Form S-1 for Pioneer Financial Services

S-1 1 forms1_021303.htm FORM S-1 Form S-1 for Pioneer Financial Services


AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON February 18, 2003
                                                 REGISTRATION NO. 333-________


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------
                                    FORM S-1

                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
                                 ---------------

                        PIONEER FINANCIAL SERVICES, INC.

             (Exact name of registrant as specified in its charter)

     MISSOURI                             6141                       44-0607504
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)    Classification Code Number)     Identification
No.)

                        4700 BELLEVIEW AVENUE, SUITE 300
                           KANSAS CITY, MISSOURI 64112
                                 (816) 756-2020

               (Address, including zip code, and telephone number,
                 including area code, of registrant's principal
                               executive offices)

                               WILLIAM D. SULLIVAN
                                    CHAIRMAN
                        4700 BELLEVIEW AVENUE, SUITE 300
                           KANSAS CITY, MISSOURI 64112
                                 (816) 756-2020

 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                                 ---------------

                                   COPIES TO:

                              GARY D. GILSON, ESQ.
                       BLACKWELL SANDERS PEPER MARTIN LLP
                          2300 MAIN STREET, SUITE 1000
                           KANSAS CITY, MISSOURI 64108
                                 (816) 983-8000
                                 ---------------

              Approximate date of commencement of proposed sale to
             public: As soon as practicable after this registration
                          statement becomes effective.
                                 ---------------

         If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /x/

         If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective date registration statement for the same offering. / /


         If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /

         If this is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

         If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /

                                 ---------------

--------------------------------------------------------------------------------------------
                                                    Proposed       Proposed
                                                    Maximum        Maximum      Amount of
  Title of Each Class of           Amount           Offering      Aggregate    Registration
Securities to be Registered   to be Registered   Price Per Unit Offering Price    Fee(1)
--------------------------------------------------------------------------------------------

Junior Subordinated
Debentures..                    $25,000,000            100%     $25,000,000      $2,300
--------------------------------------------------------------------------------------------

(1)      Calculated in accordance with Rule 457(o) under the Securities Act.

                                 ---------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.



                             (Subject to Completion)

PRELIMINARY PROSPECTUS
Issued February 18, 2003




                        Pioneer Financial Services, Inc.

                   $25,0000,000 Junior Subordinated Debentures
                          Minimum Investment of $1,000







--------------------------------------------------------------------------------
The information in this Prospectus is not complete and may be changed.  We may
nnot sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective.  This Prospectus is not an
offer to sell securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
--------------------------------------------------------------------------------




         We are offering up to $25,000,000 in aggregate principal amount of our
junior subordinated debentures on a continuous basis with an expected
termination in January 2005. The debentures will be offered in maturities
ranging from 12 to 120 months, in principal amounts from $1,000 to $250,000, in
increments of $1,000, and at interest rates based upon current market
conditions, our financial requirements, the size of the debenture purchased and
the term to maturity chosen by the purchaser. We will disclose the interest
rates at which debentures will be offered, from time to time, in supplements to
this prospectus. However, any such change will not affect the interest rate of
any debentures purchased prior to the effective date of the change. We will pay
or compound interest on the debentures annually. Holders of debentures in a
principal amount of $10,000 or more may elect to receive monthly interest
payments in return for a 1/2% reduction in the interest rate of the debenture.
Qualified investors may establish individual retirement accounts, simplified
employee pension accounts, Roth IRAs and Coverdell education savings accounts
with us in which to hold their debentures.

         You should read this prospectus and the applicable prospectus
supplement carefully before you invest in the debentures.

         These debentures are our unsecured, subordinated obligations. Payment
of the debentures is not insured or guaranteed by the Federal Deposit Insurance
Corporation, any governmental or private insurance fund, or any other entity. We
do not contribute funds to a separate account such as a sinking fund to repay
the debentures upon maturity. We may redeem the debentures in whole or in part
any time prior to maturity at a price equal to the principal amount thereof plus
accrued interest to the purchase date.

         See "Risk Factors" beginning on page 7 for certain factors you should
consider before buying the debentures.

         These securities have not been approved or disapproved by the
Securities and Exchange Commission or any state securities commission nor has
the Securities and Exchange Commission or any state securities passed upon the
accuracy or adequacy of this prospectus. Any representation of the contrary is a
criminal offense.

                                     Underwriting Discount   Proceeds to
                    Price to Public      And Commission        Company
                    ---------------      --------------        -------

Per Debenture........... 100%                 None               100%
Total................... 100%                 None          $25,000,000(1)

(1)      We will receive all of the proceeds from the sale of the debentures,
         which, if we sell all of the debentures covered by this prospectus, we
         estimate will total approximately $24,850,000 after expenses.

         We are offering the debentures through our officers and employees
without an underwriter and on a continuous basis. We do not have to sell any
minimum amount of debentures to accept and use the proceeds of this offering.
There is no assurance that all or any portion of the debentures we are offering
will be sold. We have not made any arrangement to place any of the proceeds from
this offering in an escrow, trust or similar account, and thus you will not be
entitled to the return of your investment. There is no public trading market for
the debentures and it is very unlikely that any trading market will develop, and
no assurance can be given that the debentures may be resold at any price. We
have the right to reject any subscription, in whole or in part.

              The date of this Prospectus is February 18, 2003.




                                TABLE OF CONTENTS


                                                                                   Page
                                                                                   ----
Prospectus Summary...................................................................3
Risk Factors.........................................................................7
Forward-Looking Statements..........................................................13
Use Of Proceeds.....................................................................13
Selected Consolidated Financial Data................................................14
Management's Discussion And Analysis Of Financial Condition And Results
 of Operations......................................................................15
Business............................................................................30
Management..........................................................................38
Certain Transactions................................................................40
Principal Shareholders..............................................................41
Description Of Debentures...........................................................41
United States Federal Income Tax Consequences.......................................45
Plan Of Distribution................................................................46
Validity Of Debentures..............................................................48
Experts.............................................................................48
Where You Can Find More Information.................................................48
Index To Financial Statements.......................................................F-1

                                                  .........

         You should rely only upon the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell debentures only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of the prospectus or of any sale of the debentures.


                                       2

PROSPECTUS SUMMARY

This summary highlights selected information and does not contain all
the information that may be important to you. You should carefully read this
prospectus, any related prospectus supplement and the documents we have referred
you to in "Where You Can Find More Information" on page 48 for information about
us. In this prospectus, references to "Pioneer," "we," "us" and "our" refer to
Pioneer Financial Services, Inc. and our subsidiaries.

Our Company

We originate and service consumer loans and provide other financial
products and services on a worldwide basis, exclusively to active duty or
retired career military personnel or Department of Defense employees. We make
direct loans to our customers through our network of retail sales offices and
over the Internet. We also purchase retail installment contracts from retail
merchants that sell consumer goods to active duty or retired career military
personnel or Department of Defense employees. We are not associated with, nor
are our operations endorsed by, the United States military or Department of
Defense.

We also offer credit life, credit accident and health and credit
property and casualty insurance to our loan customers. This insurance is issued
by a non-affiliated insurance company. We also reinsure a portion of the credit
accident and health insurance issued by this insurance company. We also sell
roadside assistance packages and discount healthcare cards issued by an
unaffiliated third party.

We were incorporated in Missouri in 1932, and our principal corporate
office is located at 4700 Belleview, Suite 300, Kansas City, Missouri
64112-1359. The telephone number at that address is (816) 756-2020. Information
about us can be found at WWW.ASKPIONEER.COM. We do not intend for the
information contained on this website to be a part of this prospectus.

Offering

Securities Offered We are offering up to $25,000,000 in aggregate principal amount of
our junior subordinated debentures. The debentures are governed by
an indenture between us and Gold Trust Company, the trustee for the
debentures. The debentures have maturities ranging from 12 to 120
months. The debentures do not have the benefit of a sinking fund.
See "Description of Debentures--General."

Interest Rate and Payment Interest on each debenture will begin to accrue on the date we issue
the debenture. At the option of the debenture holder, we will pay or
compound interest annually. Holders of debentures in a principal
amount of $10,000 or more may elect to receive monthly interest
payments in return for a1/2% reduction in the interest rate of the
debenture. Once issued, the interest rate applicable to a debenture
will not change prior to maturity. See "Description of
Debentures--Interest."




Maturity and Renewal         The debentures will mature on the date specified on the debenture.
                             So long as there is an effective registration statement on file with
                             the SEC, the debentures will automatically renew upon maturity unless
                             presented for payment by the holder.  The principal amount of the
                             renewed debenture will equal the principal amount of the debenture on
                             the maturity, plus all accrued and unpaid interest.  The term of a
                             renewed debenture will be equal to the original term of the
                             debenture, and the interest rate of the debenture will be equal to
                             the interest rate we are then paying on debentures of a like term and
                             principal amount.

Redemption at Our Option     We may redeem the debentures at our option, in whole or in part, at
                             any time prior to maturity, at a price equal to 100% of the principal
                             amount of the debentures, plus accrued interest on a daily basis to
                             the redemption date.  Debentures may not be redeemed by debenture
                             holders prior to maturity.  See "Description of
                             Debentures--Redemption at the Option of Pioneer."

Subordination                Upon the maturity of our senior indebtedness, by lapse of time,
                             acceleration or otherwise, all of our senior indebtedness must be
                             paid in full before any payment is made upon the debentures.  "Senior
                             indebtedness" is generally defined under the indenture as any debt or
                             liability for money borrowed, regardless of when incurred or created,
                             that is not expressly subordinate or equal in right of payment to the
                             debentures.  The debentures are equal in right of payment to all of
                             our outstanding junior subordinated debentures issued prior to
                             November 1, 2002.  We have not issued any junior subordinated
                             debentures since November 1, 2002.  There are no restrictions in the
                             indenture that would prevent us from incurring additional senior
                             indebtedness or other indebtedness.  As of December 31, 2002, we had
                             approximately $120,537,318 of senior indebtedness outstanding and
                             approximately $21,442,586 of junior subordinated debentures
                             outstanding.  See "Description of Debentures--Subordination."

Events of Default            Under the indenture, an event of default is generally defined as a
                             default in the payment of principal or interest on the debentures
                             that is not cured after 10 days written notice, our becoming subject
                             to certain events of bankruptcy or insolvency, or our failure to
                             comply with provisions of the debentures or the indenture and the
                             failure is not cured or waived within 60 days after receipt of a
                             specific notice.

Transfer Restrictions        Transfer of a debenture is effective only upon the receipt of valid
                             transfer instructions by the registrar from the debenture


                                       4


                             holder of record.

Types of Accounts            We are qualified to serve as custodian for IRAs, SEPs, Roth IRAs,
                             and Coverdell education savings accounts.  Qualifying investors may choose to
                             establish one of these accounts with us to hold their debentures.

Trustee                      Gold Trust Company, a trust company organized and existing under the laws of
                             the state of Missouri.

Use of Proceeds              If all the debentures offered by this prospectus are sold we expect
                             to receive approximately $24,850,000 in net proceeds after deducting
                             all costs and expenses associated with this offering.  We intend to
                             use the proceeds from this offering primarily to fund the origination
                             of consumer loans and the purchase of retail installment contracts,
                             as well as for working capital and other general corporate purposes.

Risk Factors                 See "Risk Factors" beginning on page 7 and other information included in
                             this prospectus and any prospectus supplement for a discussion of factors
                             you should carefully consider before investing in the debentures








                                       5





                       Summary Consolidated Financial Data

         The following table summarizes the financial data of our business. You
should also read "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our audited consolidated financial statements and
related notes included elsewhere in this prospectus.

                                          As of, and For the
                                          Three Months Ended,
                                              December 31,          As of, and for the Years Ended, December 31,
                                            ------------------------------------------------------------------------
                                            2002        2001        2002       2001       2000        1999      1998
                                            ----        ----        ----       ----       ----        ----      ----
                                                        (dollars in thousands, except per share amounts)
Consolidated Balance Sheet Data:
Finance receivables, net (1)........        $162,968    $144,280    $152,790   $132,893   $123,913   $104,634   $ 87,594
Total assets........................        $171,583    $153,801    $159,997   $141,328   $132,067   $111,388   $ 92,289
Senior indebtedness (2).............        $120,537    $108,543    $110,643    $96,157    $91,317    $73,699    $60,435
Junior subordinated debt............         $21,443     $20,907     $21,396    $20,973    $19,204    $17,908    $16,329
Total liabilities...................        $153,152    $138,051    $142,677   $126,467   $118,997    $99,900    $82,322
Stockholder's equity................         $18,430     $15,751     $17,320    $14,861    $13,070    $11,488     $9,967

Consolidated Statement of Operations
Data:
Finance income.......................        $12,936     $11,357     $45,884    $38,965    $34,670    $28,688    $24,262
Insurance premiums and
   commissions.......................         $1,335      $1,161      $4,652     $4,561     $4,467     $3,992     $2,754
Total Revenue........................        $14,872     $12,966     $52,291    $45,122    $40,451    $32,794    $27,076
Provision for credit losses..........         $3,413      $2,509     $10,594     $8,264     $7,476     $6,577     $4,617
Interest expense.....................         $2,428      $2,404      $9,599     $9,455     $8,334     $6,990     $6,103
Income before income taxes...........         $1,752      $1,212      $4,509     $3,350     $2,912     $2,213     $1,702
Net income...........................         $1,110        $889      $2,864     $2,140     $1,857     $1,721     $1,327
Ratio of earnings to fixed
Charges (3).........................            1.69        1.48        1.44       1.34       1.34       1.31       1.27
---------------------------------------------

(1)       Net of allowance for credit losses.
(2)       Consists of bank debt outstanding under our senior lending agreement
          and debt to our parent under a revolving line.
(3)       The ratio of earnings to fixed charges represents the number of times
          fixed charges are covered by earnings. For the purpose of this ratio,
          "earnings" is determined by adding pretax income to "fixed charges."
          For this purpose, "fixed charges" consists of interest on all
          indebtedness and an interest factor attributable to rentals.





                                       6

                                  RISK FACTORS

         Our operations and your investment in the debentures are subject to a
number of risks, including but not limited to those described below. If any of
the following risks actually occur, our business, financial condition or
operating results and our ability to repay the debentures could be materially
adversely affected.

Lending exclusively to the military market may result in higher delinquencies in
our loan portfolio, which could result in a reduction in profitability and
impair our ability to pay interest and principal on the debentures.

         A large portion of our customers are unable to obtain financing from
traditional sources, such as commercial banks, due to factors such as their age,
likelihood of relocation and lack of credit history. Historically, we have
experienced higher delinquency rates than traditional financial institutions.
While we use underwriting standards and collection procedures designed to
mitigate the higher credit risk associated with lending to these borrowers, our
standards and procedures may not offer adequate protection against risks of
default. Higher than anticipated delinquencies, foreclosures or losses on the
loans we originate or purchase would reduce our profitability, which could
restrict our ability to pay interest and principal on the debentures.

An increase in market interest rates may result in a reduction in our
profitability and impair our ability to pay interest and principal on the
debentures.

         Interest rates are currently at historic lows. Sustained, significant
increases in interest rates could unfavorably impact our liquidity and
profitability by reducing the interest rate spread between the rate of interest
we receive on loans and interest rates we must pay under our outstanding bank
debt and debentures. Any reduction in our profitability would diminish our
ability to pay interest and principal on the debentures.

Acts of war or terrorist attacks in the United States may cause disruption in
our business and may adversely affect the markets in which we operate, which
could affect our profitability and our ability to pay interest and principal on
the debentures.

         Terrorist attacks in the United States in September 2001 caused major
instability in the U.S. financial markets. Additional attacks and the response
of the U.S. government may lead to additional armed hostilities or to further
acts of terrorism in the U.S. which may cause a further decline in the financial
markets and may contribute to a further decline in economic conditions. In
addition, the involvement of military personnel in armed hostilities may reduce
the demand for our products and services or increase payment delinquencies and
therefore reduce our revenues, possibly without immediate comparable reductions
in overhead. To the extent these events occur, our profitability and cash flow
could be reduced and our ability to pay interest and principal on the debentures
could be impaired.

If an event of default or a breach of our senior lending agreement occurs, we
may not be able to pay interest and principal on the debentures.

         In the event of a default under our senior lending agreement, our
various loans under the senior lending agreement may become immediately due and
payable. As a result, we may be required to liquidate some or all of our assets,
including our portfolio of consumer loans



                                       7


and retail installment contracts for an amount less than the fair market or book
value of those assets. As a result, we may not have sufficient funds to pay
outstanding interest and principal on the debentures. Furthermore, if we breach
certain financial covenants in our senior lending agreement, the banks would
have the right to receive 80% of all payments we receive on our consumer loans
and retail installment contracts. If the banks exercised this right, we would
receive only 20% of our cash flow and thus our ability to make interest and
principal payments on the debentures could be impaired.

Our debentures are not insured or guaranteed by any third party, and we are not
subject to regulatory requirements designed to protect investors.

         Our debentures are not insured or guaranteed by the FDIC, any
governmental agency or any other public or private entity as are certificates of
deposit or other accounts offered by banks, savings and loan associations or
credit unions. You are dependent upon our ability to effectively manage our
business to generate sufficient cash flow, including cash flow from our
financing activities, for the repayment of principal at maturity and the ongoing
payment of interest on the debentures. If these sources are inadequate, you
could lose your entire investment.

Because the debentures are not secured by any collateral, you are dependent upon
our successful operations to service the interest and principal payments on the
debentures.

         Substantially all of our assets have been pledged to our banks to
secure our borrowings under our senior lending agreement. Accordingly, in the
event of a default under our senior lending agreement, it is likely that our
assets would be liquidated to repay our bank debt. Therefore, repayment of the
debentures is dependent on our continued successful operations. There can be no
assurance that we will continue to operate successfully in the future.

Payment on the debentures is subordinate to the payment of all outstanding
senior indebtedness, and the indenture does not limit the amount of senior
indebtedness we may incur.

         The debentures are subordinate and junior to any and all senior
indebtedness (defined generally as any debt or liability for money borrowed,
regardless of when incurred or created, that is not expressly subordinate or
equal in right of payment to the debentures, including bank debt), and they rank
equal in payment priority with our junior subordinated debentures issued prior
to November 1, 2002. (We have not issued any junior subordinated debentures
since November 1, 2002.) There are no restrictions in the indenture regarding
the amount of senior indebtedness or other indebtedness that we or our
subsidiaries may incur. Upon the maturity of our senior indebtedness, by lapse
of time, acceleration or otherwise, the holders of our senior indebtedness have
first right to receive payment in full prior to any payments being made to any
debenture holders. Therefore, you would only be repaid if funds remain after the
repayment of our senior indebtedness. As of December 31, 2002, we had
approximately $120.5 million of senior indebtedness outstanding.

