Money Tree, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERS PURSUANT TO SECTION 302 - Money Tree, Inc.	dex311.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERS PURSUANT TO SECTION 302 - Money Tree, Inc.	dex312.htm
EX-32.1 - CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICERS AND PRINCIPAL FINANCIAL OFFICERS - Money Tree, Inc.	dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 25, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 333-122531

THE MONEY TREE INC

(Exact name of registrant as specified in its charter)


Georgia		58-2171386
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

114 South Broad Street

Bainbridge, Georgia 39817

(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code (229) 246-6536

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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the 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 ¨ (Do not check if a smaller reporting company)						Smaller reporting company þ

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

¨ Yes þ No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the last practicable date.


Class		Outstanding at March 25, 2011
Class A, Voting		2,686 Shares
Class B, Non-Voting		26,860 Shares

THE MONEY TREE INC.

FORM 10-Q

March 25, 2011

TABLE OF CONTENTS

Index to Financial Statements


Item No.		Page

	PART I – FINANCIAL INFORMATION

1	Consolidated Financial Statements

	Consolidated Balance Sheets as of March 25, 2011 (Unaudited) and September 25, 2010		3

	Consolidated Statements of Operations for the three and six months ended March 25, 2011 and 2010 (Unaudited)		4

	Consolidated Statements of Cash Flows for the six months ended March 25, 2011 and 2010 (Unaudited)		5

	Notes to Consolidated Financial Statements (Unaudited)		6

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

3	Quantitative and Qualitative Disclosures About Market Risk		36

4	Controls and Procedures		36

	PART II – OTHER INFORMATION

1	Legal Proceedings		38

1A	Risk Factors		38

2	Unregistered Sales of Equity Securities and Use of Proceeds		38

3	Defaults Upon Senior Securities		38

4	(Removed and Reserved)		38

5	Other Information		38

6	Exhibits		38

The Money Tree Inc. and Subsidiaries

Consolidated Balance Sheets


	March 25, 2011			September 25, 2010
	(Unaudited)
Assets

Cash and cash equivalents	$	2,650,362		$	2,115,538
Finance receivables, net		30,831,617			35,448,066
Other receivables		440,538			492,696
Inventory		1,123,413			1,201,953
Property and equipment, net		3,098,387			3,369,242
Other assets		457,425			598,286
Total assets	$	38,601,742		$	43,225,781


Liabilities and Shareholders’ Deficit

Liabilities
Accounts payable and other accrued liabilities	$	1,475,395		$	1,835,034
Accrued interest payable		12,696,257			12,733,503
Senior debt		598,362			164,625
Variable rate subordinated debentures		73,786,741			71,226,698
Demand notes		3,427,666			3,174,913
Total liabilities		91,984,421			89,134,773

Commitments and contingencies (see Note 10)

Shareholders’ deficit
Common stock:
Class A voting, no par value; 500,000 shares authorized, 2,686 shares issued and outstanding		1,677,647			1,677,647
Class B non-voting, no par value; 1,500,000 shares authorized, 26,860 shares issued and outstanding		-			-
Accumulated deficit		(55,060,326	)		(47,586,639	)
Total shareholders’ deficit		(53,382,679	)		(45,908,992	)
Total liabilities and shareholders’ deficit	$	38,601,742		$	43,225,781

See accompanying notes to consolidated financial statements.

The Money Tree Inc. and Subsidiaries

Consolidated Statements of Operations


	Three months ended March 25,						Six months ended March 25,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
Interest and fee income	$	2,216,758		$	3,086,892		$	4,678,027		$	6,391,564
Interest expense		(1,747,083	)		(1,768,630	)		(3,507,102	)		(3,578,601	)
Net interest and fee income before		469,675			1,318,262			1,170,925			2,812,963
Reduction in reserve (provision) for credit losses		(1,231,065	)		450,358			(3,593,287	)		(2,289,973	)
Net revenue (loss) from interest and fees after provision for credit losses		(761,390	)		1,768,620			(2,422,362	)		522,990
Insurance commissions		1,044,072			1,016,272			2,320,342			2,770,136
Commissions from motor club memberships from company owned by related parties		252,572			307,232			628,550			761,558
Delinquency fees		397,814			397,519			677,276			732,105
Other income		46,778			141,199			101,709			263,935
Net revenue before retail sales		979,846			3,630,842			1,305,515			5,050,724

Retail sales		2,089,160			2,689,667			4,376,727			6,117,640
Cost of sales		(1,348,138	)		(1,681,115	)		(2,839,859	)		(3,781,186	)
Gross margin on retail sales		741,022			1,008,552			1,536,868			2,336,454

Net revenues		1,720,868			4,639,394			2,842,383			7,387,178
Operating expenses
Personnel expense		(2,870,922	)		(3,438,671	)		(5,644,842	)		(7,144,611	)
Facilities expense		(898,338	)		(951,063	)		(1,859,011	)		(1,993,150	)
General and adminstrative expenses		(487,748	)		(593,122	)		(1,064,830	)		(1,263,922	)
Other operating expenses		(832,022	)		(870,888	)		(1,672,288	)		(1,961,109	)
Total operating expenses		(5,089,030	)		(5,853,744	)		(10,240,971	)		(12,362,792	)
Net operating loss		(3,368,162	)		(1,214,350	)		(7,398,588	)		(4,975,614	)
Gain (loss) on sale/disposal of property and equipment		(1,263	)		1,031			(75,099	)		14,142
Loss before income tax expense		(3,369,425	)		(1,213,319	)		(7,473,687	)		(4,961,472	)
Income tax expense		-			-			-			-

Net loss	$	(3,369,425	)	$	(1,213,319	)	$	(7,473,687	)	$	(4,961,472	)


Net loss per common share, basic and diluted	$	(114.04	)	$	(41.07	)	$	(252.95	)	$	(167.92	)


Weighted average shares outstanding		29,546			29,546			29,546			29,546

See accompanying notes to consolidated financial statements.

The Money Tree Inc. and Subsidiaries

Consolidated Statements of Cash Flows


Six months ended March 25,	2011			2010
	(Unaudited)
Cash flows from operating activities
Net loss	$	(7,473,687	)	$	(4,961,472	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for credit losses		3,593,287			2,289,973
Depreciation		345,916			388,261
Amortization		-			254
Loss (gain) on sale/disposal of property and equipment		75,099			(14,142	)
Change in assets and liabilities:
Other receivables		52,158			128,332
Inventory		78,540			1,012,567
Other assets		140,861			739,860
Accounts payable and other accrued liabilities		(359,639	)		(168,376	)
Accrued interest payable		(37,246	)		(289,263	)

Net cash used in operating activities		(3,584,711	)		(874,006	)

Cash flows from investing activities
Finance receivables originated		(18,707,398	)		(23,635,415	)
Finance receivables repaid		19,730,560			25,647,789
Purchase of property and equipment		(157,085	)		(103,421	)
Proceeds from sale of property and equipment		6,925			84,200

Net cash provided by investing activities		873,002			1,993,153

Cash flows from financing activities
Net proceeds (repayments) on:
Senior debt		433,737			(201,087	)
Demand notes		252,753			246,482
Proceeds-variable rate subordinated debentures		8,127,497			4,693,866
Repayments-variable rate subordinated debentures		(5,567,454	)		(7,582,967	)
Net cash provided by (used in) financing activities		3,246,533			(2,843,706	)

Net change in cash and cash equivalents		534,824			(1,724,559	)

Cash and cash equivalents, beginning of period		2,115,538			2,921,777
Cash and cash equivalents, end of period	$	2,650,362		$	1,197,218


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for:
Interest	$	3,503,444		$	3,826,960

See accompanying notes to consolidated financial statements.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The consolidated financial statements of The Money Tree Inc., a Georgia corporation, and all of its subsidiaries (collectively, the “Company”) included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the United States (U.S.) Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been omitted. For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, see Note 2 to the Consolidated Financial Statements in the Company’s fiscal year 2010 Annual Report on Form 10-K.

