~~2009 and ~~financing~~ ~~activities~~continuing through the quarter ended December 25, 2010. ~~Cash~~The recessionary ~~flows~~economy ~~from~~has ~~operating~~negatively ~~activities~~impacted ~~are~~investor ~~generally~~confidence and, on two occasions during the past two years, we temporarily suspended the offering of our debt securities to the public while we restated previously issued financial statements to correct errors detected in those statements. In order to preserve cash, ~~effects~~we tightened our risk management controls related to new loans resulting in a decrease in gross loan originations of ~~transactions~~$5.6 million for the three months ended December 25, 2010 compared to the same period in the prior year, and ~~other~~we ~~events~~(1) received ~~that~~gross ~~enter~~proceeds ~~into~~of $3.8 million from the ~~determination~~sale of debentures, (2) paid $2.6 million for redemption of debentures issued by us and our subsidiary, The Money Tree of Georgia Inc. and (3) received $0.2 million in net ~~income,~~sales ~~including~~of demand notes. Also, ~~without~~for ~~limitation~~the fiscal year ended September 25, ~~purchases~~2010, ofthe ~~used~~Company ~~automobiles~~incurred net losses of $12,134,947 and a deficiency in net interest margin (net loss from interest and ~~electronics~~fees after provision for credit losses) of $851,341. ~~furnishings~~For the three months ended December 25, 2010 and ~~other~~2009 ~~consumer~~the ~~goods~~Company ~~for~~incurred ~~resale~~net tolosses ~~our~~of ~~customers~~$4,104,262 and 3,748,152, respectively. The ~~primary~~Company ~~investing~~had ~~activities~~a ~~include~~deficiency ~~consumer~~in ~~loan~~net ~~originations~~interest ~~and~~margin ~~purchases~~of $1,660,973 and ~~collections~~$1,433,008 onfor ~~such~~the ~~consumer~~three ~~loans~~months ended December 25, 2010 and 2009, respectively. ~~Our~~As ~~financing~~of ~~activities~~December 25, ~~focus~~2010 ~~almost~~and ~~entirely on~~September 25, 2010, the ~~sale~~Company had a shareholders’ deficit of ~~debentures~~$50,013,254 and ~~demand~~$45,908,992, ~~notes~~respectively. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. Consequently, our operations and other sources of funds may not provide sufficient available cash flow to meet our continued redemption

~~Cash~~29 and cash equivalents decreased to $1.4 million at June 25, 2010 from $2.4 million at June 25, 2009. Cash and cash equivalents decreased $1.6 million during the nine months ended June 25, 2010, primarily as a result of $4.6 million of net cash used in financing activities. We redeemed approximately $9.5 million of debentures while the proceeds from the sale of debentures were $4.7 million. Net cash was provided from investing activities, as finance receivables repaid exceeded finance receivables originated by $4.6 million. The cash required to fund the redemption of debentures caused us to tighten our risk management on lending and focus more on collection of finance receivables. Cash and cash equivalents

~~decreased~~obligations ~~$10.1~~if ~~million during~~ the ~~nine months ended June 25, 2009, primarily as a result of $8.7 million of net cash used in financing activities. We redeemed an unusually high~~ amount of ~~debentures~~ ~~($13.4~~redemptions ~~million)~~continues ~~while~~at ~~the~~its ~~proceeds~~current ~~from~~pace ~~the~~or ~~sale~~we ofcontinue ~~debentures~~to ~~were~~suffer ~~$5.1~~losses ~~million.~~and Weuse ~~also~~funds ~~redeemed $0.6 million more in demand notes than were sold. Net cash of $0.6 million was provided~~ from ~~investing~~operations ~~activities,~~to asfund ~~finance receivables repaid exceeded finance receivables originated by $0~~redemptions.7 ~~million.~~

