WESTERN CAPITAL RESOURCES, INC. - Quarter Report: 2013 September (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2013 or

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

Commission File Number: 000-52015

Western Capital Resources, Inc.

(Exact Name of Registrant as Specified in its Charter)

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

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

(Address of Principal Executive Offices) (Zip Code)

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

	N/A

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

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

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

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

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨	Smaller reporting company þ

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

Yes ¨ No þ

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 12, 2013, the registrant had outstanding 60,220,165 shares of common stock, no par value per share.

Western Capital Resources, Inc.

Index

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 4. Controls and Procedures	20

PART II. OTHER INFORMATION
Item 6. Exhibits	21

SIGNATURES	22

	1

PARTI. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONTENTS

	Page

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets	3

Condensed Consolidated Statements of Income	4

Condensed Consolidated Statements of Cash Flows	5

Notes to Condensed Consolidated Financial Statements	6

	2

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2013
	(Unaudited)		December 31, 2012
ASSETS

CURRENT ASSETS
Cash	$	2,237,688	$	2,246,619
Loans receivable (less allowance for losses of $1,127,000 and $1,191,000)		5,053,625		5,084,510
Inventory		1,558,011		1,084,510
Prepaid expenses and other		445,581		486,239
Deferred income taxes		464,000		484,000
TOTAL CURRENT ASSETS		9,758,905		9,385,878

PROPERTY AND EQUIPMENT		1,008,848		855,719

GOODWILL		12,894,069		12,774,069

INTANGIBLE ASSETS		147,656		230,891

OTHER		128,093		126,991

TOTAL ASSETS	$	23,937,571	$	23,373,548

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	2,920,159	$	3,119,786
Note payable – short-term		-		405,163
Current portion long-term debt		2,750,000		210,065
Deferred revenue		278,902		293,294
TOTAL CURRENT LIABILITIES		5,949,061		4,028,308

LONG-TERM LIABILITIES
Note payable – long-term		-		2,750,000
Deferred income taxes		1,062,000		871,000
TOTAL LONG-TERM LIABILITIES		1,062,000		3,621,000

TOTAL LIABILITIES		7,011,061		7,649,308

SHAREHOLDERS’ EQUITY
Common stock, no par value, 240,000,000 shares authorized, 60,220,165 and 60,397,780 shares issued and outstanding.		-		-
Additional paid-in capital		22,353,600		22,371,362
Accumulated deficit		(5,427,090)		(6,647,122)
TOTAL SHAREHOLDERS’ EQUITY		16,926,510		15,724,240

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	23,937,571	$	23,373,548

See notes to condensed consolidated financial statements.

	3

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three months ended				Nine months ended
	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
REVENUES
Phones and accessories	$	3,071,402		1,763,282	$	8,700,236		6,133,307
Payday loan fees		2,573,788		2,601,109		7,314,366		7,260,767
Cellular sales and service fees		2,245,856		1,380,660		5,852,024		4,859,027
Installment interest income		307,100		315,943		797,218		760,608
Check cashing fees		116,222		145,487		397,700		487,894
Other income and fees		281,902		105,040		721,918		254,657
		8,596,270		6,311,521		23,783,462		19,756,260

STORE EXPENSES
Phone and accessories cost of sales		2,553,880		1,194,653		6,980,858		4,125,666
Salaries and benefits		1,958,872		1,614,820		5,468,861		4,908,008
Occupancy		677,089		566,214		1,953,905		1,677,965
Provisions for loan losses		575,355		546,080		1,320,546		1,178,588
Advertising		88,995		82,272		261,713		239,652
Depreciation		89,514		72,779		255,595		212,704
Amortization of intangible assets		36,194		56,385		112,735		172,632
Other		1,141,614		884,737		2,903,731		2,408,473
		7,121,513		5,017,940		19,257,944		14,923,688

INCOME FROM STORES		1,474,757		1,293,581		4,525,518		4,832,572

GENERAL & ADMINISTRATIVE EXPENSES
Salaries and benefits		498,488		439,792		1,496,730		1,396,878
Depreciation		7,200		5,616		20,028		16,722
Interest expense		83,178		51,114		249,069		180,501
Other		258,312		246,015		798,659		824,634
		847,178		742,537		2,564,486		2,418,735

INCOME BEFORE INCOME TAXES		627,579		551,044		1,961,032		2,413,837

INCOME TAX EXPENSE		235,000		211,000		741,000		931,000

NET INCOME		392,579		340,044		1,220,032		1,482,837

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

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	392,579	$	(184,956)	$	1,220,032	$	(92,163)

NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted	$	0.01	$	(0.03)	$	0.02	$	(0.02)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
Basic and diluted		60,220,165		5,397,780		60,253,346		5,767,922

See notes to condensed consolidated financial statements.

	4

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	September 30, 2013		September 30, 2012

OPERATING ACTIVITIES
Net Income	$	1,220,032	$	1,482,837
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation		275,623		229,426
Amortization		112,735		172,632
Deferred income taxes		211,000		151,000
Changes in operating assets and liabilities
Loans receivable		30,885		16,202
Inventory		(473,501)		190,853
Prepaid expenses and other assets		39,556		(58,483)
Accounts payable and accrued liabilities		(358,775)		(385,496)
Deferred revenue		(14,392)		(43,041)
Net cash provided by operating activities		1,043,163		1,755,930

INVESTING ACTIVITIES
Purchase of property, equipment and intangible		(276,104)		(191,130)
Acquisition of stores, net of cash acquired		(143,000)		(455,200)
Net cash used by investing activities		(419,104)		(646,330)

FINANCING ACTIVITIES
Payments on notes payable – short-term		(405,163)		(1,000,000)
Payments on notes payable – long-term		(210,065)		(518,782)
Advances from notes payable – long-term		-		550,000
Common stock redemption		(17,762)		(307,234)
Net cash used by financing activities		(632,990)		(1,276,016)

NET DECREASE IN CASH		(8,931)		(166,416)

CASH
Beginning of period		2,246,619		1,909,442
End of period	$	2,237,688	$	1,743,026

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid	$	481,253	$	835,968
Interest paid	$	248,962	$	190,607

Noncash investing and financing activities:
Accrued purchase of property and equipment	$	159,148	$	-

See notes to condensed consolidated financial statements.

