Old Market Capital (OMCC) 10-K2024 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended March 31, 2024

OR

☐ 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 0-26680

NICHOLAS FINANCIAL, INC.

(Exact name of Registrant as specified in its Charter)

Registrant’s telephone number, including area code: (727) 726-0763

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market on September 30, 2023, was approximately $34.8 million.

The number of shares of Registrant’s Common Stock outstanding as of June 28, 2024 was approximately 12.7 million shares, $0.01 par value per share (of which approximately 5.4 million shares were held by the Registrant’s principal operating subsidiary and pursuant to applicable law, not entitled to vote and approximately 7.3 million shares were entitled to vote).

DOCUMENTS INCORPORATED BY REFERENCE

NICHOLAS FINANCIAL, INC.

FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Forward-Looking Information

This Annual Report on Form 10-K (this “Report” or “Annual Report”) contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are based on management’s current beliefs and assumptions, as well as information currently available to management. When used in this document, the words “anticipate,” “estimate,” “expect,” “will,” “may,” “plan,” “believe,” “intend” and similar expressions are intended to identify forward-looking statements. Although Nicholas Financial, Inc. and its subsidiaries (collectively the “Company,” “we,” “us,” or “our”) believes that the expectations reflected or implied in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. As a result, actual results could differ materially from those indicated in these forward-looking statements. Forward-looking statements in this Annual Report may include, without limitation: (1) projections of revenue, income, and other items relating to our financial position and results of operations, (2) statements of our capital allocation plans, particularly alternatives for future use of excess equity capital, (3) statements of other plans, objectives, strategies, goals and intentions, (4) statements regarding the capabilities, capacities, market position and expected development of our business operations, and (5) statements of expected industry and general economic trends. These statements are subject to certain risks, uncertainties and assumptions that may cause results to differ materially from those expressed or implied in forward-looking statements, including without limitation:

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. All forward-looking statements included in this Report are based on information available to the Company as the date of filing of this Annual Report, and the Company assumes no obligation to update any such forward-looking statement. Prospective investors should also consult the risk factors described from time to time in the Company’s other filings made with the U.S. Securities and Exchange Commission (“SEC”), including its reports on Forms 10-Q and 8-K and its annual reports to shareholders.

PART I

Item 1. Business

General

Nicholas Financial, Inc. (“Nicholas Financial Parent”) started as a Canadian holding company incorporated under the laws of British Columbia in 1986. The business activities of Nicholas Financial Parent are currently conducted exclusively through its wholly-owned indirect subsidiary, Nicholas Financial, Inc., a Florida corporation (“Nicholas Financial”). Nicholas Financial has been a specialized consumer finance company engaged primarily in acquiring and servicing automobile finance installment contracts (“Contracts”) for purchases of used and new automobiles and light trucks. Additionally, Nicholas Financial, prior to the end of the third fiscal quarter of the fiscal year 2024, sold consumer-finance related products and, prior to the end of the third fiscal quarter of the fiscal year ended March 31, 2023, Nicholas Financial originated direct consumer loans (“Direct Loans”). Nicholas Data Services, Inc. (“NDS”), is a second Florida subsidiary of Nicholas Financial Parent and it serves as the intermediate holding company for Nicholas Financial. NF Funding I, LLC (“NF Funding I”), was a wholly-owned, special purpose financing subsidiary of Nicholas Financial, but that subsidiary no longer served any purpose and, as a result, it was dissolved prior to the end of the fiscal year ended March 31, 2023.

Nicholas Financial Parent, Nicholas Financial, and NDS are hereafter collectively referred to as the “Company”.

On April 18, 2024, Nicholas Financial Parent filed its Certificate of Corporate Domestication and Certificate of Incorporation in the State of Delaware in order to complete its continuation and domestication from a company incorporated under the laws of British Columbia to a corporation incorporated under the laws of the State of Delaware, as further described and set forth in its Registration Statement on Form S-4 (File No. 333-275704), as amended, filed with the SEC on January 29, 2024, and its Proxy Circular/Prospectus (File No. 333-275704) filed with the SEC on March 19,2024.

On April 26, 2024, Nicholas Financial Parent closed upon the sale of substantially of the assets of Nicholas Financial Parent and Nicholas Financial to Westlake Services, LLC dba Westlake Financial, a California limited liability company (“Westlake Services”), as further described and set forth in its Current Report on Form 8-K filed with the SEC on May 1, 2024 (collectively, the “Loan Portfolio Sale”).

On June 15, 2024, Nicholas Financial Parent closed upon the acquisition of approximately 56.5% of the issued and outstanding securities of Amplex Electric, Inc., an Ohio corporation (“Amplex”) that is a broadband service provider serving northwestern Ohio with fiber and fixed wireless broadband solutions, as further described and set forth in its Current Report on Form 8-K filed with the SEC on June 21, 2024 (collectively, the “Amplex Acquisition”).

As a result of the Loan Portfolio Sale and the recent Amplex Acquisition, the Company’s business is expected to consist primarily of the operations conducted through Amplex, which includes the business of providing broadband and related services.

All financial information herein is designated in United States dollars. References to “fiscal 2024” are to the fiscal year ended March 31, 2024 and references to “fiscal 2023” are to the fiscal year ended March 31, 2023.

The Company’s principal executive offices are located at 26133 US HWY 19 North, Suite 300, Clearwater, Florida 33763, and its telephone number is (727) 726-0763.

