It remains the stated position of Advance America that “any legislative or regulatory action that severely restricts or prohibits cash advance and similar services, like the Gutierrez bill, if enacted, could have a material adverse impact on the company’s prospects and forward results of operations.” To that end, the company entered into a one-year consulting arrangement with Tony S. Colletti, a member of the Board of Directors, whereby Colletti will be paid monthly consulting fees in the amount of $5,000 and $10,000 for his lobbying efforts on Advance America’s behalf in Illinois and Washington, D.C., respectively, according to the 2009 proxy regulatory filing.
Unlike pawn companies, Advance America only give loans to people that are employed. Still, as a percentage of total revenues, provision for doubtful accounts eats up about twenty cents of each dollar in gross profit, on average, at each of its 2,797 centers. However, the bulk of operating costs remain rooted in payroll and occupancy costs. Management’s claim that the company cannot survive as a going concern with a legislated ARP ceiling cap of 36 percent on cash advances, in our opinion, speaks more to an internal inability to control operating costs at the center level than to payday advances costs, such as default risk.
Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.