10-Q 1 v201288_10q.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2010 or

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-52015

Western Capital Resources, Inc.

(Exact Name of Registrant as Specified in its Charter)

Minnesota		47-0848102
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

11550 “I” Street, Suite 150, Omaha, Nebraska 68137

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (402) 551-8888

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 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 ¨	Smaller reporting company þ

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

Yes ¨ No þ

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 10, 2010, the registrant had outstanding 7,446,007 shares of common stock, no par value per share.

Western Capital Resources, Inc.

Index

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		2

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

Item 3. Quantitative and Qualitative Disclosures About Market Risk		20

Item 4T. Controls and Procedures		20

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		20

Item 1A. Risk Factors		21

Item 3. Defaults Upon Senior Securities		22

Item 6. Exhibits		23

SIGNATURES		24

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONTENTS

	Page

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets	3

Condensed Consolidated Statements of Income	4

Condensed Consolidated Statements of Cash Flows	5

Notes to Condensed Consolidated Financial Statements	6

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2010 (Unaudited)			December 31, 2009
ASSETS

CURRENT ASSETS
Cash	$	1,420,012		$	1,526,562
Loans receivable (less allowance for losses of $1,102,000 and $1,237,000)		4,859,058			4,875,870
Inventory		268,677			373,858
Prepaid expenses and other		166,673			288,145
Deferred income taxes		436,000			486,000
TOTAL CURRENT ASSETS		7,150,420			7,550,435

PROPERTY AND EQUIPMENT		835,551			1,075,715

GOODWILL		11,458,744			11,458,744

INTANGIBLE ASSETS		509,864			902,069

OTHER		98,851			107,715

TOTAL ASSETS	$	20,053,430		$	21,094,678

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	1,080,892		$	1,352,989
Income taxes payable		315,420			145,773
Note payable – short-term		2,000,000			1,794,372
Current portion long-term debt		774,531			165,431
Preferred dividend payable		925,000			1,000,000
Deferred revenue		295,756			345,826
TOTAL CURRENT LIABILITIES		5,391,599			4,804,391

LONG-TERM LIABILITIES
Notes payable – long-term		1,110,329			2,138,162
Deferred income taxes		299,000			250,000
Other		37,429			-
TOTAL LONG-TERM LIABILITIES		1,446,758			2,388,162
TOTAL LIABILITES		6,838,357			7,192,553

SHAREHOLDERS' EQUITY
Series A convertible preferred stock 10% cumulative dividends, $0.01 par value, $2.10 stated value, 10,000,000 shares authorized, issued and outstanding		100,000			100,000
Common stock, no par value, 240,000,000 shares authorized, 7,446,007 and 7,996,007 shares issued and outstanding		-			-
Additional paid-in capital		18,221,776			18,478,337
Accumulated deficit		(5,106,703	)		(4,676,212	)
TOTAL SHAREHOLDERS’ EQUITY		13,215,073			13,902,125

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	20,053,430		$	21,094,678

See notes to condensed consolidated financial statements.

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three months ended						Nine months ended
	September 30, 2010			September 30, 2009			September 30, 2010			September 30, 2009
REVENUES
Payday loan fees	$	2,834,253		$	2,814,599		$	7,865,541		$	7,872,094
Phones and accessories		766,310			1,186,550			3,058,853			4,163,525
Check cashing fees		168,602			184,213			565,787			646,863
Other income and fees		648,919			382,807			1,732,630			1,107,072
		4,418,084			4,568,169			13,222,811			13,789,554

STORE EXPENSES
Salaries and benefits		1,095,857			1,273,036			3,475,357			3,851,396
Provisions for loan losses		404,777			453,626			897,455			1,142,131
Phones and accessories cost of sales		387,892			438,646			1,110,633			1,772,002
Occupancy		451,528			442,058			1,417,154			1,199,446
Advertising		92,100			102,566			266,599			359,389
Depreciation		71,520			63,430			210,543			188,637
Amortization of intangible assets		129,027			179,664			392,205			536,394
Other		632,556			671,172			1,749,078			1,788,120
		3,265,257			3,624,198			9,519,024			10,837,515

INCOME FROM STORES		1,152,827			943,971			3,703,787			2,952,039

GENERAL & ADMINISTRATIVE EXPENSES
Salaries and benefits		395,841			376,885			1,098,191			1,011,934
Depreciation		4,020			8,103			13,665			17,564
Interest expense		106,783			81,351			302,787			245,457
Other		206,480			155,902			775,196			901,893
		713,124			622,241			2,189,839			2,176,848

INCOME BEFORE INCOME TAXES		439,703			321,730			1,513,948			775,191

INCOME TAX EXPENSE		168,000			124,000			538,000			293,000

NET INCOME		271,703			197,730			975,948			482,191

SERIES A CONVERTIBLE PREFERRED STOCK DIVIDENDS (assumes all paid)		(525,000	)		(525,000	)		(1,575,000	)		(1,575,000	)

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$	(253,297	)	$	(327,270	)	$	(599,052	)	$	(1,092,809	)

NET LOSS PER COMMON SHARE
Basic and diluted	$	(0.03	)	$	(0.04	)	$	(0.08	)	$	(0.14	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
Basic and diluted		7,446,007			7,996,007			7,631,355			7,924,633

See notes to condensed consolidated financial statements.

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	September 30, 2010			September 30, 2009

OPERATING ACTIVITIES
Net Income	$	975,948		$	482,191
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		224,208			206,201
Amortization		392,205			536,394
Shares retired for reimbursement of expenses		(88,000	)		-
Deferred income taxes		99,000			217,000
Loss on disposal of property and equipment		38,296			-
Changes in operating assets and liabilities
Loans receivable		16,812			215,449
Inventory		105,181			(190,135	)
Prepaid expenses and other assets		130,336			(334,120	)
Accounts payable and accrued liabilities		(102,450	)		204,245
Deferred revenue		(50,070	)		(32,606	)
Other liabilities – long-term		37,429			-
Net cash provided by operating activities		1,778,895			1,304,619

INVESTING ACTIVITIES
Purchase of property and equipment		(22,340	)		(441,266	)
Acquisition of stores		-			(2,178,000	)
Net cash used by investing activities		(22,340	)		(2,619,266	)

FINANCING ACTIVITIES
Advances (payments) from notes payable – short-term		205,628			(100,000	)
Payments on notes payable – long-term		(418,733	)		(102,244	)
Dividends		(1,650,000	)		(625,000	)
Net cash used by financing activities		(1,863,105	)		(827,244	)

NET DECREASE IN CASH		(106,550	)		(2,141,891	)

CASH
Beginning of period		1,526,562			3,358,547
End of period	$	1,420,012		$	1,216,656

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid	$	269,353		$	125,000
Interest paid		291,559			245,457

Noncash investing and financing activities:
Refinancing of note payable – short-term		1,636,044			-

See notes to condensed consolidated financial statements.

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation, Nature of Business and Summary of Significant Accounting Policies –

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared according to the instructions to Form 10-Q and Section 210.8-03(b) of Regulation S-X of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Form 10-K as of and for the year ended December 31, 2009. The condensed consolidated balance sheet at December 31, 2009, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP.