	5

WESTERN CAPITAL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Basis of Presentation

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

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine- month periods ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Form 10-K as of and for the year ended December 31, 2012. The condensed consolidated balance sheet at December 31, 2012, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP.

Nature of Business

Western Capital Resources, Inc. (WCR), through its wholly owned operating subsidiaries, Wyoming Financial Lenders, Inc. (WFL), Express Pawn, Inc. (EP), and PQH Wireless, Inc. (PQH), collectively referred to as the “Company,” provides retail financial services to individuals and operates retail cellular and retail pawn stores primarily in the Midwestern United States. The Company operated 51 “Payday” stores, one payday/pawn store, and one pawn store in nine states (Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming) as of September 30, 2013. The Company operated 60 cellular retail stores in 14 states (Arizona, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Missouri, Nebraska, Ohio, Oklahoma, Oregon, Texas, and Washington) as of September 30, 2013. The consolidated financial statements include the accounts of WCR, WFL, PQH, and EP. All significant intercompany balances and transactions have been eliminated in consolidation.

Through our “Consumer Finance” division, we provide non-recourse cash advance and installment loans, collateralized non-recourse pawn loans, check cashing and other money services, and operate retail pawn stores. The short-term uncollateralized non-recourse consumer loans, known as “cash advance” or “payday” loans, are in amounts that typically range from $100 to $500. Cash advance loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s personal check for the aggregate amount of the cash advanced plus a fee. The fee varies from state to state, based on applicable regulations, and generally ranges from $15 to $22 per each $100 borrowed. To repay a cash advance loan, a customer may pay with cash, in which case their personal check is returned to them, or allow the check to be presented to the bank for collection. Installment loans provide customers with cash in exchange for a promissory note with a maturity of generally three to six months and are unsecured. The fee and interest rate on installment loans vary based on applicable regulations.

In August 2012, we opened our first pawn store by converting an existing payday location into a joint payday/pawn store. We opened our second pawn store in May 2013. We provide collateralized non-recourse loans, commonly known as “pawn loans”, with maturities of one to four months, depending on the state. Allowable service charges will vary by state. Our pawn loans earn 15% to 20% per month. The loan amount varies depending on the valuation of each item pawned. We generally lend from 30% to 55% of the collateral’s estimated resale value depending on an evaluation of several factors. Customers then have the option to redeem the pawned merchandise during the term or at expiration of the pawn loan or else forfeit the merchandise to us on expiration. At our pawn stores we sell merchandise acquired through either customer forfeiture of pawn collateral or second-hand merchandise purchased from customers or consigned to us.

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

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

	6

We also operate a “Cellular Retail” division that is an authorized Cricket premier dealer, selling cellular phones and accessories, providing ancillary services and accepting service payments from customers.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect certain reported amounts and disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant management estimates relate to the loans receivable allowance, percentage of existing pawn loans that will be forfeited, allocation of and carrying value of goodwill and intangible assets, inventory valuation and obsolescence and deferred taxes and tax uncertainties.

Revenue Recognition

The Company recognizes fees on cash advance loans on a constant-yield basis ratably over the loans’ terms. Title and installment loan fees and interest are recognized using the interest method, except that installment loan origination fees are recognized as they become non-refundable, and installment loan maintenance fees are recognized when earned. The Company recognizes fees on redeemed pawn loans on a constant-yield basis ratably over the loans’ terms. No fees are recognized on forfeited pawn loans. The Company records revenue from check cashing fees, sales of phones, accessories, and pawn inventory, and fees from all other services in the period in which the sale or service is completed.

Loans Receivable Allowance

The Company maintains a loan loss allowance for anticipated losses for our payday and installment loans. We do not record loan losses or charge-offs of pawn or title loans because the value of the collateral exceeds the loan amount. To estimate the appropriate level of the loan loss allowance, we consider the amount of outstanding loan principal, interest and fees, historical charge offs, current and expected collection patterns and current economic trends. Our current loan loss allowance is based on our historical net write off percentage, net charge offs to loan principal, interest and fee amounts that originated during the last 24 months, applied against the balance of loan principal, interest and fees outstanding. The Company also periodically performs a look-back analysis on its loan loss allowance to verify the historical allowance established tracks with the actual subsequent loan write-offs and recoveries. The Company is aware that as conditions change, it may also need to make additional allowances in future periods.

Included in loans receivable are unpaid principal, interest and fee balances of payday, installment, pawn and title loans that have not reached their maturity date, and “late” payday loans that have reached maturity within the last 180 days and have remaining outstanding balances. Late payday loans generally are unpaid loans where a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons. Loans are carried at cost plus accrued interest or fees less payments made and the loans receivable allowance. The Company does not specifically reserve for any individual loan. The Company aggregates loan types for purposes of estimating the loss allowance using a methodology that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio. This methodology takes into account several factors, including the maturity of the store location and charge-off and recovery rates. The Company utilizes a software program to assist with the tracking of its historical portfolio statistics. All returned items are charged-off after 180 days, as collections after that date have not been significant. The loans receivable allowance is reviewed monthly and any adjustment to the loan loss allowance as a result of historical loan performance, current and expected collection patterns and current economic trends is recorded.

Net Income Per Common Share

Basic net income per common share is computed by dividing the income available to common shareholders by the weighted-average number of common shares outstanding for the year. There were no dilutive securities at September 30, 2013. Diluted net income per common share, applicable to the three and nine months ended September 30, 2013, is computed by dividing the net income available to common shareholders by the sum of the weighted-average number of common shares outstanding plus potentially dilutive common share equivalents (convertible preferred shares) when dilutive. There were no outstanding shares of potentially dilutive Series A Convertible Preferred Stock at September 30, 2013. All shares of potentially dilutive Series A Convertible Preferred Stock outstanding at September 30, 2012 were anti-dilutive and therefore excluded from the dilutive net income per share computation for that period.

