[Scorpion Man]

I am not surprised the stock has sold off. I am somewhat surprised it has not sold off more. The credit trends are quite scary in the Q from what I read.

This, in particular, looks bad - I know its hard to read here, but its page 20 of the 10Q, and the key is to look at the percentages, which are increasing right to left (last yr to this year). THese are large increases. In a finance company, this is quite a big deal.

The provision for credit losses increased from approximately $832,000 for the three months ended September 30, 2005 to $852,000 for the three months ended September 30, 2006. The provision for credit losses increased from approximately $1,260,000 for the six months ended September 30, 2005 to $1,662,000 for the six months ended September 30, 2006. The Company’s losses as a percentage of liquidation increased from 6.48% for the three months ended September 30, 2005 to 7.65% for the three months ended September 30, 2006. The Company’s losses as a percentage of liquidation increased from 5.77% for the six months ended September 30, 2005 to 6.37% for the six months ended September 30, 2006. The Company anticipates losses as a percentage of liquidation will be in the 6-9% range during the remainder of the current fiscal year. The longer term outlook for portfolio performance will depend on the overall economic conditions, the unemployment rate and the Company’s ability to monitor, manage and implement its underwriting philosophy in additional geographic areas as it strives to continue its expansion. The Company does not believe there have been any significant changes in loan concentrations, terms or quality of Contracts purchased during the three or six months ended September 30, 2006 that would have contributed to the increase in losses.

Recoveries as a percentage of charge-offs were 13% and 16% for the three months ended September 30, 2006 and 2005, respectively. Recoveries as a percentage of charge-offs were 15% and 18% for the six months ended September 30, 2006 and 2005, respectively. The Company believes that as it continues to expand its operations, it will become more difficult to implement its loss recovery model in geographic areas further away from its Corporate headquarters, and as a result, the Company will likely experience declining recovery rates over the long term.

The Company believes there is a correlation between the unemployment rate and future portfolio performance. The Company does not expect the U.S. unemployment rate to rise or fall significantly in the foreseeable future. Therefore the Company does not plan on increasing or decreasing reserves based on the current U.S. unemployment rate. The number of bankruptcy filings by customers during the three and six months ended September 30, 2006 remained consistent with recent reporting periods.

The following tables present certain information regarding the delinquency rates experienced by the Company with respect to Contracts and under its direct consumer loan program:



At September 30, 2006 At September 30, 2005

Contracts


Gross balance outstanding
$ 227,429,864 $ 194,489,189



Delinquencies


30 to 59 days
$ 4,167,057 1.83 % $ 2,793,371 1.44 %

60 to 89 days
1,465,884 0.64 % 707,902 0.36 %

90 + days
563,469 0.25 % 375,156 0.19 %


Total delinquencies
$ 6,196,410 2.72 % $ 3,876,429 1.99 %


Direct Loans


Gross balance outstanding
$ 9,724,049 $ 7,077,542



Delinquencies


30 to 59 days
$ 162,706 1.67 % $ 42,556 0.60 %

60 to 89 days
26,303 0.27 % 21,067 0.30 %

90 + days
25,178 0.26 % 28,138 0.40 %


Total delinquencies
$ 214,187 2.20 % $ 91,761 1.30 %


The delinquency percentage for Contracts more than thirty days past at September 30, 2006 was 2.72% as compared to 1.99% at September 30, 2005. The delinquency percentage for direct loans more than thirty days past due at September 30, 2006 was 2.20% as compared to 1.30% at September 30, 2005.

The Company does not give significant consideration to short-term trends in delinquency percentages when evaluating reserve levels. However, the Company believes delinquency trends over several reporting periods are more useful in estimating future losses and overall portfolio performance. The Company also estimates future portfolio performance by considering various factors, the most significant of which are described as follows. The Company analyzes historical static pool performance for each branch location when determining appropriate reserve levels. The Company utilizes internal branch audits as an indication of future static pool performance. The Company also considers such things as the current unemployment rate in markets the Company operates in, the percentage of voluntary repossessions as compared to prior periods, the percentage of bankruptcy filings as compared to prior periods and other leading economic indicators.