Payment of interest and principal on the debentures is effectively subordinate
to the payment of the unsecured creditors of our subsidiaries.

         Substantially all of our assets are held by our subsidiaries. As a
result, in the event of the liquidation of any of our subsidiaries, all the
creditors of our subsidiaries would be paid prior to


                                       8


the subsidiary distributing any amounts to us. While our senior loan agreement
limits the amount of debt that our subsidiaries may incur, if our subsidiaries
did not have sufficient funds to pay their debts, our ability to pay interest
and principal on the debentures would be impaired.

If a large number of our borrowers are wounded in combat, our profits may be
adversely affected.

         Our wholly-owned subsidiary reinsures a portion of the credit accident
and health insurance policies issued on the borrowers for the loans we
originate. These policies pay the loan payments as they become due during a
customer's disability due to illness or injury, including war-related injuries.
Therefore, if a large number of our borrowers are injured and disabled in
combat, the profitability of our insurance subsidiary would be impaired, which
could impair our ability to pay interest and principal on the debentures.

Our operations are not subject to regulatory requirements designed to protect
investors.

         Our operations are not subject to the stringent regulatory requirements
imposed upon the operations of commercial banks, savings banks and thrift
institutions and are not subject to periodic compliance examinations by federal
banking regulators. Therefore, an investment in our debentures does not have the
regulatory protections that the holder of a demand account or a certificate of
deposit at a bank does. The return on your investment is completely dependent
upon our successful operation of our business. To the extent that we do not
successfully operate our business, our ability to pay interest and principal on
the debentures will be impaired.

The indenture does not contain extensive covenants to protect your investment in
the debentures.

         The debentures do not have the benefit of extensive covenants. The
covenants in the indenture are not designed to protect your investment if there
is a material adverse change in our financial condition or results of
operations. For example, the indenture does not contain any restrictions on our
ability to create or incur senior indebtedness or other indebtedness or to pay
dividends or any financial covenants (such as a fixed charge coverage or minimum
net worth covenants) to help ensure our ability to pay interest and principal on
the debentures. The indenture does not contain provisions that permit debenture
holders to require that we redeem the debentures if there is a takeover,
recapitalization or similar restructuring. In addition, the indenture does not
contain covenants specifically designed to protect debenture holders if we
engage in a highly leveraged transaction.

Your investment in the debentures is illiquid.

         The debentures will not be listed on a national securities exchange or
authorized for quotation on The Nasdaq Stock Market. Further, it is very
unlikely that any trading market for the debentures will develop. You have no
right to require redemption of the debentures, and there is no assurance that
the debentures will be readily accepted as collateral for loans. Due to the lack
of a market for the debentures, we cannot assure you that you would be able to
sell the debentures. You should only purchase these debentures if you do not
have the need for liquidity for the amount invested in, and the interest payable
on, the debentures.


                                       9


We are subject to many laws and governmental regulations, and any changes in
these laws or regulations may materially adversely affect our financial
condition and business operations.

         Our operations are subject to regulation by federal authorities and
state banking, finance, consumer protection and insurance authorities and are
subject to various laws and judicial and administrative decisions imposing
various requirements and restrictions on our operations which, among other
things, require that we obtain and maintain certain licenses and qualifications,
and limit the interest rates, fees and other charges we may impose. Although we
believe we are in compliance in all material respects with applicable laws,
rules and regulations, there can be no assurance that we are or that any change
in such laws, or in the interpretations thereof, will not make our compliance
therewith more difficult or expensive or otherwise adversely affect our
financial condition or business operations.

         We are subject to regulation by states where our lending subsidiaries
are located. At this time, we are not subject to consumer lending regulation in
the states in which we only have retail offices. If this were to change in the
future, any resulting regulation by the states in which we only have retail
offices could adversely impact our operating costs and our ability to repay the
debentures.

Almost all of our borrowers are active duty military or federal government
employees who could be instructed not to do business with us, or their access to
the Government Allotment System could be denied.

         When they deem it to be in the best interest of their personnel,
military commanders and supervisors of federal employees may instruct their
personnel, formally or informally, not to patronize a business. If military
commanders or federal employee supervisors at any given level determine one or
more of our retail offices or our Internet site to be off limits, we would be
unable to do new business with the potential customers they command or
supervise. Additionally, approximately 74.7% of our borrowers make their monthly
loan payments through the Government Allotment System. Military commanders or
federal employee supervisors could deny those they command or supervise access
to these programs, increasing our credit risk. Without access to sufficient new
customers or to the Government Allotment System, we may be forced to discontinue
lending and liquidate our portfolio of consumer loans and retail installment
contracts.

Our profitability and future growth depend on our continued access to capital.

         The growth of our business currently depends on access to bank debt at
competitive rates, and we cannot guarantee that such financing will be available
in the future. Our bank debt is comprised of individual loans from 11 banks
which are party to our senior lending agreement. This senior lending agreement
provides common terms and conditions pursuant to which individual banks that are
a party to this agreement may choose to make loans to us in the future. This
senior lending agreement is renewed annually, but no bank has an obligation to
make any additional future loans. We also depend upon other sources of
financing, including the sale of our debentures. If we are unable to renew or
replace this financing, we may be forced to liquidate. If we are forced to
liquidate, there can be no assurance that we will be able to pay the interest
and principal on the debentures.

                                       10


There is no sinking fund to ensure repayment of the debentures on maturity.

         We do not contribute funds to a separate account, commonly known as a
sinking fund, to repay the debentures upon maturity. Because funds are not set
aside periodically for the repayment of the debentures over their term,
debenture holders must rely on our cash flow from operations and other sources
of financing for repayment, such as funds from bank loans, the sale of
debentures and other credit facilities. To the extent cash flow from operations
and other sources are not sufficient to repay the debentures, you may lose all
or a part of your investment.

Additional competition may decrease our profitability, which would adversely
affect our ability to repay the debentures.

         We compete for business with a number of large national companies and
banks that have substantially greater resources, lower cost of funds, and a more
established market presence than we have. If these companies increase their
marketing efforts to include our market niche of borrowers, or if additional
competitors enter our markets, we may be forced to reduce our interest rates and
fees in order to maintain or expand our market share. Any reduction in our
interest rates or fees could have an adverse impact on our profitability and our
ability to repay our debentures.

If we redeem the debentures, you may not be able to reinvest the proceeds at
comparable rates.

         We, at our option, may at any time redeem all or a portion of the
outstanding debentures for payment prior to their maturity. If we purchase fewer
than all of the outstanding debentures, we will determine the debentures to be
purchased in our sole discretion. The debentures will be purchased at a purchase
price equal to 100% of the principal amount plus any accrued but unpaid
interest. In the event we redeem your debentures, you would have the risk of
reinvesting the proceeds at the then-current market rates which may be higher or
lower.

We do not have a firm underwriting commitment for this offering. Therefore,
there can be no assurance that any debentures will be sold.

         We are offering the debentures through our officers and employees
without a firm underwriting commitment. While we intend to sell up to
$25,000,000 in principal amount of debentures, there is no minimum amount of
proceeds that must be received from the sale of debentures in order to accept
proceeds from debentures actually sold. Accordingly, no assurance can be given
as to the total principal amount of debentures that will be sold.

The laws and regulations of the Arizona insurance authorities may restrict our
reinsurance subsidiary's ability to distribute available cash to us.

         The operations of our wholly-owned reinsurance subsidiary are subject
to the laws and regulations of the insurance authorities in the state of
Arizona. Among other things, these laws and regulations place restrictions on
the amount of dividends that our reinsurance subsidiary can pay to us and
require us to maintain a certain capital structure. If our reinsurance
subsidiary does not satisfy these requirements, it will be prohibited from
distributing available cash to us, which may in turn impair our ability to pay
interest and principal on the debentures.


                                       11


We are controlled by a single shareholder.

         As of January 31, 2003, our sole shareholder, Pioneer Financial
Industries, Inc., owned all of the outstanding shares of our capital stock.
Various trusts controlled by William D. Sullivan control Pioneer Financial
Industries. Accordingly, Mr. Sullivan will be able to exercise significant
control over our affairs including, but not limited to, the election of
directors, operational decisions and decisions regarding the debentures.





                                       12


                           FORWARD-LOOKING STATEMENTS

         This prospectus and related prospectus supplement 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 appear in a number of places in this
prospectus and the related prospectus supplement and include statements
regarding our intent, belief or current expectation about, among other things,
trends affecting the markets in which we operate, our business, financial
condition and growth strategies. Although we believe that the expectations
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 those set forth in the "Risk Factors" section of this
prospectus. If any of the events described in "Risk Factors" occur, they could
have an adverse effect on our business, financial condition and results of
operation. When considering forward-looking statements, you should keep these
risk factors in mind as well as the other cautionary statements in this
prospectus and the related prospectus supplement. You should not place undue
reliance on any forward-looking statement. We are not obligated to update
forward-looking statements.

                                 USE OF PROCEEDS

         If we sell all of the debentures offered by this prospectus, we
estimate that the net proceeds will be approximately $24,876,000 after deduction
of estimated offering expenses of $124,000. These proceeds will be received in
varying amounts from time to time over the next two years as debentures are
sold. We will pay all of the expenses related to this offering.

         We expect to use the net proceeds from the sale of the debentures first
to fund the origination of consumer loans and the purchase of retail installment
contracts, and second for working capital and other general corporate purposes.
The precise amounts and timing of the application of such proceeds depends upon
many factors, including, but not limited to, the amount of any such proceeds and
actual funding requirements.

         There is no minimum number or amount of debentures that we must sell to
receive and use the proceeds from the sale of debentures, and there can be no
assurance that all or any portion of the debentures will be sold. If we sell
substantially less than the maximum offered hereby, our business could be
materially and adversely affected. See "Risk Factors."



                                       13



                      SELECTED CONSOLIDATED FINANCIAL DATA

         The following selected consolidated financial data should be read in
conjunction with our audited and unaudited consolidated financial statements and
the related notes, with other financial data included in this prospectus and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The data as of, and for the three months ended, December 31, 2002
and 2001, has been derived from our unaudited consolidated financial statements
and in our opinion these unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the results presented. The data as of, and for the fiscal years
ended September 30, 2002, 2001, 2000, 1999 and 1998 and has been derived from
our audited consolidated financial statements and related notes.

                                          As of, and For the
                                          Three Months Ended,
                                             December 31,          As of, and For the Years Ended, September 30,
                                             ------------          ---------------------------------------------
                                                2002       2001       2002       2001       2000        1999       1998
                                                ----       ----       -----      -----      ----        ----       ----
                                                       (dollars in thousands, except per share amounts)
Consolidated Balance Sheet Data:
Finance receivables (1)................     $170,089   $149,051   $159,011   $137,314   $127,746    $107,935    $90,298
Allowance for credit losses............    $ (7,121)  $ (4,771)  $ (6,221)  $ (4,421)  $ (3,833)   $ (3,301)   $(2,704)
Total assets...........................     $171,583   $153,801   $159,997   $141,328   $132,067    $111,388    $92,269
Senior Indebtedness:
   Revolving lines of credit (2).......      $13,974    $16,061    $12,718    $12,310    $10,851     $ 9,138     $8,158
   Amortizing and single pay
     term notes........................     $106,563    $92,482    $97,925    $83,847    $80,466     $64,561    $52,277
Junior subordinated debt...............      $21,443    $20,907    $21,396    $20,973    $19,204     $17,908    $16,329
Total equity...........................      $18,430    $15,751    $17,320    $14,861    $13,070     $11,488     $9,967
Consolidated Statement of Operations
Data:
Revenue:
   Finance income....................        $12,936    $11,357    $45,884    $38,965    $34,670     $28,688    $24,262

   Insurance premiums and commissions          1,335      1,161      4,652      4,561      4,467       3,992      2,754
   Other income, fees and
     commissions.....................            601        448     1,755      1,596       1,313         113         60
                                                 ---        ---     -----      -----       -----         ---         --
Total revenue........................         14,872     12,966     52,291     45,122     40,450      32,793     27,076
Provision for credit losses..........          3,413      2,509     10,594      8,264      7,476       6,577      4,617
Interest expense.....................          2,428      2,405     9,599       9,455      8,334       6,990      6,103
                                               -----      -----     -----       -----      -----       -----      -----

Net revenue..........................          9,031      8,052     32,098     27,403     24,640      19,226     16,356
Operating expenses...................          7,279      6,840     27,589     24,052     21,727      17,014     14,654
                                               -----      -----     ------     ------     ------      ------     ------

Income before income taxes...........          1,752      1,212      4,509      3,351      2,913       2,212      1,702
Provision for income taxes...........            642        323      1,645      1,210      1,055         492        375
                                                 ---        ---      -----      -----      -----         ---        ---

Net income...........................        $ 1,110      $ 889     $2,864     $2,141     $1,858      $1,720     $1,327
                                             =======      =====    =======    =======    =======     =======     ======

Earnings per share...................        $ 64.78     $51.90    $167.14   $124.91     $108.39    $ 100.43     $77.44
                                             =======     ======    =======   =======     =======    ========     ======
Cash dividends per common share                    0          0     $23.63     $20.39     $16.05     $11.66      $10.80
                                             =======     ======     ======     ======     ======     ======      ======

----------------------------
(1)      Finance receivables balances are presented net of unearned finance
         charges, unearned insurance commissions and discounts on purchases of
         retail installment contracts.
(2)      Includes debt to our parent under a revolving line of credit of
         $1,927,301 and $1,939,328 as of December 31, 2002 and 2001,
         respectively, and of $1,941,831, $1,839,521, $1,244,413, $147,945 and
         $388,607 as of September 30, 2002, 2001, 2000, 1999 and 1998,
         respectively.



                                       14


         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS

         The following discussion should be read in conjunction with the
information under "Selected Consolidated Financial Data" and our audited and
unaudited consolidated financial statements and related notes and other
financial data included elsewhere in this prospectus.

Overview

         We originate and service consumer loans and provide other financial
products and services on a worldwide basis, exclusively to active duty or
retired career military personnel or Department of Defense employees. We make
direct loans to our customers through our network of retail sales offices and
over the Internet. We also purchase retail installment sales contracts from
retail merchants who sell consumer goods to active duty or retired career
military personnel or Department of Defense employees. We refer to these
consumer loans and retail installment contracts as finance receivables.

         Our finance receivables are generally unsecured with fixed interest
rates and typically have a maturity of less than 48 months. During fiscal 2002,
the size of our average finance receivable at origination was approximately
$2,844. A large portion of our customers are unable to obtain traditional
financing from banks, credit unions or savings and loan associations due to
factors such as their age, likelihood of relocation and lack of credit history.

         Further improvement of our profitability is dependent in large part
upon the growth in our outstanding finance receivables, the maintenance of loan
quality, acceptable levels of borrowing costs and operating expenses and the
ongoing introduction of innovative new products and services to our customer
base. Since September 30, 1998, finance receivables have increased at a 15.2%
annual compounded rate from $90.3 million to $159.0 million at September 30,
2002. The increase reflects the higher volume of loans generated through our
existing retail offices and through the Internet and the addition of new retail
offices to our network. We plan to look for opportunities to expand our retail
offices as we evaluate new military markets and possible products.

         To support this growth, we continuously seek to introduce new products
and services to our customer base. In addition to new insurance and savings
products we introduced to selected markets in the third and fourth quarters of
fiscal 2002, we sell discount health care cards, roadside assistance program and
offer an array of free services to our customers.

Sources of Income

         We derive revenues and resulting income from finance income derived
from direct consumer lending and retail installment contracts, commissions
earned on the sale of credit insurance products, credit reinsurance premiums,
and commissions earned on the sale of ancillary products and services. For
purposes of the following discussion, "revenues" means the sum of our finance
income, insurance premiums and commissions and other income.



                                       15



Direct Lending

         Our finance income from direct loans to customers consists of interest
and fees paid by the customer. Our interest income is based on the risk adjusted
interest rates we charge customers for loans. Interest rates vary from loan to
loan based on many factors, including the overall degree of credit risk assumed
and the interest rates allowed in the state where the loan is originated.
Substantially all of the fee income we derive from these loans consists of
origination, prepayment and late fees. Finance income from our direct lending
business comprised approximately 79.4% of our total revenues in fiscal 2002,
74.3% of our revenues in fiscal 2001 and 71.8% of our revenues in fiscal 2000.

Retail Installment Contracts

         We purchase retail installment contracts from approximately 77 retail
merchants. Retail installment contracts are notes receivable generated by a
single purchase of consumer goods. Our revenue from retail installment contracts
consists of interest and fees. Like our direct loans, interest rates charged on
retail sales contracts vary from contract to contract based on many factors,
including the overall degree of credit risk assumed and the interest rates
allowed in the state where the loan is originated. Substantially all of the fee
income we derive from retail installment contracts consists of prepayment and
late fees. Interest and fee income from retail installment contracts comprised
approximately 8.4% of our total revenues in fiscal 2002.

Credit Insurance Commissions

         We sell credit life, credit accident and health, and credit property
insurance. Our income from the sale of these products consists of commissions
paid to us by an unaffiliated insurance company that issues the policies. The
commission rates are based on a pre-negotiated schedule. Commissions are
recognized ratably over the life of the policy. Credit insurance commissions
comprised approximately 6.2% of our total revenues in fiscal 2002.

Credit Reinsurance Premiums

         We have a wholly-owned insurance subsidiary that reinsures a portion of
the credit accident and health insurance sold in connection with loans we make.
A portion of the premiums for policies that we sell for the unaffiliated
insurance company are ceded to one of our subsidiaries, providing us with an
additional source of revenue. Net credit reinsurance premiums comprised
approximately 2.6% of our total revenues in fiscal 2002.

Ancillary Products and Services

         We also sell non-loan related products and services including roadside
assistance programs and discount healthcare cards. Our revenues from the sale of
these products and services consists of commissions paid by an unaffiliated
company. These sales commissions comprised approximately 3.4% of our total
revenues in fiscal 2002. In October 2002, at selected locations we started
selling non-credit lines of insurance and savings products as well as
supplemental life insurance. Revenues from the sale of these products consists
of commissions paid by unaffiliated insurance companies.