Available Information

The Company’s filings with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, definitive proxy statements on Schedule 14A, Current Reports on Form 8-K, and any amendments to those reports filed pursuant to Sections 13, 14 or 15(d) of the Exchange Act, are made available free of charge through the Investor Center section of the Company’s Internet website at http://www.nicholasfinancial.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Report. Copies of any materials the Company files with the SEC can also be obtained free of charge through the SEC’s website at http://www.sec.gov.

Restructuring and Change in Operating Strategy

The Company announced on its Current Report on Form 8-K filed on November 3, 2022 a change in its operating strategy and restructuring plan with the goal of reducing operating expenses and freeing up capital. As part of this plan, the Company entered into a loan servicing agreement (the “Servicing Agreement”) on November 3, 2022 with Westlake Portfolio Management, LLC, a California limited liability company (“WPM”, and, collectively with its affiliate, Westlake Capital Finance, LLC, “Westlake”). Also an affiliate of Westlake, Westlake Services, is the beneficial owner of approximately 6.8% of the common stock of Nicholas Financial Parent.

The Company does not intend to continue any Contract purchase and origination activities, and its servicing, collections and recovery operations have been outsourced to Westlake. The Company has also ceased all originations of Direct Loans.

The Company anticipates that execution of its evolving restructuring plan will free up capital and permit the Company to allocate excess capital to increase shareholder returns, whether by acquiring loan portfolios or businesses or by investing outside of the Company’s traditional business, such as the Company’s investment in the Amplex Acquisition. The overall timeframe and structure of the Company’s restructuring remains uncertain.

The Company no longer employs the branch-based model, and its business remained focused on servicing its core product of financing primary transportation to and from work for the subprime borrower during fiscal 2024, which historically had been conducted through the local independent automobile dealership. The Company's strategy prior to the Loan Portfolio Sale included risk-based pricing (rate, yield, advance, term, collateral value) and a commitment to the underwriting discipline required for optimal portfolio performance. The Company’s principal goals are to increase its profitability and its long-term shareholder value through identifying new business opportunities for the Company to evaluate and pursue.

In fiscal 2023, the Company also restructured and consolidated its operations by closing all of its brick-and-mortar branch locations in 18 states — Alabama, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Missouri, North Carolina, Nevada, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, and Wisconsin. As a result, as of December 31, 2023, the Company only had two offices in two states – its headquarters in Florida and its central business operations hub in South Carolina.

Although the Company had been licensed to provide Direct Loans in 14 states — Alabama, Florida, Georgia (over $3,000), Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, and Tennessee — during fiscal 2024 the Company cancelled, did not renew, or otherwise terminated all of such Direct Loan licenses.

Consequently, the Company has not originated any new Direct Loans since the end of the third quarter of fiscal 2023 through all of fiscal 2024, and the Company does not intend to originate any new Direct Loans going forward.

On November 13, 2023, Nicholas Financial Parent and Nicholas Financial entered into a Master Asset Purchase Agreement (the “Purchase Agreement”) with Westlake Services pursuant to which Nicholas Financial Parent and Nicholas Financial agreed to sell, and Westlake Services agreed to purchase from Nicholas Financial Parent and Nicholas Financial, substantially all of the assets of Nicholas Financial Parent and Nicholas Financial, consisting of Nicholas Financial’s motor vehicle retail installment sale contracts and unsecured consumer loan contracts (collectively, the “Contracts”) and the accounts receivable related to such Contracts (collectively, the “Receivables”). Nicholas Financial Parent sought and obtained shareholder approval for the closing of the transaction contemplated by the Purchase Agreement.

Westlake Services is an affiliate of WPM, and Nicholas Financial entered into the Servicing Agreement with WPM on November 3, 2022, pursuant to which WPM commenced servicing of the Receivables under the Contracts in December 2022 and has continued such servicing to date. In connection with entering into the Purchase Agreement, the Company has ceased new loans originations, and WPM continued to service such Receivables for Nicholas Financial until the closing of the transaction under the Purchase Agreement. In addition to other customary closing conditions, the closing under the Purchase Agreement was subject to the approval of the shareholders of the Company. After the closing of the transaction contemplated by the Purchase Agreement, the Company intends to explore strategic alternatives for the use of the remaining net proceeds of the Loan Portfolio Sale, in addition to the Amplex Acquisition, and to seek to maximize the value of deferred tax assets available to the Company.

During fiscal 2024, the Company did not have any completed bulk portfolio purchases.

The Company also has cancelled, not renewed, or otherwise terminated all of its Contract purchasing and Direct Loan licenses. Consequently, the Company has not purchased Contracts and has not originated any new Direct Loans since the end of the third quarter of fiscal 2024 and 2023, respectively, and the Company does not intend to originate any new Contracts and Direct Loans going forward.

Following the restructuring and consolidation of the Company’s operations, the Company does not expect to expand its consumer finance business in either its current markets or any new markets.

Automobile Finance Business – Contracts

Prior to the Loan Portfolio Sale and the Amplex Acquisition, the Company has been engaged in the business of providing financing programs, primarily to purchasers of used cars and light trucks who met the Company’s credit standards but who did not meet the credit standards of traditional lenders, such as banks and credit unions, because of the customer’s credit history, job instability, the age of the vehicle being financed, or some other factor(s). Unlike lenders that look primarily to the credit history of the borrower in making lending decisions, typically financing new automobiles, the Company was willing to purchase Contracts for purchases made by borrowers who did not have a good credit history and for older model and high-mileage automobiles. In making decisions regarding the purchase of a particular Contract, the Company considered the following factors related to the borrower: current income; credit history; history in making installment payments for automobiles; current and prior job status; and place and length of residence. In addition, the Company examined its prior experience with Contracts purchased from the dealer from which the Company was purchasing the Contract, and the value of the automobile in relation to the purchase price and the term of the Contract.