The consolidated financial statements include the accounts of the Company after eliminating all significant intercompany transactions and reflect all normal, recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the results of operations of the Company in conformity with GAAP for the interim periods reported. The results of operations for the three and six months ended March 25, 2011 and 2010 are not necessarily indicative of the results for the full fiscal year.

Certain reclassifications have been made to the prior period financial statements to conform with the method of presentation used in fiscal year 2011.

NOTE 2 – NATURE OF BUSINESS

The business of The Money Tree Inc. and subsidiaries consists of: the operation of finance company offices in 91 locations throughout Georgia, Alabama, Louisiana and Florida; sales of merchandise (principally furniture, appliances, and electronics) at certain finance company locations; and the operation of two used automobile dealerships in Georgia. The Company also earns revenues from commissions on premiums written for certain insurance products, when requested by loan customers, as an agent for a non-affiliated insurance company. Revenues are also generated from commissions on the sales of automobile club memberships from a company owned by related parties and commissions from sales of prepaid telephone service.

The Company’s loan portfolio consists of consumer sales finance contracts receivables, auto sales finance contracts and direct consumer loan receivables. Consumer sales finance contracts receivables consist principally of retail installment sale contracts collateralized primarily by consumer goods sold by our consumer good dealerships, subject to credit approval, in the locations where the Company operates offices. Auto sales finance contracts are motor vehicle installment contracts collateralized by motor vehicles sold by our auto segment dealerships. Direct consumer loan receivables are loans originated directly to customers for general use, which are collateralized by existing automobiles or consumer goods, or are unsecured.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The operations of the Company reflect continued pressure from an uncertain economy and the negative impact of the turmoil in the credit markets. For the fiscal year ended September 25, 2010, the Company incurred net losses of $12,134,947 and a deficiency in net interest margin (net loss from interest and fees after provision for credit losses) of $851,341. For the six months ended March 25, 2011 and 2010 the Company incurred net losses of $7,473,687 and $4,961,472, respectively. The Company had a deficiency in net interest margin of $2,422,362 for the six months ended March 25, 2011 and a surplus of $522,990 for the six months ended March 25, 2010. As of March 25, 2011 and September 25, 2010, the Company had a shareholders’ deficit of $53,382,679 and $45,908,992, respectively. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 2 – NATURE OF BUSINESS (CONTINUED)

The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, originate new loans and ultimately attain successful operations. The Company has closely monitored and managed its liquidity position, understanding that this is of critical importance in the current economic environment; however, the current economic environment makes the cash forecast difficult to predict. Therefore, we have reduced operating expenses, substantially curtailed the amount of funds we have been loaning to our customers and are focusing on collections to increase cash flow and address our current cash flow problem.

The recessionary economy has negatively impacted investor confidence and, on two occasions during the past two years, we temporarily suspended the offering of our debt securities to the public while we restated previously issued consolidated financial statements to correct errors detected in those statements.

Our obligations with respect to the debentures and demand notes are governed by the terms of indenture agreements with U.S. Bank National Association, as trustee. Under the indentures, in addition to other possible events of default, if we fail to make a payment of principal or interest under any debenture or demand note and this failure is not cured within 30 days, we will be deemed in default. Upon such a default, the trustee or holders of 25% in principal of the outstanding debentures or demand notes could declare all principal and accrued interest immediately due and payable. Since our total assets do not cover these debt payment obligations, we would most likely be unable to make all payments under the debentures or demand notes when due, and we might be forced to cease our operations.

The average term of direct consumer loans is less than seven months; therefore, if management anticipates having short-term cash flow problems, we could curtail the amount of funds we loan to our customers and focus on collections to increase cash flow. During the six months ended March 25, 2011, the Company continued to tighten its risk management controls related to new loans, resulting in a decrease in loan originations of $4.9 million from the same period in the prior year. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, originate new loans and to ultimately attain successful operations. Management believes the cash flow from our operations coupled with sales of our variable rate subordinated debentures and subordinated demand notes will be sufficient to cover our liquidity needs and cash flow requirements during fiscal year 2011. However, there can be no assurances that the Company’s actions will be successful. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS

In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The amendments to the FASB Accounting Standards Codification™ (FASB ASC) will enhance the current disclosure requirements to assist users of financial statements in assessing an entity’s credit risk exposure and evaluating the adequacy of an entity’s allowance for credit losses. ASU 2010-20 requires entities to disclose the nature of credit risk inherent in their finance receivables, the procedure for analyzing and assessing credit risk, and the changes in both the receivables and the allowance for credit losses by portfolio segment and class. ASU 2010-20 is effective for interim and annual reporting periods ending on or after December 15, 2010. We adopted this guidance for the quarter ended December 25, 2010 and its adoption did not have a material impact on our consolidated financial statements.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In June 2009, the FASB issued revised guidance to improve the reporting for the transfer of financial assets resulting from (1) practices that have developed since the issuance of previous guidance that are not consistent with the original intent and key requirements of that guidance and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. These revisions to FASB ASC 860, “Transfers and Servicing,” must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. We adopted this guidance on September 26, 2010 and its adoption did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued revised guidance to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. These revisions to FASB ASC 810, “Consolidation,” are effective as of the beginning of an entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. We adopted this guidance on September 26, 2010 and its adoption did not have a material impact on our consolidated financial statements.

In January 2011, the FASB issued revised guidance delaying the implementation of disclosures about troubled debt restructuring included in ASU No. 2010-20 (discussed above). We adopted the provisions of ASU 2010-20 during the quarter ended December 25, 2010. We are currently evaluating what effect, if any, this delay may have on our consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, “Receivables (Topic 310): Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The amendment to the FASB ASC helps creditors determine whether a troubled debt restructuring has occurred by clarifying whether a restructuring constitutes a concession and whether the debtor is experiencing financial difficulties. The amendment also requires disclosures related to troubled debt restructurings that were initially effective for periods ending after December 15, 2010, but deferred to make the effective date concurrent with this amendment. The amendment is effective for the first interim or annual period beginning on or after June 15, 2011. We are currently evaluating what effect, if any, this revised guidance will have on our consolidated financial statements.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 4 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES

Finance receivables consisted of the following:


	March 25, 2011			September 25, 2010
	(Unaudited)

Finance receivables, direct consumer	$	14,042,310		$	14,790,670
Finance receivables, consumer sales finance		9,863,371			12,192,962
Finance receivables, auto sales finance		20,190,294			22,584,170
Total gross finance receivables		44,095,975			49,567,802
Unearned insurance commissions		(1,406,498	)		(1,662,796)
Unearned finance charges		(5,437,982	)		(5,926,738)
Accrued interest receivable		289,367			341,173
Finance receivables, before allowance for credit losses		37,540,862			42,319,441
Allowance for credit losses		(6,709,245	)		(6,871,375)
Finance receivables, net	$	30,831,617		$	35,448,066

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 4 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

An analysis of the allowance for credit losses is as follows:


	As of and for the six months ended March 25, 2011		As of and for the year ended September 25, 2010		As of and for the six months ended March 25, 2010
	(Unaudited)				(Unaudited)

Beginning balance	$	6,871,375	$	8,925,381	$	8,925,381

Provisions for credit losses		3,593,287		5,682,584		2,289,973

Charge-offs
Direct consumer		(2,013,831)		(5,447,963)		(2,889,889	)
Consumer sales finance		(1,722,014)		(2,519,125)		(1,312,366	)
Auto sales finance		(1,215,898)		(1,942,229)		(571,531	)
Write-downs incurred on the transfer of loans to loans held for sale		-		(528,157)		(187,378	)

Recoveries - non-file insurance (direct consumer)		731,656		1,874,343		999,683
Recoveries - other		398,221		854,203		450,468

Other		66,449		(27,662)		13,148

Ending balance	$	6,709,245	$	6,871,375	$	7,717,489

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 4 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

An analysis of the allowance for credit losses and recorded investment for the three segments of financing receivables is as follows:


	As of and for the six months ended March 25, 2011
	(Unaudited)
	Direct Consumer			Consumer Sales Finance			Auto Sales Finance			Total
Allowance for credit losses