                                       16

Finance Receivables

Our finance receivables are comprised of direct loans and retail
installment contracts. The following table sets forth certain information about
the components of our finance receivables as of the ends of the periods
presented:

As of, and For the Three
Months Ended,
December 31, As of, and For the Years Ended, September 30,
----------------------------------- ----------------------------------------------
2002 2001 2002 2001 2000 1999 1998
----------- ---------- ----------- -------- ----------- ---------- -------
(dollars in thousands, except for average note balances)
Finance Receivables:
Finance receivables balance .... $170,089 $149,051 $159,011 $137,314 $127,746 $107,935 $90,298
Average note balance............ $ 2,025 $ 1,829 $ 1,946 $ 1,753 $ 1,763 $ 1,714 $1,646
Total finance income............ $12,936 $11,357 $45,884 $38,965 $34,670 $28,688 $24,262
Total number of notes........... 84,021 81,489 81,726 78,316 72,478 62,978 54,850

Direct Loans:
Notes receivable balance ....... $150,889 $129,568 $139,664 $117,098 $102,397 $88,192 $73,777
Percent of finance receivables.. 88.72% 86.93% 87.83% 85.28% 80.16% 81.71% 81.70%
Average note balance............ $ 2,039 $ 1,854 $ 1,959 $ 1,767 $ 1,746 $ 1,706 $1,667
Number of notes................. 73,985 69,891 71,302 66,264 58,635 51,693 44,267

Retail Installment Contracts:
Notes receivable balance ....... $19,200 $19,483 $19,348 $20,216 $ 25,349 $ 19,744 $16,521
Percent of finance receivables.. 11.28% 13.07% 12.17% 14.72% 19.84% 18.29% 18.30%
Average note balance............ $ 1,914 $ 1,680 $ 1,856 $ 1,677 $ 1,831 $ 1,750 $ 1,561
Number of notes................. 10,036 11,598 10,424 12,052 13,843 11,285 10,583

Net Interest Margin

The principal component of our profitability is our net interest
margin, which is the difference between the interest we earn on finance
receivables and the interest we pay on borrowed funds. In some states, statutes
regulate the interest rates that we may charge our customers while in other
states competitive market conditions establish the interest rates we may charge.
Differences also exist in the interest rates we earn on the various components
of our finance receivable portfolio.

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 general inability 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.

The following table presents important data relating to our net
interest margin as of, and for the three months ended, December 31, 2002 and
2001 and as of, and for the years ended, September 30, 2002, 2001, 2000, 1999
and 1998.

Finance receivables balance ...... $170,089 $149,051 $159,011 $137,314 $127,746 $107,935 $90,298

Average finance receivables ...... $165,697 $144,135 $149,729 $131,741 $118,901 $100,391 $84,073

Average interest bearing
liabilities (1)................ $132,424 $118,923 $125,561 $111,195 $100,614 $83,467 $70,022

Total finance income ............. $12,936 $11,357 $45,884 $38,965 $34,670 $28,688 $24,262

Total interest expense ........... $ 2,428 $ 2,405 $ 9,599 $ 9,455 $ 8,334 $ 6,990 $6,103

Net provisions for credit losses.. $ 3,413 $ 2,509 $10,594 $ 8,264 $ 7,476 $ 6,577 $4,617

Net charge-offs................... $ 2,513 $ 2,159 $ 8,794 $ 7,676 $ 6,944 $ 5,980 $4,212

-----------------------------
(1) Averages are computed using month-end balances during the years presented.

Results of Operations

Quarter Ended December 31, 2002 Compared to Quarter Ended December 31, 2001

Our aggregate finance receivables grew 7% during first quarter fiscal
2003 to $170.1 million on December 31, 2002 from $159.0 million on September 30,
2002. This growth is consistent with the cyclical nature of our business as our
first quarter typically generates between 28% and 30% of our annual loan
origination.

Total revenues during first quarter fiscal 2003 increased to $14.9
million from $13.0 million in first quarter fiscal 2002, an increase of $1.9
million or 15%.

Finance income during first quarter fiscal 2003 increased to $12.9
million from $11.4 million in first quarter fiscal 2002, an increase of $1.5
million or 13.2%. This increase was attributable to the increase in our finance
receivable portfolio balance described above and an increase in our average loan
size due to an increased number of customers with a higher military rank.

Insurance premium and commission revenues in first quarter fiscal 2003
increased to $1.3 million from $1.2 million in first quarter fiscal 2002, an
increase of $.1 million or 14%. This increase results from increased loan volume
and our effective sale of credit insurance products.


         Other income, fees and commission revenues during first quarter fiscal
2003 increased to $.6 million from $.4 million in first quarter fiscal 2002. The
revenue for first quarter fiscal 2003 is comprised primarily of commissions from
sales of roadside assistance policies and health discount cards.

         Provision for credit losses in first quarter fiscal 2003 increased to
$3.4 million from $2.5 million in first quarter fiscal 2002, an increase of $.9
million or 36%. The net charge-offs incurred in connection with our finance
receivables in first quarter fiscal 2003 increased to $2.5 million from $2.2
million in first quarter fiscal 2002, an increase of $.3 million or 14%. This
increase is consistent with the increase in our finance receivable portfolio and
was 6.07% of the average finance receivable balance in first quarter fiscal 2003
compared to 6% in first quarter fiscal 2002. Historically, this ratio has been
slightly higher in the first quarter as compared to our net charge-offs at
fiscal year end, which have traditionally been less than 6% of the average
finance receivables. Our allowance for credit losses at December 31, 2002
increased to $7.1 million from $6.2 million at September 30, 2002, an increase
of $.9 million, or 15%. This increase reflects, among other things, our concern
regarding uncertainty surrounding possible Middle-East hostilities.

         Interest expense in first quarter fiscal 2003 remained constant at $2.4
million. While our average interest bearing liabilities at December 31, 2002
increased by $13.5 million or 11.4% compared to December 31, 2001, this increase
was offset by decreased interest rates. The weighted average interest rate
declined to 7.2% in first quarter fiscal 2003 from 7.8% in first quarter fiscal
2002.

         Operating expenses in first quarter fiscal 2003 increased to $7.3
million from $6.8 million in first quarter fiscal 2002, an increase of $.5
million or 7%. This increase reflects the additional costs of a software
development team developing a comprehensive enterprise-wide software application
and continued infrastructure improvements in our Internet distribution facility.

         We generated income before income taxes of $1.8 million and net income
of $1.1 million during first quarter fiscal 2003 compared to income before
income taxes of $1.2 million and net income of $.9 million during first quarter
fiscal 2002.

Year Ended September 30, 2002 Compared to Year Ended September 30, 2001

         Our aggregate finance receivables grew 15.8% during fiscal 2002 to
$159.0 million on September 30, 2002 from $137.3 on September 30, 2001. This
growth is due primarily to increases in finance receivables from the Internet,
which grew by more than $14.0 million or 42%. The Internet is a lower-cost
method of loan origination and proceed distribution, and we plan to increase
this distribution channel in the future.

         Total revenues in fiscal 2002 increased to $52.3 million from $45.1
million in fiscal 2001, an increase of $7.2 million or 15.9%.

         Finance income in fiscal 2002 increased to $45.9 million from $39.0
million in fiscal 2001, an increase of $6.9 million or 17.8%. This increase was
attributable to an increase in the number of loans in our portfolio and an
increase in our average loan size due to the higher credit worthiness of an
increased number of our customers with higher military rank.



                                       19


         Insurance premium and commission revenues in fiscal 2002 increased to
$4.7 million from $4.6 million in fiscal 2001, an increase of $.1 million or 2%.
While the commissions on credit insurance products remained strong, with growth
of approximately $.4 million or 14.4%, the premiums received by our insurance
subsidiary declined by $.3 million or 18.7%. This decline is due to a reduced
number of policies reinsured with our subsidiary by an unaffiliated insurance
carrier over the course of the year. We do not anticipate this trend continuing.

         Other income, fees and commission revenues in fiscal 2002 increased to
$1.8 million from $1.6 million in fiscal 2001, an increase of $.2 million or
10.0%. This revenue is comprised primarily of commissions from sales of roadside
assistance policies and health discount cards, as well as commissions from the
sale of prepaid cellular phones prior to September 1, 2001. The increase is
attributable to commissions from sales of discount healthcare cards, which began
in January of 2002.

         Provision for credit losses in fiscal 2002 increased to $10.6 million
from $8.3 million in fiscal 2001, an increase of $2.3 million or 28.2%. The net
charge-offs incurred in connection with our finance receivable in fiscal 2002
increased to $8.8 million from $7.7 million in fiscal 2001, an increase of $1.1
million or 14.6%. This increase is consistent with the increase in our finance
receivable portfolio and was 5.87% of the average finance receivable balance in
fiscal 2002 compared to 5.83% in fiscal 2001. Historically, our net charge-offs
have been less than 6% of our average finance receivables. Our allowance for
credit losses at September 30, 2002 increased to $6.2 million from $4.4 million
at September 30, 2001, an increase of $1.8 million or 40.7%. This increase
reflects, among other things, our concern regarding uncertainty surrounding
possible Middle-East hostilities.

         Interest expense in fiscal 2002 increased to $9.6 million from $9.5
million in fiscal 2001, an increase of $.1 million or 1.5%. Our average interest
bearing liabilities increased by $14.4 million or 12.9% during fiscal 2002.
However, this increase was offset by decreased interest rates. The weighted
average interest rate on our debt declined to 7.5% in fiscal 2002 from 8.2% in
fiscal 2001.

         Operating expenses in fiscal 2002 increased to $27.6 million from $24.1
million in fiscal 2001, an increase of $3.5 million or 14.7%. This increase is
due primarily to an increase in employment costs, which increased by $3.0
million. During fiscal 2002, we enlarged the software development team that is
developing a comprehensive enterprise-wide software application and continued
our efforts to build infrastructure, primarily in our Internet distribution
facility, audit and compliance, collections and product development teams.

         We generated income before income taxes of $4.5 million and net income
of $2.9 million in fiscal 2002 compared to income before income taxes of $3.4
million and net income of $2.1 million in fiscal 2001.

Year Ended September 30, 2001 Compared to Year Ended September 30, 2000

         Our aggregate finance receivables grew 7.5% during fiscal 2001 to
$137.3 million on September 30, 2001 from $127.7 on September 30, 2000. This
growth is due primarily to increases in our Internet lending distribution
channel, which grew by more than $18.2 million or

                                       20


121% in fiscal 2001. The Internet is a lower-cost method of loan origination and
proceed distribution.

         Total revenues in fiscal 2001 increased to $45.1 million from $40.5
million in fiscal 2000, an increase of $4.7 million or 11.5%.

         Finance income in fiscal 2001 increased to $39.0 million from $34.7
million for fiscal 2000, an increase of $4.3 million or 12.4%. This increase was
primarily attributable to an increase in our average finance receivables
outstanding over the course of the year.

         Insurance premium and commission revenues in fiscal 2001 increased to
$4.6 million from $4.5 million in fiscal 2000, an increase of $.1 million or
2.1%. While the premiums on credit insurance products for loans originated
remained strong, we recognize these commissions ratably over the life of the
loan, so only minimal revenue increases were realized in fiscal 2001.

         Other income, fees and commission revenues in fiscal 2001 increased to
$1.6 million from $1.3 million in fiscal 2000, an increase of $.3 million or
21.5%. This revenue is comprised primarily of commissions on sales of roadside
assistance policies and prepaid cellular phones. The increase is attributable to
commissions on sales of prepaid cellular phones, which we sold prior to
September 1, 2001.

         Provision for credit losses in fiscal 2001 increased to $8.3 million
from $7.5 million in fiscal 2000, an increase of $.8 million or 10.5%. The net
charge-offs in fiscal 2001 increased to $7.7 million from $6.9 million in fiscal
2000, an increase of $.8 million or 10.5%, an increase consistent with the
increase in the finance receivable portfolio. Net charge-offs as a percent of
our average finance receivables portfolio decreased to 5.83% in fiscal 2001
compared to 5.84% in fiscal 2000.

         Interest expense in fiscal 2001 increased to $9.5 million from $8.3
million in fiscal 2000, an increase of $1.1 million or 13.4%. This increase is
consistent with the increase in our average debt which increased by $10.6
million or 10.5%. The weighted average interest rate on our debt decreased to
8.23% in fiscal 2001 from 8.74% in fiscal 2000.

         Operating expenses in fiscal 2001 increased to $24.0 million from $21.7
million in fiscal 2000, an increase of $2.3 million or 10.7%. This increase is
due primarily to an $.8 million increase in professional fees incurred in
connection with a suit we filed against a competitor. Employment, occupancy and
communication expenses also increased by $1.4 million as a result of the opening
of a new retail sales office and moving our administrative offices to a new
facility.

         We generated income before income taxes of $3.4 million and net income
of $2.1 million in fiscal 2001 compared to income before income taxes of $2.9
million and net income of $1.9 million in fiscal 2000.

Delinquency Experience

         Our customers are required to make monthly payments of interest and
principal. We analyze our delinquencies on a recency delinquency basis. A loan
is delinquent under the recency method when a full payment (95% or more of the
contracted payment amount) has not


                                       21

been received for 60 days after the last full payment. We do not grant
extensions or deferments, or allow account revision, rewriting, renewal or
rescheduling in order to bring otherwise delinquent accounts current.

         The following sets forth our delinquency experience for accounts for
which payments are 60 days or more past due and allowance for credit losses for
our finance receivables:

                                              As of December 31,                      As of September 30,
                                          ------------------------     ------------------------------------------------------
                                               2002         2001          2002        2001        2000        1999       1998
                                             --------    ----------    ----------  ----------  ----------- ----------  -------
                                                                (dollars in thousands)
Finance receivables
  balances ..............................    $170,089     $149,051     $159,011     $137,314     $127,746     $107,935   $ 90,298


Finance receivables balances
  60 days or more past due ..............    $  6,356     $  6,670     $  5,580     $  6,369     $  5,176     $  4,741   $  3,924


Finance receivables balances
  60 days or more past due as
  a percent of finance ..................        3.74%        4.47%        3.51%        4.64%        4.05%        4.39%     4.35%
  receivables

         Our 60-day delinquency accounts have remained generally constant at
less than 4.7% of the entire finance receivable portfolio. However, in September
of 2001, we experienced an increase in delinquencies due to the issues
surrounding the September 11th tragedy. In an effort to be sensitive to the
activities of the military, we limited collection efforts during the remainder
of the month of September. As a result, we ended that year with a delinquency
amount in excess of our historical rates.

Credit Loss Experience and Provision for Credit Losses

         Our provisions for credit losses are charged to income in amounts
sufficient to maintain our allowance for credit losses at a level considered
adequate to cover the probable losses inherent in our existing finance
receivable portfolio. Historical credit loss experience, delinquency of finance
receivables, the value of underlying collateral, current economic conditions,
current military activities and management's judgment are factors used in
assessing the overall adequacy of the allowance and corresponding provision for
credit losses.

                                       22






         Our charge-off policy is based on an account-by-account review of
delinquent receivables on a recency basis. Finance receivables are charged-off
when management deems them to be uncollectable or they become 270 days past due.
Our primary source of charge-offs is when a customer leaves the military prior
to repaying the finance receivable. Our second greatest source of loss is when a
customer declares bankruptcy.

                                          As of, and For the
                                         Three Months Ended,
                                             December 31,         As of, and For the Years Ended, September 30,
                                             ------------         ---------------------------------------------
                                               2002        2001     2002       2001      2000      1999      1998
                                               ----        ----     ----       ----      ----      ----      ----
                                                                  (dollars in thousands)
Direct loans:
  Loans charged-off...................     $ 2,751       $2,330   $9,555    $ 8,752    $7,791   $ 6,683   $ 4,802
  Less recoveries.....................         251         188       869      1,080       965       693       671
                                               ---         ----     ----      -----       ---      ----      ----
  Net charge-offs.....................      $2,500       $2,142  $ 8,686     $7,672   $ 6,826    $5,990   $ 4,131
                                             =====        =====   ======      =====    ======     =====    ======
Average monthly balance
    outstanding (1)...................    $146,439    $124,328  $130,223   $108,939   $95,780   $82,114   $65,627
Percentage of net charge-offs to
    average monthly balance outstanding       6.83%       6.89%     6.67%      7.04%     7.13%     7.29%     6.30%

--------------------------------------
(1) Averages are computed using month-end balances during the years presented.

         Under our retail merchant reserve arrangements, we withhold a
percentage (usually between five and ten percent) of the principal amount of the
retail installment contract purchased. The amounts withheld from a particular
retail merchant are recorded in a specific reserve account. Any losses incurred
on the retail installment contracts purchased from that retail merchant are
charged against its specific reserve account. Upon the retail merchant's
request, and no more often than annually, we pay the retail merchant the amount
by which its specific reserve account exceeds 15% of the aggregate outstanding
balance on all retail installment contracts purchased from them, less losses we
have sustained, or reasonably could sustain, due to debtor defaults, collection
expenses, delinquencies and breaches of our agreement with the retail merchant.
Our allowance for credit losses is charged only to the extent that the loss on a
retail installment contract exceeds the originating retail merchant's specific
reserve account at the time of the loss.

                                       As of, and For the
                                       Three Months Ended,
                                          December 31,           As of, and For the Years Ended, September 30,
                                          ------------           ---------------------------------------------
                                           2002       2001       2002       2001        2000      1999      1998
                                           ----       ----       ----       ----        ----      ----      ----
                                                                 (dollars in thousands)
Retail installment contracts:
  Contracts charged-off.............      $ 32       $ 41        $190      $ 221       $ 338      $253       $264
  Less recoveries...................        19         24          82        217         220       264        183
                                            --         --         ---       ----         ---      ----        ---
  Net charge-offs...................      $ 13        $17       $ 108        $ 4       $ 118     $(11)        $81
                                           ===         ==        ====         ==        ====      ====         ==
Average monthly balance
    outstanding (1).................   $19,258    $19,807     $19,506    $22,802     $23,121   $18,277     18,446
Percentage of net charge-offs to
    average monthly balance
    outstanding.....................     0.26%      0.35%       0.55%      0.02%       0.51%    (.06)%      0.44%

-------------------------------------
(1) Averages are computed using month-end balances during the years presented.



                                       23


         The following table sets forth our allowance for credit losses:

                                 As of, and For the
                                 Three Months Ended,
                                    December 31,               As of, and For the Years Ended, September 30,
                                 -------------------       ----------------------------------------------------
                                  2002         2001        2002        2001       2000         1999        1998
                                  ----         ----        ----        ----       ----         ----        ----
                                                               (dollars in thousands)
Average finance receivables(1)  $165,697    $144,135    $149,729    $131,741    $118,901    $100,391    $ 84,073

Provision for credit losses .   $  3,413    $  2,510    $ 10,594      $8,264    $  7,476    $  6,577    $  4,617

Net charge-offs .............   $  2,513    $  2,159    $  8,794    $  7,676    $  6,944    $  5,980    $  4,212
Net charge-offs as a
  percentage of average .....       6.07%       6.00%       5.87%       5.83%       5.84%       5.96%       5.01%
  finance receivables
Allowance for credit losses .   $  7,121    $  4,771    $  6,221    $  4,421    $  3,833    $  3,301    $  2,704
Allowance as a percentage of
  average finance receivables       4.30%       3.31%       4.15%       3.36%       3.22%       3.29%       3.22%

(1) Averages are computed using month-end balances during the years presented.