Nature of Business

Western Capital Resources, Inc. (WCR), through its wholly owned operating subsidiaries, Wyoming Financial Lenders, Inc. (WFL) and PQH Wireless, Inc. (PQH), collectively referred to as the “Company,” provides retail financial services and retail cellular phone sales to individuals primarily in the Midwestern United States. As of September 30, 2010, the Company operated 55 “payday” stores in 10 states (Colorado, Iowa, Kansas, Montana, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming) and operated 29 Cricket wireless retail stores in seven states (Illinois, Indiana, Kansas, Maryland, Missouri, Nebraska and Texas). The condensed consolidated financial statements include the accounts of WCR, WFL, and PQH. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company, through its “payday” division, provides non-recourse cash advance loans, check cashing and other money services. The short-term consumer loans, known as cash advance loans or “payday” loans, are in amounts that typically range from $100 to $500. Cash advance loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state based on applicable regulations, and generally ranges from $15 to $22 per each $100 borrowed. To repay the cash advance loans, customers may pay with cash, in which their personal check is returned to them, or by allowing their check to be presented to the bank for collection.

The Company also provides title and smaller unsecured installment loans and other ancillary consumer financial products and services that are complementary to its cash advance-lending business, such as check-cashing services, money transfers and money orders. In our check cashing business, we primarily cash payroll checks, but we also cash government assistance, tax refund and insurance checks or drafts. Our fees for cashing payroll checks average approximately 2.5% of the face amount of the check, subject to local market conditions, and this fee is deducted from the cash given to the customer for the check. We display our check cashing fees in full view of our customers on a menu board in each store and provide a detailed receipt for each transaction. Although we have established guidelines for approving check-cashing transactions, we have no preset limit on the size of the checks we will cash.

Our loans and other related services are subject to state regulations (which vary from state to state), federal regulations and local regulations, where applicable.

The Company also operates a Cricket Wireless Retail division that is a premier dealer for Cricket Wireless, Inc., reselling cellular phones and accessories and accepting service payments from Cricket customers.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect certain reported amounts and disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. Significant management estimates relate to the allowance for loans receivable, allocation of and carrying value of goodwill and intangible assets, and deferred taxes and tax uncertainties.

Revenue Recognition

The Company recognizes fees on cash advance loans on a constant-yield basis ratably over the loans’ terms. Title loan fees are recognized using the interest method. Installment loan fees are recognized pro-rata over the loan duration while installment loan maintenance fees are recognized when earned. The Company records revenue from check cashing fees, sales of phones, and accessories and fees from all other services in the period in which the sale or service is completed.

Loans Receivable / Loan Loss Allowance

We maintain a loan loss allowance for anticipated losses for our cash advance, installment and title loans. To estimate the appropriate level of the loan loss allowance, we consider the amount of outstanding loans owed to us, historical loans charged off, current and expected collection patterns and current economic trends. Our current loan loss allowance is based on our net write offs, typically expressed as a percentage of loan amounts originated for the last 24 months applied against the principal balance of outstanding loans that we write off. The Company also periodically performs a look-back analysis on its loan loss allowance to verify that the historical allowance established tracks with the actual subsequent loan write-offs and recoveries. The Company is aware that, as conditions change, it may also need to make additional allowances in future periods.

Included in loans receivable are cash advance loans that are currently due or past due and cash advance loans that have not been repaid. This generally is evidenced where a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons. Cash advance loans are carried at cost less the allowance for doubtful accounts. The Company does not specifically reserve for any individual cash advance loan. The Company aggregates cash advance loans for purposes of estimating the loss allowance using a methodology that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio. This methodology takes into account several factors, including the maturity of the store location and charge-off and recovery rates. The Company utilizes a software program to assist with the tracking of its historical portfolio statistics. As a result of the Company’s collection efforts, it historically writes off approximately 45% of the returned items. Based on days past the check return date, write-offs of returned items historically have tracked at the following approximate percentages: 1 to 30 days – 45%; 31 to 60 days – 67%; 61 to 90 days – 83%; 91 to 120 days – 88%; and 121 to 180 days – 90%. All returned items are charged-off after 180 days, as collections after that date have not been significant. The loan loss allowance is reviewed monthly and any adjustment to the loan loss allowance as a result of historical loan performance, current and expected collection patterns and current economic trends is recorded.

A rollforward of the Company’s loans receivable allowance for the nine months ended September 30, 2010 and 2009 is as follows:

	Nine Months Ended September 30,
	2010			2009

Loans receivable allowance, beginning of period	$	1,237,000		$	1,413,000
Provision for loan losses charged to expense		897,000			1,142,000
Charge-offs, net		(1,032,000	)		(1,368,000	)
Loans receivable allowance, end of period	$	1,102,000		$	1,187,000

Net Loss Per Common Share

Basic net loss per common share is computed by dividing the loss available to common shareholders by the weighted average number of common shares outstanding for the year. Diluted net loss per common share is computed by dividing the net loss available to common shareholders by the sum of the weighted average number of common shares outstanding plus potentially dilutive common share equivalents (stock warrants, convertible preferred shares) when dilutive. Potentially dilutive Series A Convertible Preferred Stock (10,000,000 shares) were anti-dilutive and therefore excluded from the dilutive net loss per share computation for 2010 and 2009.

Recent Accounting Pronouncements

In January 2010, the FASB issued amendments to guidance on fair value measurements and disclosures that will require inclusion of the amount of significant transfers in and out of levels 1 and 2 fair value measurements and the reasons for the transfers. In addition, the reconciliation for level 3 activity will be required on a gross rather than net basis. An amendment related to the level of disaggregation in determining classes of assets and liabilities and disclosures about inputs and valuation techniques was also issued. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the reconciliation for level 3 activity on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. The Company adopted this amendment guidance with no material impact on its condensed consolidated financial statements.

In April 2010, the FASB issued guidance on accounting for certain tax effects related to the accounting for postretirement health care plans effective on the enactment date of March 23, 2010. The Company adopted this amendment guidance with no material impact on its condensed consolidated financial statements.

In July 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.” ASU 2010-20 requires extensive new disclosures about financing receivables, including credit risk exposures and the allowance for credit losses. For public entities, ASU 2010-20 disclosures of period-end balances are effective for interim or annual reporting periods ending on or after December 15, 2010. Disclosures related to activity that occurs during the reporting period are required for interim and annual reporting periods beginning on or after December 15, 2010. We are assessing the impact of ASU 2010-20 on our disclosures.

No other new accounting pronouncement issued or effective during the fiscal quarter has had or is expected to have a material impact on the condensed consolidated financial statements.

2.	Segment Information –

The Company has grouped its operations into two segments – Payday Operations and Cricket Wireless Retail Operations. The Payday Operations segment provides financial and ancillary services. The Cricket Wireless Retail Operations segment is a dealer for Cricket Wireless, Inc., reselling cellular phones and accessories and serving as a payment center for Cricket customers.