As of the date of this Annual Report, the number of states in which the Company’s automobile finance programs have been conducted has been reduced to none from 19 states during fiscal 2023 - Alabama, Arizona, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Missouri, North Carolina, Nevada, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, and Wisconsin - to just six of such states continuing - Florida, Indiana, Kentucky, North Carolina, Ohio, and South Carolina. The Company acquired Contracts in these states through its originators who worked from home in the states of Florida, Indiana, Kentucky, North Carolina, Ohio and South Carolina. As of March 31, 2024, the Company had no agreements with any dealers that were active for the purchase of individual Contracts that met the Company’s financing criteria. The Company considers a dealer agreement to be active if a loan contract is complete and executed. Each dealer agreement had required the dealer to originate Contracts in accordance with the Company’s guidelines. Once a Contract was purchased by the Company, the dealer was no longer involved in the relationship between the Company and the borrower, other than through the existence of limited representations and warranties of the dealer in favor of the Company.

A customer under a Contract typically made a down payment, in the form of cash and/or trade-in, ranging from 5% to 35% of the sale price of the vehicle financed. The balance of the purchase price of the vehicle plus taxes, title fees and, if applicable, premiums for extended service contracts, GAP waiver coverage, roadside assistance plans, credit disability insurance and/or credit life insurance were generally financed over a period of 12 to 60 months. At approximately the time of origination, the Company purchased a Contract from an automobile dealer at a negotiated price that is less than the original principal amount being financed by the purchaser of the automobile. The Company refers to the difference between the negotiated price and the original principal amount being financed as the dealer discount. The amount of the dealer discount depended upon factors such as the age and value of the automobile and the creditworthiness of the customer. The Company had been committed to maintaining pricing discipline and therefore placed less emphasis on competition when pricing the discount. Generally, the Company would pay more (i.e., purchase the Contract at a smaller discount from the original principal amount) for Contracts as the credit risk of the customer improves. To date, the Contracts purchased by the Company have been purchased at discounts that range from 1% to 15% of the original principal amount of each Contract, with the typical average discount being between 6% and 8%. As of March 31, 2024, the Company’s indirect loan portfolio consisted of Contracts purchased from a dealer or acquired through a bulk acquisition. Such Contracts are purchased without recourse to the dealer, however each dealer remains potentially liable to the Company for breaches of certain representations and warranties made by the dealer with respect to compliance with applicable federal and state laws and valid title to the vehicle. The Company’s policy was to only purchase a Contract after the dealer had provided the Company with the requisite proof that (a) the Company had a first priority lien on the financed vehicle (or the Company had, in fact, perfected such first priority lien), (b) the customer had obtained the required collision insurance naming the Company as loss payee with a deductible of not more than $1,000 and (c) the Contract had been fully and accurately completed and validly executed. Once the Company received and approved all required documents, it paid the dealer for the Contract and servicing of the Contract commenced.

Contract Procurement

The Company purchased Contracts in the states listed in the table below during the periods indicated. The Contracts purchased by the Company are predominantly for used vehicles; for the periods shown below, less than 1% were for new vehicles. The average model year collateralizing the portfolio as of March 31, 2024 was a 2012 vehicle. The dollar amounts shown in the table below represent the Company’s finance receivables on Contracts purchased within the respective fiscal year:

The following table presents selected information on Contracts purchased by the Company:

Direct Loans

Effective during the third quarter of fiscal 2023, the Company no longer originates any Direct Loans. Previous to that time, the Company originated Direct Loans in Alabama, Florida, Georgia (over $3,000), Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, and Tennessee. Direct Loans were loans originated directly between the Company and the consumer. These loans were typically for amounts ranging from $500 to $11,000 and are generally secured by a lien on an automobile, watercraft or other permissible tangible personal property. The average loan made during fiscal 2023 by the Company had an initial principal balance of approximately $4,300. Most of the Direct Loans were originated with current or former customers under the Company’s automobile financing program. The typical Direct Loan represented a better credit risk than our typical Contract due to the customer’s payment history with the Company, as well as their established relationship with the local branch staff. The size of the loan and maximum interest rate that may be (and is) charged varies from state to state. The Company considered the individual’s income, credit history, job stability, and the value of the collateral offered by the borrower to secure the loan as the primary factors in determining whether an applicant would receive an approval for such loan. Additionally, because most of the Direct Loans made by the Company have been made to borrowers under Contracts previously purchased by the Company, the collection experience of the borrower under the Contract was a significant factor in making the underwriting decision. The Company’s Direct Loan program was implemented in April 1995 and accounted for approximately 13% and 16% of the Company’s annual consolidated revenues during fiscal 2023 and fiscal 2024, respectively.

In connection with its Direct Loan program, the Company also made available credit disability insurance, credit life insurance, and involuntary unemployment insurance coverage to customers through unaffiliated third-party insurance carriers. Approximately 60% of the Direct Loans outstanding as of March 31, 2024 elected to purchase third-party insurance coverage made available by the Company. The cost of this insurance to the customer, which included a commission for the Company, was included in the amount financed by the customer.

The following table presents selected information on Direct Loans originated by the Company:

Underwriting Guidelines

The Company’s typical customer in its consumer finance business has a credit history that fails to meet the lending standards of most banks and credit unions. Some of the credit problems experienced by the Company’s customers that resulted in a poor credit history include but are not limited to: prior automobile account repossessions, unpaid revolving credit card obligations, unpaid medical bills, unpaid student loans, prior bankruptcy, and evictions for nonpayment of rent. The Company believes that its customer profile is similar to that of its direct competitors.