         The following table sets forth changes in the components of our
allowance for credit losses:

                                        As of, and For the Three
                                             Months Ended,
                                              December 31,            As of, and For the Years Ended, September 30,
                                          --------------------     --------------------------------------------------
                                             2002         2001        2002       2001        2000      1999      1998
                                             ----         ----        ----       ----        ----      ----      ----
                                                                 (dollars in thousands)
Balance beginning of period........        $6,221       $4,420      $4,420     $3,833      $3,301    $2,704    $2,299
Additions:
  Provision for credit losses......         3,413        2,510      10,594      8,264       7,476     6,577     4,617
  Recoveries.......................           270          213         952      1,296       1,185       956       854
Deductions:
  Charge-offs......................       (2,783)      (2,372)     (9,745)    (8,973)     (8,129)   (6,936)   (5,066)
                                          -------      -------     -------    -------     -------   -------   -------
Balance end of period..............        $7,121       $4,771      $6,221     $4,420      $3,833    $3,301    $2,704
                                           ======       ======      ======     ======      ======    ======    ======

Nonearning Assets

         Accrual of interest income is suspended when a payment has not been
received for 60 days or more, and the interest due exceeds an amount equal to 60
days of interest charges. The accrual is resumed when a full payment (95% or
more of the contracted payment amount) is received.

         Nonearning assets represent those finance receivables on which both the
accrual of interest income has been suspended and for which no payment of
principal or interest has been received for more than 60 days. Nonearning assets
at September 30, 2002 decreased to $5.58 million from $6.37 million at September
30, 2001, a decrease of $790,000 or 12.4%.

Loan Origination

         Our loan origination is the most important factor in determining our
future revenues. Our loan origination in fiscal 2002 increased to $191.9 million
from $158.6 million in fiscal 2001, an increase of $33.3 million or 21.0%. This
increase is the result of an 8.6% increase in the number of new loans as well as
an 11.4% increase in the average loan size, due primarily to the increased
creditworthiness of an increasing number of customers with a higher military
rank. This increase



                                       24

was primarily the result of an increase in direct loans, which experienced a
$31.2 million, or 21.6%, increase from fiscal 2001, due in large part to
increased Internet loan originations.

For the Three Months
Ended
December 31, For the Years Ended September 30,
---------------------- ----------------------------------------------------------
2002 2001 2002 2001 2000 1999 1998
-------- -------- ---------- ---------- ---------- ---------- ---------
(dollars in thousands, except for average note amounts)
Total Loan Origination:
Gross balance................. $62,478 $57,552 $191,931 $158,594 $158,220 $136,457 $111,713
Number of notes............... 20,807 20,825 67,483 62,123 63,123 56,570 48,620
Average note amount........... $3,003 $2,764 $ 2,844 $ 2,553 $ 2,507 $ 2,412 $ 2,298

Direct Loans:
Gross balance................. $58,402 $53,932 $175,932 $144,693 $134,870 $117,064 $ 97,818
Number of notes............... 19,573 19,684 62,532 57,576 54,558 48,724 43,255
Average note amount........... $2,984 $2,740 $ 2,813 $ 2,513 $ 2,472 $ 2,403 $ 2,261

Retail Installment Contracts:
Gross balance................. $4,076 $3,620 $ 15,999 $13,901 $23,350 $19,393 $ 13,895
Number of notes............... 1,234 1,141 4,951 4,547 8,565 7,846 5,365
Average note amount........... $3,303 $3,173 $ 3,231 $ 3,057 $ 2,726 $ 2,472 $ 2,590

Liquidity and Capital Resources

A relatively high ratio of borrowings to invested capital is customary
in consumer finance activities due to the quality and term of the assets
employed. Our principal use of cash is to make new loans and purchase retail
installment contracts. We use our borrowings to fund the difference between the
cash used to make new loans and purchase retail installment contracts, and the
cash generated from loan repayments. This amount is generally our cash used in
investing activities. Cash used in investing activities in fiscal 2002 was
approximately $31.2 million, compared to $18.0 million in fiscal 2001.

Investing activities in fiscal 2002 were primarily funded by $16.3
million from operating activities and $13.6 million from financing activities.
Financing activities consist of borrowings under our senior lending agreement,
borrowings under an unsecured revolving credit line from our parent, Pioneer
Financial Industries, Inc., and sales of junior subordinated debentures.
Information about the length to maturity of our debt may be found under Note 3
of the Notes to Consolidated Financial Statements. The revolving credit line
from our parent consists of various borrowings at 2% above the prime rate. See
Note 5 of the Notes to Consolidated Financial Statements for general
remunerations.

Senior Indebtedness

Our senior lending agreement is a common loan agreement with a group of
banks. Currently, 11 banks are parties to this agreement. The senior lending
agreement is an uncommitted facility which permits any bank to elect not to
participate in any future fundings at any time without penalty. Prior to fiscal
2002, two banks elected not to extend further credit to us in the future.



         Our senior lending agreement gives us access to a revolving credit
line, amortizing notes and single pay term notes. As of December 31, 2002, the
outstanding balance under the revolving credit loan was $12.0 million floating
at prime rate, or 4.25%. The revolving credit line is payable upon demand in 12
equal monthly payments of principal and monthly payments of interest on the
outstanding principal on the tenth day of each month. As of December 31, 2002,
the outstanding balance of the amortizing notes was $103.6 million, with
interest rates fixed at 270 basis points over the ninety day moving average of
like-term Treasury notes when issued. All amortizing notes have terms not to
exceed 48 months, payable in equal monthly principal and interest payments. As
of December 31, 2002, we had 230 amortizing notes outstanding with a weighted
average maturity of 35.4 months and a weighted average interest rate of 7.08%.
The rates and terms of single pay term notes are negotiable. These notes
typically have a term of 36 to 48 months and require interest only payments
until maturity. As of December 31, 2002, we had 3 single pay term notes
outstanding in an aggregate amount of $3.0 million, with a weighted average
maturity of 10.79 months and a weighted average interest rate of 8.59%. Interest
on all borrowings under our senior lending agreement is payable monthly.

         Substantially all of our assets secure this bank debt. The senior
lending agreement limits, among other things, our ability to (1) incur
additional debt from the banks that are party to the agreement beyond that
allowed by specific financial ratios and tests, (2) pay dividends, (3) make
certain other restricted payments, (4) consummate certain asset sales and
dispositions, (5) merge or consolidate with any other person, and (6) incur
additional debt for borrowed money.

         The senior lending agreement also contains certain restrictive
covenants that require us, among other things, to maintain specific financial
ratios and to satisfy certain financial tests. In part, these include: (a) an
Allowance for Credit Losses (as defined in the senior lending agreement) equal
to or greater than the Allowance for Credit Losses shown on our audited
financial statements as of the end of our most recent fiscal year and at no time
less than 2% of our net receivables, (b) a Senior Indebtedness to Tangible Net
Worth (as defined in the senior lending agreement) as of the end of each quarter
not greater than 4.75 to 1.00, and (c) Senior Indebtedness to Net Receivable
Ratio (as defined in the senior lending agreement) as of the end of each quarter
of no more than 80%. We are also required to maintain a Consolidated Total
Required Capital (as defined in the senior lending agreement) of at least $9
million plus 50% of the cumulative positive net income earned during each of our
fiscal years ending after September 30, 1999. The breach of any of these
covenants or other terms of the senior lending agreement could result in a
default under the senior lending agreement, in which event the lenders could
seek to declare all amounts outstanding under the senior lending agreement,
together with accrued and unpaid interest, to be immediately due and payable. As
of December 31, 2002, we were in compliance with all loan covenants.

         We also have a revolving line of credit, payable on demand, from our
parent, Pioneer Financial Industries, Inc. Interest on this facility accrues at
the prime rate plus 2%. At December 31, 2002, there was $1.9 million outstanding
under this credit facility with an interest rate of 6.25%.


                                       26

As of December 31, 2002 and 2001 and as of September 30, 2002, 2001,
2000, 1999 and 1998, the total borrowings and availability under our senior
lending agreement and our revolving line from our parent, consisted of:

As of December 31, As of September 30,
------------------------ ------------------------------------------------------
2002 2001 2002 2001 2000 1999 1998
---------- ---------- ---------- ------- ---------- --------- -------
(dollars in thousands)
Revolving Credit Line (1):
Total facility.......... $29,000 $23,000 $ 27,000 $23,000 $22,000 $ 20,000 $22,000
Balance at end of year $13,974 $16,062 $ 12,718 $12,310 $10,851 $ 9,138 $ 8,158
Available credit........ $15,026 $ 6,938 $ 14,282 $10,690 $11,149 $ 10,862 $13,842
Term Notes (2):
Total facility.......... $134,686 $122,014 $ 125,470 $123,432 $99,755 $ 90,730 $76,500
Balance at end of year.. $106,563 $92,482 $ 97,925 $83,847 $80,466 $ 64,561 $52,277
Available credit........ $28,123 $29,532 $ 27,545 $39,585 $19,289 $ 26,169 $24,223
Total Revolving and Term
Notes (1)(2):
Total facility.......... $163,686 $145,014 $152,470 $146,432 $121,755 $110,730 $98,500

Balance at end of year.. $120,537 $108,544 $110,643 $96,157 $91,317 $ 73,699 $60,435
Available credit........ $43,149 $36,470 $ 41,827 $50,275 $30,438 $ 37,031 $38,065
Percent utilization .... 73.64% 74.85% 72.60% 65.70% 75.00% 66.60% 61.40%
----------------------------

(1) Includes revolving credit line from our parent.
(2) Includes amortizing notes and single payment term notes.

Outstanding Subordinated Debt

Prior to November 1, 2002, we also funded our liquidity needs through
the sale of unsecured junior subordinated debentures. We have not sold any
junior subordinated debentures since November 1, 2002. These debentures have
varying fixed interest rates and are subordinate to all senior indebtedness. We
can redeem these debentures at any time upon 30 days written notice. As of
December 31, 2002, we had issued approximately $21.4 million of these junior
subordinated debentures at a weighted average interest rate of 9.46%.

The sale of these debentures, and the debentures offered by this
prospectus, provide us with additional liquidity and capital resources. Issuing
these debentures increases our tangible net worth which allows us to borrow
larger amounts under our senior lending agreement. To finance growth in our
finance receivables portfolio, we intend to borrow additional funds under our
senior lending agreement from time to time as we sell additional debentures.

Interest Rate Risk Management

Our profitability and financial performance are sensitive to changes in
the U.S. Treasury yields and the spread between the effective rate of interest
we receive on customer loans and the interest rates we pay on our borrowings.
Our finance income is generally not sensitive to fluctuations in market interest
rates. The primary exposure that we face is changes in interest rates on our
borrowings. A substantial and sustained increase in market interest rates could
adversely affect our growth and profitability. The overall objective of our
interest rate risk management strategy is to mitigate the effects of changing
interest rates on our interest expense through the utilization of short term
variable rate debt and medium and long term fixed rate debt. We have not entered
into any derivative instruments to manage our interest rate risk.


         The amounts set forth below show the impact on earnings of changes in
interest rates on our variable rate debt as of the time it is scheduled to
adjust, and upon the debt that is scheduled to mature during 2003, assuming
adjustments to, or refinancing at, rates available to us at September 30, 2002.
Changes in our interest expense for various possible fluctuations in the
interest rates of our debt for fiscal 2003 may be estimated as follows:

Decrease/increase                            -2%                -1%               0%             +1%             +2%
-----------------                        -----------       ------------      ----------       ----------    ------------

Revolving credit line..........           $(215,520)         $(107,760)              $0         $107,760        $215,520
Amortizing and
single pay term notes..........          (1,309,602)          (919,840)       (530,077)        (140,315)         249,448
Junior subordinated debt.......             (34,542)           (10,554)          13,433           37,420          61,408
                                         -----------          ---------       ---------      -----------      ----------
   Total impact on
   interest expense............         $(1,559,664)       $(1,038,154)      $(516,644)           $4,865        $526,376
                                        ============       ============      ==========      ===========        ========

         The following table shows our contractual obligations and commitments
as of September 30, 2002.


                                                                           Payments Due By Period
                                                        -----------------------------------------------------------------
                                                          Less than
Contractual Obligations                    Total            1 year        1-3 years         4-5 years      After 5 years
-----------------------               ---------------  --------------   --------------      ----------     -------------
Long-Term Debt..................         $119,321,843      $41,374,998     $68,697,322      $3,117,312      $6,132,211
Operating Leases................            3,777,000          846,736       1,654,462       1,020,642         255,160
                                      ---------------  ---------------  --------------       ---------      ----------
Total Contractual Cash
   Obligations..................         $123,098,843      $42,221,734     $70,351,784      $4,137,954      $6,387,371
                                         ============      ===========     ===========      ==========      ==========

                                                                      Amount of Commitment Expiration Per Period
                                                          ------------------------------------------------------------
                                        Total
         Other Commercial               Amounts             Less than
            Commitments                 Committed             1 year        1-3 years      4-5 years       Over 5 years
            -----------               --------------      -------------     ---------      ---------       ------------
Lines of Credit.................         $12,717,831      $12,717,831(1)       ---            ---              ---

-----------------------------------------

(1) Includes $1,941,831 owed to our parent.


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
generally are associated with increased interest rates. A significant and
sustained increase in interest rates could 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 under our senior lending agreement
and debentures. Inflation also may negatively affect our operating expenses.

Recent and Proposed Accounting Pronouncements

          Statement of Financial Accounting Standards No. 144 (SFAS No. 144),
Accounting for the Impairment or Disposal of Long-Lived Assets, was issued in
August 2001 and supersedes Statements of Financial Accounting Standards No. 121.
SFAS No. 144 addresses financial accounting and reporting for impairment or
disposal of long-lived assets. We adopted SFAS No.



                                       28




144 as of October 1, 2002, and the provisions of this statement have not had a
material impact on our consolidated financial statements.

          We also adopted Statement of Financial Accounting Standards No. 142
(SFAS No. 142), "Goodwill and Other Intangible Assets", which establishes
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes Accounting Principles Board Opinion No. 17, "Intangible
Assets". Under SFAS No. 142, goodwill and indefinite-lived intangible assets are
no longer amortized but are reviewed at least annually for impairment. We
adopted SFAS No. 142 as of October 1, 2002, and the provisions of this statement
have not had a material impact on our consolidated financial statements.

Critical Accounting Policies

         Our accounting and reporting policies are in accordance with accounting
principles generally accepted in the United States of America and conform to
general practices within the finance company industry. The significant
accounting policies used in the preparation of the consolidated financial
statements are discussed in Note 1 to the Consolidated Financial Statements.

         Certain critical accounting policies require our management to make
estimates and assumptions, which affect the reported amounts of assets,
liabilities, income and expenses. As a result, changes in these estimates and
assumptions could significantly affect our financial position and results of
operations. We consider our policies regarding the allowance and resulting
provision for loan losses to be our most critical accounting policy due to the
significant degree of management judgment that is applied in establishing the
allowance and the provision. We have developed policies and procedures for
assessing the adequacy of the allowance for loan losses, which take into
consideration various assumptions and estimates with respect to the loan
portfolio. Historical credit loss experience, delinquency of finance
receivables, the value of underlying collateral, current economic conditions,
current military activities and management's judgment are factors used in
assessing the overall adequacy of the allowance and corresponding provision for
credit losses. The assumptions and estimates used by management may be
significantly affected in the future by changes in economic conditions, among
other factors. See " - Credit Loss Experience and Provision for Credit Losses."




                                       29




                                    BUSINESS

General

         We originate and service consumer loans, and provide other financial
products and services on a worldwide basis, exclusively to active duty or
retired career military personnel or Department of Defense employees. We make
direct loans to our customers through our network of retail sales offices and
via the Internet. We also purchase retail installment contracts from retail
merchants that sell consumer goods to active duty or retired career military
personnel or Department of Defense employees. We are not associated with, nor
are we endorsed by, the United States military or Department of Defense.
However, we do seek to maintain a positive, supportive relationship with the
military community. Through sponsorship and underwriting of military programs,
and educational efforts, we actively support initiatives aimed at improving the
quality of life for military personnel and their families. Our operations and
financial products are also designed to meet the needs of military service
personnel. Various aspects of our loan application process, our suspension of
collection efforts during Operation Desert Storm and after September 11, 2001
and our emergency funeral assistance program were designed to meet the unique
needs of our customer base.

         We also offer credit life, credit accident and health and credit
property and casualty insurance to our loan customers. This insurance is issued
by a non-affiliated insurance company. We also sell roadside assistance packages
and discount healthcare cards issued by an unaffiliated third party.

         Our lending subsidiaries originate and service direct consumer loans
made to customers referred by our retail office network of 25 locations and our
unaffiliated strategic partners. Some subsidiaries purchase retail installment
contracts generated by merchants when active duty or retired career military
personnel or Department of Defense employees purchase consumer goods.

          o    We have three full service lending subsidiaries strategically
               located throughout the United States. Our lending subsidiaries
               are responsible for all direct lending activity. They receive
               applications from customers, make all underwriting decisions,
               generate loan documents and necessary disclosures, prepare loan
               disbursements, maintain loan documentation and service
               outstanding direct loans. If a customer is approved for a loan,
               in addition to loan disclosures, he receives information
               regarding various types of credit insurance. If the customer
               chooses to purchase this insurance, licensed insurance agent
               employees of the lending subsidiary sell this coverage on behalf
               of an unaffiliated insurance company.

          o    We have another lending subsidiary that also originates and
               services loans to customers primarily via the Internet. It also
               originates loans to customers referred by a German affiliate. Our
               Internet lending capability allows customers to apply online via
               the Internet and receive loan proceeds electronically. If a
               customer is approved and accepts the loan offer, loan proceeds
               are generally deposited into the customer's bank account within
               24 hours. This lending subsidiary also sells credit life
               insurance products over the Internet.



                                       30


         Another subsidiary operates our retail network of 25 offices located in
16 states. Our retail network offices are located in close proximity to, but not
on, military installations. They are typically located in retail strip shopping
centers. We continually review our retail network to determine how to best
deploy our resources and look for opportunities for expansion. Our locations
were strategically selected based on several criteria including market size of
military installation, convenience and growth and profitability opportunities.
The retail network sells various financial products and services, roadside
assistance packages and discount healthcare cards which are designed for
military personnel. At no charge to customers, our retail offices also provide
financial education courses, credit bureau analyses, living wills, auto
insurance quotes, child fingerprinting cards, and copying, fax and other
services. At selected locations within the retail network, licensed insurance
benefit counselors sell selected non-credit insurance and savings products. Our
retail network refers customers to our lending subsidiaries and expedites the
loan application process. None of our retail offices will expedite a loan
application process for residents of the state in which the office is located,
unless we have a lending license in that state.

