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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2004

OR

for the transition period from              to             

Commission File Number 000-50840

QC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

(913) 439-1100

(Registrant’s telephone number, including area code)

Not applicable

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock, as of November 5, 2004:

Common Stock $0.01 per share par value - 20,371,000 Shares

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QC HOLDINGS, INC.

Form 10-Q

September 30, 2004

Index

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QC HOLDINGS, INC.

FORM 10-Q

SEPTEMBER 30, 2004

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INTRODUCTORY COMMENTS

The Consolidated Financial Statements included in this report have been prepared by QC Holdings, Inc. (the Company or QC), without audit, under the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted under those rules and regulations, although the Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. These Consolidated Financial Statements should be read in conjunction with the financial statements and the notes thereto, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Registration Statement on Form S-1, as amended, Registration No. 333-115297, filed on July 9, 2004. Results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results expected for the full year 2004.

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QC HOLDINGS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

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QC HOLDINGS, INC.

Consolidated Statements of Income

(in thousands, except per share amounts)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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QC HOLDINGS, INC.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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QC HOLDINGS, INC.

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

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QC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

The accompanying unaudited interim consolidated financial statements are of QC Holdings, Inc. and its wholly-owned subsidiaries, QC Financial Services, Inc. and QC Properties, LLC (collectively known as the Company). QC Financial Services, Inc. is the 100% owner of QC Financial Services of California, Inc., Financial Services of North Carolina, Inc., QC Advance, Inc. (formerly Title Loans, Inc.) and Cash Title Loans, Inc. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal closing procedures) necessary to present fairly the financial position of the Company and its subsidiary companies as of December 31, 2003 and September 30, 2004, the results of operations for the three and nine months ended September 30, 2003 and 2004 and the cash flows for the nine months ended September 30, 2003 and 2004. The consolidated balance sheet as of December 31, 2003 was derived from the audited financial statements of the Company, but does not include all disclosures required by generally accepted accounting principles.

The accompanying unaudited interim consolidated financial statements have been prepared consistently with the accounting policies described in Note 2 to the consolidated financial statements that are presented in the Company’s Registration Statement on Form S-1, as amended, Registration No. 333-115297, filed on July 9, 2004 with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full year 2004.

Business. QC Holdings, Inc., incorporated in 1998 under the laws of the State of Kansas, was originally formed in 1984 and has provided various retail consumer financial products and services throughout its 20-year history. Since 1998, the Company has been principally engaged in the business of providing short-term consumer loans, known as payday loans, with principal values that typically range from $100 to $500. Payday loans provide customers with cash in exchange for a promissory note with a maturity of generally 14 days and supported by that customer’s personal check for the aggregate amount of the cash advanced plus a fee, which varies from state to state based on applicable regulations and generally ranges between $15 to $20 per $100 borrowed. To repay the cash advance, customers may pay with cash, in which case their personal check is returned to them, or they may allow the check to be presented to the bank for collection. Certain locations offer payday loans from a third-party financial institution, from which the Company purchases a pro rata participation.

The Company also provides other consumer financial products and services, such as check cashing services, title loans, money transfers and money orders. The Company’s loans and other services are subject to state regulation, which vary from state to state. As of September 30, 2004, the Company operated 322 stores, with locations in Arizona, California, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Utah, Virginia, Washington and Wisconsin.

Company’s Initial Public Offering. Effective July 21, 2004, the Company completed the initial public offering of 5,000,000 shares of its common stock at a price of $14.00 per share (the Public Offering). In addition, the underwriters for the Company’s Public Offering exercised an option to purchase from selling stockholders an additional 750,000 shares of common stock to cover over-allotments in the offering. The Company did not receive any of the proceeds from the shares of common stock sold by the selling stockholders. The Company’s common stock trades on the NASDAQ National Market under the symbol “QCCO.”

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Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The most significant estimate relates to the allowance for loan losses on loans receivable. This estimate may be adjusted as more current information becomes available, and any adjustments could be significant.

Principles of Consolidation. The accompanying unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications were made to the prior year interim consolidated financial statements to conform to the current year presentation.

Stock Split. The Company’s Board of Directors effected a 10-for-1 stock split in the form of a stock dividend on June 9, 2004. All share and per share information included in the consolidated financial statements and accompanying notes have been restated to reflect this stock split for all periods presented.

Note 2 – Significant Accounting Policies

Cash and Cash Equivalents. The Company considers all highly liquid investment securities purchased with an original maturity of three months or less from the date of purchase to be cash equivalents.