The Company’s process to approve the purchase of a Contract began with the Company receiving a standardized credit application completed by the consumer which contained information relating to the consumer’s background, employment, and credit history. The Company also obtained credit reports from Equifax and/or TransUnion, which are independent credit reporting services. The Company verified the consumer’s employment history, income, and residence. In most cases, consumers were interviewed via telephone by a Company application processor (usually the Branch Manager or Assistant Branch Manager when the Company employed its branch-based model, and the originators in the Company's regionalized business model after the branches were closed). The Company also considered the customer’s prior payment history with the Company, if any, as well as the collateral value of the vehicle being financed.

The Company had established internal underwriting guidelines that were used by its Branch Managers and internal underwriters when Contracts were purchased by the Company prior to the restructuring of its operations. The Company had adopted updated guidelines consistent with its post-restructuring operations, which guidelines were to be used by the Company’s originators and internal underwriters when purchasing Contracts in the Company’s

regionalized business model. Any Contract that did not meet these guidelines were to be approved by the senior management of the Company. In addition to a variety of administrative duties, the Company's management was responsible for monitoring compliance with the Company’s underwriting guidelines as well as approving underwriting exceptions.

When the Company was originating Direct Loans, the Company used similar criteria in analyzing a Direct Loan as it did in analyzing the purchase of a Contract. Lending decisions regarding Direct Loans were made based upon a review of the customer’s loan application, income, credit history, job stability, and the value of the collateral offered by the borrower to secure the loan. Since the majority of the Company’s Direct Loans have been made to individuals whose automobiles have been financed by the Company, the customer’s payment history under his or her existing or past Contract was a significant factor in the lending decision.

After reviewing the information included in the Contract or, when applicable, Direct Loan application and taking the other factors into account, the Company’s loan origination system categorized the customer using internally developed credit classifications from “1,” indicating higher creditworthiness, through “4,” indicating lower creditworthiness. Contracts were financed for individuals who fell within all four acceptable rating categories utilized, “1” through “4”. Usually a customer who fell within the two highest categories (i.e., “1” or “2”) was purchasing a two to five-year old, lower mileage used automobile, while a customer in any of the two lowest categories (i.e., “3,” or “4”) usually was purchasing an older, higher mileage automobile from an independent used automobile dealer.

Prior to the closure of the Company’s branches, the Company performed audits of its branches’ compliance with Company underwriting guidelines. The Company audited branches on a schedule that was variable depending on the size of the branch, length of time a branch had been open, then current tenure of the Branch Manager, previous branch audit score, and then current and historical branch profitability. Additionally, field supervisions and audits were conducted by District Managers, Divisional Vice Presidents and Divisional Administrative Assistants to try to ensure operational and underwriting compliance throughout the former branch network.

Monitoring and Enforcement of Contracts

On November 3, 2022, the Company entered into the Servicing Agreement with Westlake. Under the Servicing Agreement, the Company originated and acquired receivables and Westlake performs the servicing duties with respect to such receivables, including without limitation that Westlake manages, services, administers and makes collections on the receivables, including with respect to any repossession of any financed vehicle securing a receivable under which it is determined that payments thereunder are not likely to be resumed. Unless earlier terminated in accordance with its provisions, the Servicing Agreement shall expire upon the earliest to occur of (i) the date on which the Company sells, transfers or assigns all outstanding receivables to a third party (including Westlake), (ii) the date on which the last receivable is repaid or otherwise terminated, or (iii) three years from the closing date of the Servicing Agreement.

The Company required each customer under a Contract to obtain and maintain collision insurance covering damage to the vehicle. Failure to maintain such insurance constitutes a default under the Contract that would permit the repossession of the vehicle. To reduce potential loss due to insurance lapse, the Company had the contractual right to obtain collateral protection insurance through a third-party, which covered loss due to physical damage to a vehicle not covered by any insurance policy of the customer.

The servicer monitors compliance by the Company's customers with their obligations under Contracts and Direct Loans made by the Company and the servicer provided reports to the Company on such activity. These reports may be accessed throughout the Company by management personnel at computer terminals that were located in the Company’s offices. These reports included delinquency reports, customer promise reports, vehicle information reports, purchase reports, dealer analysis reports, static pool reports, and repossession reports.

A delinquency report is an aging report that provided basic information regarding each customer account and indicated accounts that were past due. The report included information such as the account number, address of the customer, phone numbers of the customer, original term of the Contract, number of remaining payments, outstanding balance, due dates, date of last payment, number of days past due, scheduled payment amount, amount of last payment, total past due, and special payment arrangements or agreements.

When an account became delinquent, the customer was promptly contacted to determine the reason for the delinquency and to determine if appropriate arrangements for payment could be made. If acceptable payment arrangements could be made, the information was entered into a database and was used to generate a customer promises report, which was utilized for account follow up.

The servicer prepared a repossession report that provided information regarding repossessed vehicles and aided in disposing of repossessed vehicles. In addition to information regarding the customer, this report provided information regarding the date of repossession, date the vehicle was sold, number of days it was held in inventory prior to sale, year, make and model of the vehicle, mileage, payoff amount on the Contract, NADA book value, Black Book value, suggested sale price, location of the vehicle, original dealer and condition of the vehicle, as well as notes and other information that could have been helpful.

If an account was 121 days delinquent and the related vehicle had not yet been repossessed, the account was charged-off and transferred to the servicer's loss prevention and recovery department. Once a vehicle had been repossessed, the related loan balance no longer appeared on the delinquency report. Instead, the vehicle appeared on the servicer's repossession report and was generally sold at auction.