         We also have a subsidiary that purchases retail installment contracts
from approximately 77 retail merchants. Retail installment contracts are notes
generated by a single purchase of consumer goods by active duty or retired
career military personnel or Department of Defense employees. We generally
acquire these contracts without recourse to the originating merchant. However,
most retail merchant reserve agreements allow us to withhold funds from the
merchant's proceeds to create reserves to be used in the event a customer
defaults and the loan is deemed uncollectable. Retail installment contracts
generally have maximum terms of 48 months. To supplement our direct lending and
retail installment activities, we occasionally purchase active duty or retired
career military personnel or Department of Defense employee consumer loan
portfolios that meet our quality standards and return on investment objectives.
This subsidiary also sells credit property insurance.

         Our collection activities are generally performed by our lending
subsidiaries. Once an account reaches a certain delinquency level or the
customer becomes a civilian or declares bankruptcy, the account is transferred
to our collection subsidiary.

         As discussed under "Insurance Operations" below, we have a subsidiary
that reinsures a portion of the accident and health credit insurance issued by
an unaffiliated insurance company in connection with loans we make.

         Our subsidiaries' activities are supported by a centralized support
services subsidiary that provides the following services:

          o    Finance and accounting services
          o    Human resources and recruiting services
          o    Information technology services
          o    Marketing and solicitation services

Customer

         We exclusively market and sell financial services and products to
persons who are, at the time the loan or sale is made, active duty or retired
career military personnel or Department of

                                       31


Defense employees. In general, our customers are unable to obtain traditional
financing from banks, credit unions or savings and loan associations due to
factors such as their age, likelihood of relocation and lack of credit history.

         In general, customers use our direct loans for purchases of appliances,
furniture, household electronics and other durable goods, emergency expenses,
vacations, auto purchases and debt consolidation. Where appropriate, we obtain
security interests in collateral, often consumer goods, to support repayment of
loans. However, the resale value of used consumer goods often makes foreclosure
and liquidation of this collateral uneconomical.

         These borrowers are attracted to our loan products as a result of being
referred to us by an existing customer or by our marketing efforts. Retail
installment contracts are another source of loan customers. These customers have
demonstrated an apparent need to finance a retail purchase and a willingness to
use credit. After we purchase a retail installment contract, we often contact
the customer using various solicitation methods. We invite the customer to visit
one of our retail network offices to discuss their overall financial needs and
consider our other products and services.

Seasonality

         Our highest finance receivable demand occurs generally from October
through December, our first fiscal quarter. From January to March, our second
fiscal quarter, demand is generally lower and repayments higher. Demand is
generally stable in the third and fourth quarters. Consequently, we experience
mild seasonal fluctuations in our cash requirements during our first and second
quarters.

Direct Lending Activities

         A risk in all consumer lending and retail sales financing transactions
is the customer's unwillingness or inability to repay obligations. Unwillingness
to repay is usually evidenced by a consumer's historical credit repayment
record. An inability to repay occurs after our initial credit evaluation and
funding and usually results from lower income due to early separation from the
military, major medical expenses, or divorce. Occasionally, these types of
events are so economically severe that the customer files for protection under
the bankruptcy laws. We use standard underwriting guidelines at the time the
borrower applies for a loan to help minimize the risk of unwillingness or
inability to repay. These guidelines are developed from past customer credit
repayment experience and are periodically revalidated based on current portfolio
performance. We use these guidelines to predict the relative likelihood of
credit applicants repaying their obligation to us. We extend credit to those
consumers who fit our underwriting guidelines. The amount and interest rate of
the loan or retail sales finance transaction are based upon the estimated credit
risk assumed.

         In general, our loans are under $5,000, repayable in equal monthly
installments and have terms no longer than 48 months. In evaluating the
creditworthiness of potential customers, we primarily examine the individual's
debt to income ratio, discretionary income, military rank, time served in the
military and prior credit experience. Loans are limited to amounts that the
customer can reasonably be expected to repay from that discretionary income.
Loan repayment



                                       32


terms are generally structured to repay the entire loan prior to the customer's
estimated separation from the military.

         All of our customers are required to complete standardized credit
applications in person at one of our retail network offices or to complete an
online application via the Internet. All of our retail network offices are
staffed and equipped to expedite loan applications electronically to one of the
lending subsidiaries for loan underwriting. Promptly, our lending subsidiary
employees verify the applicant's military service history and status including
rank, review credit histories using major credit reporting agencies and conduct
other review procedures as deemed necessary.

         The majority of our customers submit a listing of personal property
that will be pledged as collateral to secure the loan, but we generally do not
perfect a security interest in that collateral. Often the current value of the
collateral does not exceed the expense of repossession. Accordingly, if the
customer were to default in the repayment of the loan, we may not be able to
recover the outstanding loan balance by resorting to the sale of collateral. In
certain transactions, based on the amount of the loan, we will take a security
interest in the collateral in the event of a change in the customer's
circumstances that might prevent the customer from repaying the loan as agreed.

         We believe that the development and continual reinforcement of personal
relationships with customers improves our ability to monitor their
creditworthiness, reduce credit risk and generate loyal repeat customers. It is
not unusual for us to have made a number of loans to the same customer over the
course of several years, many of which were refinanced with a new loan after
approximately one third of the scheduled payments were made. In determining
whether to refinance existing loans, we typically require loans to be current on
a recency basis, and customers are required to complete a new credit
application. Rarely do we grant extensions or deferments, or allow account
revisions, rewriting renewal or rescheduling to bring an otherwise delinquent
account current. Our policy is that we do not refinance loans to cure a default
in principal or interest. Generally, we refinance existing loans when a portion
of the new loan proceeds is used to repay the balance of the existing loan and
the remaining portion is advanced to the customer. We actively market the
opportunity to refinance existing loans prior to maturity, thereby increasing
the amount borrowed and increasing the fees and other income we realize. In
fiscal 2002, approximately 46% of the number and 27% of the amount of our loan
originations were refinancings of outstanding loans.

         To reduce our credit risk, we encourage our customers to employ the
convenience of making their monthly loan payments electronically through payroll
deduction via the Government Allotment System or through an automatic debit of
their account through the National Automated Clearinghouse Association. As of
December 31, 2002, approximately 95% of our customers were utilizing these
options.

Credit Loss Experience

         We closely monitor portfolio delinquency and loss rates in measuring
the quality of our portfolio and the potential for ultimate credit losses. We
attempt to control customer delinquency through careful evaluation of each
application and credit history at the time the loan is originated or purchased
and through appropriate collection activity. Collection efforts


                                       33


continue after an account has been charged-off until it is determined that the
cost of collection efforts outweighs the benefits received.

Insurance Operations

         Generally, where applicable laws permit, we sell various types of
credit insurance products offered by third party insurance companies to our
customers. We earn a pre-negotiated commission on the sale of credit insurance.
The customer's premiums for insurance coverage are financed as part of the
customer's loan.

         Credit life insurance policies typically cover the life of the customer
and provide for the full payment of the outstanding loan balance in the event of
the customer's death, including war-related deaths. Credit accident and health
insurance policies provide for the payment of loan installments as they become
due while a customer is disabled due to illness or injury, including war-related
injuries. Credit property insurance is written to protect the property pledged
as security for the obligation. Purchases of credit life insurance and credit
accident and health insurance are entirely voluntary and at the customer's
discretion. Property insurance is expected for property pledged as collateral
unless the borrower provides evidence of coverage with another insurance carrier
naming us as payee.

         We have a wholly-owned insurance subsidiary that reinsures a portion of
the credit accident and health insurance that we sell on behalf of an
unaffiliated insurance carrier, providing us with an additional source of income
from the earned reinsurance premiums. If these customers are injured or become
ill, including during war, this subsidiary will have payment obligations. In
fiscal 2002, our insurance subsidiary reinsured approximately 54% of the credit
accident and health insurance we sold and contributed approximately $1.3 million
to our total revenues.

         The laws of the states in which we operate regulate our sale of
insurance to our customers by prescribing, among other things, the maximum
amount of coverage and term of policy and by fixing the permissible premium
rates or authorizing a state official to fix the maximum premium rates.

         The following table sets forth information concerning our re-insurance
operations:

                                      December 31,          September 30,
                                ---------------------  ---------------------------
                                  2002       2001       2002       2001      2000
                                --------   --------    ------    -------   -------
                                               (dollars in thousands)
Premium income                     $  330    $  390    $1,317    $1,440    $1,270
Investment income                      24        29       109       118        77
                                   ------    ------    ------    ------    ------
Total revenue                      $  354    $  419    $1,426    $1,558    $1,347
Claims paid                             4         4        31        17        26
Operating expenses                      2         3        19        11        20
                                   ------    ------    ------    ------    ------
Income before income taxes         $  348    $  412    $1,376    $1,530    $1,301
                                   ======    ======    ======    ======    ======


                                       34


Regulation

         Our consumer lending business is subject to extensive regulation,
supervision and licensing by various state departments of banking and other
state and federal agencies. We are also subject to various judicial and
administrative decisions of general applicability that also set requirements and
restrictions applicable to our lending activities. Failure to comply with these
requirements can lead to, among other sanctions, termination or suspension of
licenses, consumer litigation and administrative enforcement actions.

         Our lending subsidiaries are subject to detailed supervision by
authorities in the states where they are located. Legislation and regulations
generally require licensing, limit loan amounts, duration and charges for
various categories of loans, require adequate disclosure of certain contract
terms and limit collection practices and creditor remedies. Licenses are
renewable and may be subject to revocation for violation of these laws and
regulations. In addition, these states have usury laws which limit the interest
rates we may charge.

         State and federal regulatory agencies, state attorneys general, the
Federal Trade Commission, and the U.S. Department of Justice have increased
their focus on certain types of lending practices by some companies in the
subprime lending industry, sometimes referred to as "predatory lending"
practices. State and federal governmental agencies have imposed sanctions for
certain lending practices, including, but not limited to, charging borrowers
excessive fees, making loans to refinance existing loans when there is no
tangible benefit to the borrower, imposing higher interest rates than a
borrower's credit risk warrants and failing to adequately disclose the material
terms of loans to borrowers.

         We are subject to the Truth-in-Lending Act and Regulation Z promulgated
thereunder. This act requires us, among other things, to disclose pertinent
terms of our consumer loans, including the finance charge and the comparative
costs of credit expressed in terms of an annual percentage rate. These
disclosure requirements are designed to provide consumers with uniform,
understandable information with respect to the terms and conditions of loans and
credit transactions in order to enable them to compare credit terms.

         In addition, we are subject to the Equal Credit Opportunity Act which,
in part, prohibits credit discrimination on the basis of race, color, religion,
sex, marital status, national origin or age. Regulation B, promulgated under
this act, restricts the type of information that we may obtain in connection
with a credit application. It also requires us to make certain disclosures
regarding consumer rights and requires us to advise applicants who are denied
credit the reasons for the denial. In instances where a loan application is
denied or the rate or charge on a loan is increased as a result of information
obtained from a consumer credit agency, the act requires us to supply the
applicant with the name and address of the reporting agency.

         Our insurance activities are also regulated by state and federal law,
and are subject to supervision by agencies having jurisdiction over consumer
credit and insurance. These regulations cover such matters as solicitation
practices, disclosure, policy terms, claims payment, premiums, premium financing
and permitted commissions. In addition, our reinsurance subsidiary is subject to
laws and regulations of the insurance authorities in the state of Arizona. These
regulations cover such matters as its capitalization, reserve requirements,
affiliate transactions, permitted investments and limitations on the amount of
dividends payable.



                                       35


         The Gramm-Leach-Bliley Act, which was signed into law at the end of
1999, contains comprehensive consumer financial privacy restrictions. Various
federal enforcement agencies, including the Federal Trade Commission, have
issued final regulations to implement this act. These restrictions fall into two
basic categories. First, we must provide various notices to our customers about
our privacy policies and practices. Second, this act restricts us, and gives our
customers the right to prevent us, from disclosing non-public personal
information about the customer to non-affiliated third parties, with certain
exceptions. We believe we have prepared the appropriate consumer disclosures and
internal procedures to address these requirements.

         We have procedures and controls to monitor compliance with numerous
federal and state laws and regulations. However, because these laws and
regulations are complex and often subject to interpretation, or because of a
result of inadvertent errors, we may, from time to time, inadvertently violate
these laws and regulations. If more restrictive laws, rules and regulations are
enacted or more restrictive judicial and administrative interpretations of those
laws are issued, compliance with the laws could become more expensive or
difficult.

         The merchants who originate retail installment contracts purchased by
us also must comply with both state and federal credit and trade practice
statutes and regulations. If the merchants fail to comply with these statutes
and regulations, it could result in consumers having rights of rescission and
other remedies that could have an adverse effect on us.

         The Soldiers and Sailor's Civil Relief Act, in part, requires lenders
to reduce the interest rate charged on loans to customers who have subsequently
joined the military. Due to our policy to originate loans to only active duty
and retired career military personnel, this act does not affect our business.
Furthermore, our customers waive their right to enforce this act at time of loan
closing.

         Although we believe our operations comply with current regulatory
requirements, we are unable to predict whether state or federal authorities will
require changes in our lending practices in the future, or the impact of those
changes on our profitability. These agencies have the authority to require a
lender that has violated existing laws to reimburse customers for fees or other
charges.

Competition

         The markets in which we operate are competitive. Traditional
competitors in the consumer finance industry include independent finance
companies, banks and thrift institutions, credit unions, credit card issuers,
leasing companies, manufacturers and vendors. Some of these competitors are
large companies that have greater capital and technological and marketing
resources than we do. These competitors also have access to capital at a lower
cost.

         Competition varies by delivery system and geographic region. For
example, some competitors deliver their services exclusively via the Internet
while others exclusively through a branch network. We distribute our products
using both delivery channels. In addition, we compete with other consumer
finance companies on the basis of overall pricing of loans, including interest
rates and fees, and general convenience of obtaining the loan, including the
location of our retail offices to the military base.




                                       36

         We maintain product delivery flexibility and convenience, which we
believe offers us a competitive advantage. In addition, we believe that
innovation is necessary to compete in the industry, including enhanced customer
service, products designed for military personnel and use of the Internet for
loan processing and funding. While some of our customers might qualify for loans
from traditional lending sources, we believe they are attracted to our products
and services as a result of our exclusive commitment to the military market, an
understanding of the military culture, our products and services and our
expedited loan processing and funding.

Trade Names

         A subsidiary of our parent has applied for federal trademark protection
for the name "Pioneer Services," other names we use in our business and the logo
that incorporates the "Pioneer Services" name. Trademark protection for certain
other names, logos and phrases we use in our business operations are being
applied for.

Employee Relations

         At December 31, 2002, we employed approximately 270 persons, none of
whom were represented by labor unions. We believe that our employee relations
are good.

Properties

         Our operations are generally conducted on leased premises under
operating leases with terms not normally exceeding five years. At December 31,
2002, we had 31 leased operating facilities in the United States. Please see
Note 6 to our Consolidated Financial Statements for information concerning our
lease obligations. The furniture, equipment and other personal property that we
own represents less than 1% of our total assets at December 31, 2002 and is
therefore not significant in relation to our total assets.

Legal Proceedings

         We are currently involved in various litigation matters in the ordinary
course of our business. We are not currently involved in any litigation or other
proceeding that we expect, either individually or in the aggregate, will have a
material adverse effect on our financial condition, results of operations and
cash flows.
                                       37



                                   MANAGEMENT

Directors and Executive Officers

         The following table sets forth information regarding each person who
serves as a director or executive officer of Pioneer as of January 31, 2003.

         Name               Age       Position

William D. Sullivan         65        Chairman, Chief Executive Officer and sole Director
Thomas H. Holcom, Jr.       56        President and Chief Operating Officer
Randall J. Opliger          45        Chief Financial Officer, Treasurer and Secretary

         William D. Sullivan is the Chairman and sole member of our board of
directors. He has been a director since 1957. Mr. Sullivan has been associated
with Pioneer since 1957 and has served in all levels of branch office operations
as well as all management and executive capacities. He has been our Chief
Executive Officer since 1963. Mr. Sullivan was one of the founders of a Kansas
City bank which merged with a multi-billion dollar bank holding company. After
20 years of service, he retired in 1987 as a member of their Kansas City
regional bank executive committee and its board of directors. In addition, he
has served as President of the National Second Mortgage Association, Kansas
Association of Financial Services and the Consumer Credit Counseling Service. He
is also former officer of the Missouri Financial Services Association and the
Better Business Bureau.

         Thomas H. Holcom, Jr. is our President and Chief Operating Officer. He
has been associated with Pioneer since 1985 when he joined us as our Chief
Financial Officer. He was named President and Chief Operating Officer in
September, 2000. Prior to joining us, Mr. Holcom spent 19 years with a regional
bank with assets over $1 billion and was Executive Vice President of that bank.
His career has encompassed strategic planning, corporate finance, consulting,
investments, risk management and marketing. He served on the boards of numerous
professional and civic organizations.

         Randall J. Opliger joined us as our Chief Financial Officer, Treasurer
and Secretary in April, 2000. From 1997 to March, 2000, Mr. Opliger held the
chief financial officer position with Propeller Creative Services, Inc., an
interactive web development company. Mr. Opliger received his CPA designation in
1982, and his prior experience includes both public accounting and other
executive level responsibilities, including serving as a chief financial officer
of a consumer finance company of a similar size.




                                       38

Executive Compensation

The following table sets forth all cash compensation we paid during
each of our last three fiscal years to our Chief Executive Officer and to the
other two executive officers whose total annual salary and bonus paid during
fiscal year 2002 exceeded $100,000. As sole director, Mr. Sullivan has
determined executive compensation with input from Mr. Holcom, as President and
Chief Operating Officer.

SUMMARY COMPENSATION TABLE

Annual Compensation
-----------------------------------------------------

Other Annual
Name and Salary Bonus Compensation
Principal Position Year ($) ($) ($)
------------------ ---- ----------- ----------- --------------
William D. Sullivan, 2002 $463,140 $250,000 $1,905 (1)
Chief Executive Officer 2001 $431,900 $250,000 $2,521 (1)
2000 $111,300 $390,000 $2,175 (1)

Thomas H. Holcom, Jr., 2002 $246,012 $300,000 $ 720 (1)
President and Chief Operating Officer 2001 $246,012 $288,000 $ 720 (1)
2000 $184,462 $200,000 $ 720 (1)

Randall J. Opliger, 2002 $90,000 $90,000
Chief Financial Officer, Treasurer and 2001 $84,616 $52,207
Secretary 2000 $36,308(2) $6,000

---------------------------------
(1) Amounts attributable to the non-business use of a company car.
(2) Mr. Opliger joined us in April, 2000.

Options Grants

We have not granted any options or equity-based incentives.