Segment information related to the three and nine months ended September 30, 2010 and 2009 is set forth below:

	Three Months Ended September 30, 2010							Three Months Ended September 30, 2009
	Payday		Cricket Wireless			Total		Payday		Cricket Wireless			Total

Revenues from external customers	$	3,102,175	$	1,315,909		$	4,418,084	$	3,062,043	$	1,506,126		$	4,568,169
Net income (loss)	$	461,485	$	(189,782	)	$	271,703	$	425,974	$	(228,244	)	$	197,730

	Nine Months Ended September 30, 2010							Nine Months Ended September 30, 2009
	Payday		Cricket Wireless			Total		Payday		Cricket Wireless			Total

Revenues from external customers	$	8,768,974	$	4,453,837		$	13,222,811	$	8,703,516	$	5,086,038		$	13,789,554
Net income (loss)	$	1,403,494	$	(427,546	)	$	975,948	$	964,715	$	(482,524	)	$	482,191
Total segment assets	$	14,972,047	$	5,081,383		$	20,053,430	$	15,316,690	$	5,852,535		$	21,169,225

3.	Credit Facility –

Credit Facility with WERCS

On April 2, 2010, WFL, the wholly owned payday lending operating subsidiary of WCR, refinanced its outstanding credit facility. On that date, WERCS, a Wyoming corporation and the former holder of the Company’s Series A Convertible Preferred Stock, satisfied all of WFL’s financial obligations owing to Banco Popular North America and entered into a Business Loan Agreement and associated $2,000,000 Promissory Note with WFL. The loan from WERCS extinguished the $1,637,341 that WFL owed to Banco Popular, and the remaining $362,659 has been used for general working capital.

The Business Loan Agreement and associated Promissory Note contained terms that were substantially similar to those contained in the original loan documents with Banco Popular. To secure the obligations of WFL under the new Business Loan Agreement and Promissory Note, the Company entered into (i) a Commercial Pledge Agreement with WERCS pursuant to which the Company pledged its share ownership in WFL, and (ii) a Commercial Security Agreement pursuant to which the Company granted WERCS a security interest in substantially all of the Company’s assets. The Company also entered into a Commercial Guaranty relating to the repayment of WFL’s obligations under the Business Loan Agreement and Promissory Note.

The payment terms under the Promissory Note require the Company to make monthly payments of accrued interest only for 11 months, followed by an April 1, 2011 balloon payment of any remaining accrued but unpaid interest and all $2,000,000 of principal under the Promissory Note. Interest accrues on the unpaid principal balance of the promissory note at the rate of 12.0% per annum.

Banco Popular Loan Satisfaction and Redemption of Stock

On April 2, 2010, as part of the WERCS transactions described above, the Company and WFL satisfied their obligations to Banco Popular North America under a Business Loan Agreement and related promissory note, the outstanding principal and accrued interest amount of which was $1,637,341.

In connection with the payment in full of WFL’s and the Company obligations to Banco Popular North America, the guaranty of such obligations that had been earlier delivered by Mr. Chris Larson (the former Chief Executive Officer of the Company) expired by its terms. As a result, the Company obtained and cancelled all 550,000 shares of common stock of Mr. Larson that had been held in escrow since May 1, 2009 pursuant to the terms of a Settlement Agreement with Mr. Larson dated as of May 1, 2009. As a result of the receipt of the shares, the Company recorded $88,000 of other income in the second quarter 2010.

4.	Notes Payable - Long-Term –

Effective March 31, 2010, the Company amended notes payable to related parties. Under the amended payment terms of the notes, principal and interest payments on the notes are to be made monthly in the aggregate amount of approximately $61,500, beginning April 1, 2010, so as to amortize the outstanding balances of the notes as of March 31, 2010 over the entire term at a 10% rate of interest with all then-outstanding principal and accrued but unpaid interest due and payable on March 1, 2013.

5.	Stock Purchase and Sale –

On February 23, 2010, WERCS, a Wyoming corporation, entered into a definitive Stock Purchase and Sale Agreement by and between WERCS, and WCR Acquisition, Inc., a Delaware corporation, pursuant to which WERCS agreed to sell to WCR Acquisition, Inc. all shares of common stock and Series A Convertible Preferred Stock of the Company owned by WERCS. The parties later amended the Stock Purchase and Sale Agreement to substitute WCR, LLC, a Delaware limited liability company, as the buyer of Company stock from WERCS. The sale of the shares of common stock and Series A Convertible Preferred Stock was consummated on March 31, 2010. WCR, LLC purchased the common stock and the Series A Convertible Preferred Stock for aggregate consideration of approximately $4,770,000.

Since the 10,000,000 shares of Series A Convertible Preferred Stock vote on an as-converted basis (presently one-for-one) with shares of the Company’s common stock, the purchase and sale transaction effects a change in the voting control of the Company, with WCR, LLC possessing approximately 61.8% of the voting power of the Company’s shares.

6.	Employment Agreement/Management Bonus Pool –

On March 31, 2010, the Company entered into an Employment Agreement with John Quandahl, its Chief Executive Officer, Chief Operating Officer, and interim Chief Financial Officer. The Employment Agreement provides Mr. Quandahl with an annual base salary and eligibility for participation in an annual performance-based cash bonus pool for management. The performance-based bonus provisions permit certain members of management to receive annual bonus payments in cash based on EBITDA targets established by the Board of Directors annually. The 2010 Bonus Pool EBITDA target is set at $4 million. If the Company’s actual EBITDA performance for a particular annual period ranges from 85-100% of the established EBITDA target, the cash bonus pool will be 7.5% of EBITDA. If the Company’s actual EBITDA performance for a particular annual period exceeds 100% of the established EBITDA target, 15% of EBITDA over the established target will be added to the cash bonus pool.

7.	Risks Inherent in the Operating Environment –

The Company’s payday or short-term consumer loan activities are highly regulated under numerous local, state, and federal laws and regulations, which are subject to change. New laws or regulations could be enacted that could have a negative impact on the Company’s lending activities. Over the past few years, consumer advocacy groups and certain media reports have advocated governmental and regulatory action to prohibit or severely restrict deferred presentment cash advances.

The Federal Trade Commission has issued an FTC Consumer Alert (Federal Trade Commission, March 2008, Consumer Alert entitled “Payday Loans Equal Very Costly Cash: Consumers Urged to Consider the Alternatives”) that discourages consumers from obtaining payday loans such as the loans we offer, primarily on the basis that the types of loans we offer are very costly and consumers should consider alternatives to accepting a payday loan. For further information, you may obtain a copy of the alert at www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt060.shtm. The federal government also passed legislation, the 2007 Military Authorization Act, prohibiting us from offering or making our loans to members of the military when the interest and fees calculated as an annual percentage rate exceeds 36%. This limitation effectively prohibits us from utilizing our present business model for cash advance or “payday” lending when dealing with members of the U.S. military, and as a result we do not and do not plan to conduct payday lending business with U.S. military personnel. These facts evidence the widespread belief that our charges relating to our loans are too expensive to be good for consumers. Some consumer advocates and others have characterized payday lending as “predatory.” As a result, there are frequently attempts in the various state legislatures, and occasionally in the U.S. Congress, to limit, restrict or prohibit payday lending.

In February 2009, Congress introduced H.R. 1214, the Payday Loan Reform Act of 2009 (an amendment to the Truth in Lending Act). If enacted, this amendment would restrict charges for a single-payment loan to a 391% effective annual rate, or $15 per $100 for a two-week loan, prohibit loan rollovers, limit borrowers to one outstanding loan at a time and permit only one extended repayment plan every six months. Presently, the bill is in the House Committee on Financial Services. We have no further information regarding this bill or any legislative efforts Congress may propose at this time.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the U.S. Congress and signed into law. Under the Act, a new Consumer Financial Protection Bureau will consolidate most federal regulation of financial services offered to consumers, and replace the Office of Thrift Supervision’s seat on the FDIC Board. Almost all credit providers, including mortgage lenders, providers of payday loans, other nonbank financial companies, and banks and credit unions with assets over $10 billion, will be subject to new regulations to be passed by the Bureau. While the Bureau does not appear to have authority to make rules limiting interest rates or fees charged, the scope and extent of the Bureau’s authority will nonetheless be broad, and it is expected that the Bureau will address issues such as rollovers or extensions of payday loans. Future restrictions on the payday lending industry could have serious consequences for the Company.