The servicer also prepared a dealer report that provided information regarding each dealer from which the Company purchased Contracts. This report allowed the Company to analyze the volume of business done with each dealer, the terms on which it had purchased Contracts from such dealer, as well as the overall portfolio performance of Contracts purchased from the dealer.

The Company was subject to seasonal variations within the subprime marketplace. While the APR, discount, and term remained consistent across quarters, write-offs and delinquencies tended to be lower while purchases tended to be higher in the fourth and first quarters of the fiscal year. The second and third quarters of the fiscal year tended to have higher write-offs and delinquencies, and a lower level of purchases.

Marketing and Advertising

The Company’s Contract marketing efforts were directed primarily toward automobile dealers. The Company attempted to meet dealers’ needs by offering highly responsive, cost-competitive, and service-oriented financing programs. The Company relied on its staff of originators to solicit agreements for the purchase of Contracts with automobile dealers based within the regions located in the seven states in which the Company then conducted operations. The Company provided dealers with information regarding itself and the general terms upon which the Company was willing to purchase Contracts. The Company used web advertising, social media and print ads in dealer association publications for marketing purposes. The Company was a member and corporate sponsor of the National Independent Auto Dealers Association, which also gave it access to state-level associations. Its representatives attended conferences and events for both state and national associations to market its products directly to dealers in attendance.

When the Company was originating Direct Loans, the Company solicited customers under its Direct Loan program primarily through direct mailings, followed by telephone calls to individuals who had a good credit history with the Company in connection with Contracts purchased by the Company. It also relied on other forms of electronic messaging and in-store advertising.

Computerized Information System

All Company personnel are provided with real-time access to information. The Company has purchased or otherwise has access through its servicer to the specialized programs to monitor the Contracts and Direct Loans from inception. The Company’s computer network encompasses its corporate headquarters. See “Monitoring and Enforcement of Contracts” above for a summary of the different reports available to the Company.

Competition

The consumer finance industry is highly fragmented and highly competitive. Due to various factors, the competitiveness of the industry continues to increase as new competitors continue to enter the market and certain existing competitors continue to expand their operations. There are numerous financial service companies that provide consumer credit in the markets that were served by the Company, including banks, credit unions, other

consumer finance companies, and captive finance companies owned by automobile manufacturers and retailers. Increased competition for the purchase of Contracts enables automobile dealers to shop for the best price, which can result in an erosion in the dealer discounts from the initial principal amounts at which the Company was willing to purchase Contracts and higher advance rates. However, the Company instead focused on purchasing Contracts that were priced to reflect the inherent risk level of the Contract, and sacrificed loan volume, if necessary, to maintain that pricing discipline. For the fiscal year ended March 31, 2024, the Company’s average dealer discount on Contracts purchased decreased to 6.3%, compared to 6.5% for the fiscal year ended March 31, 2023. The table below shows the number and principal amount of Contracts purchased, average amount financed, average term, and average APR and discount for the periods presented:

The Company’s ability to compete effectively with other companies offering similar financing arrangements depended in part upon the Company maintaining close business relationships with dealers of used and new vehicles. No single dealer with which the Company had active contractual relationships represented a significant amount of the Company’s business volume for either of the fiscal years ended March 31, 2024 or 2023.

Regulation

As we enter the broadband business following the recently completed Amplex Acquisition, many but not all of Amplex’s services and networks will be regulated by the Federal Communications Commission (the “FCC”) and by state and local governments. Whether Amplex’s networks or services are regulated or unregulated depends on numerous factors, including but not limited to whether Amplex offers telecommunications service, as defined in state and federal laws, or cable service. The construction and maintenance of Amplex’s fiber optic networks may face local regulation that can adversely impact the timing or deployment of services. Certain of Amplex’s services that are provided via wireless transmission require FCC licenses and local video and other services often require local government franchises. The local government franchises often impose certain obligations to build out the network and require payment of fees to the local government, which fees are often are based on a percentage of gross revenues. In private communities and mobile home parks, Amplex may be required to obtain the consent of the homeowners’ association or other property owners to provide services, and Amplex may have to pay a fee to obtain access to the property and provide its services. Finally, to deploy Amplex’s networks, it frequently must obtain agreements from local power utilities to use their poles and in some cases easements from landowners. Our historical consumer finance business is subject to numerous federal and state consumer protection laws and related regulations that impose substantial requirements upon creditors and servicers involved in consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Gramm-Leach-Bliley Act, the Servicemembers Civil Relief Act, the Telephone Consumer Protection Act, state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code and state lending acts, motor vehicle retail installment acts and other similar laws. Also, the laws of certain states impose finance charge ceilings and other restrictions on consumer transactions and require contract disclosures in addition to those required under federal law. These requirements impose specific statutory liabilities upon creditors who fail to comply with their provisions. In some cases, this liability could affect the ability of an assignee such as the Company to enforce consumer finance contracts such as the Contracts.

The Company’s financing operations are subject to regulation, supervision and licensing under many federal, state and local statutes, regulations and ordinances. In addition, the Company and its service providers must comply with certain federal and state requirements in connection with the servicing and collection on Direct Loans and Contracts, and the repossession of vehicles securing Direct Loans and Contracts in the states in which the Company does business. The Company and its third-party service providers must comply with federal, state and local regulatory regimes, including those applicable to consumer credit transactions. In particular, the Company may be subject to laws such as:

Failure to comply with these laws or regulations could have a material adverse effect on the Company by, among other things, limiting the jurisdictions in which the Company may operate, restricting the Company’s or its service provider’s ability to realize the value of the collateral securing the Contracts, and making it more costly or burdensome to do business or resulting in potential liability. The volume of new or modified laws and regulations and the activity of agencies enforcing such law have increased in recent years in response to issues arising with respect to consumer lending. From time to time, legislation and regulations are enacted which increase the cost of doing business, limit or expand permissible activities or affect the competitive balance among financial services providers. Proposals to change the laws and regulations governing the operations and taxation of financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures and by various regulatory agencies. This legislation may change the Company’s operating environment in substantial and unpredictable ways and may have a material adverse effect on the Company’s business.