Employment Agreement

We have entered into an employment agreement with Randall J. Opliger
pursuant to which we have agreed to pay him a base salary of $90,000 per year.
The employment agreement may be terminated by either party upon five days
notice, except that we may terminate the agreement without notice for cause or
if Mr. Opliger violates any provision of the agreement. The agreement contains
customary non-disclosure provisions and prohibits Mr. Opliger from competing
with us or soliciting any of our customers or employees for two years following
his termination. In addition, both parties agree to arbitrate most disputes
arising under the agreement.



                              CERTAIN TRANSACTIONS

         We are privately held and after the sale of the debentures we will
continue to be privately held. Our sole shareholder, Pioneer Financial
Industries, Inc., has the flexibility of structuring our operating activity so
as to optimize our ability to borrow capital for use in our lending activities
and to reduce our exposure to the risks of developing new products and services.
As a result, certain expenditures and assets related to our operations have been
paid for or financed by Pioneer Financial Industries and its subsidiaries. We
then lease or purchase these products and services from them.

         At December 31, 2002, we had borrowed $1,927,301 from Pioneer Financial
Industries, Inc. pursuant to an unsecured revolving line of credit. Interest on
this facility accrues at the prime rate plus 2%. During fiscal 2002, 2001 and
2000, we made interest payments on this debt in the amount of $132,856, $170,109
and $12,572, respectively.

         During fiscal 2002, 2001 and 2000, we paid $734,596, $726,768 and
$701,162, respectively, to Pioneer Financial Industries and its subsidiaries for
strategic planning and professional services, including (i) $187,596, $172,728
and $-0-, respectively, paid to Pioneer Licensing Services, Inc., to acquire,
develop and maintain intellectual property assets employed by us, including
names, trademarks, websites, logos, branding rights and software, and to license
those intellectual property rights to us as needed; and (ii) $120,000, $118,680
and $219,000, respectively, paid to Penwith Corporation for strategic planning
and professional services, including product identification and procurement.

         We and Armed Services Benefits, a subsidiary of our parent Pioneer
Financial Industries, each receive a portion of the commissions on health
discount cards we sell. During fiscal 2002, 2001 and 2000, their commissions
totaled $392,619, $974 and $-0-, respectively.

         Pioneer Sales Services, GmbH, a German subsidiary of Pioneer Financial
Industries, receives a fee for each loan customer it refers to one of our
lending subsidiaries. During fiscal 2002, 2001 and 2000, we paid this entity
$556,651, $630,522 and $578,767, respectively, which approximates its cost of
identifying and making these referrals.

         Midstate Leasing, LLC, an entity owned by William D. Sullivan and his
children, leases certain office equipment, signs and automobiles to several of
our subsidiaries. During fiscal 2002, 2001 and 2000, payments under these leases
totaled $226,929, $107,647 and $107,252, respectively.

         We rent a building from Westport Investment Corp., a subsidiary of
Pioneer Financial Industries. During fiscal 2002, 2001 and 2000, we made lease
payments to Westport Investment Corp. in the amount of $139,500, $139,200 and
$126,250, respectively.

         Our customers execute a master credit agreement in connection with
direct loans. The extended effectiveness of this agreement helps expedite the
extension of subsequent loans to the customer. William D. Sullivan developed and
copyrighted the form of this agreement, and we license it from him in return for
a royalty. In fiscal 2002, the royalty averaged $2.29 per loan, and Mr. Sullivan
received a total of $143,263 in royalty payments. In fiscal 2001 and 2002, the
royalty average $2.14 and $1.92 per loan, respectively, with Mr. Sullivan
receiving a total of $123,180 and $104,802 in royalty payments, respectively.


                                       40


                             PRINCIPAL SHAREHOLDERS

         As of January 31, 2003, Pioneer Financial Industries, Inc., a Nevada
corporation, owns 17,136 shares of our common stock, which constitutes all of
our issued and outstanding shares of common stock. We have no other class of
capital stock authorized. The address of Pioneer Financial Industries is 955
South Virginia Avenue, Suite 116, Reno, Nevada 89502. Pioneer Financial
Industries has sole voting and investment power with respect to the shares of
our common stock set forth above. Neither our director nor any of our executive
officers own any shares of our common stock.

         As of January 31, 2003, as the trustee or beneficiary of various
trusts, William D. Sullivan had sole or shared voting or investment power over
159,420 shares, or 88.61%, of the common stock of Pioneer Financial Industries,
Inc. Upon the death of Mr. Sullivan, the trust department of a commercial bank
will exercise the voting rights over these shares.

                            DESCRIPTION OF DEBENTURES

         The debentures will be issued under an Indenture dated as of February
__, 2003 between us and Gold Trust Company, as trustee. The indenture has been
filed as an exhibit to the registration statement. You can also obtain a copy of
the indenture from us. We have summarized certain parts of the indenture. The
summary is not complete and you should read the indenture for provisions that
may be important to you. In the summary below, we have included references to
the section number of the indenture provision that is summarized so you can
easily locate these provisions. Capitalized terms used in the summary have the
meanings specified in the indenture.

General

          The debentures are our unsecured obligations and are subordinate to
all of our senior indebtedness and rank equal in payment with our junior
subordinated debentures issued prior to November 1, 2002. See "--Subordination."
Each debenture will have a term of not less than 12 months and not more than 120
months as determined by us and the holder at the time the debenture is purchased
(Section 2.2(b)). There is no sinking fund or similar provision for payment of
the debentures at maturity. We will pay maturing debentures from our general
funds. (Section 2.2(e))

         The debentures will mature on the date specified on the debenture. So
long as there is an effective registration statement on file with the SEC, the
debentures will automatically renew upon maturity unless the holder requests
repayment in writing within the prescribed period. The principal amount of the
renewed debenture will equal the principal amount of the debenture on the most
recent maturity date, plus all accrued and unpaid interest. The term of a
renewed debenture will be equal to the original term of the debenture, and the
interest rate of the debenture will be equal to the interest rate we are then
paying on debentures of a like term and principal amount. (Section 2.2(d)). We
may redeem the debentures prior to their maturity, but the holders have no right
to redeem the debentures prior to maturity. (Article 3)

         The debentures will be issued, without coupons, in denominations of
$1,000 or any multiple thereof. (Section 2.2(a)).


                                       41


Subordination

         The payment of principal and interest on the debentures is subordinated
to all senior indebtedness, as defined below. Upon the maturity of the senior
indebtedness, by lapse of time, acceleration or otherwise, the holders of the
senior indebtedness will be entitled to receive payment in full before the
holders of the debentures are entitled to receive any payment. The indenture
does not limit the amount of additional indebtedness, including senior
indebtedness, which we or any of our subsidiaries may create, incur, assume or
guarantee. As a result of these subordination provisions, upon default, holders
of the debentures may recover less than holders of our senior indebtedness.
(Section 10.3)

         Under the indenture, "senior indebtedness" means all of our
indebtedness for money borrowed whether outstanding on the date of execution of
the indenture or thereafter created, incurred, assumed, or guaranteed by us (and
all renewals, extensions or refundings thereof) that (1) is not expressly
subordinate or junior to any of our other indebtedness; (2) is expressly
subordinate and junior to the indebtedness described in clause (1) but not to
any other of our indebtedness; and (3) is expressly subordinate and junior to
the indebtedness described in clauses (1) and (2) but not to any of our other
indebtedness. (Section 1.1). The senior indebtedness includes all amounts owed
to banks under our senior lending agreement and all debt owed to our parent
under our revolving credit line.

         The debentures sold in this offering will rank equally with each other,
and with our outstanding junior subordinated debentures, as to payment rights.
(Section 2.2(e)).

Interest

         We may change the interest rates at which we offer debentures from time
to time based on market conditions, our financial requirements, the principal
amount of the debenture and the term to maturity chosen by the purchaser, but no
such change will affect the interest rate of any debenture purchased before the
effective date of such change. The interest rate applicable to the debentures
will be the rate set forth in the supplement to this prospectus in effect as of
the date of the issuance of the debenture. Interest payable for any month or
portion of a month will be computed on the base of the number of days elapsed in
a 360-day year or twelve 30-day months. (Section 2.2(c))

         Interest on a debenture accrues from the date of issue, which is deemed
to be the date we receive proper documentation, including an executed
subscription agreement, and appropriate funds, but only if they are received
before 3:00 p.m. on a business day. If we receive the documents and funds on a
nonbusiness day or after 3:00 p.m. on a business day, then the date of issue
will be deemed to be the next business day. For this purpose, business days are
Monday through Friday, except for Missouri legal holidays. (Sections 1.1 and
2.2(c))

         We will pay or compound interest on the debentures annually, at the
election of the debenture holder. We will pay interest on compounded interest at
the same rate paid on the underlying principal. Holders of debentures in
principal amounts of $10,000 or more may, in return for a 1/2 percent reduction
in the interest rate on the debenture, elect to receive monthly interest
payments. (Section 2.2(c))


                                       42



          Interest rates on debentures in a principal amount in excess of
$100,000 will be negotiated on a case by case basis based upon our financial
requirements, the term of the investment and prevailing interest rates. (Section
2.2(c))

Redemption at the Option of Pioneer

          We may, at our option, redeem any or all of the debentures on at least
30 days written notice to each holder at a price equal to 100% of the principal
amount of the debentures being redeemed, plus accrued interest on a daily basis
up to, but not including, the redemption date. We may select debentures for
redemption in our sole discretion. (Article 3)

Modification of Indenture

         We, together with trustee, may modify the indenture at any time with
the consent of the holders of not less than a majority in principal amount of
the debentures that are then outstanding. However, we and the trustee may not
modify the indenture without the consent of each holder affected if the
modification (1) affects the terms of payment of, the principal of, or any
interest on any debenture; (2) changes the percentage of debenture holders whose
consent to a waiver or modification is required; (3) affects the subordination
provisions of the indenture in a manner that adversely affects the right of any
holder or (4) waives any event of default in the payment of principal of, or
interest on, any debenture. Without action by the debenture holders, we and the
trustee may amend the indenture or enter into supplemental indentures to clarify
any ambiguity, defect or inconsistency in the indenture, to provide for the
assumption of the debentures by any successor to us, to make any change to the
indenture that does not adversely affect the legal rights of any debenture
holders, or to comply with the requirements of the Trust Indenture Act. We will
give written notice to the debenture holders of any amendment or supplement to
the indenture or debentures. (Sections 9.1 and 9.2)

Place, Method and Time of Payment

         We will pay principal and interest on the debentures at our principal
executive office, or at such other place as we may designate for that purpose;
provided, however, that if we make payments by check, they will be mailed to the
holder of the debenture at his or her address appearing the debenture register
maintained by the registrar. Any payment of principal or interest which is due
on a nonbusiness day will be payable by us on the next business day immediately
following that nonbusiness day and no additional interest will accrue in the
intervening period. (Sections 4.1)

Events of Default

         An event of default is defined in the indenture as being a default in
payment of principal or any installment of interest on the debentures which has
not been cured following 10 days written notice; our becoming subject to certain
events of bankruptcy or insolvency; or our failure to comply with provisions of
the debentures or the indenture and the failure is not cured or waived within 60
days after we have received notice of such failure from the trustee or from the
holders of at least a majority amount in principal amount of the outstanding
debentures. (Section 6.1) If an event of default occurs and is continuing, the
trustee or the holders of a majority in principal amount of the then outstanding
debentures may declare the principal of and the accrued interest on all
outstanding debentures due and payable. (Section 6.2) If such a


                                       43


declaration is made we are required to pay the principal of and interest on all
outstanding debentures within 90 days after the declaration, so long as the
senior indebtedness has not matured by lapse of time, acceleration or otherwise.
(Section 10.4) We are required to file annually with the trustee an officer's
certificate that certifies the absence of defaults under the terms of the
indenture. We are also required to file with the trustee and the paying agent
prompt notice of an event of default under the indenture and any default related
to any senior indebtedness. (Section 4.3)

         The indenture provides that the holders of a majority of the aggregate
principal amount of the debentures at the time outstanding may, on behalf of all
holders, waive any existing event of default or compliance with any provision of
the indenture or the debentures, except a default in payment of principal or
interest on the debentures or an event of default with respect to a provision
that cannot be amended without the consent of each affected holder. In addition,
the trustee may waive an existing event of default or compliance with any
provision of the indenture or debentures, except in payments of principal or
interest on the debentures, if the trustee in good faith determines that a
waiver or consent is in the best interests of the holders of the debentures.
(Section 6.4)

         Subject to the provisions of the indenture relating to the duties of
the trustee, if an event of default occurs and is continuing, the trustee is
under no obligation to perform any duty or exercise any right under the
indenture at the request, order or direction of any debenture holders unless the
trustee receives indemnity satisfactory to it against any loss liability or
expense (Section 7.1). Subject to such provisions for the indemnification of the
trustee, the holders of a majority in principal amount of the debentures at the
time outstanding have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee. The indenture
effectively limits the right of an individual debenture holder to institute
legal proceedings in the event of our default. (Section 6.5)

Satisfaction and Discharge of Indenture

         The indenture may be discharged upon the payment of all debentures
outstanding thereunder.
(Article 8)

Reports

         We plan to file annual reports containing audited financial statements
and quarterly reports containing unaudited financial information for the first
three fiscal quarters of each fiscal year with the Securities and Exchange
Commission while the registration statement containing this prospectus is
effective and as long thereafter as we are required to do so. (Section 4.2)
Copies of such reports will be sent to any debenture holder upon written
request.

Service Charges

          We reserve the right to assess service charges and fees for issuing
debentures to replace lost or stolen debentures, to transfer a debenture, or to
issue a replacement interest payment check. (Sections 2.6 and 2.7)


                                       44


Transfer

         A debenture holder may not transfer any debenture until the registrar
has received, among other things, appropriate endorsements and transfer
documents and any taxes and fees required by law or permitted by the indenture.
The registrar is not required to transfer any debenture for a period beginning
15 days before the date notice is mailed of the redemption or the maturity of
such debenture and ending on the redemption of such debenture or 21 days after
the maturity date of the debenture, as appropriate.
(Section 2.6)

Concerning the Trustee

         The indenture contains certain limitations on the right of the trustee,
should it become one of our creditors, to obtain payment of claims in certain
cases, or to realize on certain property with respect to any such claim as
security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires certain conflicting interests and if any
of the indenture securities are in default, it must eliminate such conflict or
resign. (Sections 7.10 and 7.11)

         The indenture provides that if an event of default occurs and it is not
cured, the trustee will be required, in the exercise of its power, to use the
degree of care that a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs. Subject to such
provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any of the holders of the
debentures issued thereunder unless they shall have offered to the trustee
security and indemnity satisfactory to it. (Section 7.1)

Accounts

         We are qualified to serve as custodian for individual retirement
accounts, simplified employee pension accounts, Roth IRAs and Coverdell
education savings accounts. Qualifying investors may choose to establish one of
these accounts with us to hold their debentures.

                  UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

         The following is a summary of the material United States federal income
tax considerations relating to the purchase, ownership and disposition of the
debentures, but does not purport to be a complete analysis of all the potential
tax considerations relating thereto. This discussion is based on provisions of
the Internal Revenue Code of 1986, applicable regulations thereunder, judicial
authority and current administrative rulings now in effect, all of which are
subject to change, potentially with a retroactive effect.

         This summary applies only to United States holders that are beneficial
owners of the debentures as "capital assets," within the meaning of Code Section
1221. This discussion does not address tax considerations applicable to an
investor's particular circumstances or to investors that may be subject to
special tax rules such as (1) banks, thrifts, regulated investment companies, or
other financial institutions or financial service companies, (2) S corporations,
(3) holders subject to the alternative minimum tax, (4) tax-exempt
organizations, (5) insurance companies, (6) foreign persons or entities, (7)
brokers or dealers in securities or currencies, (8) holders whose "functional
currency" is not the U.S. dollar, or (9) persons that will hold the

                                       45



debentures as a position in a hedging transaction, "straddle," "conversion
transaction" (as defined for tax purposes) or persons deemed to sell the
debentures under the constructive sale provisions of the Code. This summary
discusses the Federal income tax considerations applicable to the initial
purchase of the debentures and does not discuss the tax considerations of a
subsequent purchase of the debentures. Each prospective purchaser of debentures
should consult his or her own tax advisor.

         The interest income earned on the debentures will be taxable income to
the holders of the debentures. The holder will report the interest income earned
on the debenture in accordance with the holder's method of accounting for
Federal income tax purposes. Holders of monthly debentures using the cash basis
of accounting will report the interest income in the year the interest is
actually or constructively received. Because a debenture holder may require
monthly payment of interest income on the debenture, the interest income will be
treated as constructively received on each interest payment date. Holders of
debentures using the accrual basis of accounting will include the interest
income ratably over the term of the debenture.

         Upon the sale, exchange or redemption of a debenture, a holder
generally will recognize capital gain or loss equal to the difference between
(1) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such amount
is attributable to accrued interest income not previously included in income,
which will be taxable as ordinary income, or is attributable to accrued interest
that was previously included in income and not added to the debenture's basis,
which amount may be received without generating further income) and (2) such
holder's adjusted tax basis in the debenture. A holder's adjusted tax basis in a
debenture generally will equal the cost of the debenture to such holder less any
principal payments received by the holder. Such capital gain or loss will be
long-term capital gain or loss if the holder's holding period in the debenture
is more than one year at the time of sale, exchange or redemption. Long-term
capital gains recognized by some noncorporate holders, including individuals,
will generally be subject to taxation at reduced rates. The deductibility of
capital losses is subject to limitations.

         Under the Code, we must report the interest earned on debentures with
respect to each holder to the Internal Revenue Service. No portion of interest
generally will be withheld for holders who properly provide us with a taxpayer
identification number on Forms W-8 or W-9. If a debenture holder does not
provide us with a taxpayer identification number on Forms W-8 or W-9, we are
required to withhold tax on any interest paid. The withholding rate is presently
30% of the interest, but the rate is to reduce over time in stages to 27% in
2006. It is our policy not to sell to anyone refusing to provide a taxpayer
identification number on a Form W-8 or W-9.

                              PLAN OF DISTRIBUTION

         We are offering up to $25,000,000 in aggregate principal amount of the
debentures. We will offer the debentures through our officers and employees
directly without an underwriter or agent and on a continuous basis with an
expected termination date in January 2005. However, we have the right to
terminate this offering at any time before that date.

         We do not currently use a broker-dealer or an agent to assist in the
sales of the debentures. We may employ the services of a National Association of
Securities Dealers, Inc. member broker-dealer in the future for purposes of
offering the debentures on a "best-efforts" or

                                       46



agency basis. If an agreement concerning the use of the services of any
broker-dealer is reached, we may pay the broker-dealer a commission, which will
be based upon a number of factors. We may also agree to indemnify the
broker-dealer against specific liabilities, including liabilities under the
Securities Act of 1933 and to reimburse the broker-dealer for its costs and
expenses, up to a maximum to be determined, based upon the total dollar value of
the securities sold. We will otherwise offer the debentures through our officers
and employees in accordance with Rule 3a4-1 under the Securities Exchange Act of
1934 and all applicable state securities laws.