Revenue Recognition. The Company records revenue from loans upon issuance. The term of a loan is generally 14 days for a payday loan and 30 days for a title loan. At the end of each period, the Company records an estimate of the unearned revenue, which results in revenues being recognized on a constant-yield basis ratably over the term of each loan.

The Company recognizes revenues for its other consumer financial products and services, including, among others, check cashing, money transfers and money orders, at the time those services are rendered to the customer, which is generally at the point of sale.

The components of “Other” revenues as reported in the statements of income are as follows (in thousands):

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Loans Receivable, Provision for Losses and Allowance for Loan Losses. When the Company enters into a payday loan with a customer, the Company records a loan receivable for the amount loaned to the customer plus the fee charged by the Company, which varies from state to state based on applicable regulations.

The following table summarizes certain data with respect to the Company’s payday loans:

When checks are presented to the bank for payment and returned as uncollected, all accrued fees, interest and outstanding principal are charged-off as uncollectible, generally within 15 days after their due date. Accordingly, the loans included in the receivable balance at any give point in time are typically not older than 30 days. These charge-offs are recorded as expense through the provision for losses. Any recoveries on losses previously charged to expense are recorded as a reduction to the provision for losses in the period recovered.

With respect to the loans receivable at each period end, the Company maintains an allowance for loan losses (including fees and interest) for aggregate payday loans and title loans at levels estimated to be adequate to absorb estimated incurred losses in the respective outstanding loan portfolios, which includes for payday loans the Company’s pro rata participation in purchased loans.

Loans receivable are generally no more than 30 days old. The allowance is determined by evaluating the aggregate payday and title loan portfolio based on the historical level of loans charged to expense and the Company’s collections experience over the three months as of March 31, six months as of June 30, nine months as of September 30, and twelve months as of December 31 each year. The Company believes that, at any given point in time, its recent collection history reflects general economic conditions. The Company does not specifically reserve for any individual loan. The Company aggregates payday loans and title loans for purposes of computing the allowance based on very similar historical averages of uncollectible amounts as a percentage of volume for each type of loan (generally ranging between 2% and 4% of total volume).

Using this information, the Company records an adjustment to the allowance for loan losses through the provision for losses.

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The following table summarizes the activity in the allowance for loan losses and the provision for losses during the three and nine months ended September 30, 2003 and 2004 (in thousands):

Stockholders’ Equity. Prior to the Company’s Public Offering, the Company issued 189,000 shares of common stock in connection with stock option exercises during 2004. In connection with the Company’s Public Offering, all treasury shares were issued, which eliminated the treasury stock component of stockholders’ equity. As of December 31, 2003, the Company had 3,905,600 shares of common stock held in treasury.

Earnings per Share. Basic and diluted earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. During 2003 and through June 30, 2004, the Company used the two-class method for computing basic and diluted earnings per share to consider the effect of the mandatory stock redemption under the Stockholders Agreement between the Company and two principal stockholders. The Stockholders Agreement was terminated on June 30, 2004.

The computation of diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the period. The effect of stock options represents the only difference between the weighted average shares used for the basic earnings per share computation compared to the diluted earnings per share computation for each period presented.

All options that were outstanding for the three and nine months ended September 30, 2003 and 2004 were included in the computation of diluted earnings per share because the exercise prices were equal to or lower than the average market prices of the common shares.

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The following table presents the computations of basic and diluted earnings per share for each of the periods indicated (in thousands, except per share data).

Effective June 30, 2004, the Company terminated the Agreement with the two principal stockholders as discussed above. As a result, the $17 million liability for mandatory stock redemption was reclassified to stockholders’ equity pursuant to SFAS 150 and the computations of earnings per share in the third quarter 2004 and all future periods will not require ongoing adjustments associated with the shares subject to mandatory redemption.

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Stock Option Plans. As permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock Based Compensation (and as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure), the Company accounts for stock options issued to employees under the recognition and measurement principles (intrinsic-value method) of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and its related Interpretations. The Company’s reported net income for the three and nine months ended September 30, 2003 and 2004 does not include any stock-based employee compensation expense because all stock options granted under these plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant.

In 2002 and in years prior to 2001, the Company granted stock options to non-employees. In accordance with the provisions of SFAS 123, the Company has recorded compensation expense of approximately $25,000 and $75,000 for each of the three and nine months ended September 30, 2003 and 2004, respectively, related to these non-employee option grants in the consolidated financial statements.