Segment Reporting

The Company has grouped its operations into two segments – Consumer Finance division and Cellular Retail division. The Consumer Finance division provides financial and ancillary services. The Cellular Retail division is an authorized Cricket premier dealer selling cellular phones and accessories, providing ancillary services and accepting service payments from customers.

	7

Recent Accounting Pronouncements

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

2. Risks Inherent in the Operating Environment –

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

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

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

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

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

On July 12, 2013, AT&T announced an agreement between AT&T and Leap Wireless to acquire Leap Wireless. Leap Wireless owns the Cricket Wireless business that is a critical component and focus of the Company’s Cellular Retail division. AT&T’s acquisition of Leap Wireless is subject to a number of conditions, including approval from the Federal Trade Commission for purposes of federal anti-trust laws. On October 30, 2013, Leap Wireless held a special shareholder meeting at which its shareholders approved, among other things, the July 12, 2013 Agreement and Plan of Merger with AT&T.

	8

For the nine months ended September 30, 2013 and 2012, the Company had significant revenues by state (shown as a percentage of applicable division’s revenue when over 10%) as follows:

Consumer Finance Division					Cellular Retail Division
	2013		2012			2013		2012
	% of Revenues		% of Revenues			% of Revenues		% of Revenues
Nebraska	28	%	26	%	Missouri	*	%	15	%
Wyoming	15	%	15	%	Nebraska	27	%	13	%
North Dakota	19	%	19	%	Texas	12	%	13	%
Iowa	12	%	12	%	Indiana	*	%	11	%

* Less than 10%

3. Loans Receivable –

At September 30, 2013 and December 31, 2012 our outstanding loans receivable aging was as follows:

September 30, 2013
	Payday		Installment		Pawn & Title		Total
Current	$	4,139,950	$	265,264	$	279,297	$	4,684,511
1-30		289,985		102,580		-		392,565
31-60		237,222		60,305		-		297,527
61-90		238,541		26,299		-		264,840
91-120		208,944		7,506		-		216,450
121-150		191,414		3,401		-		194,815
151-180		124,670		5,247		-		129,917
		5,430,726		470,602		279,297		6,180,625
Allowance for losses		(1,063,000)		(64,000)		-		(1,127,000)
	$	4,367,726	$	406,602	$	279,297	$	5,053,625

December 31, 2012
	Payday		Installment		Pawn & Title		Total
Current	$	4,318,517	$	391,137	$	171,344	$	4,880,998
1-30		269,091		47,538		-		316,629
31-60		234,514		16,285		-		250,799
61-90		216,717		3,201		-		219,918
91-120		202,642		1,051		-		203,693
121-150		215,562		388		-		215,950
151-180		187,523		-		-		187,523
		5,644,566		459,600		171,344		6,275,510
Allowance for losses		(1,119,000)		(72,000)		-		(1,191,000)
	$	4,525,566	$	387,600	$	171,344	$	5,084,510

4. Loans Receivable Allowance –

As a result of the Company’s collection efforts, it historically writes off approximately 41% of the returned payday items. Based on the number of days past the check return date, write-offs of payday returned items historically have tracked at the following approximate percentages: 1 to 30 days – 42%; 31 to 60 days – 67%; 61 to 90 days – 84%; 91 to 120 days – 89%; and 121 to 180 days – 91%. A rollforward of the Company’s loans receivable allowance for the nine months ended September 30, 2013 and 2012 is as follows:

	Nine Months Ended
	September 30,
	2013		2012

Loans receivable allowance, beginning of period	$	1,191,000	$	1,001,000
Provision for loan losses charged to expense		1,320,546		1,178,588
Charge-offs, net		(1,384,546)		(1,095,588)
Loans receivable allowance, end of period	$	1,127,000	$	1,084,000

	9

5. Note Payable – Short Term –

The Company’s short-term debt is as follows:

		September 30, 2013			December 31, 2012
Note payable to shareholders related to preferred stock conversion to common, due and payable, if no earlier payment demand is made, on April 30, 2013. The note accrues no interest.		$	-		$	405,163

6. Notes Payable – Long Term –

The Company’s long-term debt is as follows:

	September 30, 2013		December 31, 2012
Note payable (with a credit limit of $3,000,000) to River City Equity, Inc., a related party, with interest payable monthly at 12% due March 31, 2014 and upon certain events can be collateralized by substantially all assets of WCR.	$	2,750,000	$	2,750,000
Note payable to a related party with interest payable monthly at 10%, due March 1, 2013 and collateralized by substantially all assets of select locations of PQH.		-		94,397
Note payable to a related party with interest payable monthly at 10%, due April 1, 2013 and collateralized by substantially all assets of select locations of PQH.		-		115,668
Total		2,750,000		2,960,065
Less current maturities		2,750,000		210,065
	$		$	2,750,000

7. Other Expense –

A breakout of other expense is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012

Store expenses
Bank fees	$	109,892	$	79,957	$	316,208	$	237,194
Collection costs		118,510		125,368		356,425		360,894
Repairs & maintenance		81,056		67,860		194,470		163,383
Supplies		208,665		90,267		371,426		276,788
Telephone		46,353		36,114		125,468		113,593
Utilities and network lines		207,372		189,400		585,422		525,059
Other		369,766		295,771		954,312		731,562
	$	1,141,614	$	884,737	$	2,903,731	$	2,408,473

General & administrative expenses
Professional fees	$	71,494	$	43,722	$	262,855	$	190,936
Management and consulting fees		111,826		137,687		331,335		409,129
Other		74,992		64,606		204,469		224,569
	$	258,312	$	246,015	$	798,659	$	824,634

8. Segment Information –

The Company has grouped its operations into two segments – Consumer Finance and Cellular Retail. The Consumer Finance segment provides financial and ancillary services. The Cellular Retail segment is a dealer for Cricket cellular carrier selling cellular phones and accessories, ancillary services and serving as a payment center for customers.