~~During~~Our ~~2010,~~obligations wewith ~~expect~~respect to ~~continue~~the todebentures ~~use~~and ~~a significant~~demand ~~amount~~notes ofare ~~cash~~governed toby ~~fund~~the ~~redemption~~terms ~~obligations~~of ~~and~~indenture ~~pay~~agreements ~~interest~~with U.S. onBank ~~our~~National ~~securities~~Association, as trustee. ~~Because~~Under wethe ~~temporarily~~indentures, ~~suspended~~in ~~our~~addition ~~offerings~~to ofother ~~debentures~~possible ~~and~~events ~~demand~~of ~~notes~~default, if we ~~have~~fail ~~used~~to ~~operating~~make ~~cash~~a ~~flow~~payment ~~for~~of ~~redemptions~~principal ~~and~~or interest ~~payments~~under ~~on outstanding~~any ~~debentures~~debenture ~~and~~or demand ~~notes,~~note ~~which~~and ~~has~~this ~~reduced~~failure ~~new~~is ~~loans~~not tocured ~~customers.~~within To30 ~~the~~days, we ~~extent~~will ~~that~~be wedeemed ~~are~~in ~~required~~default. toUpon ~~continue~~such ~~using~~a ~~cash~~default, ~~from~~the ~~operations~~trustee ~~(as~~or ~~opposed~~holders toof ~~net~~25% ~~proceeds~~in ~~from~~principal ~~sales~~ of the outstanding debentures ~~and~~or demand notes) tocould ~~fund~~declare ~~redemptions~~ all principal and ~~make~~accrued interest ~~payments,~~immediately wedue ~~will~~and ~~make~~payable. ~~fewer~~Since ~~loans~~our tototal ~~customers~~assets do not cover these debt payment obligations, ~~which~~we ~~will~~would ~~result~~most inlikely abe ~~material~~unable ~~adverse~~to ~~effect~~make onall ~~our~~payments ~~liquidity,~~under ~~financial~~the ~~condition~~debentures or demand notes when due, and ~~ability~~we tomight ~~continue~~be asforced ato ~~going~~cease ~~concern~~our operations.

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 currently focus almost entirely on the sale of debentures and demand notes.

Cash and cash equivalents were $1.1 million at December 25, 2010, a decrease of $0.7 million from $1.8 million at December 25, 2009. During the three months ended December 25, 2010, cash and cash equivalents decreased $1.0 million, primarily as a result of $0.9 million of net cash used in investing activities as finance receivables originated exceeded finance receivables repaid. During the three months ended December 25, 2009, cash and cash equivalents decreased $1.1 million, primarily as a result of $0.8 million of net cash used in investing activities as finance receivables originated exceeded finance receivables repaid.

During 2011, we expect to continue to use a significant amount of cash to fund redemption obligations and pay interest on our securities. If we are unable to raise sufficient cash to fund these redemptions and make interest payments on outstanding debentures and demand notes, we may be forced to reduce new loans to customers. To the extent that we are required to continue using cash from operations (as opposed to net proceeds from sales of debentures and demand notes) to fund redemptions and make interest payments, we will make fewer loans to customers, which will result in a material adverse effect on our liquidity, financial condition and ability to continue as a going concern.

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, ~~if excess funds are available,~~ fund other Company working capital.

~~For~~During the ~~period~~three ~~from~~months ~~January~~ended December 2625, 2010, ~~through~~we (1) received ~~the~~gross ~~date~~proceeds onof ~~which~~$3.8 ~~our~~million ~~Post-Effective~~from ~~Amendments~~the tosale ~~Registration Statements~~of ondebentures, ~~Form~~(2) paid ~~S-1~~$2.6 ~~were~~million ~~declared~~for ~~effective~~redemption of debentures issued by ~~the~~us ~~SEC~~and ~~(July~~our 2subsidiary, ~~2010~~The Money Tree of Georgia Inc. and (3), received ~~the~~$0.2 ~~Company~~million ~~temporarily~~in ~~suspended~~net ~~our~~sales ~~offerings~~of demand notes. As of ~~variable~~December 25, ~~rate~~2010, ~~subordinated~~we had $72.4 million of debentures and ~~subordinated~~$3.4 million of demand notes ~~for~~outstanding, ~~sale~~compared into ~~compliance~~$71.2 ~~with~~million ~~Section 10(a)(~~of debentures and $3).2 million of ~~the Securities~~demand ~~Act~~notes outstanding as of ~~1933~~September 25, ~~as amended~~2010.

~~During~~30 the nine months ended June 25, 2010, we (1) received gross proceeds of $4.7 million from the sales of debentures, and (2) paid $9.5 million for redemption of debentures for us and our subsidiary, The Money Tree of Georgia Inc. As of June 25, 2010, we and this subsidiary had $68.8 million of debentures and $3.2 million of demand notes outstanding compared to $73.6 million of debentures and $3.1 million of demand notes outstanding as of September 25, 2009.

Subsequent Events

We have registered with the Securities and Exchange Commission on Form S-1 Registration Statements $75,000,000 of Series B Variable Rate Subordinated Debentures (Commission File No. 333-157701) and $35,000,000 of Subordinated Demand Notes (Commission File No. 333-157700). The Post-Effective Amendments to these Registration Statements were declared effective on July 2, 2010. These securities have also been registered with the State of Georgia.