Any adverse change in present federal laws or regulations that govern or otherwise affect payday lending could result in our curtailment or cessation of operations in certain jurisdictions or locations. Furthermore, any failure to comply with any applicable federal laws or regulations could result in fines, litigation, the closure of one or more store locations or negative publicity. Any such change or failure would have a corresponding impact on our results of operations and financial condition, primarily through a decrease in revenues resulting from the cessation or curtailment of operations, decrease in our operating income through increased legal expenditures or fines, and could also negatively affect our general business prospects as well if we are unable to effectively replace such revenues in a timely and efficient manner or if negative publicity effects our ability to obtain additional financing a needed.

During the 2010 legislative session in Colorado, House Bill 10-1351 was passed into law. This bill amended the Colorado Deferred Deposit Loan Act, the existing payday lending law. The law became effective August 11, 2010 and modified traditional payday lending by changing the single payment advance (with no minimum term) into a single or multiple payment loan with a minimum six month term. It also limited the amount and type of fees that can be charged on these loans, effectively reducing by one-half the fees that can be charged and when the fees may be realized. At present, the Company continues to operate its sole store in Colorado while the impact to profitability of this new law is being assessed. Currently, we derive 1.47% of our Payday division revenues from fees in Colorado.

In May 2010, new laws were enacted in Wisconsin that restrict the number of times a consumer may renew (or rollover) a payday loan. Previously, there were no limits to the number of rollovers permitted. Effective January 1, 2011, consumers in Wisconsin will only be allowed to renew a payday loan once, and then lenders will be required to offer a 60-day, interest free, payment plan to consumers. The Company is still assessing the impact of these new Wisconsin laws. Our preliminary projections indicate the changes could reduce revenue in the state by 30% - 40%. Currently, we derive 6.01% of our Payday division revenues from fees in Wisconsin.

On November 2, 2010, voters in Montana passed Petition Initiative I-164. Effective January 1, 2011, Petition Initiative I-164 will cap fees on payday loans at an imputed interest rate of 36%. The Company is evaluating all options related to its Montana operations, including discontinuing its payday loan operations in that state. Currently, 4.54% of the Company’s payday division revenues comes from fees derived in Montana.

The passage of federal or state laws and regulations could, at any point, essentially prohibit the Company from conducting its payday lending business in its current form. Any such legal or regulatory change would certainly have a material and adverse effect on the Company, its operating results, financial condition and prospects, and perhaps even its viability.

For the nine months ended September 30, 2010 and 2009, the Company had significant revenues by state (shown as a percentage of applicable division’s revenue) as follows:

Payday Division							Cricket Wireless Division
	2010 % of Revenues			2009 % of Revenues				2010 % of Revenues			2009 % of Revenues
Nebraska		27	%		28	%	Missouri		31	%		40	%
Wyoming		13	%		14	%	Nebraska		15	%		13	%
North Dakota		16	%		15	%	Texas		11	%		11	%
Iowa		12	%		12	%	Indiana		29	%		22	%

8.	Preferred Stock Dividend –

Cumulated dividends on the Company's Series A Convertible Preferred Stock are $525,000 and $1,575,000 for the three and nine months ended September 30, 2010, respectively. The Company has $525,000 cumulative unaccrued preferred dividends at September 30, 2010.

9.	Other Expense –

A breakout of other expense is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009

Store expenses
Bank fees	$	54,734	$	60,280	$	159,521	$	170,232
Collection costs		105,291		116,828		308,216		286,804
Repairs & maintenance		47,125		66,399		137,081		157,446
Supplies		39,243		80,426		126,522		243,481
Telephone		33,194		48,582		108,644		144,583
Utilities and network lines		131,197		110,685		391,901		277,718
Other		221,772		187,972		517,193		507,856
	$	632,556	$	671,172	$	1,749,078	$	1,788,120

General & administrative expenses
Professional fees	$	41,347	$	66,622	$	369,720	$	618,959
Management and consulting fees		100,000		-		200,000		-
Other		65,133		89,280		205,476		282,934
	$	206,480	$	155,902	$	775,196	$	901,893

10.	Litigation Matter –

On March 26, 2010, the Company and all of the then-current members of its Board of Directors, among others, were sued by Messrs. Steven Staehr and David Stueve. In that lawsuit, the plaintiffs have alleged, among other things, that our Board of Directors breached certain of their fiduciary duties primarily in connection with the sale by WERCS of its capital stock in the Company to WCR, LLC. The complaint seeks injunctive and declaratory relief and unspecified money damages. The Company believes the claims are without merit. While we are unable to predict the ultimate outcome of these claims and proceedings, management currently believes there is not a reasonable possibility that the costs and liabilities of such matters, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations. Subsequent to the filing of the lawsuit, the Company removed the lawsuit to federal court and the plaintiffs sought to have the case remanded back to state court. On October 26, 2010, the plaintiffs’ motion to remand the case to state court was denied by the federal court. The Company has filed a motion to dismiss the lawsuit and such motion is currently being considered by the federal court.

11.	Management and Advisory Agreement –

Effective April 1, 2010, the Company entered into a Management and Advisory Agreement with Blackstreet Capital Management, LLC (“Blackstreet”), to provide certain financial, managerial, strategic and operating advice and assistance. Blackstreet employs two of the Company’s directors and is affiliated with another entity to which a third director provides consulting services. The annual fees for this contract will be the greater of 5% of EBITDA or $300,000.

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

Forward-Looking Statements

Some of the statements made in this report are “forward-looking statements,” as that term is defined under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon our current expectations and projections about future events. Whenever used in this report, the words “believe,” “anticipate,” “intend,” “estimate,” “expect” and similar expressions, or the negative of such words and expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this report are primarily located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part I, Item 2), Legal Proceedings (Part II, Item 1), and “Risk Factors” (Part II, Item 1A), but are found in other parts of this report as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. We will not necessarily update forward-looking statements even though our situation may change in the future.

Specific factors that might cause actual results to differ from our expectations or may affect the value of the common stock, include, but are not limited to:

Changes in local, state or federal laws and regulations governing lending practices, or changes in the interpretation of such laws and regulations

Litigation and regulatory actions directed toward our industry or us, particularly in certain key states and/or nationally;

Our need for additional financing, and

Unpredictability or uncertainty in financing markets which could impair our ability to grow our business through acquisitions.

Other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Industry data and other statistical information used in this report are based on independent publications, government publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates, derived from our review of internal surveys and the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information.

General Overview

We provide (through Wyoming Financial Lenders, Inc.) retail financial services to individuals primarily in the midwestern and southwestern United States. These services include non-recourse cash advance loans, small unsecured installment loans, check cashing and other money services. At the close of business on September 30, 2010, we owned and operated 55 stores in 10 states (Colorado, Iowa, Kansas, Montana, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming).

We provide short-term consumer loans—known as “payday”, “installment” or “cash advance” loans—in amounts that typically range from $100 to $500. Payday loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s post-dated personal check(s) for the aggregate amount of the cash advanced, plus a fee. The fee varies from state to state based on applicable regulations, and generally ranges from $15 to $22 for each whole or partial increment of $100 borrowed. To repay a payday or installment loan, a customer may pay with cash, in which case their personal check is returned to them, or allow the check to be presented to the bank for collection. All of our payday loans, installment loans and other services are subject to state regulations (which vary from state to state), federal regulations and local regulation, where applicable.