In addition to the CFPB, other state and federal agencies have the ability to regulate aspects of the Company’s business. For example, the Dodd-Frank Act provides a mechanism for state Attorneys General to investigate the Company. Additionally, the FTC has jurisdiction to investigate aspects of the Company’s business. The Company expects that regulatory investigation by both state and federal agencies will continue and that the results of these investigations could have a material adverse impact on the Company.

The Holder Rule of the FTC has the effect of subjecting a seller, and certain related lenders and their assignees, in a consumer credit transaction to all claims and defenses which the obligor in the transaction could assert against the seller of the goods. Liability under the Holder Rule is limited to the amounts paid by the obligor under the contract, and the holder of the contract may also be unable to collect any balance remaining due thereunder from the obligor. The Holder Rule is generally duplicated by the Uniform Consumer Credit Code, other state statutes or the common law in certain states. Most of the Contracts will be subject to the requirements of the Holder Rule. Accordingly, the Company, as holder of the Contracts, will be subject to any claims or defenses that the purchaser of a financed vehicle may assert against the seller of the financed vehicle. Such claims are limited to a maximum liability equal to the amounts paid by the obligor on the Contract.

Dealers with which the Company does business must also comply with credit and trade practice statutes and regulations. Failure of these dealers to comply with such statutes and regulations could result in customers having rights of rescission and other remedies that could have a material adverse effect on the Company.

The sale of vehicle service contracts and other ancillary products by dealers in connection with Contracts assigned to the Company from dealers is also subject to state laws and regulations. Although these laws and regulations may not significantly affect the Company’s business, there can be no assurance that insurance or other regulatory authorities

in the jurisdictions in which these products are offered by dealers will not seek to regulate or restrict the operation of the Company’s business in these jurisdictions. Any regulation or restriction of the Company’s business in these jurisdictions could materially adversely affect the income received from these products.

The Company’s management believes that the Company maintains all requisite licenses and permits and is in material compliance with applicable local, state and federal laws and regulations. The Company periodically reviews its practices in an effort to ensure such compliance. Although compliance with existing laws and regulations has not had a material adverse effect on the Company’s operations to date, given the increasingly complex regulatory environment, the increasing costs of complying with such laws and regulations, and the increasing risk of penalties, fines or other liabilities associated therewith, no assurances can be given that the Company is in material compliance with all of such laws or regulations or that the costs of such compliance, or the failure to be in such compliance, will not have a material adverse effect on the Company’s business, financial condition or results of operations.

For more information, please refer to the risk factors titled “Federal or state regulatory reform could have an adverse impact on the Company”, “On October 5, 2017, the CFPB released the final rule Payday, Vehicle Title and Certain High-Cost Installment Loans under the Dodd Frank Act, which as adopted could potentially have a material adverse effect on our operations and financial performance”, “The CFPB has broad authority to pursue administrative proceedings and litigation for violations of federal consumer financing laws”, “Pursuant to the authority granted to it under the Dodd-Frank Act, the CFPB adopted rules that subject larger nonbank automobile finance companies to supervision and examination by the CFPB. Any such examination by the CFPB likely would have a material adverse effect on our operations and financial performance”, “Our use of vendors and our other ongoing third-party business relationships is subject to increasing regulatory requirements and attention”, and “We are subject to many other laws and governmental regulations, and any material violations of or changes in these laws or regulations could have a material adverse effect on our financial condition and business operations”, all of which are incorporated herein by reference.

Human Capital Resources

The Company’s management and various support functions are centralized at the Company’s corporate headquarters in Clearwater, Florida. In connection with the closure of all of the Company’s brick-and-mortar branch locations in 18 states, the Company’s staff was significantly downsized during fiscal 2023 and 2024, both as a result of layoffs and other voluntary and involuntary terminations. As a result, as of March 31, 2024, the Company employed a total of seven persons, of which five persons were employed at the Company’s Clearwater Corporate office. None of the Company’s employees are subject to a collective bargaining agreement, and the Company considers its relations with its employees generally to be good.

We are also committed to fostering, cultivating, and preserving a culture of diversity, equity, and inclusion (“DE&I”). We believe that the collective sum of the individual differences, life experiences, knowledge, inventiveness, self-expression, unique capabilities, and talent that our employees invest in their work represent a significant part of our culture, reputation, and achievement. We believe that an emphasis on DE&I drives value for our employees, customers, and shareholders, and that our DE&I commitment enables us to better serve our communities.

We also offer our employees a variety of training and development opportunities. Employees complete a comprehensive training curriculum that focuses on the Company- and position-specific competencies needed to be successful. The training includes a blended approach utilizing eLearning modules, hands-on exercises, webinars, and assessments. Training content is focused on our operating policies and procedures, as well as several key compliance areas.

Item 1A. Risk Factors

The following factors, as well as other factors not set forth below, may adversely affect the business, operations, financial condition or results of operations of the Company (sometimes referred to in this section as “we” “us” or “our”).

Risks Relating to the Loan Portfolio Sale

The net proceeds of the closing of the Loan Portfolio Sale may not be used successfully to fully implement our proposed restructuring plan.