If the Company had applied the provisions set forth in SFAS 123 for stock options to employees, compensation expense would have been higher than is reported in the consolidated financial statements by approximately $95,000 and $201,000 for the three months ended September 30, 2003 and 2004, respectively, and by approximately $284,000 and $261,000 for the nine months ended September 30, 2003 and 2004, respectively. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to employee stock options (in thousands, except per share data):

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Note 3 – Indebtedness

The Company received net proceeds of approximately $63.7 million after underwriting discounts and offering expenses from the Public Offering. The Company used approximately $26.1 million of the proceeds to repay all of its outstanding indebtedness. The remaining $37.6 million of proceeds are being used by the Company to finance the opening of new, or de novo, stores and opportunistic acquisitions and to fund working capital requirements. In connection with the repayment of indebtedness in July 2004, the Company terminated the revolving credit facility.

Prior to the Public Offering, the Company had a revolving credit facility with an available amount of $10.0 million. Interest was payable monthly at prime plus 1%. The facility was collateralized by substantially all Company assets and guaranteed by the Company’s principal stockholder. The credit facility contained several financial covenants that required, among other things, that the Company maintain a minimum net worth, leverage ratio, current ratio, coverage ratio, and debt-to-revenue ratio as specified in the agreement. As of December 31, 2003 and March 31, 2004, the Company was not in compliance with certain covenants with respect to the minimum net worth requirement after consideration of the impact of shares subject to redemption as discussed in Note 2. With the termination of the Stockholders Agreement, the liability associated with shares subject to redemption as of June 30, 2004 was eliminated and stockholders’ equity increased by $17 million. Accordingly, the Company was in compliance with respect to all of its covenants as of June 30, 2004 and up to the date the credit facility was terminated in July 2004.

Note 4 – Certain Concentrations of Risk

The Company is subject to regulation by federal and state governments that affect the products and services provided by the Company, particularly payday loans. As of September 30, 2004, the Company offered payday loans in 21 states throughout the United States. The level and type of regulation of payday loans varies greatly from state to state, ranging from states with no specific regulations or legislation to other states with very strict guidelines and requirements.

Company stores located in the states of Missouri, California, Illinois, Arizona and New Mexico represented approximately 25%, 16%, 9%, 9% and 8%, respectively, of total revenues for the nine months ended September 30, 2004. To the extent that laws and regulations are passed that affect the Company’s ability to offer payday loans or the manner by which the Company offers its payday loans in any one of those states, the Company’s financial position, results of operations and cash flows could be affected.

Note 5 – Related Party Transactions

At December 31, 2003, the Company reported the following related party information:

As of June 30, 2004, all of the receivables and obligations were settled in full.

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In February 2004, the Company purchased property in California for approximately $1.3 million, which was funded with $0.3 million in cash and $1.0 million in borrowings through a note payable with interest at prime plus 1% and due March 2019. The Company expects to dispose of the property to two principal stockholders during fourth quarter 2004 based on appraised value. See Note 3 regarding the repayment of all indebtedness in July 2004.

Note 6 – Subsequent Events

On November 1, 2004, in an effort to gain market share, the Company completed the acquisition of 20 payday loan stores in Oklahoma from Check First, Inc. for approximately $1.4 million in cash. The Company expects to complete its evaluation of the assets, intangibles and goodwill during fourth quarter 2004. The acquisition is not expected to have a material effect on the Company’s results of operations or financial position during 2004.

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

OVERVIEW

The discussion below includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding, among other things, our plans, strategies and prospects, both business and financial. All statements other than statements of current or historical fact contained in this discussion are forward-looking statements. The words “believe,” “expect,” “anticipate,” “should,” “would,” “could,” “plan,” “will,” “may,” “intend,” “estimate,” “potential,” “continue” or similar expressions or the negative of these terms are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations and business strategy. They can be affected by inaccurate assumptions, including risks, uncertainties and assumptions that include (1) changes in laws governing consumer protection or payday lending practices, (2) changes in our key management personnel, (3) litigation or regulatory action directed towards us or the payday loan industry, (4) our role as an agent in North Carolina for a Delaware-based bank for payday loans and changes in federal or state laws affecting that relationship, (5) federal or state litigation challenging our bank relationship in North Carolina or in other states in which we may use that or a similar arrangement, (6) negative media reports and public perception of the payday loan industry, (7) volatility in our earnings, primarily as a result of fluctuations in loan loss experience, (8) turnover in our store managers and store-level employees, (9) integration risks and costs associated with acquisitions, and (10) the other risks detailed under the caption “Risk Factors” in our Registration Statement on Form S-1, as amended, Registration No. 333-115297, filed on July 9, 2004 with the Securities and Exchange Commission. In light of these risks, uncertainties and assumptions, the forward-looking statements in this discussion may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this discussion.