In October 2008, we began operating Cricket Wireless retail stores as an authorized dealer of Cricket Wireless products and services. Authorized dealers are permitted to sell the Cricket line and generally locate their store operations in areas with a strong potential customer base where Cricket does not maintain a corporate storefront. These locations are generally within the urban core or surrounding areas of a community. We are an authorized premier Cricket dealer, and as such, we are only permitted to sell the Cricket line of prepaid cellular phones at our Cricket retail stores. At the close of business on September 30, 2010, we owned and operated 29 stores in seven states (Illinois, Indiana, Kansas, Maryland, Missouri, Nebraska, and Texas).

Our expenses primarily relate to the operations of our various stores. The most significant expenses include salaries and benefits for our store employees, provisions for payday loan losses and occupancy expense for our leased real estate. Our other significant expenses are general and administrative, which includes compensation of employees and professional fees for consulting, accounting, audit and legal services.

With respect to our cost structure, salaries and benefits are one of our largest costs and are driven primarily by the number of branches operated throughout the year and changes in loan volumes. Occupancy and phone and accessory cost of sales make up our second and third largest expense item. Our provision for losses is also a significant expense. We have experienced seasonality in our operations, with the first and fourth quarters typically being our strongest periods as a result of broader economic factors, such as holiday spending habits at the end of each year and income tax refunds during the first quarter.

We evaluate our stores based on revenue growth, gross profit contributions and loss ratio (which is losses as a percentage of payday loan fees), with consideration given to the length of time the branch has been open and its geographic location. We evaluate changes in comparable branch financial and other measures on a routine basis to assess operating efficiency. We define comparable branches as those branches that are open during the full periods for which a comparison is being made. For example, comparable branches for the annual analysis we undertook as of December 31, 2009 have been open at least 24 months on that date. We monitor newer branches for their progress toward profitability and rate of loan growth, units sold, or payment volume.

The contraction of the payday loan industry has followed, and continues to be significantly affected by, payday lending legislation and regulation in the various states and nationally. We actively monitor and evaluate legislative and regulatory initiatives in each of the states and nationally, and are involved with the efforts of the various industry lobbying efforts. To the extent that states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business could be adversely affected. In Nebraska, legislation was introduced in 2008 (but did not advance) to ban all cash advance or payday loans in Nebraska. Despite the defeat of this legislation, since we derived approximately 27% of our 2009 and year-to-date 2010 total payday lending revenues in Nebraska, any subsequent attempts to pass similar legislation in Nebraska, or other legislation that would restrict our ability to make cash advance loans in Nebraska, would pose significant risks to our business.

In an effort to expand our geographic reach, our strategic expansion plans involve the expansion and diversification of our product and service offerings. For this reason, we have focused, and will continue to focus, a significant amount of time and resources on the development of our Cricket Wireless retail stores. We believe that successful expansion, both geographically and product- and service-wise, will help to mitigate the regulatory and economic risk inherent in our business by making us less reliant on (i) cash advance lending alone and (ii) any particular aspect of our business that is concentrated geographically.

Discussion of Critical Accounting Policies

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America applied on a consistent basis. The preparation of these financial statements requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis. We base these estimates on the information currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results could vary materially from these estimates under different assumptions or conditions.

Our significant accounting policies are discussed in Note 1, “Basis of Presentation, Nature of Business and Summary of Significant Accounting Policies,” of the notes to our condensed consolidated financial statements included in this report. We believe that the following critical accounting policies affect the more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements.

Loan Loss Allowance

We maintain a loan loss allowance for anticipated losses for our cash advance, installment, and title loans. To estimate the appropriate level of the loan loss allowance, we consider the amount of outstanding loans owed to us, historical loans charged off, current and expected collection patterns and current economic trends. Our current loan loss allowance is based on our net write offs, typically expressed as a percentage of loan amounts originated for the last 24 months applied against the principal balance of outstanding loans that we write off. The Company also periodically performs a look-back analysis on its loan loss allowance to verify the historical allowance established tracks with the actual subsequent loan write-offs and recoveries. The Company is aware that, as conditions change, it may also need to make additional allowances in future periods.

A rollforward of the Company’s loans receivable allowance for the nine months ended September 30, 2010 and 2009 is as follows:

	Nine Months Ended September 30,
	2010			2009

Loans receivable allowance, beginning of period	$	1,237,000		$	1,413,000
Provision for loan losses charged to expense		897,000			1,142,000
Charge-offs, net		(1,032,000	)		(1,368,000	)
Loans receivable allowance, end of period	$	1,102,000		$	1,187,000

Valuation of Long-lived and Intangible Assets

The Company assesses the impairment of long-lived and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable; goodwill is tested on an annual basis. Factors that could trigger an impairment review include significant underperformance relative to expected historical or projected future cash flows, significant changes in the manner of use of acquired assets or the strategy for the overall business, and significant negative industry trends. When management determines that the carrying value of long-lived and intangible assets may not be recoverable, impairment is measured based on the excess of the assets' carrying value over the estimated fair value.

Results of Operations - Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009

For the three-month period ended September 30, 2010, net income was $.27 million compared to net income of $.20 million for the three months ended September 30, 2009. During the three months ended September 30, 2010, income from operations before income taxes was $.44 million compared to $.32 million for the three months ended September 30, 2009. The major components of revenues, store expenses, general and administrative expenses, total operating expenses and income tax expense are discussed below.

Revenues

Revenues totaled $4.42 million for the three months ended September 30, 2010, compared to $4.57 million for the three months ended September 30, 2009. The decrease in total revenues resulted from a lower average selling price per unit under Cricket’s new pricing structure which took effect in all markets on August 3, 2010, a reduction in the number of phone and modem units sold which can be attributed to elevated sales in 2009 as Cricket rolled out new markets and from operating five fewer Cricket store locations during the three months ended September 30, 2010 compared to the three months ended September 30, 2009. The decrease in phone and modem sales revenue was partially offset by an increase in fees generated from accepting Cricket service payments, which is included in “Other income and fees”. This trend is expected to continue due to Cricket’s change in its retail pricing structure and compensation structure to dealers.

Loan originations in the 2010 interim period remained stable. During both the three-month periods ended September 30, 2010 and September 30, 2009, we originated approximately $19.3 million $19.2 million in cash advance loans, respectively. Our average loan (including fees) totaled approximately $366 and $361 during the three-month periods ended September 30, 2010 and 2009, respectively. Our average fee for the three-month periods ended September 30, 2010 and 2009 was $54 and $53, respectively.

The following table summarizes our revenues for the three months ended September 30, 2010 and 2009, respectively:

	Three Months Ended September 30,				Three Months Ended September 30,
	2010		2009		2010			2009
					(percentage of revenues)
Payday loan fees	$	2,834,253	$	2,814,599		64.2	%		61.6	%
Phones and accessories		766,310		1,186,550		17.3	%		26.0	%
Check cashing fees		168,602		184,213		3.8	%		4.0	%
Other income and fees		648,919		382,807		14.7	%		8.4	%
Total	$	4,418,084	$	4,568,169		100.0	%		100.0	%

Store Expenses

Total expenses associated with store operations for the three months ended September 30, 2010 were $3.27 million, compared to $3.62 million for the three months ended September 30, 2009, or a 9.7% reduction for the interim periods. The major components of these expenses are salaries and benefits for our store employees, provision for loan losses, costs of sales for phones and accessories, occupancy costs primarily relating to our store leaseholds, advertising expenses, depreciation of store equipment and leasehold improvements, amortization of intangible assets and other expenses associated with store operations.