Beginning balance	$	2,215,745		$	2,418,333		$	2,237,297		$	6,871,375

Provisions for credit losses		461,814			1,839,145			1,292,328			3,593,287

Charge-offs		(2,013,831	)		(1,722,014	)		(1,215,898	)		(4,951,743	)

Recoveries - non-file insurance		731,656			-			-			731,656

Recoveries - other		398,221			-			-			398,221

Other		60,461			-			5,988			66,449

Ending balance	$	1,854,066		$	2,535,464		$	2,319,715		$	6,709,245


Financing receivables, net

Ending balance:

Collectively evaluated for impairment	$	12,346,007		$	7,753,396		$	17,441,459		$	37,540,862

Due to the nature of the Company’s finance receivable portfolio, which consists of a large number of homogenous loans with similar credit quality characteristics at the time of origination, individual impairment analysis is not performed; rather finance receivables are evaluated collectively as a group within each segment of the portfolio. Different loss rates are not applied to impaired or non-impaired loans since the adjusted benchmark percentage is applied to each segment of the net finance receivable portfolio in total.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 4 – FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

The table below illustrates the net carrying amount of loans by credit quality indicator at March 25, 2011:


	Performing		Non-performing		Total

Direct consumer	$	9,781,775	$	2,564,232	$	12,346,007
Consumer sales finance		5,774,356		1,979,040		7,753,396
Auto sales finance		13,194,395		4,247,064		17,441,459
	$	28,750,526	$	8,790,336	$	37,540,862

The table below provides an aging analysis of past due loans and non-accrual loans by segment at March 25, 2011. Amounts are show at gross loan balance:


	As of March 25, 2011
	31 - 90 days		Over 90 days		Total		Non-accrual		Current		Total loans

Direct consumer	$	2,240,712	$	2,564,232	$	4,804,944	$	2,564,232	$	9,237,366	$	14,042,310
Consumer sales finance		1,684,489		1,979,040		3,663,529		1,979,040		6,199,842		9,863,371
Auto sales finance		908,041		1,695,377		2,603,418		1,695,377		17,586,876		20,190,294
	$	4,833,242	$	6,238,649	$	11,071,891	$	6,238,649	$	33,024,084	$	44,095,975

NOTE 5 – INVENTORY

Inventory consisted of the following:


	March 25, 2011		September 25, 2010
	(Unaudited)

Used automobiles	$	578,384	$	622,296
Home furnishings and electronics		545,029		579,657
Total inventory	$	1,123,413	$	1,201,953

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 6 – ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

Accounts payable and other accrued liabilities consisted of the following:


	March 25, 2011		September 25, 2010
	(Unaudited)
Accounts payable	$	76,975	$	242,878
Insurance payable, loan related		286,236		369,753
Accrued payroll		366,969		367,218
Accrued payroll taxes		37,016		28,007
Sales tax payable		534,712		670,021
Other liabilities		173,487		157,157

Total accounts payable and other accrued liabilities	$	1,475,395	$	1,835,034

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 7 – DEBT

Debt consisted of the following:


	March 25, 2011		September 25, 2010
	(Unaudited)

Senior debt: due to banks and commercial finance companies, collateralized by inventory and finance receivables, and certain notes include personal guarantees of a shareholder, interest at prime plus 2%, due 2011. The carrying values of the collateral at March 25, 2011 and September 25, 2010 were $1,953,192 and $164,625, respectively.	$	598,362	$	164,625

Total senior debt		598,362		164,625

Variable rate subordinated debentures issued by The Money Tree of Georgia Inc.: due to individuals, unsecured, interest at 4.0% to 8.7%, due at various dates through 2014.		19,249,019		22,490,296

Variable rate subordinated debentures issued by The Money Tree Inc.: due to individuals, unsecured, interest at 5.0% to 8.7%, due at various dates through 2014.		54,537,722		48,736,402

Total subordinated debentures		73,786,741		71,226,698

Demand notes issued by The Money Tree of Georgia Inc.: due to individuals, unsecured, interest at 3.0% to 4.0%, due on demand.		230,832		303,746

Demand notes issued by The Money Tree Inc.: due to individuals, unsecured, interest at 3.0% to 4.0%, due on demand.		3,196,834		2,871,167

Total demand notes		3,427,666		3,174,913

Total debt	$	77,812,769	$	74,566,236

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 8 – INCOME TAXES

At the end of each quarter, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year and uses that rate in providing for income taxes on a current year-to-date basis.

NOTE 9 – RELATED PARTY TRANSACTIONS

Martin Family Group, L.L.L.P. owns the real estate of thirteen branch offices, one used car lot, and the Company’s principal executive offices. A shareholder and director of the Company and his two siblings are limited partners of Martin Family Group, L.L.L.P. A former Company shareholder is the president of Martin Investments, Inc., which is the managing general partner of Martin Family Group, L.L.L.P. The Company has entered into lease agreements whereby rent is paid monthly for use of these locations. In addition, Martin Sublease, L.L.C. leases, and then subleases to the Company, another 34 branch office locations, one auto finance collection office and one used car lot for amounts greater than are paid in the underlying leases. This spread is generally to cover property operating cost or improvements made directly by these entities. In the opinion of management, rates paid for these are comparable to those obtained from third parties. A former Company shareholder is the president of Martin Investments, Inc., the company which ultimately controls Martin Sublease, L.L.C. Total rents paid were $795,925 and $1,040,101 for the six months and $387,979 and $636,364 for the three months ended March 25, 2011 and 2010, respectively, and are included in operating expense in the accompanying unaudited consolidated statements of operations.

The Company receives commissions from sales of motor club memberships from an entity owned by the Company’s majority shareholder and President, a shareholder and director of the Company and that shareholder’s two siblings, pursuant to an Agency Sales Agreement. Commissions earned on the sale of these memberships were $628,550 and $761,558 for the six months and $252,572 and $307,232 for the three months ended March 25, 2011 and 2010, respectively.

The Company also engages from time to time in other transactions with related parties. Refer to the “Related Party Transactions” disclosure in the notes to the Company’s Consolidated Financial Statements as of and for the year ended September 25, 2010.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 10 – CONTINGENT LIABILITIES

The Company is a party to litigation arising in the normal course of business. With respect to all such lawsuits, claims, and proceedings, the Company establishes reserves when it is probable a liability has been incurred and the amount can reasonably be estimated. In the opinion of management, the resolution of such matters will not have a material effect on the consolidated financial position, consolidated cash flows or consolidated results of operations of the Company.

NOTE 11 – DISCRETIONARY BONUSES

From time to time, the Company pays discretionary bonuses to its employees. The amount of these bonuses charged to operating expenses was $362,492 and $958,009 for the six months and $183,916 and $396,089 for the three months ended March 25, 2011 and 2010, respectively.

NOTE 12 – SEGMENT FINANCIAL INFORMATION

FASB ASC 280, “Segment Reporting,” requires companies to determine segments based on how management makes decisions about allocating resources to segments and measuring their performance. The Company has two reportable segments: Consumer Finance and Sales and Automotive Finance and Sales.

Consumer finance and sales segment

This segment is comprised of the original core operations of the Company representing the small consumer loan business in the four states in which the Company operates. The 91 offices that make up this segment are similar in size and in the markets they serve. All, with a few exceptions, offer consumer goods for sale acting as an agent for another subsidiary of the Company, Home Furniture Mart Inc., which is aggregated in this segment since its sales are generated through these finance offices. This segment is structured with branch management reporting through a regional management level to an operational manager and ultimately to the chief operating decision maker.

Automotive finance and sales segment

This segment is comprised of two used automobile sales locations and offers financing in conjunction with these sales. These locations target similar customers in the Bainbridge, GA and Dublin, GA markets and surrounding areas who generally cannot qualify for traditional financing. The sales and the financing organizations are aggregated in the segment. A general manager is responsible for sales and finance administration at each of the locations and reports to an operational manager and ultimately to the chief operating decision maker.

Accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K. Performance is measured by various factors such as segment profit, loan volumes and delinquency and loss management. All corporate expenses are allocated to the segments. Provision for income taxes are not allocated to segments.