	10

Segment information related to the three and nine months ended September 30, 2013 and 2012 is set forth below:

	Three Months Ended						Three Months Ended
	September 30, 2013						September 30, 2012
	Consumer Finance		Cellular Retail		Total		Consumer Finance		Cellular Retail		Total

Revenues from external customers	$	3,287,935	$	5,308,335	$	8,596,270	$	3,185,296	$	3,126,225	$	6,311,521
Net income	$	350,768	$	41,811	$	392,579	$	419,095	$	(79,051)	$	340,044

	Nine Months Ended						Nine Months Ended
	September 30, 2013						September 30, 2012
	Consumer Finance		Cellular Retail		Total		Consumer Finance		Cellular Retail		Total

Revenues from external customers	$	9,269,693	$	14,513,769	$	23,783,462	$	8,814,127	$	10,942,133	$	19,756,260
Net income (loss)	$	1,038,856	$	181,176	$	1,220,032	$	1,160,467	$	322,370	$	1,482,837
Total segment assets	$	15,694,275	$	8,243,296	$	23,937,571	$	15,339,215	$	6,644,845	$	21,984,060

9. Employment Agreement –

On April 11, 2013, the Company entered into an Amended and Restated Employment Agreement with its Chief Executive Officer, Mr. John Quandahl, to be effective as of April 1, 2013, due to the fact that the Company’s earlier Employment Agreement with Mr. Quandahl expired as of March 31, 2013. The amended and restated agreement has a term of three years and contains other terms and conditions that are identical to those of the original agreement. Specifically, the amended and restated agreement provides an annual base salary and eligibility for an annual performance-based cash bonus pool for management.

The performance-based bonus provisions of the amended and restated agreement permit members of the Company’s management to receive annual bonus payments based on adjusted EBITDA targets annually established by the Board of Directors. If the Company’s actual adjusted EBITDA performance for a particular annual period ranges from 85-100% of the established adjusted EBITDA target, management will be entitled to receive a cash bonus consisting of 7.5% of the actual adjusted EBITDA. Mr. Quandahl’s share of the bonus pool for any particular year is expected to be 10-50% (but may be more), and the bonus pool will be payable to other management-level participants in the bonus pool, if any, selected from time to time by the Board of Directors in its discretion. If the Company’s actual adjusted EBITDA performance for a particular annual period is less than 85% of the established adjusted EBITDA target, no bonus will be payable, and if such performance exceeds 100% of the established adjusted EBITDA target, the bonus pool will include 15% of the amount by which such performance exceeds the target. In addition to the adjusted EBITDA threshold, the amended and restated agreement also contains capital expenditure and working capital thresholds.

The amended and restated agreement also contains customary non-solicitation and non-competition provisions as well as provisions for severance payments upon termination by the Company without cause or upon termination by Mr. Quandahl with good reason.

10. Subsequent Events –

We evaluated all events or transactions that occurred after September 30, 2013 up through November 12, 2013, the date we issued these financial statements. During this period we did not have any material subsequent events that impacted our financial statements.

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

Forward-Looking Statements

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

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

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

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

· our need for additional financing,

· unpredictability or uncertainty in financing markets which could impair our ability to grow our business through acquisitions,

· changes in Cricket dealer compensation, and

· the impact on us, as a Cricket dealer, of an AT&T acquisition of the Cricket Wireless business.

Other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

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

General Overview

Consumer finance operations are conducted under our wholly owned subsidiaries, Wyoming Financial Lenders, Inc. and Express Pawn, Inc., primarily in the Midwestern and Southwestern United States. Services provided include short-term loans (non-recourse “cash advance” or “payday” loans, small unsecured installment loans, collateralized non-recourse pawn loans and title loans), check cashing and other money services. As of September 30, 2013, we operated 51 “payday” stores, one payday/pawn store, and one pawn store in nine states (Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota, Utah, Wisconsin and Wyoming).

In our consumer finance operations, we provide short-term unsecured consumer cash advance loans in amounts that typically range from $100 to $500. Cash advance loans provide customers with cash in exchange for a promissory note with a maturity of generally two to four weeks and the customer’s post-dated personal check for the aggregate amount of the cash advance, plus a fee. The fee varies from state to state based on applicable regulations, and generally ranges from $15 to $22 for each whole or partial increment of $100 borrowed. To repay the cash advance loan, a customer may pay with cash, in which case their personal check is returned to them, or allow the check to be presented to the bank for collection.

We provide unsecured installment loans in exchange for a promissory note with a maturity of generally three to six months. The fee and interest rate on installment loans vary based on applicable regulations. We also provide collateralized non-recourse loans, commonly known as “pawn loans,” with a maturity of one to four months. Allowable service charges will vary by state. Our pawn loans earn 15% to 20% per month. The loan amount varies depending on the valuation of each item pawned. We generally lend from 30% to 55% of the collateral’s estimated resale value depending on an evaluation of several factors. Customers then have the option to redeem the pawned merchandise during the term or at expiration of the pawn loan or else forfeit the merchandise to us on expiration. At our pawn stores we sell merchandise acquired through either customer forfeiture of pawn collateral or second-hand merchandise purchased from customers or consigned to us.

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Also as part of our consumer finance operations, we provide title loans and other ancillary consumer financial products and services that are complementary to its cash advance-lending business, such as check-cashing services, money transfers and money orders. In our check cashing business, we primarily cash payroll checks, but we also cash government assistance, tax refund and insurance checks or drafts.

All of our loan and other services are subject to state regulations (which vary from state to state), federal regulations and local regulation, where applicable.

Our Cellular retail operations are conducted under our wholly owned subsidiary, PQH Wireless, Inc. This division operates retail stores selling cellular phones and accessories. We are an authorized Cricket dealer selling cellular phones and accessories, providing ancillary services and accepting service payments from customers. Our cellular phone offerings include prepaid cellular phone service that functions for a period of time for a flat fee, without usage limitations and without any long-term contract or commitment required from the consumer. Authorized dealers are permitted to sell the carrier’s line and generally locate their store operations in areas with a strong potential customer base where the carrier does not maintain a corporate storefront. These locations are generally within the urban core or surrounding areas of a community. We are an authorized premier Cricket dealer, and as such, we are only permitted to sell the Cricket line of prepaid cellular phones at our Cricket retail stores. As of September 30, 2013, we operated 60 Cricket wireless retail stores in 14 states (Arizona, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Missouri, Nebraska, Ohio, Oklahoma, Oregon, Texas and Washington).