Overall, our most significant decreases in store expenses for the three months ended September 30, 2010 and 2009 related to salaries and benefits, phone and accessories cost of sales, amortization of intangible assets, and other store operation expenses. A discussion and analysis of the various components of our store expenses appears below.

Salaries and Benefits. Payroll and related costs at the store level were $1.10 million compared to $1.27 million for the periods ended September 30, 2010 and 2009, respectively. We expect salaries and benefits expenses to remain near the three months ended September 30, 2010 level for the remainder of 2010.

Provisions for Loan Losses. For the three months ended September 30, 2010, our provisions for loan losses were $.40 million compared to $.45 million for the three months ended September 30, 2009. Our provisions for loan losses represented approximately 14.3% and 16.1% of our loan fee revenue for the three months ended September 30, 2010 and 2009, respectively. The more favorable loss ratio year-to-year reflects our expanded collection efforts in the three months ended September 30, 2010 compared to the three months ended September 30, 2009. Due to our inability to foretell the depth and duration of the continued economic downturn, we believe there are currently uncertainties in how significant our total 2010 loan losses may be and how they may differ from 2009.

Phone and Accessories Cost of Sales. For the three months ended September 30, 2010, our costs of sales were $.39 million compared to $.44 million for the same period in 2009. The decrease in our Cricket Wireless segment revenues had a corresponding downward impact to our costs of sales.

Occupancy Costs. Occupancy expenses, comprised mainly of store leases, were $.45 million for the three months ended September 30, 2010 versus $.44 million for the three months ended September 30, 2009.

Advertising. Advertising and marketing expenses decreased from $.10 million for the three months ended September 30, 2009 to $.09 million for the three months ended September 30, 2010, a $.01 million or 10.2% reduction. In general, we expect that our marketing and advertising expenses for 2010 will remain consistent with 2009 levels.

Depreciation. Depreciation, relating to store equipment and capital expenditures for stores, increased slightly to $.07 million for the three months ended September 30, 2010 and $.06 for the three months ended September 30, 2009.

Amortization of Intangible Assets. Amortization of intangible assets decreased from $.18 million for the three months ended September 30, 2009 to $.13 million, or 27.8%, for the three months ended September 30, 2010. Payday division expense decreased $.03 million due to intangible assets becoming fully amortized while the expense on the Cricket division decreased by $.02 million due to amortization expense being lower each subsequent year.

Other Store Expenses. Other expenses decreased to $.63 million for the three months ended September 30, 2010 from $.67 million for the three months ended September 30, 2009. The decrease was primarily due to a decrease in collection costs, supplies, and other expenses related to store operations.

General and Administrative Expenses

Total general and administrative costs for the three months ended September 30, 2010 were $.71 million compared to $.62 million for the period ended September 30, 2009. For the three months ended September 30, 2010, the major components of these costs were salaries and benefits for our corporate headquarters operations and executive management, interest expense, and other general and administrative expenses. A discussion of the various components of our general and administrative costs for the three months ended September 30, 2010 and 2009 appears below:

Salaries and Benefits. Salaries and benefits expenses for the three months ended September 30, 2010 were $.40 million, a $.02 million increase from the $.38 million in such expenses during period ended September 30, 2009. The increase was due to costs incurred under the new management bonus plan.

Interest. Interest expense for the three months ended September 30, 2010 was $.11 million compared to $.08 million for the three months ended September 30, 2009. Interest expense related to the WERCS loan and notes payable for store acquisitions made during prior periods.

Other General and Administrative Expenses. Other general and administrative expenses, which includes professional fees for accounting and legal services, management and consulting fees, utilities, office supplies, collection costs and other minor costs associated with corporate headquarters activities, increased $.05 million or 31%, to $.21 million for the three months ended September 30, 2010 compared to $.16 million from the three months ended September 30, 2009. The increase in these expenses is mainly attributable to management fees we began incurring during 2010 and was partially offset by a reduction of nonrecurring professional fees incurred in 2009. We expect professional fees to continue to remain stable or slightly increase throughout the remainder of 2010 due to ongoing litigation. Management and consulting fees, which are expected to recur, were $.10 million for the three months ended September 30, 2010.

Income Tax Expense

Income tax expense for the three months ended September 30, 2010 was $.17 million compared to income tax expense of $.12 million for the three months ended September 30, 2009, an effective rate of 38.2% and 38.5%, respectively.

Results of Operations - Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

For the nine-month period ended September 30, 2010, net income was $.98 million compared to net income of $.48 million for the nine months ended September 30, 2009. During the nine months ended September 30, 2010, income from operations before income taxes was $1.51 million compared to $.78 million for the nine months ended September 30, 2009. The major components of revenues, store expenses, general and administrative expenses, total operating expenses and income tax expense from continuing operations are discussed below.

Revenues

Revenues totaled $13.2 million for the nine months ended September 30, 2010, compared to $13.8 million for the nine months ended September 30, 2009. The decrease in total revenues resulted from the following factors impacting the Cricket Wireless division: a reduction in the number of phone and modem units sold, which can be attributed to elevated sales in 2009 as Cricket rolled out new markets, a lower average selling price per unit under Cricket’s new pricing structure which took effect in all markets on August 3, 2010, sales of a higher percentage of units under Cricket’s promotional programs, and the closing of some Cricket store locations. These programs have the effect of decreasing the average per-unit selling price and gross revenues. This was partially offset by an increase in fees generated from accepting Cricket service payments. This trend is expected to continue due to Cricket’s changes to its retail pricing structure and compensation structure for dealers. During the nine-month period ended September 30, 2010, we generated $3.06 million in phone and accessory sales compared to $4.16 million for the nine-month period ended September 30, 2009.

A decrease in check cashing fees in the 2010 interim period also contributed to the decrease in total revenues. Loan fees for the 2010 interim period remained consistent with 2009. During the nine-month period ended September 30, 2010, we originated approximately $53.05 million in cash advance loans compared to $53.51 million during the 2009 interim period. Our average loan (including fees) totaled approximately $366 and $364 during the nine-month periods ended September 30, 2010 and 2009, respectively. Our average fee for both nine-month periods ended September 30, 2010 and 2009 was $54.

The following table summarizes our revenues for the nine months ended September 30, 2010 and 2009, respectively:

	Nine Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010			2009
					(percentage of revenues)
Payday loan fees	$	7,865,541	$	7,872,094		59.5	%		57.1	%
Phones and accessories		3,058,853		4,163,525		23.1	%		30.2	%
Check cashing fees		565,787		646,863		4.3	%		4.7	%
Other income and fees		1,732,630		1,107,072		13.1	%		8.0	%
Total	$	13,222,811	$	13,789,554		100	%		100	%

Store Expenses

Total expenses associated with store operations for the nine months ended September 30, 2010 were $9.52 million, compared to $10.84 million for the nine months ended September 30, 2009. The major components of these expenses are salaries and benefits for our store employees, provision for loan losses, costs of sales for phones and accessories, occupancy costs primarily relating to our store leaseholds, advertising expenses, depreciation of store equipment, amortization of intangible assets and other expenses associated with store operations.