         In compliance with Rule 3a4-1 of the Securities Exchange Act of 1934,
our officers and employees will limit their participation in the offering of
debentures to preparing written communications or delivering written
communications through the mail or other means that do not involve oral
solicitation by the officer or employee; responding to inquiries of a potential
purchaser in a communication initiated by the potential purchaser; or performing
ministerial and clerical work related to the offering. No underwriting discounts
or commissions of any kind will be paid to our officers or employees in
connection with this offering. You will not know at the time of order whether we
will be successful in completing the sale of any or all of the debentures. We
reserve the right to withdraw or cancel the offering at any time. In the event
of a withdrawal or cancellation, orders previously received will be irrevocable
and no funds will be refunded.

         The debentures may be purchased only by means of the offer to purchase
debentures contained in the form of a subscription agreement provided by us. We
will not accept an offer to purchase debentures or negotiate checks delivered
for payment on the sale of debentures unless the prospective purchaser has
previously received this prospectus and any related prospectus supplement. If we
receive a properly executed subscription agreement and payment for the purchase
of debentures from any person who has previously received this prospectus but
who has not received a current prospectus supplement, we will not accept the
subscription agreement or any payment for a debenture until five business days
following the mailing of a confirmation of sale and a current prospectus
supplement to such prospective purchaser. During this five business day period,
any prospective purchaser of debentures may revoke his or her offer, orally or
in writing, and we will promptly return any checks or funds previously delivered
to us. Once we accept an offer, however, orders to purchase debentures and the
issuance of such certificates will be deemed to have occurred as of the date we
receive a subscription agreement and payment. We reserve the right to reject any
offer to purchase debentures, in whole or in part. In the event your order is
not accepted, we will promptly refund your funds, without deduction of any costs
and without interest.

         There is no established trading market for the debentures, and we do
not expect one to develop.

         Prospective purchasers who have submitted subscription agreements and
payment of the purchase price for debentures may revoke their offer by writing
to us at 4700 Belleview Avenue, Suite 300, Kansas City, Missouri 64112,
Attention: Investor Relations, or by calling (816) 756-2020. Investors seeking
information as to the current interest rates for the debentures may contact
Pioneer at (816) 756-2020 to receive a current quote as to such rates.


                                       47



                             VALIDITY OF DEBENTURES

         The validity of the debentures being offered by this prospectus will be
passed upon for us by Blackwell Sanders Peper Martin LLP, Kansas City, Missouri.

                                     EXPERTS

         Our financial statements included in this prospectus for the years
ended September 30, 2002, 2001 and 2000 have been audited by BKD, LLP,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of such
firm as experts in giving said report.

                       WHERE YOU CAN FIND MORE INFORMATION

         We have filed with the SEC, Washington, D.C., a registration statement
on Form S-1 under the Securities Act with respect to the debentures offered by
this prospectus. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
SEC. For further information about us and our debentures sold in this offering,
refer to the registration statement and the exhibits and schedules filed
therewith. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance, if such contract or document is filed as an exhibit, reference is made
to the copy of such contract or other documents filed as an exhibit to the
registration statement.

         A copy of the registration statement, including the exhibits and
schedules thereto, may be read and copied at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains an Internet site at WWW.SEC.GOV, from which
interested persons can electronically access the registration statement,
including the exhibits and schedules thereto.

         As a result of the offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934. We will
fulfill our obligations with respect to such requirements by filing periodic
reports and other information with the SEC.

                                       48



                          Index to Financial Statements


                                                                                        Page


Independent Accountants' Report........................................................ F-2

Consolidated Balance Sheets, December 31, 2002 and September 30, 2002 and 2001......... F-3

Consolidated Statements of Income for the three months ended December 31, 2002
and 2001 and for the years ended September 30, 2002, 2001 and 2000..................... F-5

Consolidated Statements of Retained Earnings for the three months ended December 31,
 2002 and 2001 and for the years ended September 30, 2002, 2001 and 2000............... F-6

Consolidated Statements of Cash Flows for the three months ended December 31, 2002
and 2001 and for the years ended September 30, 2002, 2001 and 2000..................... F-7

Notes to Consolidated Financial Statements for the three months ended December 31,
2002 and 2001 and for the years ended September 30, 2002 and 2001...................... F-9












                                      F-1



                         Independent Accountants' Report


Board of Directors
Pioneer Financial Services, Inc.
Kansas City, Missouri


We have audited the accompanying consolidated balance sheets of Pioneer
Financial Services, Inc., a Missouri corporation (the "Company"), as of
September 30, 2002 and 2001, and the related consolidated statements of income,
retained earnings and cash flows for each of the years in the three-year period
ended September 30, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pioneer Financial
Services, Inc. as of September 30, 2002 and 2001, and the results of its
operations and its cash flows for each of the years in the three-year period
ended September 30, 2002 in conformity with accounting principles generally
accepted in the United States of America.


                                         /s/   BKD, LLP





Kansas City, Missouri
November 18, 2002







                                      F-2




                        PIONEER FINANCIAL SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                December 31,         September 30,
                                                ------------    -----------------------------
                                                    2002           2002            2001
                                                ------------   -------------     ----------
                                                (unaudited)
Cash                                         $   2,201,730    $   1,150,863  $   2,428,899
Other investments                                1,869,036        1,868,509      1,733,147

Finance receivables:
     Direct receivables                        150,888,759      139,663,612    117,097,715
     Retail installment contracts               19,200,596       19,347,567     20,215,935
                                             -------------    -------------  -------------
Finance receivables before allowance for
     credit losses                             170,089,355      159,011,179    137,313,650
     Allowance for credit losses                (7,120,868)      (6,220,869)    (4,420,869
                                             -------------    -------------  -------------
Net finance receivables                        162,968,487      152,790,310    132,892,781

Furniture and equipment, net                     1,435,934        1,577,950      2,160,115
Deferred income taxes                            2,668,127        2,331,000      1,612,100
Prepaid and other assets                           439,419          278,154        500,742
                                             -------------    -------------  -------------

Total assets                                 $ 171,582,733    $ 159,996,786  $ 141,327,784
                                             =============    =============  =============










                 See Notes to Consolidated Financial Statements



                                      F-3





                      LIABILITIES AND STOCKHOLDER'S EQUITY

                                           December 31,            September 30,
                                           ------------      --------------------------
                                               2002             2002            2001
                                            -----------      -----------     ----------
                                           (unaudited)
Revolving credit line - banks              $ 12,046,760    $ 10,776,000    $ 10,470,500
Revolving credit line - affiliate             1,927,301       1,941,831       1,839,521
Accounts payable                              1,079,421       1,240,629         700,923
Accrued expenses and other liabilities       10,093,069       9,396,204       8,636,160
Amortizing and single pay term notes        106,563,257      97,925,405      83,846,763
Junior subordinated notes                    21,442,568      21,396,438      20,972,820
                                           ------------    ------------    ------------

Total liabilities                           153,152,376     142,676,507     126,466,687
                                           ------------    ------------    ------------

Stockholder's equity:
   Common stock, $100 par value
   (authorized 20,000 shares; issued
   and outstanding 17,136 shares)             1,713,600       1,713,600       1,713,600
   Retained earnings                         16,716,757      15,606,679      13,147,497
                                             ----------      ----------      ----------

Total stockholder's equity                   18,430,357      17,320,279      14,861,097

Total liabilities and stockholder's equity $171,582,733    $159,996,786    $141,327,784
                                           ============    ============    ============









                 See Notes to Consolidated Financial Statements

                                      F-4




                        PIONEER FINANCIAL SERVICES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME





                                  Three Months Ended
                                     December 31,               Year Ended September 30,
                               -------------------------   --------------------------------------
                                  2002          2001          2002          2001          2000
                               ----------    -----------   -----------  ------------   ----------
                                      (unaudited)
Revenue
     Finance income            $12,935,747   $11,357,027   $45,883,890   $38,964,775   $34,669,828
     Insurance premiums
       and commissions           1,334,760     1,161,333     4,651,960     4,561,416     4,467,392
     Other income, fees
       and commissions             601,104       447,422     1,754,713     1,595,834     1,313,485
                               -----------   -----------   -----------   -----------   -----------

Total revenue                   14,871,611    12,965,782    52,290,563    45,122,025    40,450,705

Provision for credit losses      3,412,894     2,509,468    10,593,540     8,264,275     7,476,479
Interest expense                 2,427,544     2,404,457     9,598,667     9,454,989     8,334,493
                               -----------   -----------   -----------   -----------   -----------

Net revenue                      9,031,173     8,051,857    32,098,356    27,402,761    24,639,733

Operating expenses               7,278,729     6,839,709    27,589,252    24,052,341    21,727,370
                               -----------   -----------   -----------   -----------   -----------

Income before income taxes       1,752,444     1,212,148     4,509,104     3,350,420     2,912,363
Provision for income taxes         642,366       322,737     1,645,000     1,210,000     1,055,000
                               -----------   -----------   -----------   -----------   -----------
Net income                     $ 1,110,078   $   889,411   $ 2,864,104   $ 2,140,420   $ 1,857,363
                               ===========   ===========   ===========   ===========   ===========


Net income per share           $     64.78   $     51.90   $    167.14   $    124.91   $    108.39
                               -----------   -----------   -----------   -----------   -----------






                 See Notes to Consolidated Financial Statements



                                      F-5


                        PIONEER FINANCIAL SERVICES, INC.

                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS


                                        Three Months
                                            Ended
                                         December 31,                  Year Ended September 30,
                                          -----------     --------------------------------------------
                                             2002            2002             2001            2000
                                          -----------     ----------      ------------    ------------
                                          (unaudited)
Retained earnings, beginning of year
                                          $15,606,679     $13,147,497      $11,356,480      $9,774,150

Net income                                  1,110,078       2,864,104        2,140,420       1,857,363

Dividends paid ($23.63; $20.39 and
$16.05 per share)                                   0        (404,922)        (349,403)       (275,033)
                                          -----------    -------------     ------------   -------------


Retained earnings, end of year            $16,716,757     $15,606,679      $13,147,497     $11,356,480
                                          ===========     ===========      ===========     ===========





                 See Notes to Consolidated Financial Statements




                                      F-6



                        PIONEER FINANCIAL SERVICES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      December 31,                     Year Ended September 30,
                                                 ---------------------         -------------------------------------
                                                 2002             2001          2002             2001           2000
                                                 -----            ----          -----            ----           ----
                                                      (unaudited)
Cash Flows from Operating Activities:
    Net income                              $1,110,078       $ 889,411     $2,864,104      $ 2,140,420     $ 1,857,363
    Items not requiring (providing) cash:
       Provision for credit losses on
          Finance receivables                3,412,894       2,509,468     10,593,540       8,264,275       7,476,479
       Depreciation                            199,589         237,052      1,165,973         863,190         716,373
       Compounded interest added to
         junior subordinated debt              241,968         185,539      1,111,331       1,017,212         928,024
       Deferred income taxes                 (337,127)       (142,219)      (718,900)       (229,400)        (219,400)
       Loss on disposal/donation of
         equipment                                   0           5,436         16,845          38,174         223,978
    Changes in:
       Accounts payable and accrued
         expenses                              795,675       (360,300)      1,066,145         175,243         959,039
       Other                                 (161,266)         112,344        222,588       (320,610)         144,928
                                             ---------         -------        -------       ---------         -------

         Net cash provided by
           operating activities              5,261,811       3,436,731     16,321,626      11,948,504      12,086,784
                                             ---------       ---------     ----------      ----------      ----------

Cash Flows From Investing Activities:
    Loans originated                      (39,900,568)    (37,286,473)  (123,772,782)   (102,097,953)    (97,016,152)
    Loans purchased                        (4,075,718)     (3,619,991)   (15,998,887)    (13,901,139)    (23,349,662)
    Loans repaid                            30,385,215      27,009,604    109,280,600      98,755,408      93,610,325
    Capital expenditures                      (57,573)       (107,610)      (600,653)       (898,809)       (912,822)
    Net purchases of investments                 (526)         (2,889)      (135,362)          90,117       (661,612)
                                                 -----         -------      ---------          ------       ---------

         Net cash used in investing       (13,649,170)    (14,007,359)   (31,227,084)    (18,052,376)    (28,329,923)
                                         -------------    ------------  -------------    ------------    ------------

Cash Flows from Financing Activities:
    Net borrowing of short-term debt           996,212       3,375,096        641,414      2,145,100         937,514
    Proceeds from issuance of
      long-term debt                        19,633,710      17,760,000     52,852,841     33,995,980      40,220,110
    Repayment of long-term debt           (11,191,696)     (9,376,102)   (39,461,911)    (29,864,147)    (23,947,169)
    Dividends paid                                   0               0      (404,922)      (349,403)       (275,033)
                                          ------------     -----------      ---------      ---------       ---------

         Net cash provided by
           financing activities               9,438,226      11,758,994     13,627,422      5,927,530      16,935,422
                                              ---------      ----------     ----------      ---------      ----------
Net Increase (Decrease) in Cash               1,050,867       1,188,366    (1,278,036)      (176,342)         692,283
Cash, Beginning of Year                       1,150,863       2,428,899      2,428,899      2,605,241       1,912,958
                                              ---------       ---------      ---------      ---------       ---------
Cash, End of Year                            $2,201,730      $3,617,265     $1,150,863    $ 2,428,899      $2,605,241
                                             ==========      ==========     ==========     ==========      ==========
Additional Cash Flow Information:
    Interest paid                            $2,370,027      $2,404,457    $ 8,462,313    $ 8,371,853      $7,350,873
    Income taxes paid                         $ 334,860      $1,612,925     $3,047,633     $1,265,830      $1,594,190




 See Notes to Consolidated Financial Statements


                                      F-7




                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       SEPTEMBER 30, 2002 AND 2001 AUDITED

                  INFORMATION FOR THE THREE MONTH PERIOD ENDED
                     DECEMBER 31, 2002 AND 2001 IS UNAUDITED


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
              ACCOUNTING POLICIES


Nature of Operations

Pioneer Financial Services, Inc., a Missouri corporation (the "Company"), is a
specialized financial services company. The Company's revenues are primarily
earned from the making of direct loans and the purchasing of retail installment
contracts of active duty or retired career military personnel and Department of
Defense employees. The Company also earns revenues from commissions on premiums
for credit property, life and accident and health insurance placed with
non-related insurance companies and from premiums earned on the reinsurance of
credit accident and health insurance. Additionally, the Company earns
commissions from the sale of ancillary products and services.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Pioneer Financial Services, Inc. (a wholly-owned subsidiary of Pioneer Financial
Industries, Inc.) and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated from the
accompanying consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.



                                      F-8



                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES (continued)

Investments

Investments consist primarily of certificates of deposit, amounting to $355,873,
$537,199 and $356,012 and certain debt securities, amounting to $1,512,636,
$1,195,948 and $1,513,024 at September 30, 2002 and 2001, and December 31, 2002,
respectively. These debt securities, which the Company has the positive intent
and ability to hold until maturity, are classified as held-to-maturity and
valued at historical cost, adjusted for amortization of premiums and accretion
of discounts computed by the level-yield method. Of the held-to-maturity debt
securities at September 30, 2002, $212,562 matures in less than one year,
$1,200,074 matures between two and five years and $100,000 matures between six
and ten years. The recorded value of these investments approximates fair value
at September 30, 2002 and 2001. Investments aggregating $1,768,509, $1,633,147
and $1,769,036 at September 30, 2002 and 2001, and December 31, 2002,
respectively, were required as statutory reserves and are on deposit with
regulatory authorities or maintained in trust accounts.

Revenue Recognition

Interest income on finance receivables is recognized using a method which
approximates the level yield method. Late charges are credited directly to
income when received. Accrual of interest income on finance receivables is
suspended when a payment has not been received for 60 days or more, and the
interest due exceeds an amount equal to 60 days of interest charges. The accrual
is resumed when a full payment (95% or more of the contracted payment amount) is
received.

Credit property, life, accident and health insurance premiums are placed with
non-related insurance companies. Premiums on such insurance are remitted to the
insurance companies, net of applicable advance commissions, which commissions
are credited to income ratably over policy terms. Retrospective insurance
commissions, if any, on this insurance are taken into income only as received.
Pioneer Military Insurance Company, a subsidiary of the Company, reinsures from
a non-affiliated insurance company risks on the credit accident and health
insurance policies written on loans to customers of the Company.

Allowance for Credit Losses

The allowance for credit losses is maintained and estimated by management in an
amount sufficient to cover future losses. The Company conducts a loan-by-loan
review of delinquent accounts, and its policy requires charge-off before an
account exceeds 270 days since the last full payment.

                                      F-9



                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES (continued)

Furniture and Equipment

Furniture and equipment are carried at cost and depreciated over the estimated
useful life of each asset. At September 30, 2002 and 2001 and December 31, 2002,
accumulated depreciation was $4,076,860, $3,351,857 and $4,257,104 respectively.

Net Income per Share

Net income per share is computed based upon the weighted-average common shares
outstanding of 17,136 during each period. There are no potentially dilutive
securities issued and outstanding.

Income Taxes

The Company files its federal income tax return on a consolidated basis with its
parent company, Pioneer Financial Industries, Inc., and other affiliates. The
provision for income taxes in the accompanying consolidated statements of income
represents the Company's share of the consolidated income tax provision on a
separate return basis.

Fair Value of Financial Instruments

The fair values of finance receivables and borrowings were calculated by
discounting expected cash flows, which method involves significant judgments by
management and uncertainties. Because no market exists for these financial
instruments and because management does not intend to sell these financial
instruments, the Company does not know whether the fair values represent values
at which the respective financial instruments could be sold individually or in
the aggregate. The carrying amounts for cash, accounts payable and current
liabilities are a reasonable estimate of their fair values. The fair value of
other investments is based on quoted market prices. Additional information about
the fair value of financial instruments is contained in Notes 2, 3 and 4.



                                      F-10



                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2:  FINANCE RECEIVABLES

Loan Portfolio

At September 30, 2002 and 2001, and December 31, 2002 finance receivables
totaled $159,011,179, $137,313,650 and $170,089,355, respectively; all
receivables originated from direct loans and retail installment contracts.
Direct loans originated in 2002 and 2001 averaged $2,813 and $2,513 with a
weighted maturity of 24.2 and 23.1 months, respectively, while retail
installment contracts averaged $3,231 and $3,057 with a weighted maturity of
30.1 and 28.9 months, respectively. Approximately 95 percent and 94 percent of
finance receivables were paid electronically via the Government Allotment System
or through the National Automated Clearinghouse Association for the years ended
September 30, 2002 and 2001. At September 30, 2002 and 2001, and December 31,
2002, the accrual of interest income had been suspended on $5,579,681,
$6,369,081 and $6,355,982 of loans, respectively.