We intend to use net proceeds from the Loan Portfolio Sale to either acquire or invest in businesses outside of the Company’s traditional business, such as Amplex. The board of directors intends to explore acquisitions of businesses in industries with respect to which they have familiarity based on their other business and investment activities; however, the board does not intend to limit its acquisition and investment activities to those businesses and industries. The overall timeframe for potential acquisitions and investments beyond the Amplex Acquisition remains uncertain. Even though the Loan Portfolio Sale has closed, the restructuring plan may not be implemented at all or, if implemented, may not be successful in achieving its intended goals. We may not be successful in identifying other businesses beyond Amplex to acquire or invest in and, if we do, we may not be able to make such acquisitions or investments on terms favorable to us, if at all. There can be no assurance that if such acquisitions or investments are made that the value to shareholders over time will exceed the amount, if any, they would receive in a liquidation. There can be no assurance that the restructuring plan will result in greater shareholder value than the liquidation and dissolution of the Company.

We may not be able to use our net operating loss carryforwards as a result of the Loan Portfolio Sale or otherwise, which could adversely affect our restructuring plan.

Our ability to preserve and use our net operating loss (“NOL”) carryforwards and certain other tax attributes as part of our restructuring plan, or otherwise, may be limited or may not be available for use at all. As of March 31, 2024, we maintained a deferred income tax valuation allowance of $14.0 million, the remaining state gross NOL was $59.4 million, and the remaining U.S. gross NOL amounted to $38.8 million. The U.S. NOL generated beginning in 2022 and later will carry forward indefinitely, while some state NOLs begin to expire March 31, 2039. Realization of these NOL carryforwards depends on future income and if we do not generate future income our existing carryforwards would be unavailable to offset future income tax liabilities, which could materially and adversely affect our results of operations. Additionally, under Section 382 of the Internal Revenue Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a rolling three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Similar rules may apply under state tax laws. We do not believe that we will experience an ownership change as a result of the domestication or the Loan Portfolio Sale. However, we may experience ownership changes in the future as a result of future transactions in, or issuances of, our stock, some of which may be outside our control. If a “change in ownership” occurs and if we earn net taxable income, our ability to use our pre-change NOL carryforwards, or other pre-change tax attributes, to offset U.S. and state taxable income may be subject to significant limitations or may not be available at all. Limitations on the use of our pre-change NOL carryforwards or other pre-change tax attributes or our inability to use them could adversely affect our restructuring plan by delaying or preventing its implementation.

We may be deemed to be a shell company as a result of the Loan Portfolio Sale or otherwise, which could adversely affect your ability to sell your shares of Company stock.

If we become a shell company as defined in Rule 405 promulgated under the Securities Act and Rule 12b-2 of the Exchange Act, your ability to resell your common shares could be limited. A shell company is a company that has: (a) no or nominal operations and (b) either no or nominal assets, assets consisting solely of cash and cash equivalents or assets consisting of any amount of cash and cash equivalents and nominal other assets. Your common shares may only be sold pursuant to an effective registration statement or an exemption from registration, if available, such as Rule 144 promulgated under the Securities Act or another exemption. Currently, there is no effective registration statement for you to resell your common shares. Rule 144 provides a potential registration exemption for resales of your common shares if all of the requirements of the rule are met. The registration exemption provided by Rule 144 is not available for resales of securities issued by a company that has been at any

time a shell company, with an exception. Under this exemption, Rule 144 may be available for a company that is at any time a shell company if all of the following conditions are met: (i) the issuer of the securities that was formerly a shell company has ceased to be a shell company; (ii) the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; (iii) the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding twelve months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and (iv) at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company. At the present time, the Company is not classified as a “shell company” under Rule 405 of the Securities Act or Rule 12b-2 of the Exchange Act. To the extent the Company is designated a shell company you would be unable to resell your common shares under Rule 144, unless the conditions of the exemption in Rule 144 are satisfied.

Risks Related to Our Business and Industry

We face intense competition, including competition from companies with significantly greater resources than us, and if we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.

The broadband services to be offered through Amplex will compete with other technologies, including traditional cable services as well as satellite services. These markets are highly competitive, and many traditional providers of cable and wireless services have greater financial, marketing, and human resources than we do and may be able to offer additional products and services to our customers. In addition, new technologies may be developed which would provide an alternative to our fiber-to-the-home services we currently provide. As we seek to expand our broadband services, we may face incumbent service providers which would be able to retain a significant customer base in the communities in which we may seek to enter, making it difficult to achieve a share of the market needed to provide our services profitably. Our inability to compete effectively or expand our customer base could have a material adverse effect on our financial position, liquidity and results of operations.

Our success has been dependent on our ability to forecast the performance of our remaining Contracts and remaining Direct Loans.

We have in the past experienced and may in the future experience high delinquency and loss rates in our portfolios. This has in the past reduced and may continue to reduce our profitability. In addition, our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on our financial position, liquidity and results of operations.

Our consolidated net loss for the year ended March 31, 2024 was $20.8 million as compared to net loss of $34.1 million for the year ended March 31, 2023. Although our significant net loss during fiscal 2023 was largely attributable to our previously announced change in operating strategy and restructuring plan, our profitability usually depends, to a material extent, on the performance of Contracts that we purchase. Historically, we have experienced higher delinquency rates than traditional financial institutions because substantially all of our Contracts and remaining Direct Loans are to non-prime borrowers, who are unable to obtain financing from traditional sources due primarily to their credit history. Contracts and Direct Loans made to these individuals generally entail a higher risk of delinquency, default, repossession, and higher losses than loans made to consumers with better credit.