Between July 2, 2010 and July 25, 2010, we sold $3.8 million of debentures and $0.8 million of demand notes. For the period from June 26, 2010 to July 25, 2010 we redeemed $2.5 million of debentures and $0.5 million of demand notes. These include amounts that were redeemed through our subsidiary, The Money Tree of Georgia Inc.

On August 2, 2010, Bradley D. Bellville, our President and current Chairman, purchased a controlling equity interest in us. Mr. Bellville purchased 1,962 shares of our Class A voting common stock and 8,954 shares of our Class B non-voting common stock, which represents 73.05% and 33.34%, respectively, of the total of such shares outstanding. Mr. Bellville purchased the shares from the Vance R. Martin GST Exempt Family Trust f/b/o W. Derek Martin, our former Chairman and the son of the Company’s founder.

Subsequent Events

We have registered with the Securities and Exchange Commission on Form S-1 Registration Statements, $75,000,000 of Series B Variable Rate Subordinated Debentures (Commission File No. 333-157701) and $35,000,000 of Subordinated Demand Notes (Commission File No. 333-157700). The latest Post-Effective Amendments to these Registration Statements were declared effective on January 11, 2011. These securities have also been registered with the State of Georgia.

Between December 26, 2010 and January 25, 2011, we sold $1.5 million of debentures and $0.2 million of demand notes. For the same period we redeemed $0.8 million of debentures and $0.2 million of demand notes. These include amounts that were redeemed through our subsidiary, The Money Tree of Georgia Inc.

Recent Accounting Pronouncements

Recent accounting pronouncements have been issued that may have a future effect on operations. Refer to Note 3 to the accompanying 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.~~accounting principles generally accepted ~~accounting~~in the United States of ~~principles~~America (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~~ 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.

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 and General Economic Conditions

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

A smaller reporting company, as defined in Item 10 of Regulation S-K, is not required to provide the information required by this Item.

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.

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 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 our disclosure controls and procedures were effective as of ~~June~~December 25, 2010.

Changes in Internal Control Over Financial Reporting

Except for the material weakness in the Company’s internal control over financial reporting and the subsequent measures to remedy such material weakness that were described in the Company’s ~~2009~~2010 Annual Report on Form 10-K~~/A and Quarterly Report on Form 10-Q/A for the quarter ended December 25~~, ~~2009,~~ there have been no changes in our internal control over financial reporting during the quarter ended ~~June~~December 25, 2010, 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 ~~June~~December 25, 2010 requiring disclosure under item 103 of Regulation S-K.

Item 1A. Risk Factors

~~The~~In ~~impact~~addition onto ~~us of~~ the ~~Dodd-Frank~~other ~~Wall~~information ~~Street~~set ~~Reform~~forth ~~and~~in ~~Consumer~~this ~~Protection~~report, ~~Act~~you ofshould ~~2010~~carefully (consider the factors discussed in Part 1, Item 1A, “~~Dodd-Frank~~Risk ~~Act~~Factors”) ~~and~~in ~~its~~our Annual Report on Form 10-K for ~~implementing~~the ~~regulations~~year ~~cannot~~ended beSeptember 25, ~~predicted~~2010 atthat ~~this~~could ~~time~~materially affect our business, financial condition or future results.

A wide range of regulatory initiatives directed at the financial services industry has been proposed in recent months. One of those initiatives, the Dodd-Frank Act, was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States, establishes the new federal Bureau of Consumer Financial Protection (the “BCFP”) and will require the BCFP, the FDIC, the SEC and other federal agencies to implement numerous new rules, many of which may not be implemented for several months or years. The Dodd-Frank Act and the resulting regulations will significantly impact the current regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions. At this time, it is difficult to predict the extent to which the Dodd-Frank Act or the resulting regulations will impact our business. However, compliance with these new laws and regulations may result in additional cost and expenses, which may impact our results of operations, financial condition or liquidity.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, Item 1A, “Risk Factors” in our Annual Report on Form 10-K/A for the year ended September 25, 2009 that could materially affect our business, financial condition or future results.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

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.
August 9, 2010				/s/ Bradley D. Bellville
February 8, 2011				/s/ Bradley D. Bellville
Date				Bradley D. Bellville
				President (Principal Executive Officer)
August 9, 2010				/s/ Steven P, Morrison
February 8, 2011				/s/ Steven P, Morrison
Date				Steven P. Morrison
				Chief Financial Officer (Principal Financial Officer)

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Filing Compare · Money Tree, Inc.