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

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

We evaluate our stores based on net store profits, revenue growth, gross profit contributions and, for payday stores, loss ratio (which is losses as a percentage of payday loan fees), with consideration given to the length of time the store has been open and its geographic location. We evaluate changes in comparable store financial and other measures on a routine basis to assess operating efficiency. We define comparable stores as those that are open during the full periods for which a comparison is being made. For example, comparable stores for the annual analysis we undertook as of December 31, 2012 have been open at least 24 months on that date. We monitor newer stores for their progress toward profitability and rate of loan growth, units sold, or payment volume.

The contraction of the payday loan industry has followed, and continues to be significantly affected by, payday lending legislation and regulation in the various states and nationally. We actively monitor and evaluate legislative and regulatory initiatives in each of the states and nationally, and are involved with the efforts of the various industry lobbying efforts. To the extent that states enact legislation or regulations that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business could be adversely affected.

To further diversify our geographic reach, our strategic expansion plans involve the expansion and diversification of our product and service offerings. For this reason, we have focused, and expect to continue to focus, a significant amount of time and resources on the conversion of select payday locations to joint pawn/payday locations and development of our cellular retail stores. In an effort to expand our product and service offerings within the Payday division, we intend to either introduce pawn stores into a limited number of existing payday locations and launch or buy additional pawn store locations. We believe that successful expansion, both geographically and product- and service-wise, will help to mitigate the regulatory and economic risk inherent in our business by making us less reliant on (i) cash advance and installment lending alone and (ii) any particular aspect of our business that is concentrated geographically.

Discussion of Critical Accounting Policies

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

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

Loans Receivable Allowance

We maintain a loan loss allowance for anticipated losses for our payday and installment loans. We do not record loan losses or charge-offs of pawn or title loans because the value of the collateral exceeds the loan amount. To estimate the appropriate level of the loan loss allowance, we consider the amount of outstanding loan principal, interest and fees, historical charge offs, current and expected collection patterns and current economic trends. Our current loan loss allowance is based on our historical net write off percentage, net charge offs to loan principal, interest and fee amounts that originated during the last 24 months, applied against the balance of loan principal, interest and fees outstanding. We also periodically perform a look-back analysis on our loan loss allowance to verify the historical allowance established tracks with the actual subsequent loan write-offs and recoveries. We are aware that as conditions change, we may also need to make additional allowances in future periods.

Included in loans receivable are unpaid principal, interest and fees of payday, installment, pawn and title loans that have not reached their maturity date and “late” payday loans that have reached maturity within the last 180 days and have remaining outstanding balances. Late payday loans generally are unpaid loans where a customer’s personal check has been deposited and the check has been returned due to non-sufficient funds in the customer’s account, a closed account, or other reasons. Loans are carried at cost plus accrued interest or fees less payments made and the loans receivable allowance. We do not specifically reserve for any individual loan. We aggregate loans for purposes of estimating the allowance using a methodology that analyzes historical portfolio statistics and management’s judgment regarding recent trends noted in the portfolio. This methodology takes into account several factors, including the maturity of the store location and charge-off and recovery rates. We utilize a software program to assist with the tracking of its historical portfolio statistics.

As a result of our collection efforts, we historically write off approximately 41% of the returned items. Based on the number of days past the check return date, write-offs of returned items historically have tracked at the following approximate percentages: 1 to 30 days – 42%; 31 to 60 days – 67%; 61 to 90 days – 84%; 91 to 120 days – 89%; and 121 to 180 days – 91%. All returned payday items are charged off after 180 days, as collections after that date have not been significant. The loan loss allowance is reviewed monthly and any adjustment to the loan loss allowance as a result of historical loan performance, current and expected collection patterns and current economic trends is recorded.

A rollforward of our loans receivable allowance for the nine months ended September 30, 2013 and 2012 is as follows:

	Nine Months Ended September 30,
	2013		2012
Loans receivable allowance, beginning of period	$	1,191,000	$	1,001,000
Provision for loan losses charged to expense		1,320,546		1,178,588
Charge-offs, net		(1,384,546)		(1,095,588)
Loans receivable allowance, end of period	$	1,127,000	$	1,084,000

Valuation of Long-lived and Intangible Assets

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

Results of Operations – Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

For the three-month period ended September 30, 2013, net income was $.39 million compared to net income of $.34 million for the three months ended September 30, 2012. During the three months ended September 30, 2013, income from operations before income taxes was $.63 million compared to $.55 million for the three months ended September 30, 2012. Compared to the prior three-month period, throughout some point of the quarters, we operated nine additional cellular retail storefronts and one pawn store. The major components of revenues, store expenses, general and administrative expenses, and income tax expense are discussed below.

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A summary table of the number of stores operated during the three-month periods ended September 30, 2013 and 2012 follows:

	Three Months Ended September 30, 2013				Three Months Ended September 30, 2012
	Consumer Finance	Payday / Pawn	Pawn	Cellular Retail	Consumer Finance	Payday / Pawn	Pawn	Cellular Retail
Beginning	51	1	1	52	52	-	-	50
Acquired / Launched	-	-		9	-	-	-	1
Converted	-	-	-	-	(1)	1	-	-
Closed	-	-	-	(1)	-	-	-	(1)
Ending	51	1	1	60	51	1	-	50

Revenues

The following table summarizes our revenues for the three months ended September 30, 2013 and 2012, respectively:

	Three Months Ended September 30,						Three Months Ended September 30,
	2013		2012		% Change Year Over Year		2013			2012
							(percentage of revenues)

Phones and accessories	$	3,071,402	$	1,763,282	74.2	%		35.7	%		27.9	%
Payday loan fees		2,573,788		2,601,109	(1.1)	%		29.9	%		41.2	%
Cellular sales & service fees		2,245,856		1,380,660	62.7	%		26.1	%		21.9	%
Installment interest income		307,100		315,943	(2.8)	%		3.6	%		5.0	%
Check cashing fees		116,222		145,487	(20.1)	%		1.4	%		2.3	%
Other income and fees		281,902		105,040	168.4	%		3.3	%		1.7	%
Total	$	8,596,270	$	6,311,521	36.2	%		100.0	%		100.0	%