At September 30, 2002 and 2001, the fair value of notes receivable approximates
book value.

Allowance for Credit Losses

Changes in the allowance for credit losses are as follows:


                                     Three Months Ended
                                        December 31,                     Years Ended September 30,
                                  --------------------------    --------------------------------------------
                                     2002          2001            2002             2001              2000
                                 ------------   ------------    ------------    -------------    -----------


Balance, beginning of year       $  6,220,869    $  4,420,869    $  4,420,869    $  3,832,868    $  3,300,868

   Provision for credit losses      3,412,893       2,509,466      10,593,540       8,264,275       7,476,479
   Loans charged off               (2,782,710)     (2,372,091)     (9,744,584)     (8,972,679)     (8,129,298)
   Recoveries                         269,816         212,624         951,044       1,296,405       1,184,819
                                 ------------    ------------    ------------    ------------    ------------
Balance, end of year             $  7,120,868    $  4,770,868    $  6,220,869    $  4,420,869    $  3,832,868
                                  ============    ============   ============    ============    ============


                                      F-11



                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3:  LONG-TERM DEBT

Scheduled maturities of indebtedness during the fiscal years subsequent to
September 30, 2002 are as follows:

                                                            Senior                  Subordinated
                                 Total                   Indebtedness               Indebtedness
                               -----------               ------------               ------------
2003                           $41,374,998               $ 38,976,255                 $2,398,743
2004                            33,044,689                 30,168,971                  2,875,718
2005                            24,935,671                 20,074,642                  4,861,029
2006                            10,716,962                  8,611,626                  2,105,336
2007                             1,391,693                     93,911                  1,297,782
2008                             1,725,619                                             1,725,619
2009                             1,593,667                                             1,593,667
2010                             1,401,136                                             1,401,136
2011                             1,826,213                                             1,826,213
2012 and thereafter              1,311,195                                             1,311,195
                                 ---------               ------------               ------------
Total 2002                   $ 119,321,843               $ 97,925,405               $ 21,396,438
                             =============               ============               ============
Total 2001                   $ 104,819,583               $ 83,846,763               $ 20,972,820
                             =============               ============               ============

The senior notes are fixed-term and fixed-rate notes. There were 229 and 215
notes outstanding at September 30, 2002 and 2001, respectively. These notes had
a weighted average interest rate based on balances at September 30, 2002 and
2001 of 7.42 percent and 8.18 percent, respectively. Maturities in fiscal 2003
include $36,976,255 for amortizing note payments and $2,000,000 for single pay
term note payments. At December 31, 2002, the Company had outstanding senior
indebtedness of $106,563,257 and outstanding Subordinated Notes of $21,442,568.



                                      F-12


                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3:  LONG-TERM DEBT (continued)

The junior subordinated indebtedness consists of debentures, which are
non-callable before maturity by the holders, issued at various rates and mature
one to ten years from date of issue. The Company, at its option, may call at any
time and retire any or all of the debentures upon 30 days written notice. So
long as there is an effective registration statement on file with the SEC, all
debentures will automatically renew for a like term at the prevailing interest
rate, unless presented for payment. The average debenture size was $22,035 and
$21,379, with a weighted interest rate of 9.44 and 9.39 percent at September 30,
2002 and 2001, respectively. The retainment percentages for the debentures
maturing in 2002 and 2001 are as follows:

              Renewed                   Total
           Automatically   Reinvested  Retained   Amount Due   Percentage
           -------------   ----------  --------   ----------   ----------
2002          $468,144      $260,923   $729,067   $2,215,641     32.91%
2001          $584,522      $273,852   $858,374   $1,563,715     54.89%

At September 30, 2002 and 2001, the fair value of long-term debt approximates
book value.

The Company has entered into a Senior Lending Agreement with its banks which
will expire on March 31, 2003. Substantially all of the Company's assets secure
this bank debt. The senior lending agreement limits, among other things, the
Company's ability to (1) incur additional debt from the banks that are party to
the agreement beyond that allowed by specific financial ratios and tests, (2)
pay dividends, (3) make certain other restricted payments (4) consummate certain
asset sales and dispositions, (5) merge or consolidate with any other person,
and (6) incur additional debt for borrowed money. At September 30, 2002, the
minimum stockholder's equity required under the agreement was $12,431,000. The
Company's outstanding line of credit balance, with interest at prime rate (4.75%
at September 30, 2002), was $10,776,000 and $10,470,500; the unused line of
credit balance was $14,224,000 and $10,529,500 as of September 30, 2002 and
2001, respectively. At December 31, 2002, the Company's outstanding line of
credit balance, with interest at prime of 4.25%, was $12,046,760, and the unused
line of credit was $14,953,240.

At September 30, 2002 and 2001, the fair value of senior notes approximates book
value.

                                      F-13




                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4:  INCOME TAXES

The provision for income taxes included in the accompanying consolidated
statements of income consists of the following:


                                  2002           2001            2000
                              ------------   -----------    ------------

Taxes currently payable       $ 2,363,900    $ 1,439,400    $ 1,274,400
Deferred income taxes            (718,900)      (229,400)      (219,400)
                              -----------    -----------    -----------
Total provision               $ 1,645,000    $ 1,210,000    $ 1,055,000
                              ===========    ===========    ===========

The tax effects of temporary differences related to deferred taxes shown on the
September 30, 2002 and 2001 consolidated balance sheets are as follows:

                                          2002           2001
                                       ----------    ------------
Deferred tax assets/(liabilities):
    Allowance for credit losses        $ 2,239,500   $ 1,679,900
    Accumulated depreciation                43,500       (76,400)
    Other                                   48,000         8,600

Net deferred tax asset                 $ 2,331,000   $ 1,612,100
                                       ===========   ===========

A reconciliation of the provision for income taxes at the normal federal
statutory rate of 34 percent to the provision included in the accompanying
consolidated statements of income is shown below:

                                                           2002              2001            2000
                                                        -----------      ------------    ------------

Provision for federal income taxes at statutory rate
                                                       $  1,533,095      $  1,139,143      $  990,203
Increase (decrease) in income tax   provision
   resulting from:
   State and local income taxes, net of federal tax
     benefit                                                 39,232            38,900          59,370
   Nondeductible expenses                                    72,673            31,957           5,427
                                                           ---------       -----------     -----------

Provision for income taxes                             $  1,645,000       $  1,210,000    $ 1,055,000
                                                       ============       ============     ===========



                                      F-14


                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5:  RELATED PARTY TRANSACTION

Operating expenses in the accompanying consolidated financial statements include
general and administrative charges from the Company's parent, Pioneer Financial
Industries, Inc. Such charges amounted to $734,596, $726,768, and $701,162 for
the fiscal years ended September 30, 2002, 2001, and 2000, respectively, and
$172,572 and $176,302 for the three months ended December 31, 2002 and 2001,
respectively.

Pioneer Financial Industries, Inc. has an unsecured revolving credit line due on
demand with the Company and advances various amounts at market rates of interest
with $1,941,831, $1,839,521 and $1,927,300, due on demand at September 30, 2002
and 2001, and December 31, 2002, respectively. Interest expense on the credit
line during the fiscal years ended September 30, 2002, 2001 and 2000 was
$132,856, $170,109 and $12,572, respectively. Interest expense on the credit
line during the three month periods ended December 31, 2002 and 2001 was $31,944
and $34,803, respectively.

NOTE 6:  LEASE OBLIGATIONS

At September 30, 2002, the Company was obligated under non-cancelable operating
leases covering its facilities and certain equipment expiring through 2009.
Aggregate minimum annual rentals payable are summarized as follows:

Year Ending September 30:
                        2003                               $  846,736
                        2004                                  633,820
                        2005                                  510,321
                        2006                                  510,321
                        2007                                  510,321
                        Thereafter                            765,481

The minimum rentals shown above do not include rents payable on a
"month-to-month" or "cancelable" basis. Rental expense charged against
operations totaled $1,604,230, $1,168,263, and $834,758 for the fiscal years
ended September 30, 2002, 2001 and 2000 respectively and $362,542 and $337,319
for the three months ended December 31, 2002 and 2001, respectively. Included in
these amounts were $139,500 in 2002, $139,200 in 2001, and $126,250 in 2000 paid
to an affiliated company.



                                      F-15





                        PIONEER FINANCIAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7:  PROFIT-SHARING PLAN

The Company participates in a profit-sharing plan which covers substantially all
employees who are 21 years of age and have been employed by the Company for one
year. The Company contributes an amount to the plan each year that is determined
by the board of directors. The Company also matched 33.3 percent of participant
401(k) deferrals up to a maximum of 5 percent of total compensation. Participant
interests are vested after three years of service. Contributions to the plan
were $656,022, $279,118, and $385,465 for the fiscal years ended September 30,
2002, 2001, and 2000 respectively.





                                      F-16






                        Pioneer Financial Services, Inc.


                   $25,000,000 Junior Subordinated Debentures
                          Minimum Investment of $1,000






                                   PROSPECTUS






                               February 18, 2003


                                     PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

         The following table sets forth expenses and costs payable by the
Registrant expected to be incurred in connection with the issuance and
distribution of the securities described in this registration statement. All
amounts are estimated except for the Securities and Exchange Commission's
registration fee.

                                                                      Amount
                                                                      ------
         Registration fee under Securities Act...............    $     2,300
         Legal fees and expenses.............................        110,000
         Accounting fees and expenses........................         15,000
         Printing expenses...................................         10,000
         Trustee fees........................................         10,000
         Miscellaneous expenses..............................          2,700
                                                                      ------
                Total........................................       $150,000
                                                                    ========

Item 14. Indemnification of Directors and Officers

         Section 351.355 of the Missouri Statutes empowers a Missouri
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein. The provisions of
Section 351.355 are not exclusive of any other rights to which those seeking
indemnification may be entitled under the articles of incorporation, the bylaws,
any agreement, any shareholder or disinterested director vote, or otherwise

         Article VI of the Registrant's Bylaws entitles officers and directors
to be indemnified by the Registrant against expenses, attorney's fees,
judgments, fines and amounts paid in settlement that are actually and reasonably
incurred in connection with any action, suit or proceeding, including actions
brought by or in the right of the Registrant, to which such persons are made or
threatened to be made a party, by reason of their being a director or officer.
Such right, however, may be made only as authorized by (i) a majority vote of
disinterested directors, or (ii) if such quorum is not obtainable, or if
obtainable, a majority thereof so directs, by independent legal counsel, or
(iii) by the shareholders of the Registrant, upon a determination that the
person seeking indemnification acted in good faith and in a manner that he or
she reasonably believed to be in or not opposed to the best interests of the
Registrant, or, if the action is criminal in nature, upon a determination that
the person seeking the indemnification had no reasonable cause to believe that
such person's conduct was unlawful. This Article also requires the Registrant,
upon authorization by the Board of Directors, to advance expenses reasonably
incurred in defending such actions; provided, however, that any person seeking
such an advance first provide the Registrant with an undertaking to repay any
amount as to which it may be determined such person is not entitled.

         The above discussion of Section 351.355 and the Registrant's Bylaws is
not intended to be exhaustive and is respectively qualified in its entirety by
such statute and the Bylaws. The Registrant has insurance coverage in the amount
of $2,000,000 per year insuring its directors and


                                      II-1


officers and those of its subsidiaries against certain liabilities they may
incur in their capacity as directors and officers.

Item 15. Recent Sales of Unregistered Securities

         Since October 1, 1999, the Registrant has issued for cash $5,772,399 of
its junior subordinated debentures that were registered with the Securities
Division of the Missouri Secretary of State, but not registered under the
Securities Act of 1933, as amended. The junior subordinated debentures were
offered and sold only to residents of the state of Missouri in reliance upon the
exemption set forth in Section 3(a)(11) of the Securities Act for intrastate
offerings. The sales were made without the use of an underwriter or selling
agent and no sales commissions were paid. The certificates representing the
junior subordinated debentures bear a restrictive legend that prohibits transfer
without presentation to the Registrant for transfer. During fiscal 2000, there
were 87 sales of a total of $1,520,065 junior subordinated debentures. During
fiscal 2001, there were 114 sales of a total of $2,354,354 junior subordinated
debentures). During fiscal 2002, there were 107 sales of a total of $1,581,911
junior subordinated debentures, and during fiscal 2003, there were 13 sales of a
total of $316,069 junior subordinated debentures. In the possible event that
reliance upon the exemption provided under Section 3(a)(11) of the Securities
Act might not have been appropriate in light of the increased scope of the
Registrant's business activities in recent years, on February 11, 2003, the
Registrant filed a Form 1-A with the Commission in connection with a rescission
offer it intends to make under Regulation A to those who purchased its junior
subordinated debentures or had their junior subordinated debentures renewed
since January 1, 2002.

Item 16.  Exhibits and Financial Statement Schedules.

         The following documents are filed as exhibits to this registration
statement:


Exhibit No.      Description
-----------      -----------

3.1              Restated Articles of Incorporation of the Company
3.2              Certificate of Amendment to Articles of Incorporation of the Company
3.3              Amended and Restated By-Laws of the Company
4.1              Form of indenture
4.2              Form of debenture
4.3              Form of debenture prior to November 1, 2002
4.4              Amended and Restated Senior Lending  Agreement dated March 1,  1996,  between the Company
                 and various banks named therein
4.5              First  Amendment to Amended and  Restated  Senior  Lending  Agreement  dated  January 26,
                 1998, between the Company and various banks named therein
4.6              Second Amendment to Amended and Restated Senior Lending  Agreement dated March 31,  2000,
                 between the Company and various banks named therein
4.7              Form of  Agreement  between the Company and various  banks named in Amended and  Restated
                 Senior Lending Agreement
4.8              Promissory  Note  dated  August 1,  2000,  between  the  Company  and  Pioneer  Financial
                 Industries, Inc.


                                      II-2

5*               Opinion of Blackwell Sanders Peper Martin LLP
10.1             Form of Readi-Loan Licensing Agreement
10.2             Office  Building  Lease dated  January  31,  2001,  between  the  Company and  Belletower
                 Partners, L.L.C.
10.3             Addendum to Office Building Lease between the Company and Belletower Partners, L.L.C.
10.4             First  Amendment to Office  Building  Lease dated July 19, 2001,  between the Company and
                 Belletower Partners, L.L.C.
10.5             Employment Contract between the Company and Randall J. Opliger
12               Statement regarding computation of ratios
21               Subsidiaries of the Company
23.1             Consent of BKD, LLP
23.2*            Consent of Blackwell Sanders Peper Martin LLP (included in Exhibit 5)
24               Power of Attorney
25               Statement of eligibility of trustee
-------------------------------
*        To be filed by amendment.

Item 17.  Undertakings.

         The undersigned registrant hereby undertakes:

(1)  To file, during any period in which offers or sales are being made, a
     post-effective amendment to this registration statement:

     (i)  To include any prospectus required by section 10(a)(3) of the
          Securities Act of 1933;

     (ii) To reflect in the prospectus any facts or events arising after the
          effective date of the registration statement (or the most recent
          post-effective amendment thereof) which, individually or in the
          aggregate, represent a fundamental change in the information set forth
          in the registration statement. Notwithstanding the foregoing, any
          increase or decrease in volume of securities offered (if the total
          dollar value of securities offered would not exceed that which was
          registered) and any deviation from the low or high end of the
          estimated maximum offering range may be reflected in the form of
          prospectus filed with the Commission pursuant to Rule 424(b) if, in
          the aggregate, the changes in volume and price represent no more than
          20% change in the maximum aggregate offering price set forth in the
          "Calculation of Registration Fee" table in the effective registration
          statement;

     (iii) To include any material information with respect to the plan of
          distribution not previously disclosed in the registration statement or
          any material change to such information in the registration statement.

(2)  That, for the purpose of determining any liability under the Securities Act
     of 1933, each such post-effective amendment shall be deemed to be a new
     registration statement relating to the securities offered therein, and the
     offering of such securities at that time


                                      II-3


     shall be deemed to be the initial bona fide offering thereof.

(3)  To remove from registration by means of a post-effective amendment any of
     the securities being registered which remain unsold at the termination of
     the offering.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

         The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended, in
accordance with the rules and regulations prescribed by the SEC under Section
305(b)(2) thereof.







                                      II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Kansas
City, State of Missouri, on February 18, 2003.

PIONEER FINANCIAL SERVICES, INC.

By: /s/ WILLIAM D. SULLIVAN
------------------------------------------
William D. Sullivan
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.

Name Title Date
---- ----- ----
/s/ WILLIAM D. SULLIVAN Chief Executive Officer
------------------------------------- and Sole Director February 18, 2003
William D. Sullivan (Principal Executive Officer)

/s/ RANDALL J. OPLIGER Chief Financial Officer,
------------------------------------- Treasurer and Secretary February 18, 2003
Randall J. Opliger (Principal Financial Officer
and Principal Accounting Officer)

II-5



                                INDEX TO EXHIBITS

Exhibit No.   Description
-----------   -----------

3.1           Restated Articles of Incorporation of the Company
3.2           Certificate of Amendment to Articles of Incorporation of the Company
3.3           Amended and Restated By-Laws of the Company
4.1           Form of indenture
4.2           Form of debenture
4.3           Form of debenture prior to November 1, 2002
4.4           Amended and Restated Senior Lending  Agreement dated March 1,  1996,  between the Company
              and various banks named therein
4.5           First  Amendment to Amended and  Restated  Senior  Lending  Agreement  dated  January 26,
              1998, between the Company and various banks named therein
4.6           Second Amendment to Amended and Restated Senior Lending  Agreement dated March 31,  2000,
              between the Company and various banks named therein
4.7           Form of  Agreement  between the Company and various  banks named in Amended and  Restated
              Senior Lending Agreement
4.8           Promissory  Note  dated  August 1,  2000,  between  the  Company  and  Pioneer  Financial
              Industries, Inc.
5*            Opinion of Blackwell Sanders Peper Martin LLP
10.1          Form of Readi-Loan Licensing Agreement
10.2          Office  Building  Lease dated  January  31,  2001,  between  the  Company and  Belletower
              Partners, L.L.C.
10.3          Addendum to Office Building Lease between the Company and Belletower Partners, L.L.C.
10.4          First  Amendment to Office  Building  Lease dated July 19, 2001,  between the Company and
              Belletower Partners, L.L.C.
10.5          Employment Contract between the Company and Randall J. Opliger
12            Statement regarding computation of ratios
21            Subsidiaries of the Company
23.1          Consent of BKD, LLP
23.2*         Consent of Blackwell Sanders Peper Martin LLP (included in Exhibit 5)
24            Power of Attorney
25            Statement of eligibility of trustee

-------------------------

*             To be filed by amendment.









                                      II-6