Overall, our most significant increases in store expenses for the nine months ended September 30, 2010 and 2009 related to our costs of occupancy. Our most significant decreases in store expenses over that same period related to the provision for loan losses, salaries and benefits related to our store employees, and phone and accessories cost of sales. A discussion and analysis of the various components of our store expenses appears below.

Salaries and Benefits. Payroll and related costs at the store level were $3.48 million compared to $3.85 million for the periods ended September 30, 2010 and 2009, respectively. We expect future salaries and benefits expenses to be consistent with 2010 levels.

Provisions for Loan Losses. For the nine months ended September 30, 2010, our provisions for loan losses were $.90 million compared to $1.14 million for the nine months ended September 30, 2009. Our provisions for loan losses represented approximately 11.4% and 14.5% of our loan fee revenue for the nine months ended September 30, 2010 and 2009, respectively. The more favorable loss ratio year-to-year reflects our expanded collection efforts in the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. Due to our inability to foretell the depth and duration of the continued economic downturn, we believe there are currently uncertainties in how significant our total 2010 loan losses may be and how they may differ from 2009.

Phone and Accessories Cost of Sales. For the nine months ended September 30, 2010, our costs of sales decreased to $1.11 million compared to $1.77 million for the same period in 2009. The decrease in our Cricket Wireless segment revenues had a corresponding downward impact to our costs of sales. At September 30, 2010, we had 29 Cricket Wireless stores compared to 35 at September 30, 2009.

Occupancy Costs. Occupancy expenses, comprised mainly of store leases, were $1.42 million for the nine months ended September 30, 2010 versus $1.20 million for the nine months ended September 30, 2009. The increase in our occupancy expenses resulted from less stores open throughout the entire period in 2009 compared to the number of stores open throughout the entire recent period.

Advertising. Advertising and marketing expenses decreased significantly from $.36 million for the nine months ended September 30, 2009 to $.27 million for the nine months ended September 30, 2010, a $.09 million or 25.0% reduction. In general, we expect that our marketing and advertising expenses for 2010 will remain consistent with 2009 levels.

Depreciation. Depreciation, relating to store equipment and capital expenditures for stores, increased to $.21 million for the nine months ended September 30, 2010 from $.19 million for the nine months ended September 30, 2009. The 11.6% increase in depreciation expense was due to an increased number of Cricket Wireless store locations containing depreciable assets.

Amortization of Intangible Assets. Amortization of intangible assets decreased from $.54 million for the nine months ended September 30, 2009 to $.39 million, or a 27.8% reduction, for the nine months ended September 30, 2010. Payday division expense decreased due to intangible assets becoming fully amortized while the expense on the Cricket division decreased due to amortization expense being lower each subsequent year.

Other Store Expenses. Other expenses were $1.75 million and $1.79 million for the nine months ended September 30, 2010 and September 30, 2009, respectively.

General and Administrative Expenses

Total general and administrative costs for the nine months ended September 30, 2010 were $2.19 million compared to $2.18 million for the period ended September 30, 2009. For the nine months ended September 30, 2010, the major components of these costs were salaries and benefits for our corporate headquarters operations and executive management, interest expense, and other general and administrative expenses. A discussion of the various components of our general and administrative costs for the nine months ended September 30, 2010 and 2009 appears below:

Salaries and Benefits. Salaries and benefits expenses for the nine months ended September 30, 2010 were $1.10 million, a $.09 million increase from the $1.01 million in such expenses during period ended September 30, 2009. The increase was due to costs incurred under the new management bonus plan.

Depreciation. Depreciation for the nine months ended September 30, 2010 and 2009 was $.14 million and $0.18 million for the nine months ended September 30, 2010 and 2009, respectively. Depreciation relates primarily to equipment and capital improvements at the Company’s corporate headquarters.

Interest. Interest expense for the nine months ended September 30, 2010 and 2009 was $.30 million and $.25 million for the nine months ended September 30, 2010 and September 30, 2009, respectively. Interest expense related to the WERCS loan and notes payable for store acquisitions made during prior periods.

Other General and Administrative Expenses. Other general and administrative expenses, which includes professional fees for accounting and legal services, management and consulting fees, utilities, office supplies, collection costs and other minor costs associated with corporate headquarters activities, decreased $.13 million or 14%, to $.78 million for the nine months ended September 30, 2010 compared to $.90 million from the nine months ended September 30, 2009. The significant decrease in these expenses is mainly attributable to nonrecurring professional fees incurred in 2009. We expect professional fees to continue to decrease throughout the remainder of 2010 since most fees relate to the annual audit and non-recurring corporate expense. Management and consulting fees, which are expected to recur, were $.20 million for the nine months ended September 30, 2010.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2010 was $.54 million compared to income tax expense of $.29 million for the nine months ended September 30, 2009, an effective rate of 36% and 38%, respectively.

Liquidity and Capital Resources

Summary cash flow data is as follows:

	Nine Months Ended September 30,
	2010			2009

Cash flows provided (used) by :
Operating activities	$	1,778,895		$	1,304,619
Investing activities		(22,340	)		(2,619,266	)
Financing activities		(1,863,105	)		(827,244	)
Net decrease in cash		(106,550	)		(2,141,891	)
Cash, beginning of period		1,526,562			3,358,547
Cash, end of period	$	1,420,012		$	1,216,656

At September 30, 2010, we had cash of $1.42 million compared to cash of $1.53 million on December 31, 2009. We believe that our available cash, combined with expected cash flows from operations will be sufficient to fund our liquidity and capital expenditure requirements through September 30, 2011. Our expected short-term uses of available cash include the funding of operating activities (including anticipated increases in payday loans) and the financing of expansion activities, including new store openings and store acquisitions.

Because of the constant threat of regulatory changes to the payday lending industry, we believe it is unlikely we can secure debt financing from financial institutions. As a result, financing we may obtain from alternate sources is likely to involve higher interest rates.

WERCS Credit Facility

On April 2, 2010, WFL, the wholly owned payday lending operating subsidiary of WCR, refinanced its outstanding credit facility. On that date, WERCS, the former holder of the Company’s Series A Convertible Preferred Stock, satisfied all of WFL’s financial obligations owing to Banco Popular North America and entered into a Business Loan Agreement and associated $2,000,000 promissory note with WFL. The loan from WERCS extinguished the $1,637,341 that WFL then owed to Banco Popular. The remaining $362,659 of loan proceeds was used for general working capital. The Business Loan Agreement and associated promissory note contained terms that were substantially similar to those contained in the original loan documents with Banco Popular. To secure the obligations of WFL under the new Business Loan Agreement and promissory note, the Company entered into (i) a Commercial Pledge Agreement with WERCS pursuant to which the Company pledged its share ownership in WFL, and (ii) a Commercial Security Agreement pursuant to which the Company granted WERCS a security interest in substantially all of the Company’s assets. The Company also entered into a Commercial Guaranty relating to the repayment of WFL’s obligations under the Business Loan Agreement and promissory note. The payment terms under the promissory note require WFL to make monthly payments of accrued interest only for 11 months, followed by an April 1, 2011 balloon payment of any remaining accrued but unpaid interest and all $2,000,000 of principal under the promissory note. Interest accrues on the unpaid principal balance of the promissory note at the rate of 12.0% per annum.

Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements as of September 30, 2010.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.