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)


*Six months ended* *March 25, 2011*	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands					(Unaudited	)

Net revenues (loss) before retail sales	$	2,569		$	(1,264	)	$	1,305


Gross margin on retail sales		784			753			1,537

Segment operating expenses		(8,826	)		(1,415	)		(10,241	)
Segment operating loss	$	(5,473	)	$	(1,926	)	$	(7,399	)


March 25, 2011
In Thousands
Assets
Total segment assets	$	19,954		$	16,237		$	36,191

Cash and cash equivalents at corporate level								732
Other receivables at corporate level								441
Property and equipment, net at corporate level								781
Other assets at corporate level								457

Consolidated Assets							$	38,602

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)


*Six months ended* *March 25, 2010*	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands					(Unaudited	)

Net revenues (loss) before retail sales	$	5,351		$	(300	)	$	5,051


Gross margin on retail sales		1,478			858			2,336

Operating expenses		(10,750	)		(1,613	)		(12,363	)
Segment operating loss	$	(3,921	)	$	(1,055	)	$	(4,976	)


March 25, 2010
In Thousands
Assets:
Total assets for reportable segments	$	26,152		$	22,726		$	48,878

Cash and cash equivalents at corporate level								(464	)
Other receivables at corporate level								588
Property and equipment, net at corporate level								898
Other assets at corporate level								1,091

Consolidated Assets							$	50,991

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)


*Three months ended* *March 25, 2011*	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands					(Unaudited	)

Net revenues (loss) before retail sales	$	1,516		$	(536	)	$	980


Gross margin on retail sales		276			465			741

Segment operating expenses		(4,335	)		(754	)		(5,089	)
Segment operating loss	$	(2,543	)	$	(825	)	$	(3,368	)



March 25, 2011
In Thousands
Assets
Total segment assets	$	19,954		$	16,237		$	36,191

Cash and cash equivalents at corporate level								732
Other receivables at corporate level								441
Property and equipment, net at corporate level								781
Other assets at corporate level								457

Consolidated Assets							$	38,602

The Money Tree Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 – SEGMENT FINANCIAL INFORMATION (CONTINUED)


*Three months ended* *March 25, 2010*	Consumer Finance & Sales Division			Automotive Finance & Sales Division			Total Segments
In Thousands					(Unaudited	)

Net revenues (loss) before retail sales	$	3,859		$	(228	)	$	3,631


Gross margin on retail sales		462			547			1,009

Segment operating expenses		(5,115	)		(739	)		(5,854	)
Segment operating loss	$	(794	)	$	(420	)	$	(1,214	)


March 25, 2010
In Thousands

Assets
Total segment assets	$	26,152		$	22,726		$	48,878

Cash and cash equivalents at corporate level								(464	)
Other receivables at corporate level								588
Property and equipment, net at corporate level								898
Other assets at corporate level								1,091

Consolidated Assets							$	50,991

NOTE 13 – SUBSEQUENT EVENTS

Between March 26, 2011 and April 25, 2011, the Company sold $1.1 million of debentures and $0.3 million of demand notes. For the same period the Company redeemed $0.9 million of debentures and $0.2 million of demand notes. These include amounts that were redeemed through our subsidiary, The Money Tree of Georgia Inc.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The discussion set forth below, as well as other portions of this quarterly report, contains forward-looking statements within the meaning of federal securities law. Words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue,” “predict,” or other similar words, identify forward-looking statements. Forward-looking statements include statements regarding our management’s intent, belief or current expectation about, among other things, trends affecting the markets in which we operate, our business, our financial condition and our growth strategies. Although we believe that the expectation reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those predicted in the forward-looking statements as a result of various factors, including, but not limited to, those risk factors set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 23, 2010. Other factors not identified herein could also have such an effect. If any of these risk factors occur, they could have an adverse effect on our business, consolidated financial condition and consolidated results of operations and consolidated cash flows. When considering forward-looking statements, you should keep these risks in mind. These forward-looking statements are made as of the date of this filing. You should not place undo reliance on any forward-looking statement. We are not obligated to update forward-looking statements and will not update any forward-looking statements in this quarterly report to reflect future events or developments.

The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other consolidated financial data included elsewhere in this report. See also the notes to our consolidated financial statements, Selected Consolidated Financial Data and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K as of and for the fiscal year ended September 25, 2010.

Overview

We extend consumer finance loans and provide other financial products and services through our branch offices in Georgia, Alabama, Louisiana and Florida. We sell retail merchandise, principally furniture, appliances and electronics, at certain of our branch office locations and operate two used automobile dealerships in the State of Georgia. We also offer insurance products, prepaid phone services and automobile club memberships to our loan customers.

We fund our consumer loan demand through a combination of cash collections from our consumer loans, proceeds raised from the issuance of debentures and demand notes and loans from various banks and other financial institutions. Our consumer loan business consists of extending, purchasing and servicing direct consumer loans, consumer sales finance contracts and motor vehicle installment sales contracts. Direct consumer loans generally serve individuals with limited access to other sources of consumer credit, such as banks, savings and loans, other consumer finance businesses and credit cards. Direct consumer loans are general loans made typically to people who need money for some unusual or unforeseen expense, for the purpose of paying off an accumulation of small debts or for the purchase of furniture and appliances. The following table sets forth certain information about the components of our finance receivables for the periods presented:

Description of Loans and Contracts


	As of, or for, the Three Months Ended March 25,						As of, or for, the Six Months Ended March 25,
	2011			2010			2011			2010
*Direct Consumer Loans:*
Number of Loans Made to New Borrowers		4,385			4,978			11,681			12,883
Number of Loans Made to Former Borrowers		9,998			14,026			22,433			29,544
Number of Loans Made to Existing Borrowers		8,378			11,653			17,989			24,522
Total Number of Loans Made		22,761			30,657			52,103			66,949
Total Volume of Loans Made	$	7,953,392		$	8,595,145		$	16,837,485		$	20,719,869
Average Size of Loans Made	$	349		$	280		$	323		$	309
Number of Loans Outstanding		32,638			43,805			32,638			43,805
Total of Loans Outstanding	$	14,042,310		$	17,940,537		$	14,042,310		$	17,940,537
Percent of Loans Outstanding		31.84	%		29.66	%		31.84	%		29.66	%
Average Balance on Outstanding Loans	$	430		$	410		$	430		$	410

*Auto Sales Finance Contracts:*

Total Number of Contracts Made		126			151			212			251
Total Volume of Contracts Made	$	2,089,655		$	2,478,175		$	3,532,601		$	4,214,366
Average Size of Contracts Made	$	16,585		$	16,412		$	16,663		$	16,790
Number of Contracts Outstanding		2,131			2,635			2,131			2,635
Total of Contracts Outstanding	$	20,190,294		$	27,544,879		$	20,190,294		$	27,544,879
Percent of Total Loans and Contracts		45.79	%		45.54	%		45.79	%		45.54	%
Average Balance on Outstanding Contracts	$	9,475		$	10,453		$	9,475		$	10,453

*Consumer Sales Finance Contracts:*

Number of Contracts Made to New Customers		261			319			767			1008
Number of Loans Made to Former Customers		1			8			5			23
Number of Loans Made to Existing Customers		474			555			1,343			1,676
Total Contracts Made		736			882			2,115			2,707
Total Volume of Contracts Made	$	2,021,727		$	2,539,948		$	5,822,559		$	8,448,055
Number of Contracts Outstanding		4,850			6,726			4,850			6,726
Total of Contracts Outstanding	$	9,863,371		$	15,003,653		$	9,863,371		$	15,003,653
Percent of Total Loans and Contracts		22.37	%		24.80	%		22.37	%		24.80	%
Average Balance of Outstanding Contracts	$	2,034		$	2,231		$	2,034		$	2,231

Below is a table showing our total gross outstanding finance receivables:


	As of March 25,
	2011		2010
*Total Finance Receivables Outstanding (gross):*

Direct Consumer Loans	$	14,042,310	$	17,940,537
Consumer Sales Finance		9,863,371		15,003,653
Auto Sales Finance		20,190,294		27,544,879


Total Gross Outstanding	$	44,095,975	$	60,489,069

Below is a roll-forward of the balance of each category of our outstanding finance receivables. Loans originated reflect the gross amount of loans extended or purchased during the period presented inclusive of pre-computed interest, fees and insurance premiums. Collections represent cash receipts in the form of repayments made on our loans as reflected in our Consolidated Statements of Cash Flows. Refinancings represent the amount of the pay off of loans refinanced. Charge-offs represent the gross amount of loans charged off as uncollectible. Rebates/other adjustments primarily represent reductions to gross loan amounts of precomputed interest and insurance premiums resulting from loans refinanced and other loans paid off before maturity.


	For the Three Months Ended March 25,						For the Six Months Ended March 25,
	2011			2010			2011			2010
*Direct Consumer Loans:*
Balance - beginning	$	15,080,718		$	21,145,450		$	14,790,670		$	20,098,661
Finance receivables originated		7,953,392			8,595,145			16,837,485			20,719,869
Collections		(6,124,129	)		(8,407,076	)		(11,807,047	)		(16,408,776	)
Refinancings		(1,861,497	)		(2,111,506	)		(3,713,534	)		(4,867,836	)
Charge offs, gross		(983,211	)		(1,297,429	)		(2,013,831	)		(2,889,889	)
Rebates / other adjustments		(22,963	)		15,953			(51,433	)		1,288,508

Balance - ending	$	14,042,310		$	17,940,537		$	14,042,310		$	17,940,537

*Consumer Sales Finance Contracts:*
Balance - beginning	$	11,792,000		$	16,024,957		$	12,192,962		$	16,663,172
Finance receivables originated		2,021,727			2,539,948			5,822,559			8,448,055
Collections		(2,059,954	)		(1,944,349	)		(3,466,952	)		(3,865,788	)
Refinancings		(820,012	)		(860,241	)		(2,289,252	)		(2,817,673	)
Charge offs, gross		(768,972	)		(575,016	)		(1,722,014	)		(1,312,366	)
Rebates / other adjustments		(301,418	)		(181,646	)		(673,932	)		(2,111,747	)

Balance - ending	$	9,863,371		$	15,003,653		$	9,863,371		$	15,003,653

*Auto Sales Finance Contracts:*
Balance - beginning	$	21,034,417		$	28,359,756		$	22,584,170		$	30,151,923
Finance receivables originated		2,089,655			2,478,175			3,532,601			4,214,366
Collections		(2,257,237	)		(2,682,331	)		(4,456,561	)		(5,373,225	)
Charge offs, gross		(488,789	)		(361,677	)		(1,215,898	)		(758,909	)
Rebates / other adjustments		(187,752	)		(249,044	)		(254,018	)		(689,276	)

Balance - ending	$	20,190,294		$	27,544,879		$	20,190,294		$	27,544,879

*Total:*
Balance - beginning	$	47,907,135		$	65,530,163		$	49,567,802		$	66,913,756
Loans originated		12,064,774			13,613,268			26,192,645			33,382,290
Collections		(10,441,320	)		(13,033,756	)		(19,730,560	)		(25,647,789	)
Refinancings		(2,681,509	)		(2,971,747	)		(6,002,786	)		(7,685,509	)
Charge offs, gross		(2,240,972	)		(2,234,122	)		(4,951,743	)		(4,961,164	)
Rebates / other adjustments		(512,133	)		(414,737	)		(979,383	)		(1,512,515	)

Balance - ending	$	44,095,975		$	60,489,069		$	44,095,975		$	60,489,069

Below is a reconciliation of the amounts of the finance receivables originated and repaid (collections) from the receivable roll-forward to the amounts shown in our Consolidated Statements of Cash Flows.


	Six Months Ended March 25,
	2011			2010
*Finance Receivables Originated:*
Direct consumer	$	16,837,485		$	20,719,869
Consumer sales finance		5,822,559			8,448,055
Auto sales finance		3,532,601			4,214,366

Total gross finance receivables originated		26,192,645			33,382,290
Non-cash items included in gross finance receivables*		(7,485,247	)		(9,746,875	)

Finance receivables originated per statement of cash flows	$	18,707,398		$	23,635,415


*Finance Receivables Repaid:*
Collections
Direct consumer	$	11,807,047		$	16,408,776
Consumer sales finance		3,466,952			3,865,788
Auto sales finance		4,456,561			5,373,225

Finance receivables repaid per statement of cash flows	$	19,730,560		$	25,647,789

Includes precomputed interest and fees (since these amounts are included in the gross amount of finance receivables originated but are not advanced in the form of cash to customers) and refinanced receivables balances (since there is no cash generated from the repayment of original finance receivables refinanced).

Segments and Seasonality

We segment our business operations into the following two segments:

•

consumer finance and sales; and

•

automotive finance and sales.

The consumer finance and sales segment is comprised primarily of small consumer loans and sales of consumer goods such as furniture, appliances and electronics. We typically experience our strongest financial performance for the consumer finance and sales segment during the holiday season, which is our first fiscal quarter ending December 25.

The automotive finance and sales segment is comprised exclusively of used vehicle sales and their related financing. We typically experience our strongest financial performance for the automotive finance and sales segment during our second fiscal quarter ending March 25 when used car sales are the highest. Please refer to Note 12 in the “Notes to Consolidated Financial Statements” for a breakdown of our operations by segment.

Net Interest Margin

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

Unlike our interest income, our interest expense is sensitive to general market interest rate fluctuations. These general market fluctuations directly impact our cost of funds. Our generally limited ability to increase the interest rates earned on new and existing finance receivables restricts our ability to react to increases in our cost of funds. Accordingly, increases in market interest rates generally will narrow our interest rate spread and lower our profitability, while decreases in market interest rates generally will widen our interest rate spread and increase our profitability. Significant increases in market interest rates will likely result in a reduction in our liquidity and profitability and impair our ability to pay interest and principal on the debentures.

The decrease in the net interest margin (before provision for credit losses) for the six months ended March 25, 2011 was primarily a result of two factors. First, our outstanding finance receivables have decreased significantly due to our liquidity issues which have caused us to tighten our lending guidelines. We significantly decreased our originations of loans in all three segments of our portfolio as compared to the same period last year resulting in lower interest and fee income. Next, interest expense on our outstanding debt has remained near constant over the two six-month periods ended March 25, 2011 and 2010.

The following table presents important data relating to our net interest margin:


	As of, or for, the Three Months Ended March 25,						As of, or for, the Six Months Ended March 25,
	2011			2010			2011			2010
Average net finance receivables ⁽¹⁾	$	38,456,879		$	52,916,633		$	40,063,271		$	54,491,490
Average notes payable ⁽²⁾	$	77,279,217		$	75,443,785		$	76,533,261		$	76,138,724

Interest income	$	1,659,791		$	2,320,807		$	3,375,916		$	4,640,240
Loan fee income, excluding delinquency fees		556,967			766,085			1,302,111			1,751,324


Total interest and fee income		2,216,758			3,086,892			4,678,027			6,391,564

Interest expense		1,747,083			1,768,630			3,507,102			3,578,601


Net interest and fee income before provision for credit losses	$	469,675		$	1,318,262		$	1,170,925		$	2,812,963


Average interest rate earned (annualized)		23.1	%		23.3	%		23.4	%		23.5	%
Average interest rate paid (annualized)		9.0	%		9.4	%		9.2	%		9.4	%

Net interest rate spread (annualized)		14.0	%		14.0	%		14.2	%		14.1	%
Net interest margin (annualized) ⁽³⁾		4.9	%		10.0	%		5.8	%		10.3	%

⁽¹⁾Averages are computed using month-end balances of finance receivables (net of unearned interest/fees, unearned insurance commissions, and unearned discounts) during the period presented.

⁽²⁾Averages are computed using month-end balances of interest bearing debt during the period presented.

⁽³⁾Net interest margin represents net interest income (before provision for credit losses) divided by the average net finance receivables.

Analysis of Allowance for Credit Losses

At the end of each reporting period, management is required to take a “snapshot” of the risk of probable losses inherent in the finance receivables portfolio and to reflect that risk in our allowance calculations. We use a systematic approach to calculate the allowance for credit losses whereby we apply historical charge-off benchmarks to groups of loans and then adjust (either

positively or negatively), as and if applicable, for relevant factors. This method prevents the calculation from becoming simply a mathematical exercise, but instead addresses matters affecting loan collectibility. Historically, the relevant items impacting our allowance have included, but are not limited to, a variety of factors, such as historic loan loss experience, borrowers’ ability to repay, collateral considerations and non-file insurance recoveries, levels of and trends in delinquencies, effects of any changes in risk selection and lending policies and practices, and general economic conditions impacting our portfolio.

The following table shows these ratios of charge-offs to average notes receivable for the categories of our finance receivables. The average net finance receivables are computed using monthly balances, net of unearned interest, unearned insurance commissions and unearned discounts. Charge-offs are shown at gross amounts as presented in the receivable roll-forward on page 24. Recoveries represent receipts from non-file insurance claims and cash and bankruptcy recoveries. The benchmark charge-off ratio is calculated using a rolling average of data from the previous 12 months as shown below.


	As of, or for the 12 Months Ended March 25,
	2011			2010
*Direct Consumer Loans*

Ending net finance receivables	$	12,346,007		$	16,024,850
Average net finance receivables(1)	$	13,462,638		$	19,484,922

Charge-offs, gross(3)	$	4,691,679		$	6,905,833
Recoveries (2)		(2,485,408	)		(2,323,105	)

Charge-offs, net of recoveries	$	2,206,271		$	4,582,728

% of net charge offs to average net receivables
12 month trend		16.4	%		23.5	%
Actual allowance %		15.0	%		23.5	%
Actual allowance	$	1,854,066		$	3,765,840

*Consumer Sales Finance Contracts:*

Ending net finance receivables	$	7,753,396		$	11,505,478
Average net finance receivables(1)	$	9,601,777		$	11,952,975

Charge-offs, gross	$	2,928,773		$	2,418,431

% of net charge offs to average net receivables
12 month trend		30.5	%		20.2	%
Actual allowance %		32.7	%		20.2	%
Actual allowance	$	2,535,464		$	2,324,107

*Auto Sales Finance Contracts:*

Ending net finance receivables	$	17,441,459		$	23,240,908
Average outstanding finance receivables(1)	$	19,661,982		$	24,322,984

Charge-offs, gross(3)	$	2,620,223		$	1,895,436

% of net charge offs to average net receivables
12 month trend		13.3	%		7.8	%
Actual allowance %		13.3	%		7.0	%
Actual allowance	$	2,319,715		$	1,627,543


	As of, or for the 12 Months Ended March 25,
	2011			2010
*Total Receivables:*

Ending net finance receivables	$	37,540,862		$	50,771,236
Average outstanding finance receivables(1)	$	42,726,398		$	55,760,881

Charge-offs, gross(3)	$	10,240,675		$	11,219,700
Recoveries (2)		(2,485,408	)		(2,323,105	)

Charge-offs, net of recoveries	$	7,755,267		$	8,896,595

% of net charge offs to average net receivables
12 month trend		18.2	%		16.0	%
Actual allowance %		17.9	%		15.2	%
Actual allowance	$	6,709,245		$	7,717,489

(1)

Average net outstanding finance receivables are computed using the monthly balances net of unearned interest/fees, unearned insurance commissions and unearned discounts.

(2)

Recoveries represent receipts from non-file insurance claims, cash recoveries and bankruptcy recoveries.

(3)

Includes write downs incurred on the transfer of loans to loans held for sale.

From December 25, 2010 to March 25, 2011, we noted improvement in the amount and percentage of delinquency to outstanding loans in the direct consumer segment of our loan portfolio. The amount of net charge-offs over the past 12 months had also decreased. However, in the consumer sales finance segment, while the amount of delinquency decreased, the percentage of delinquency to outstanding loans increased, as did the charge-offs for the past 12 months. In the auto segment, while delinquencies of active loans worsened, total amounts of loans in the legal or repossession process decreased as we continue to work with our customers in lieu of the repossession/legal process. We also performed additional analysis on the auto portfolio by applying loss rates to the various aging categories in both the active and legal account groups. This analysis provided substantiation of the benchmark percentage in the auto segment. After consideration of the benchmark percentages, delinquency, additional analysis discussed above, and other relevant factors, we adjusted the allowance percentage from the 12 month trend in each segment as follows: for net outstanding direct consumer loans, a decrease of 140 basis points to 15.0%; for net outstanding consumer sales finance contracts, an increase of 220 basis points to 32.7%; and for net outstanding auto sales finance contracts, no change at 13.3%, in each case as a percentage of the ending balance at March 25, 2011. The allowance for credit losses was $6.7 million (17.9% of the net outstanding finance receivables) at March 25, 2011 and $7.7 million (15.2%) at March 25, 2010.

Delinquency Information

Our delinquency levels reflect, among other factors, changes in the mix of loans in the portfolio, the quality of receivables, the success of collection efforts, bankruptcy trends and general economic conditions. The delinquency information in the following tables is computed on the basis of the amount past due in accordance with the original payment terms of the loan (contractual method). We use the contractual method for all external reporting purposes. Management closely monitors delinquency using this method to measure the quality of our loan portfolio and the probability of credit loss. We also use other tools, such as a recency report, which shows the date of the last full contractual payment received on the loan, to determine a particular customer’s willingness to pay. For example, if a delinquent customer has made a recent payment, we may decide to delay more serious collection measures, such as repossession

of collateral. However, such a payment will not change the non-accrual status of the account until all of the principal and interest amounts contractually due are brought current (we receive one or more full contractual payments and the account is less than 60 days contractually delinquent), at which time we believe future payments are reasonably expected. Below is certain information relating to the delinquency status of each category of our receivables as of March 25, 2011 and 2010:


	As of March 25, 2011
	Direct Consumer Sales			Consumer Sales Finance Contracts			Auto Sales Finance Contracts*			Total
Gross Loans and Contracts Receivable	$	14,042,310		$	9,863,371		$	20,190,294		$	44,095,975
Loans and Contracts greater than 180 days past due	$	1,487,345		$	1,190,460		$	998,552		$	3,676,357
Percentage of Outstanding		10.6	%		12.1	%		4.9	%		8.3	%
Loans and Contracts greater than 90 days past due	$	2,564,232		$	1,979,040		$	1,695,377		$	6,238,649
Percentage of Outstanding		18.3	%		20.1	%		8.4	%		14.1	%
Loans and Contracts greater than 60 days past due	$	3,021,430		$	2,360,822		$	2,050,844		$	7,433,096
Percentage of Outstanding		21.5	%		23.9	%		10.2	%		16.9	%

	As of March 25, 2010
	Direct Consumer Sales			Consumer Sales Finance Contracts			Auto Sales Finance Contracts*			Total
Gross Loans and Contracts Receivable	$	17,940,537		$	15,003,653		$	27,544,879		$	60,489,069
Loans and Contracts greater than 180 days past due	$	2,369,243		$	1,386,748		$	0		$	3,755,991
Percentage of Outstanding		13.2	%		9.2	%		0.0	%		6.2	%
Loans and Contracts greater than 90 days past due	$	3,692,569		$	1,912,077		$	845,019		$	6,449,665
Percentage of Outstanding		20.6	%		12.7	%		3.1	%		10.7	%
Loans and Contracts greater than 60 days past due	$	4,123,191		$	2,203,459		$	1,118,278		$	7,444,928
Percentage of Outstanding		23.0	%		14.7	%		4.1	%		12.3	%

* Auto Sales Finance Contracts aging categories exclude accounts in legal or repossession process in the amounts of $2,551,687 at March 25, 2011 and $5,226,484 at March 25, 2010.

Results of Operations

Comparison of Six Months Ended March 25, 2011 and 2010

Net Revenues

Net revenues were $2.8 million and $7.4 million for the six months ended March 25, 2011 and 2010, respectively. We have experienced significant liquidity issues over the past two years due to significant loan and operating losses and the lack of net sales in our debt offerings. Because of this and the current economic environment, to preserve cash, we implemented tighter risk management controls in fiscal year 2009, which continued through March 25, 2011, resulting in fewer loans being extended. Gross loan originations decreased $7.2 million (22%) in the first six months of this fiscal year compared to the same period last year, and we experienced decreases in interest and fee income and other ancillary product income from the prior year as a result. Provision for credit losses was also $1.3 million higher during this period compared to last year (discussed below). Retail sales and the associated gross margin on these sales were also down from prior year levels.

Net Interest and Fee Income Before Provision for Credit Losses

Net interest and fee income before provision for credit losses was $1.2 million and $2.8 million for the six months ended March 25, 2011 and 2010, respectively. Gross interest and fee income decreased $1.7 million to $4.7 million from $6.4 million. This was a result of an approximate 22% overall decrease in finance receivables originated, as mentioned above. We are exploring options to raise capital that will allow us to increase originations of direct consumer loans in order to increase interest and fee income. However, we expect interest and fee income to continue to be lower than comparable periods last year until we can sell sufficient amounts of our debt offerings or secure other capital resources. Interest expense was $3.5 million and $3.6 million for the six-month periods ended March 25, 2011 and 2010, respectively.

Provision for Credit Losses

Provision for credit losses was $3.6 million and $2.3 million for the six months ended March 25, 2011 and 2010, respectively. Net finance receivables charged off increased approximately $0.3 million compared to the previous 12 month period. Our consumer sales finance and automotive segments are experiencing higher charge-offs than historical levels as these customers continue to be impacted by the struggling economy in the markets in which we operate. Our analysis of the allowance for credit losses at March 25, 2011 supported additional provisions based on adjustments to the benchmark percentages compared to December 25, 2010 and other relevant factors. Also, during the six months ended March 25, 2010, net charge-offs decreased, which resulted in lower benchmark percentages used in determining the allowance for credit losses and corresponding provision for credit losses than at March 25, 2011. The allowance was $6.7 million or 17.9% of net outstanding finance receivables at March 25, 2011 compared to $7.7 million or 15.2% at March 25, 2010. We expect our net charge-offs and provisions for credit losses to stabilize through the remainder of fiscal year 2011.

Insurance and Other Products

Income from commissions on insurance products and motor club memberships decreased $0.6 million, to $2.9 million from $3.5 million for the six months ended March 25, 2011 and 2010, respectively. As mentioned above, the significant decrease in volume of finance receivables originated during this six-month period compared to last year resulted in lower commissions earned on the sale of these products. Other income, including delinquency fees. was down $0.2 million to last year. We expect this to continue until we finalize and execute our plan to increase loan volumes, as mentioned above.

Gross Margin on Retail Sales

Gross margins on retail sales were $1.5 million and $2.3 million for the six months ended March 25, 2011 and 2010, respectively. Margins in the consumer segment in the first half of fiscal year 2011 were down $0.7 million from the same period last year while margins in the automotive segment were down $0.1 million. Sales in the consumer segment were approximately $1.3 million lower than last year while vehicle sales were down approximately $0.4 million. Weak demand for consumer goods continues to impact our sales and margins. We do not expect a significant increase in retail sales in the near term.

Operating Expenses

Operating expenses were $10.2 million and $12.4 million for the six months ended March 25, 2011 and 2010, respectively. Personnel expenses were approximately $1.5 million lower than the previous year and facilities expense were $0.1 million lower as we realized the cost savings of the branch consolidations and other cutbacks implemented during fiscal year 2010. General and administrative expenses were down $0.2 million due to decreases in general office-related costs. Other operating expenses were down $0.2 million due primarily to the reduction of travel-related expenses. We continue to closely monitor expenses and plan to reduce spending wherever possible.

Comparison of Three Months Ended March 25, 2011 and 2010

Net Revenues

Net revenues were $1.7 million and $4.6 million for the three months ended March 25, 2011 and 2010, respectively. As discussed above, we have experienced significant liquidity issues over the past two years due to significant loan and operating losses and the lack of net sales in our debt offerings. Because of this and the current economic environment, to preserve cash, we implemented tighter risk management controls in fiscal year 2009, which continued through March 25, 2011, resulting in fewer loans being made. Gross loan originations decreased $1.5 million (11%) in the three months ended March 25, 2011 compared to the same period last year, and we experienced decreases in interest and fee income from the prior year as a result. We also realized a $1.7 million increase in the provision for credit losses (discussed below). Retail sales and the associated gross margin on these sales were also down from prior year levels.

Net Interest and Fee Income Before Provision for Credit Losses

Net interest and fee income before provision for credit losses was $0.5 million and $1.3 million for the three months ended March 25, 2011 and 2010, respectively. During the second quarter of fiscal year 2011, gross interest and fee income decreased $0.9 million compared to the second quarter of fiscal year 2010 due to a decrease in gross finance receivable originations of approximately $1.5 million (11%). We are exploring options to raise capital that will allow us to increase originations of direct consumer loans in order to increase interest and fee income. However, we expect interest and fee income to continue to be down compared to previous periods until we can sell sufficient amounts of our debt offerings or secure other capital resources. Interest expense was $1.7 million and $1.8 million for the three-month periods ended March 25, 2011 and 2010, respectively.

Reduction in Reserve (Provision) for Credit Losses

The provision for credit losses was $1.2 million and the reduction in reserve for credit losses was $0.5 million for three months ended March 25, 2011 and 2010, respectively. Net finance receivables charged off were approximately $0.2 million higher than the previous year. However, reductions were made to the allowance for credit losses as of March 25, 2010 based on our charge-off analysis and other relevant factors. The allowance was $6.7 million or 17.9% of net outstanding finance receivables at March 25, 2011 compared to $7.7 million or 15.2% at March 25, 2010.

Insurance and Other Products

Income from commissions on insurance products and motor club memberships was $1.3 million for the three months ended March 25, 2011 and 2010. Although the volume of loans originated decreased during this three-month period compared to last year, the average size of loans increased, allowing us to offer additional insurance products connected with our lending and resulting in commissions on these products being the same as the prior year. Other income, including delinquency fees, was approximately $0.1 million lower than last year.

Gross Margin on Retail Sales

Gross margins on retail sales were $0.6 million and $1.0 million for the three months ended March 25, 2011 and 2010, respectively. Sales in the automotive segment for the three-month period in 2011 were down compared to the same period last year by $0.2 million while margins decreased $0.1 million. Sales and margins in the consumer segment were down by $0.4 million and $0.2 million in the second fiscal quarter of 2011 compared to last year. We do not expect to see any significant increase in retail sales in the near term, thus our margin on retail sales for the balance of fiscal year 2011 will likely be down compared to comparable periods last year.

Operating Expenses

Operating expenses were $5.1 million and $5.9 million for the three months ended March 25, 2011 and 2010, respectively. Personnel expenses were $0.6 million lower than last year and facilities expense was $0.1 million lower than last year as we realized the cost savings of the branch consolidations and other cutbacks implemented during fiscal year 2010. General and administrative expense was $0.1 million lower than last year due to decreases in general office-related costs. Other operating expenses were slightly lower than the previous year. We continue to closely monitor expenses and plan to reduce spending wherever possible.

Liquidity and Capital Resources

General

Liquidity is our ability to meet short-term financial obligations whether through collection of receivables, sales of debentures and demand notes or by generating additional funds through sales of assets to our competitors (such as our finance receivables or vehicle inventory). Continued liquidity is, therefore, largely dependent on the collection of our receivables and the sale of debt securities that meet the investment requirements of the public. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, originate new loans and to ultimately attain successful operations. We believe the cash flow from finance receivables repaid coupled with sales of the debentures and demand notes will be sufficient to cover our liquidity needs and cash flow requirements during 2011. However, there can be no assurances that we will sell any debentures or demand notes or that our other actions to generate cash flow will be successful.

Liquidity management refers to our ability to generate sufficient cash to fund the following primary uses of cash:

•

meet all of our debenture and demand note redemption obligations;

•

pay interest on all of our debentures and demand notes;

•

pay operating expenses; and

•

fund consumer finance loan demand and used automobile vehicle inventory.

The primary objective for liquidity management is to ensure that at all times we can meet the redemption obligations of our note holders. A secondary purpose of liquidity management is profit management. Because profit and liquidity are often conflicting objectives, we attempt to maximize our net interest margin by making adequate, but not excessive, liquidity provisions. To the extent we have adequate cash to meet our redemption obligations and pay interest to our note holders, we will use remaining cash to make consumer finance loans, purchase used automobile vehicle inventory and invest in other sources of potential revenues.

However, as indicated in the notes to the accompanying unaudited consolidated financial statements included in this report, we have experienced significant liquidity issues due to the lack of net sales in our debt offerings during the fiscal year ended September 25, 2009 and continuing through the six months ended March 25, 2011. The recessionary economy has negatively impacted investor confidence and, on two occasions during the past two years, we temporarily suspended the offering of our debt securities to the public while we restated previously issued consolidated financial statements to correct errors detected in those statements. Due to this, to preserve cash, we tightened our risk management controls related to new loans resulting in a decrease in gross loan originations of $7.2 million for the six months ended March 25, 2011 compared to the same period in the prior year, and we (1) received gross proceeds of $8.1 million from the sale of debentures, (2) paid $5.6 million for redemption of debentures issued by us and our subsidiary, The Money Tree of Georgia Inc. and (3) received $0.3 million in net sales of demand notes. Also, for the six months ended March 25, 2011 and the year ended September 25, 2010, respectively, we have incurred net losses of $7.5 million and $12.1 million, incurred negative cash flows from operating activities of $3.6 million and $4.4 million and had a deficiency in net interest margin (net loss from interest and fees after provision for credit losses) of $2.4 million and $0.9 million and, as of March 25, 2011 and September 25, 2010, had a shareholders’ deficit of $53.4 million and $45.9 million, respectively. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. Consequently, our operations and other sources of funds may not provide sufficient available cash flow to meet our continued redemption obligations if the amount of redemptions continues at its current pace or we continue to suffer losses and use funds from operations to fund redemptions.

Changes in our liquidity position result from operating, investing and financing activities. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of our net income, including, without limitation, purchases of used automobiles, electronics, furnishings and other consumer goods for resale to our customers. The primary investing activities include consumer loan originations and purchases and collections on such consumer loans. Our financing activities currently focus almost entirely on the sale of Debentures and Demand Notes.

Cash and cash equivalents were $2.7 million at March 25, 2011, an increase of $1.5 million from $1.2 million at March 25, 2010. During the six months ended March 25, 2011, cash and cash equivalents increased $0.5 million. We had $3.2 million of net cash provided by financing activities, as proceeds from the sale of our variable rate subordinated debentures exceeded repayments of debentures by $2.6 million, had proceeds from senior debt and demand notes of $0.7 million, and finance receivables repaid exceeded finance receivables originated by $1.0 million, but operating activities used

$3.6 million in cash during the six-month period. Cash and cash equivalents decreased $1.7 million during the six months ended March 25, 2010 primarily as a result of a $2.8 million of net cash used in financing activities. We redeemed approximately $7.6 million of debentures while the proceeds from the sale of debentures were $4.7 million. Net cash was provided from investing activities, as finance receivables repaid exceeded finance receivables originated by $2.0 million. The cash required to fund redemption of debentures caused us to tighten our risk management on lending and focus more on collection of finance receivables.

During 2011, we expect to continue to use a significant amount of cash to fund redemption obligations and pay interest on our securities. If we are unable to raise sufficient cash to fund these redemptions and make interest payments on outstanding debentures and demand notes, we may be forced to reduce new loans to customers. To the extent that we are required to continue using cash from operations (as opposed to net proceeds from sales of debentures and demand notes) to fund redemptions and make interest payments, we will make fewer loans to customers, which will result in a material adverse effect on our liquidity, financial condition and ability to continue as a going concern.

Debentures and Demand Notes

Historically, we or our subsidiary, The Money Tree of Georgia Inc., have offered debentures and demand notes to investors as a significant source of our required capital. We rely on the sale of debentures and demand notes to fund redemption obligations, make interest payments and fund other Company working capital.

During the six months ended March 25, 2011, we (1) received gross proceeds of $8.1 million from the sale of debentures, (2) paid $5.6 million for redemption of debentures issued by us and our subsidiary, The Money Tree of Georgia Inc. and (3) received $0.3 million in net sales of demand notes. As of March 25, 2011, we had $73.8 million of debentures and $3.4 million of demand notes outstanding, compared to $71.2 million of debentures and $3.2 million of demand notes outstanding as of September 25, 2010.

Subsequent Events

Between March 26, 2011 and April 25, 2011, we sold $1.1 million of debentures and $0.3 million of demand notes. For the same period we redeemed $0.9 million of debentures and $0.2 million of demand notes. These include amounts that were redeemed through our subsidiary, The Money Tree of Georgia Inc.

Recent Accounting Pronouncements

Recent accounting pronouncements have been issued that may have a future effect on operations. Refer to Note 3 to the accompanying unaudited consolidated financial statements for a discussion of these pronouncements and their possible effects.

Critical Accounting Policies

Our accounting and reporting policies conform with accounting principles generally accepted in the United States of America (GAAP) and predominant practice within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

We believe that the determination of our allowance for credit losses involves a higher degree of judgment and complexity than our other significant accounting policies. The allowance for credit losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses. Management’s determination of the adequacy of the allowance is based on

periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, loss given default, the amounts and timing of expected future cash flows on impaired loans, and general amounts for historical loss experience. We also consider economic conditions, uncertainties in estimating losses and inherent risks in the loan portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.

Finance receivables are considered impaired (i.e. income recognition ceases) as a result of past-due status or a judgment by management that, although payments are current, such action is prudent. Finance receivables on which payments are past due 90 days or more are considered impaired unless they are well-secured and in the process of collection or renewal. Related accrued interest and fees are reversed against current period income.

When a loan is impaired, interest accrued but uncollected is generally reversed against interest income. Cash receipts on impaired loans are generally applied to reduce the unpaid principal balance.

We recognize deferred tax assets and liabilities for the future tax effects of temporary differences, net operating loss carry-forwards and tax credits. Deferred tax assets are subject to management’s judgment based upon available evidence that future realization is more likely than not. If management determines that we may be unable to realize all or part of net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the expected realizable amount.

We have not substantially changed any aspect of our overall approach in the application of the foregoing policies. There have been no material changes in assumptions or estimation techniques utilized as compared to previous years.

Impact of Inflation and General Economic Conditions

Although inflation has not had a material adverse effect on our financial condition or results of operations, increases in the inflation rate are generally associated with increased interest rates. A significant and sustained increase in the interest rates would likely unfavorably impact our profitability by reducing the interest rate spread between the rate of interest we receive on our customer loans and interest rates we pay to our note holders, banks and finance companies. Inflation may also negatively affect our operating expenses.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company, as defined in Item 10 of Regulation S-K, is not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

In connection with the presentation of this Form 10-Q, management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter which is the subject of this Quarterly Report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 25, 2011.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 25, 2011, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We were not involved in any material legal proceedings during the quarter ended March 25, 2011 requiring disclosure under item 103 of Regulation S-K.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended September 25, 2010 that could materially affect our business, financial condition or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits


	31.1			Certification of Principal Executive Officers pursuant to Section 302 of The Sarbanes-Oxley Act of 2002

	31.2			Certification of Principal Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002

	32.1			Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				THE MONEY TREE INC.

May 9, 2011				/s/ Bradley D. Bellville
Date				Bradley D. Bellville
				President (Principal Executive Officer)

May 9, 2011				/s/ Steven P, Morrison
Date				Steven P. Morrison
				Chief Financial Officer (Principal Financial Officer)

Money Tree, Inc. - FORM 10-Q - May 9, 2011

Attached files

Money Tree, Inc. Reports