Our forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The discussion herein is intended to clarify and focus on our results of operations, certain changes in financial position, liquidity, capital structure and business developments for the periods covered by the consolidated financial statements included under Item 1 of this Form 10-Q. This discussion should be read in conjunction with these consolidated financial statements and the related notes thereto and is qualified by reference thereto.

We are the parent company of QC Financial Services, Inc. and its wholly owned subsidiaries. We derive our revenues primarily by providing short-term consumer loans, known as payday loans. We also earn fees for various other financial services, such as check cashing services, title loans, money orders and money transfers. At September 30, 2004, we operated 322 stores in 21 states. In all but one of these states, North Carolina, we fund our payday loans directly to the customer and receive a fee. Fees charged to customers vary from state to state, and in most cases, are limited by state law. In North Carolina, we have an arrangement with County Bank of Delaware to which we provide various services in connection with the bank’s origination of payday loans in our stores and from which we purchase a pro rata participation interest in those loans. For our check cashing services, we charge our customers a fee that is usually equal to a percentage of the amount of the check being cashed and is deducted from the cash provided to the customer.

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Our expenses primarily relate to the operations of our store network, the most significant of which include salaries and benefits for our store employees, provisions for losses and occupancy expenses for our leased real estate. Regional and corporate expenses, including compensation to employees and occupancy expenses, are our other primary costs.

We evaluate our stores based on store gross profit and revenue growth, with consideration given to the length of time the store has been open. We consider comparable store growth a strong indicator of operating efficiency. We define comparable stores as those stores that are open during the full periods for which a comparison is being made. For example, comparable stores for the nine months ended September 30, 2004 have been open at least 21 months. We monitor newer stores for their progress to profitability and rate of loan growth. With respect to our cost structure, salaries and benefits are historically our largest costs and are driven primarily by the addition of stores throughout the year. Our provision for losses is also a significant expense. If a customer’s check is returned by the bank as uncollected, we generally record an immediate charge-off to the provision for losses for the amount of the customer’s loan. Any recoveries on amounts previously charged off are recorded as a reduction to the provision for losses in the period recovered. We have experienced seasonality in our operations, with the first and fourth quarters typically being our strongest periods as a result of broader economic factors, such as holiday spending habits at the end of each year and income tax refunds during the first quarter.

Our industry is highly fragmented. According to the Community Financial Services Association of America (CFSA) and the investment banking firm, Stephens Inc., the industry has grown to approximately 22,000 payday loan stores in 2003, generating over $40 billion in annual loan volume. With this fragmentation and industry growth, we believe there are opportunities to expand through acquisitions and new store openings. We are actively identifying possible store locations in numerous states in which we currently operate and evaluating the regulatory environment and market potential in the various states in which we currently do not have stores. As we consider acquisitions and open new stores, there are various execution risks associated with any such transactions. Since December 31, 1998, however, we have opened 167 new stores, acquired 137 stores and closed 30 stores.

The growth of the payday loan industry has followed, and continues to be significantly affected by, increasing acceptance of payday lending by state legislatures. However, to the extent that states enact legislation that negatively impacts payday lending, whether through preclusion, fee reduction or loan caps, our business could be adversely affected. We are active in monitoring and evaluating regulatory initiatives in all of the states, and are closely involved with the efforts of the CFSA.

RECENT DEVELOPMENTS

Acquisition of 20 Stores in Oklahoma. On November 1, 2004, in an effort to gain market share, we completed the acquisition of 20 payday loan stores in Oklahoma from Check First, Inc. for approximately $1.4 million in cash. We expect to complete our evaluation of the assets, intangibles and goodwill during fourth quarter 2004. The acquisition is not expected to have a material effect on our results of operations or financial position during 2004.

SIGNIFICANT DEVELOPMENTS

Company’s Initial Public Offering. Effective July 21, 2004, we completed the initial public offering of 5,000,000 shares of our common stock at a price of $14.00 per share (the Public Offering). In addition, the underwriters for our Public Offering exercised an option to purchase from selling stockholders an additional 750,000 shares of our common stock to cover over-allotments in the offering. We did not receive any of the proceeds from the shares of common stock sold by the selling stockholders. Our common stock trades on the NASDAQ National Market under the symbol “QCCO.”

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Repayment of Indebtedness. We received net proceeds of approximately $63.7 million after underwriting discounts and offering expenses from our public offering of 5,000,000 shares. We used approximately $26.1 million of the proceeds to repay all of our outstanding indebtedness. We are using the remaining $37.6 million of proceeds to finance growth through the opening of new, or de novo, stores and opportunistic acquisitions, and to fund working capital requirements.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2004 Compared with the Three Months Ended September 30, 2003

The following table sets forth our results of operations for the three months ended September 30, 2004 compared to the three months ended September 30, 2003: