BUSINESS

General

        We are a leading international financial services company serving under-banked consumers. Our customers are typically lower- and middle-income working-class individuals who require basic financial services but, for reasons of convenience and accessibility, purchase some or all of their financial services from us rather than from banks and other financial institutions. To meet the needs of these customers, we provide a range of consumer financial products and services primarily consisting of check cashing, short-term consumer loans, money orders and money transfers. We operate a network of 1,106 stores, including 630 company-operated stores, in 17 states, the District of Columbia, Canada and the United Kingdom. Our store network is the second-largest network in the United States and the largest network in each of Canada and the United Kingdom.

        We are a New York corporation formed in 1979. We are the direct wholly-owned subsidiary of Dollar Financial Corp., a Delaware corporation incorporated in April 1990. We operate our store network through our direct and indirect wholly-owned foreign and domestic subsidiaries.

        Our network includes the following platforms for delivering our financial services to the consumers in our core markets:

    United States

        We operate a total of 319 stores, with 231 operating under the name "Money Mart" and 88 operating under the name "Loan Mart." The Money Mart stores typically offer our full range of products and services, including check cashing and short-term consumer loans. The Loan Mart stores offer short-term consumer loans and other ancillary services depending upon location. By offering short-term lending services, we hope to attract a customer who might not use check cashing services. We also have relationships with 471 document transmitter locations, such as independent mail stores and insurance offices, which assist in completing short-term consumer loans we market through a direct-to-consumer lending operation.

        Our U.S. business had revenues of $110.5 million for fiscal 2003 and $83.7 million for the nine months ended March 31, 2004.

    Canada

        There are 304 stores in our Canadian network, of which 189 are operated by us and 115 are operated by franchisees. All stores in Canada are operated under the name "Money Mart" except locations in the Province of Québec. The stores in Canada typically offer check cashing, short-term consumer loans and other ancillary products and services.

        Our Canadian business had revenues of $67.0 million for fiscal 2003 and $62.3 million for the nine months ended March 31, 2004.

    United Kingdom

        There are 483 stores in our U.K. network, of which 122 are operated by us and 361 are operated by franchisees. All stores in the United Kingdom (with the exception of certain franchises operating under the name "Cash A Cheque") are operated under the name "Money Shop." The stores in the United Kingdom typically offer check cashing, short-term consumer loans and other ancillary products and services.

        Our U.K. business had revenues of $41.9 million for fiscal 2003 and $37.4 million for the nine months ended March 31, 2004.

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        We have 476 franchised locations in Canada and the United Kingdom. These franchised locations offer many of the same products and services offered by company-operated stores using the same associated trade names, trademarks and service marks within the standards and guidelines we have established. Total franchise revenues were $6.3 million for fiscal 2003 and $5.5 million for the nine months ended March 31, 2004. We also use independent third-party businesses such as mail stores and insurance offices, which we refer to as document transmitters, to assist in the transmission of short-term consumer loan applications.

        Our customers, many of whom receive income on an irregular basis or from multiple employers, are drawn to our convenient neighborhood locations, extended operating hours and high-quality customer service. Our products and services, principally our check cashing and short-term consumer loan program, provide immediate access to cash for living expenses or other needs. We principally cash payroll checks, although our stores also cash government benefit, personal and income tax refund checks. We cashed 8.6 million checks with an average face amount of $355 per check for an average fee per check of $12.63 during fiscal 2003 compared to 7.5 million checks cashed with an average face amount of $310 for an average fee per check of $10.14 in fiscal 1999. In addition, during fiscal 2003, acting both as a servicer and as a direct lender, we originated 2.8 million short-term loans with a total face amount of $798.0 million, an average principal amount of $282 and a weighted average term of approximately 15 days. We also provide our customers with high-value ancillary services, including Western Union money order and money transfer products, electronic tax filing, bill payment, foreign currency exchange, photo ID and prepaid local and long distance phone services.

Industry Overview

    Our Industry

        We operate in a sector of the financial services industry that serves the basic need of lower- and middle-income working-class individuals to have convenient access to cash. This need is primarily evidenced by consumer demand for check cashing and short-term loans, and consumers who use these services are often underserved by banks and other financial institutions.

        Lower- and middle-income individuals represent the largest part of the population in each country in which we operate. Many of these individuals work in the service sector, which in the United States is one of the fastest growing segments of the workforce.

        However, many of these individuals, particularly in the United States, do not maintain regular banking relationships. They use services provided by our industry for a variety of reasons, including that they often:

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do not have sufficient assets to meet minimum balance requirements or to achieve the benefits of savings with banks;



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do not write enough checks to make a bank account beneficial;



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need to access financial services outside of normal banking hours;



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desire not to pay fees for banking services that they do not use;



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require immediate access to cash from their paychecks; and



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may have a dislike or distrust of banks.

        In addition to check cashing services, under-banked consumers also require short-term loans that provide cash for living and other expenses. They also may not be able to or want to obtain loans from banks as a result of:

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their immediate need for cash;

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•

irregular receipt of payments from their employers;



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their desire for convenience and customer service; and



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the unavailability of bank loans in small denominations for short terms.

        Despite the demand for basic financial services, access to banks has become more difficult over time for many consumers. Many banks have chosen to close their less profitable or lower-traffic locations. Typically, these closings have occurred in lower-income neighborhoods where the branches have failed to attract a sufficient base of customer deposits. This trend has resulted in fewer convenient alternatives for basic financial services in many neighborhoods. Many banks have also reduced or eliminated some services that under-banked consumers need such as providing short-term consumer loans for small amounts and cashing checks for consumers who do not have bank accounts at the bank branch.

        As a result of these trends, a significant number of companies have begun to offer financial services to lower- and middle-income individuals. The providers of these services are fragmented and range from specialty finance offices to retail stores in other industries that offer these as ancillary services.

        We believe that the under-banked consumer market will continue to grow as a result of a diminishing supply of competing banking services as well as underlying demographic trends. These demographic trends include an overall increase in the population and an increase in the number of service sector jobs as a percentage of the total workforce, which lead to a greater number of people seeking to cash paychecks on a regular basis.

        The demographics of the typical customers for non-banking financial services vary slightly in each of the markets in which we operate, but the trends driving the industry are generally the same throughout our markets. The type of store and services that appeal to customers in each market vary based on cultural, social, geographic and other factors. The composition of providers of these services in each market results in part from the historical development and regulatory environment in that market.

    Growth Opportunities

        We believe that significant opportunities for growth exist in our industry as a result of:

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growth of the service sector workforce;



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failure of commercial banks and other traditional financial service providers to address adequately the needs of lower- and middle-income individuals; and



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trends favoring larger operators in the industry.

        We believe that, as the lower- and middle-income population segments increase, and as trends within the retail banking industry make banking less accessible to these consumers, the industry in which we operate will see a significant increase in demand for its products and services. We also believe that the industry will continue to consolidate as a result of a number of factors, including:

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economies of scale available to larger operators;



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use of technology to serve customers better and to control large store networks;



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inability of smaller operators to form the alliances necessary to deliver new products; and



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increased licensing and regulatory burdens.

        This consolidation process should provide us, as operator of one of the largest store networks, with opportunities for continued growth.

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Competitive Strengths

        We believe that the following competitive strengths position us well for continued growth:

    Leading Position in Our Core Markets

        We have a leading position in our core markets, operating the second-largest network in the United States, with 319 company-operated stores, and the largest networks in Canada, with 189 company-operated stores, and the United Kingdom, with 122 company-operated stores. We have 115 franchised locations in Canada and 361 franchised locations in the United Kingdom. Highlights of our competitive position in these core markets include the following:

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Our domestic network is focused in rapidly growing markets in the western United States, where we believe we have held leading market positions for over 10 years.



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We believe that we are the industry leader in Canada, and that we hold a dominant market share with a store in almost every city with a population of over 50,000. We believe that our leading position in Canada is principally due to new store openings and the successful implementation of our franchising strategy. Based on a public opinion study of three major metropolitan markets in English-speaking Canada, we have achieved brand awareness of 85%.



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We entered the U.K. market in 1999 and today operate the largest check cashing network in the country, comprising nearly 25% of the market measured by number of stores, although we believe that we account for 40% of all check cashing transactions performed at check cashing stores.

    High-quality Customer Service

        We adhere to a strict set of market survey and location guidelines when selecting store sites in order to ensure that our stores are placed in desirable locations near our customers. We believe that our customers appreciate this convenience, as well as the flexible and extended operating hours that we typically offer, which are often more compatible with our customers' work schedules. We believe we provide our customers with a clean, attractive and secure environment in which to transact their business. We believe that our friendly and courteous customer service at both the store level and through our centralized support centers is a competitive advantage.

    Diversified Product and Geographic Mix

        Our stores offer a range of consumer financial products and services to meet the demands of their respective locales, including check cashing, short-term consumer loans, money orders and money transfers. We also provide high-value ancillary products and services, including electronic tax filing, bill payment, foreign currency exchange, photo ID and prepaid local and long-distance phone services. For fiscal 2003, the revenue contribution by our check cashing operations was 49.4%, our consumer lending operations was 37.2% and our other financial services was 13.4%. In addition to our product diversification, our business is diversified geographically. For fiscal 2003, our U.S. operations generated 50.4% of our total revenues, our Canadian operations generated 30.5% of our total revenues and our U.K. operations generated 19.1% of our total revenues. Our product and geographic mix provides a diverse stream of revenue growth opportunities.

    Diversification and Management of Credit Risk

        Our revenue is generated through a high volume of small dollar financial transactions, and therefore our exposure to loss from a single customer transaction is minimal. In addition, we actively manage our customer risk profile and collection efforts in order to maximize our consumer lending and check cashing revenues while maintaining losses within an acceptable range. We have instituted control

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mechanisms that have been effective in managing risk. As a result, we believe that we are unlikely to sustain a material credit loss from a single transaction or series of transactions. We have experienced relatively low net write-offs both as a percentage of the face amount of checks cashed and as a percentage of check cashing revenues. For fiscal 2003, in our check cashing business, net write-offs as a percentage of the face amount of checks cashed were 0.2% and net write-offs as a percentage of check cashing revenues were 6.2%. For the same period, with respect to loans funded directly by us, net write-offs as a percentage of originations were 2.3%.