Revenues totaled $8.60 million for the three months ended September 30, 2013, compared to $6.31 million for the three months ended September 30, 2012. The increase in total revenues resulted primarily from higher Cellular Retail Division revenue, which can be attributed to a larger number of stores operated, higher per unit selling price of phones and a positive change in the dealer compensation structure from Cricket. A breakdown of phone units sold shows an increase of higher priced “smart” phones and a decrease for lower priced “feature” phones. Cellular sales and services fees increased period over period as a result of increased volume from the additional stores operated and from the revised Cricket dealer compensation structure. For the Consumer Finance division, during the three-month periods ended September 30, 2013 and 2012, we originated approximately $18.12 million and $18.00 million in cash advance loans. Our average cash advance loan (including fees) totaled approximately $393 and $384 during the three-month periods ended September 30, 2013 and 2012, respectively. Our average fee for the three-month periods ended September 30, 2013 and 2012 was $57 and $55, respectively.

Store Expenses

The following table summarizes our store expenses for the three months ended September 30, 2013 and 2012, respectively:

	Three Months Ended September 30,						Three Months Ended September 30,
	2013		2012		% Change Year Over Year		2013		2012
							(percentage of revenues)
Store Expenses:
Phone and accessories cost of sales	$	2,553,880	$	1,194,653	113.8	%	29.7	%	18.9	%
Salaries and benefits		1,958,872		1,614,820	21.3	%	22.8	%	25.5	%
Occupancy		677,089		566,214	19.6	%	7.9	%	9.0	%
Provisions for loan losses		575,355		546,080	5.4	%	6.7	%	8.7	%
Advertising		88,995		82,272	8.2	%	1.0	%	1.3	%
Depreciation		89,514		72,779	23.0	%	1.0	%	1.2	%
Amortization of intangible assets		36,194		56,385	(35.8	)%	0.4	%	0.9	%
Other		1,141,614		884,737	29.0	%	13.3	%	14.0	%
	$	7,121,513	$	5,017,940	41.9	%	82.8	%	79.5	%

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As the table above demonstrates, total expenses associated with store operations for the three months ended September 30, 2013 were $7.12 million, compared to $5.02 million for the three months ended September 30, 2012, representing a 41.9% increase over the prior period. The major components of these expenses are phone and accessories costs of sales, salaries and benefits for our store employees, occupancy costs relating to our store leaseholds, provisions for loan losses, advertising expenses, depreciation of store equipment and leasehold improvements, amortization of intangible assets and other expenses associated with store operations.

Overall, our most significant store expenses for the three months ended September 30, 2013 and 2012 related to phone and accessory costs, salaries and benefits for our store employees, occupancy costs and provision for loan losses. A discussion and analysis of the various components of our store expenses appears below.

Phone and Accessories Cost of Sales. For the three months ended September 30, 2013, our costs of sales were $2.55 million compared to $1.20 million for the same period in 2012. The increase in our Cellular Retail segment phone and accessory costs resulted from operating additional stores and a higher per unit cost per phone year over year, attributable to the increased sales of smart phones discussed in the previous section. A lower gross profit margin on unit sales under Cricket’s revised dealer compensation structure also contributed to the increase. Our gross profit per phone unit varies little between a smart or feature phone, resulting in a decreasing gross profit from phone sales.

Salaries and Benefits. Payroll and related costs at the store level were $1.96 million compared to $1.61 million for the three-month periods ended September 30, 2013 and 2012, respectively. The increase in the current period is attributed to our operation of the additional cellular and pawn stores.

Occupancy Costs. Occupancy expenses, consisting mainly of store leases, were $.68 million for the three months ended September 30, 2013 versus $.57 million for the three months ended September 30, 2012. The increase is attributed to our operation of the additional cellular and pawn stores in the current period.

Provisions for Loan Losses. For the three months ended September 30, 2013, our provisions for loan losses were $.58 million compared to $.55 million for the three months ended September 30, 2012. Our provisions for loan losses represented approximately 20.1% and 18.8% of our payday and installment loan revenue for the three months ended September 30, 2013 and 2012, respectively. The increase can be attributed to the higher default rate associated with installment lending and a slight increase in net bad debt on payday loans. We remain uncertain how significant our total 2013 loan losses may be and how they may differ from 2012.

Advertising. Advertising and marketing expenses were $.09 million for the three months ended September 30, 2013 and $0.08 million for the three months ended September 30, 2012. In general, we expect that our marketing and advertising expenses for 2013 will remain materially consistent with 2012 expenses.

Depreciation. Depreciation, relating to store equipment and leasehold improvements, increased to $.09 million for the three months ended September 30, 2013 compared to $.07 million for the three months ended September 30, 2012.

Amortization of Intangible Assets. Amortization of intangible assets decreased to $.04 million for the three months ended September 30, 2013 from $.06 million for the three month period ended September 30, 2012.

Other Store Expenses. Other expenses increased to $1.14 million for the three months ended September 30, 2013 from $.88 million for the three months ended September 30, 2012.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended September 30, 2013 and 2012, respectively:

	Three Months Ended September 30,						Three Months Ended September 30,
	2013		2012		% Change Year Over Year		2013		2012
							(percentage of revenues)
General & Administrative Expenses:
Salaries and benefits	$	498,488	$	439,792	13.3	%	5.8	%	7.0	%
Depreciation		7,200		5,616	28.2	%	0.1	%	0.1	%
Interest expense		83,178		51,114	62.7	%	1.0	%	0.8	%
Other expense		258,312		246,015	5.0	%	3.0	%	3.9	%
	$	847,178	$	742,537	14.1	%	9.9	%	11.8	%

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Total general and administrative costs for the three months ended September 30, 2013 were $.85 million compared to $.74 million for the period ended September 30, 2012. For the three months ended September 30, 2013 and 2012, the major components of these costs were salaries and benefits for our corporate headquarters operations and executive management, interest expense, and other general and administrative expenses. A discussion and analysis of the various components of our general and administrative costs appears below:

Salaries and Benefits. Salaries and benefits expenses for the three months ended September 30, 2013 were $.50 million, a $.06 million increase from the $.44 million in such expenses during the period ended September 30, 2012.

Interest. Interest expense for the three months ended September 30, 2013 and 2012 was $.08 million and $.05 million, respectively.

Other General and Administrative Expenses. Other general and administrative expenses, such as professional fees, management and consulting fees, utilities, office supplies, and other minor costs associated with corporate headquarters activities, increased $.01 million to $.26 million for the three months ended September 30, 2013 compared to $.25 million from the three months ended September 30, 2012.

Income Tax Expense

Income tax expense for the three months ended September 30, 2013 was $.24 million compared to income tax expense of $.21 million for the three months ended September 30, 2012, an effective rate of 37% and 38%, respectively.

Results of Operations – Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

For the nine-month period ended September 30, 2013, net income was $1.22 million compared to net income of $1.48 million for the nine months ended September 30, 2012. During the nine months ended September 30, 2013, income from operations before income taxes was $1.96 million compared to $2.41 million for the nine months ended September 30, 2012. Compared to the prior nine-month period, throughout some point of the current period, we operated 14 additional cellular retail storefronts and one pawn store. The major components of revenues, store expenses, general and administrative expenses, and income tax expense are discussed below.

A summary table of the number of stores operated during the nine month periods ended September 30, 2013 and 2012 follows:

	Nine Months Ended September 30, 2013				Nine Months Ended September 30, 2012
	Consumer Finance	Payday / Pawn	Pawn	Cellular Retail	Consumer Finance	Payday / Pawn	Pawn	Cellular Retail
Beginning	51	1	-	57	52	-	-	45
Acquired / Launched	-	-	1	12	-	-	-	6
Converted	-	-	-	-	(1)	1	-	-
Closed	-	-	-	(9)	-	-	-	(1)
Ending	51	1	1	60	51	1	-	50

Revenues

The following table summarizes our revenues for the nine months ended September 30, 2013 and 2012, respectively:

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2013		2012		% Change Year Over Year		2013		2012
							(percentage of revenues)

Phones and accessories	$	8,700,236	$	6,133,307	41.9	%	36.5	%	31.0	%
Payday loan fees		7,314,366		7,260,767	0.7	%	30.8	%	36.8	%
Cellular sales & service fees		5,852,024		4,859,027	20.4	%	24.6	%	24.6	%
Installment interest income		797,218		760,608	4.8	%	3.4	%	3.8	%
Check cashing fees		397,700		487,894	(18.5)	%	1.7	%	2.5	%
Other income and fees		721,918		254,657	183.5	%	3.0	%	1.3	%
Total	$	23,783,462	$	19,756,260	20.4	%	100.0	%	100.0	%

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Revenues totaled $23.78 million for the nine months ended September 30, 2013, compared to $19.76 million for the nine months ended September 30, 2012. The increase in total revenues resulted from higher Cellular Retail Division revenue, which can be attributed to a larger number of stores operated, higher per unit selling price of phones and a mid-year positive change in dealer compensation from Cricket. A breakdown of phone units sold shows an increase of higher priced “smart” phones and a decrease for lower priced “feature” phones. Cellular sales and services fees increased period over period as a result of increased volume from the additional stores operated and from the revised Cricket dealer compensation structure. For the Consumer Finance division, during the nine-month periods ended September 30, 2013 and 2012, we originated approximately $51.07 million and $50.37 million in cash advance loans, respectively. Our average cash advance loan (including fees) totaled approximately $394 and $383 during the nine-month periods ended September 30, 2013 and 2012, respectively. Our average fee for the nine-month periods ended September 30, 2013 and 2012 was $57 and $55, respectively.

Store Expenses

The following table summarizes our store expenses for the nine months ended September 30, 2013 and 2012, respectively:

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2013		2012		% Change Year Over Year		2013		2012
							(percentage of revenues)
Store Expenses:
Phone and accessories cost of sales	$	6,980,858	$	4,125,666	69.2	%	29.3	%	20.9	%
Salaries and benefits		5,468,861		4,908,008	11.4	%	23.0	%	24.8	%
Occupancy		1,953,905		1,677,965	16.4	%	8.2	%	8.5	%
Provisions for loan losses		1,320,546		1,178,588	12.0	%	5.6	%	6.0	%
Advertising		261,713		239,652	9.2	%	1.1	%	1.2	%
Depreciation		255,595		212,704	20.2	%	1.1	%	1.1	%
Amortization of intangible assets		112,735		172,632	(34.7)	%	0.5	%	0.9	%
Other		2,903,731		2,408,473	20.6	%	12.2	%	12.2	%
	$	19,257,944	$	14,923,688	29.0	%	81.0	%	75.5	%

As the table above demonstrates, total expenses associated with store operations for the nine months ended September 30, 2013 were $19.26 million, compared to $14.92 million for the nine months ended September 30, 2012, representing a 29.0% increase for the current period. The major components of these expenses are phone and accessories costs of sales, salaries and benefits for our store employees, occupancy costs relating to our store leaseholds, provisions for loan losses, advertising expenses, depreciation of store equipment and leasehold improvements, amortization of intangible assets and other expenses associated with store operations.

Overall, our most significant store expenses for the nine months ended September 30, 2013 and 2012 related to phone and accessory costs, salaries and benefits for our store employees, occupancy costs and provision for loan losses. A discussion and analysis of the various components of our store expenses appears below.

Phone and Accessories Cost of Sales. For the nine months ended September 30, 2013, our costs of sales were $6.98 million compared to $4.13 million for the same period in 2012. The increase in our Cellular Retail segment phone and accessory costs resulted from operating additional stores and a higher per unit cost per phone year over year, attributable to the increased sales of smart phones discussed in the previous section. A lower gross profit margin on unit sales under Cricket’s revised dealer compensation structure also contributed to the increase. Our gross profit per phone unit varies little between a smart or feature phone, resulting in a decreasing gross profit from phone sales.

Salaries and Benefits. Payroll and related costs at the store level were $5.47 million compared to $4.91 million for the nine month periods ended September 30, 2013 and 2012, respectively. The increase is attributed to our operation of the additional cellular and pawn stores in the current period.

Occupancy Costs. Occupancy expenses, consisting mainly of store leases, were $1.95 million for the nine months ended September 30, 2013 versus $1.68 million for the nine months ended September 30, 2012. The increase is attributed to our operation of the additional cellular and pawn stores in the current period.

Provisions for Loan Losses. For the nine months ended September 30, 2013, our provisions for loan losses were $1.32 million compared to $1.18 million for the nine months ended September 30, 2012. Our provisions for loan losses represented approximately 16.3% and 14.7% of our payday and installment loan revenue for the nine months ended September 30, 2013 and 2012, respectively. The increase can be attributed to the higher default rate associated with installment lending and a slight increase in net bad debt on payday loans. At this time, we remain uncertain how significant our total 2013 loan losses may be and how they may differ from 2012.

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Advertising. Advertising and marketing expenses were $.26 million and $.24 million for the nine months ended September 30, 2013 and 2012, respectively. In general, we expect that our marketing and advertising expenses for 2013 will remain materially consistent with 2012 expenses.

Depreciation. Depreciation, relating to store equipment and leasehold improvements, increased to $.26 million for the nine months ended September 30, 2013 compared to $.21 million for the nine months ended September 30, 2012.

Amortization of Intangible Assets. Amortization of intangible assets decreased to $.11 million for the nine months ended September 30, 2013 from $.17 million for the nine month period ended September 30, 2012.

Other Store Expenses. Other expenses increased to $2.90 million for the nine months ended September 30, 2013 from $2.41 million for the nine months ended September 30, 2012.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the nine months ended September 30, 2013 and 2012, respectively:

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2013		2012		% Change Year Over Year		2013		2012
							(percentage of revenues)
General & Administrative Expenses:
Salaries and benefits	$	1,496,730	$	1,396,878	7.1	%	6.3	%	7.1	%
Depreciation		20,028		16,722	19.8	%	0.1	%	0.1	%
Interest expense		249,069		180,501	38.0	%	1.0	%	0.9	%
Other expense		798,659		824,634	(3.1)	%	3.4	%	4.2	%
	$	2,564,486	$	2,418,735	6.0	%	10.8	%	12.2	%

Total general and administrative costs for the nine months ended September 30, 2013 were $2.56 million compared to $2.42 million for the period ended September 30, 2012. For the nine months ended September 30, 2013 and 2012, the major components of these costs were salaries and benefits for our corporate headquarters operations and executive management, interest expense, and other general and administrative expenses. A discussion and analysis of the various components of our general and administrative costs appears below:

Salaries and Benefits. Salaries and benefits expenses for the nine months ended September 30, 2013 were $1.50 million, a $.10 million increase from the $1.40 million in such expenses during the period ended September 30, 2012.

Interest. Interest expense for the nine months ended September 30, 2013 and 2012 was $.25 million and $.18 million, respectively.

Other General and Administrative Expenses. Other general and administrative expenses, such as professional fees, management and consulting fees, utilities, office supplies, and other minor costs associated with corporate headquarters activities, decreased $.02 million to $.80 million for the nine months ended September 30, 2013 compared to $.82 million from the nine months ended September 30, 2012.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2013 was $.74 million compared to income tax expense of $.93 million for the nine months ended September 30, 2012, an effective rate of 38% and 39%, respectively.

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Liquidity and Capital Resources

Summary cash flow data is as follows:

	Nine Months Ended September 30,
	2013		2012

Cash flows provided (used) by:
Operating activities	$	1,043,163	$	1,755,930
Investing activities		(419,104)		(646,330)
Financing activities		(632,990)		(1,276,016)
Net increase (decrease) in cash		(8,931)		(166,416)
Cash, beginning of period		2,246,619		1,909,442
Cash, end of period	$	2,237,688	$	1,743,026

At September 30, 2013, we had cash of $2.24 million compared to cash of $1.74 million on September 30, 2012. We believe that our available cash, combined with expected cash flows from operations, will be sufficient to fund our liquidity and capital expenditure requirements through September 30, 2014. Our expected short-term uses of available cash include the funding of operating activities (including anticipated increases in payday loans), the financing of expansion activities, including new store openings or store acquisitions, and the partial repayment of debt.

Because of the constant threat of regulatory changes to the payday lending industry, we believe it will be difficult for us to obtain debt financing from traditional financial institutions. As a result, financing we may obtain from alternate sources is likely to involve higher interest rates.

Credit Facilities

On October 18, 2011, we entered into a borrowing arrangement with River City Equity, Inc. and delivered a related long-term promissory note in favor of River City Equity. The promissory note was amended on December 7, 2012. The borrowing arrangement allows us to borrow up to $3,000,000 at an interest rate of 12% per annum, with interest payable on a monthly basis. The note matures on March 31, 2014, on which date all unpaid principal and accrued but unpaid interest thereon is due and payable. We intend to extend the note for one year upon its expiration. The note includes a prepayment penalty and, under certain circumstances, permits River City Equity to obtain a security interest in all of our assets. As of September 30, 2013, $2,750,000 has been advanced under this arrangement.

Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements as of September 30, 2013.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

As of September 30, 2013, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of September 30, 2013.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 6. Exhibits

Exhibit		Description

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

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

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

101.INS		XBRL Instance Document (filed herewith).

101.SCH		XBRL Schema Document (filed herewith).

101.CAL		XBRL Calculation Linkbase Document (filed herewith).

101.DEF		XBRL Definition Linkbase Document (filed herewith).

101.LAB		XBRL Label Linkbase Document (filed herewith).

101.PRE		XBRL Presentation Linkbase Document (filed herewith).

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SIGNATURES

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

Dated: November 12, 2013	Western Capital Resources, Inc.
	(Registrant)

	By:	/s/ John Quandahl
		John Quandahl
		Chief Executive Officer and Chief Operating Officer

	By:	/s/ Stephen Irlbeck
		Stephen Irlbeck
		Chief Financial Officer

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