As of September 30, 2010, our Chief Executive Officer and Interim Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of September 30, 2010.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On March 26, 2010, the Company and all of the then-current members of its Board of Directors, among others, were sued by Messrs. Steven Staehr and David Stueve. In that lawsuit, the plaintiffs have alleged, among other things, that our Board of Directors breached certain of their fiduciary duties primarily in connection with the sale by WERCS of its capital stock in the Company to WCR, LLC. The complaint seeks injunctive and declaratory relief and unspecified money damages. The Company believes the claims are without merit. While we are unable to predict the ultimate outcome of these claims and proceedings, management currently believes there is not a reasonable possibility that the costs and liabilities of such matters, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations. After the filing of the lawsuit, the Company removed the lawsuit to federal court and the plaintiffs sought to remand the case back to state court. On October 26, 2010, the plaintiffs’ motion to remand the case to state court was denied by the federal court. The Company has filed a motion to dismiss the lawsuit and such motion is currently being considered by the federal court.

Item 1A. Risk Factors

In evaluating the Company’s business and prospects, readers should consider the following risk factors, which supplement and update the risk factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

The payday loan industry is highly regulated under state laws. Changes in state laws and regulations governing lending practices, or changes in the interpretation of such laws and regulations, could negatively affect our business.

Our business is regulated under numerous state laws and regulations, which are subject to change and which may impose significant costs or limitations on the way we conduct or expand our business. As of the date of this report, approximately 34 states and the District of Columbia had legislation permitting or not prohibiting payday loans. During the last few years, legislation has been adopted in some states that prohibits or severely restricts payday loans.

There are nearly always bills pending in various states to alter the current laws governing payday lending. Any of these bills, or future proposed legislation or regulations prohibiting payday loans or making them less profitable, could be passed in any state at any time, or existing payday loan laws could expire. In 2008, legislation banning payday loans was introduced in Nebraska, however, the bill never made it out of committee. Nevertheless, since we derive approximately 27% of our payday revenues in Nebraska, the passage of any such legislation in Nebraska would have a highly material and negative effect on our business.

More recently, legislation has been passed in Colorado, Wisconsin and Montana that restricts certain payday lending practices. During the 2010 legislative session in Colorado, House Bill 10-1351 was passed into law. This bill amended the Colorado Deferred Deposit Loan Act, the existing payday lending law. The law became effective August 11, 2010 and modifies traditional payday lending by changing the single payment advance (with no minimum term) into a single or multiple payment loan with a minimum six month term. It also limited the amount and type of fees that can be charged on these loans, effectively reducing by one-half the fees that can be charged, and when the fees may be realized. At present, the Company continues to operate its sole store in Colorado while the impact to profitability of this new law is being assessed. Currently, we derive 1.47% of our Payday division revenues from fees in Colorado. In Wisconsin, new legislation effective January 1, 2011 will limit payday loans to the lesser of $1,500 or 35% of the applicant’s monthly income, and permit borrowers to cancel loans within 24 hours and roll their loans over only one time. In addition, payday lenders will be required to offer a 60-day, interest free, payment plan to consumers upon maturity of their payday loans. The Company is still assessing the impact of these new Wisconsin laws. Our preliminary projections indicate the changes could reduce revenue in the state by 30% - 40%. Currently, we derive 6.01% of our Payday division revenues from fees in Wisconsin. Finally, on November 2, 2010, voters in Montana passed Petition Initiative I-164. Effective January 1, 2011, Petition Initiative I-164 will cap fees on payday loans at an imputed interest rate of 36%. The Company is evaluating all options related to its Montana operations, including discontinuing its payday loan operations in that state. Currently, 4.54% of the Company’s payday division revenues come from fees derived in Montana.

Statutes authorizing payday loans typically provide state agencies that regulate banks and financial institutions with significant regulatory powers to administer and enforce the laws relating to payday lending. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways or issue new administrative rules, even if not contained in state statutes, that affect the way we do business and may force us to terminate or modify our operations in those jurisdictions. They may also impose rules that are generally adverse to our industry. Finally, in many states, the attorney general has scrutinized or continues to scrutinize the payday loan statutes and the interpretations of those statutes.

Any adverse change in present laws or regulations, or their interpretation, in one or more such states (or an aggregation of states in which we conduct a significant amount of business) would likely result in our curtailment or cessation of operations in such jurisdictions. Any such action could have a corresponding highly material and negative impact on our results of operations and financial condition, primarily through a material decrease in revenues, and could also negatively affect our general business prospects as well if we are unable to effectively replace such revenues in a timely and efficient manner.

Our business is subject to complex federal laws and regulations governing lending practices, and changes in such laws and regulations could negatively affect our business.

Although states provide the primary regulatory framework under which we offer payday loans, certain federal laws also affect our business. For example, because payday loans are viewed as extensions of credit, we must comply with the federal Truth-in-Lending Act and Regulation Z under that Act. Additionally, we are subject to the Equal Credit Opportunity Act, the Gramm-Leach-Bliley Act and certain other federal laws. Additionally, anti-payday loan legislation has been introduced in the U.S. Congress in the past. These efforts culminated in federal legislation in 2006 that limits the interest rate and fees that may be charged on any loans, including payday loans, to any person in the military to the equivalent of 36% per annum. The military lending prohibition became effective on October 1, 2007.

In July 2008, a bill was introduced before the U.S. Senate, entitled the “Protecting Consumers from Unreasonable Credit Rates Act of 2008” (an amendment to the Truth in Lending Act), proposing to set a maximum actual or imputed interest rate of 36% on all extensions of credit of any type. The bill was intended to limit the charges and fees payable in connection with payday lending. No action has been taken on the bill since its referral to the Senate Committee on Banking, Housing and Urban Affairs in July 2008.

In February 2009, Congress introduced H.R. 1214 (the Payday Loan Reform Act of 2009), an amendment to the Truth in Lending Act). If enacted, this amendment would restrict charges for a single-payment loan to a 391% effective annual rate, or $15 per $100 for a two-week loan, prohibit loan rollovers, limit borrowers to one outstanding loan at a time and permit only one extended repayment plan every six months. Presently, the bill is in the House Committee on Financial Services. We have no further information regarding this bill or any legislative efforts Congress may propose at this time. The passage of this bill would have a material and adverse effect on the Company, operating results, financial conditions and prospects and even its viability.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by the U.S. Congress and signed into law. Under the Act, a new federal agency, the Consumer Financial Protection Bureau, will consolidate most federal regulation of financial services offered to consumers and replaces the Office of Thrift Supervision’s seat on the FDIC Board. Almost all credit providers, including mortgage lenders, providers of payday loans, other nonbank financial companies, and banks and credit unions with assets over $10 billion, will be subject to new regulations. While the Bureau does not appear to have authority to make rules limiting interest rates or fees charged, the scope and extent of the Bureau’s authority will nonetheless be broad, and it is expected that the Bureau will address issues such as rollovers or extensions of payday loans. Future restrictions on the payday lending industry could have serious consequences for the Company.

Item 3. Defaults upon Senior Securities

As of September 30, 2010, the Company had an outstanding accrued but unpaid and cumulated dividends on its Series A Convertible Preferred Stock aggregating to $925,000. Our Series A Convertible Preferred Stock ranks senior to our common stock.

Item 6. Exhibits

Exhibit		Description
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith ).

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith ).

32		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith ).

SIGNATURES

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

Dated: November 12, 2010	Western Capital Resources, Inc.
	(Registrant)

	By:	/s/ John Quandahl
		John Quandahl
		Chief Executive Officer, Chief Operating Officer and Interim Chief Financial Officer