Our underwriting standards and collection procedures may not offer adequate protection against the risk of default, especially in periods of economic uncertainty. In the event of a default, the collateral value of the financed vehicle usually would not cover the outstanding Contract or Direct Loan balance and costs of recovery.

Our ability to accurately forecast performance and determine an appropriate provision and allowance for credit losses was critical to our business and financial results. The allowance for credit losses is established through a provision for credit losses based on management’s evaluation of the risk inherent in the portfolio, the composition of the portfolio, specific impaired Contracts and Direct Loans, and current economic conditions. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in Item 7 of this Form 10-K, which is incorporated herein by reference.

There can be no assurance that our performance forecasts will be accurate. In periods with changing economic conditions, such as is the case currently, accurately forecasting the performance of Contract and Direct Loans is more difficult. Our allowance for credit losses is an estimate, and if actual Contract and Direct Loan losses are

materially greater than our allowance for credit losses, or more generally, if our forecasts are not accurate, our financial position, liquidity and results of operations could be materially adversely affected.

We have operated in an increasingly competitive market.

The non-prime consumer-finance industry has been highly competitive, and the competitiveness of the market has continued to increase as new competitors continue to enter the market and certain existing competitors continue to expand their operations and become more aggressive in offering competitive terms. There are numerous financial service companies that provide consumer credit in the markets we have served, including banks, credit unions, other consumer finance companies and captive finance companies owned by automobile manufacturers and retailers. Many of these competitors have substantially greater financial resources than us. In addition, some of these competitors often provided financing on terms more favorable to automobile purchasers or dealers than we were able to offer. Many of these competitors also have long-standing relationships with automobile dealerships and may have offered dealerships, or their customers, other forms of financing including dealer floor-plan financing and leasing, which we were not able to provide. Providers of non-prime consumer financing have traditionally competed primarily on the basis of:

We are heavily reliant upon our executive management team.

We depend heavily on the efforts and services of our executive officers and other members of our management team to manage our operations. The unexpected loss or unavailability of key members of management may have a material adverse effect on our business, financial condition, results of operations, or prospects. Although our executive officers devote most of their business time to us and are highly active in our management, they may expend part of their time on other business ventures. If any key executive officers are unable to dedicate adequate time to our businesses and operations, we could experience an adverse effect on our operations due to the demands placed on our management team by other professional obligations.

Risks Related to COVID-19

The extent to which COVID-19 and measures taken in response thereto impact our business, results of operations and financial condition will continue to depend on factors outside of our control. COVID-19 has had and is likely to continue to have a material impact on our results of operations and financial condition and heightens many of our known risks.

The outbreak of the global pandemic of COVID-19 and resultant economic effects of preventative measures taken across the United States and worldwide have been weighing on the macroeconomic environment, negatively impacting consumer confidence, employment rates and other economic indicators that contribute to consumer spending behavior and demand for credit. The extent to which COVID-19 impacts our business, results of operations and financial condition will continue to depend on factors outside of our control, which are highly uncertain and difficult to predict, including, but not limited to, the duration and spread of the outbreak in light of different levels of vaccination across the globe and new variants of the virus or additional waves of cases, its severity, actions to contain the virus or treat its impact, and whether the recently observable resumption of pre-pandemic economic and operating conditions in the United States can continue in light of inflationary pressure and higher insurance costs. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In addition, the spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, developing social distancing plans for our employees and cancelling physical participation in meetings,

events and conferences), and we may take further actions as may be required by government authorities or as we determine is in the best interests of our employees, partners and customers. The outbreak has adversely impacted and may further adversely impact our workforce and operations and the operations of our partners, customers, suppliers and third-party vendors, throughout the time period during which the spread of COVID-19 continues and related restrictions remain in place, and even after the COVID-19 outbreak has subsided.

Even after the COVID-19 outbreak has subsided and despite the formal declaration of the end of the COVID-19 global health emergency by the World Health Organization in May 2023, our business may continue to experience materially adverse impacts as a result of the virus’s economic impact, including the availability and cost of funding and any recession that has occurred or may occur in the future. There are no comparable recent events that provide guidance as to the effect COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change.

Additionally, many of the other risk factors described below are heightened by the effects of the COVID-19 pandemic and related economic conditions, which in turn could materially adversely affect our business, financial condition, results of operations, access to financing and liquidity.

Risks Related to Our Business and Industry

Our success has dependent on our ability to forecast the performance of our Contracts and remaining Direct Loans.

We have in the past experienced and may in the future experience high delinquency and loss rates in our portfolios. This has in the past reduced and may continue to reduce our profitability. In addition, our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on our financial position, liquidity and results of operations.

Our consolidated net loss for the year ended March 31, 2024 was $20.8 million as compared to net income of $34.1 million for the year ended March 31, 2023. Although our significant net loss during fiscal 2023 was largely attributable to our previously announced change in operating strategy and restructuring plan, our profitability usually depends, to a material extent, on the performance of Contracts that we purchase. Historically, we have experienced higher delinquency rates than traditional financial institutions because substantially all of our Contracts and remaining Direct Loans are to non-prime borrowers, who are unable to obtain financing from traditional sources due primarily to their credit history. Contracts and Direct Loans made to these individuals generally entail a higher risk of delinquency, default, repossession, and higher losses than loans made to consumers with better credit.

Our underwriting standards and collection procedures may not offer adequate protection against the risk of default, especially in periods of economic uncertainty. In the event of a default, the collateral value of the financed vehicle usually does not cover the outstanding Contract or Direct Loan balance and costs of recovery.

Our ability to accurately forecast performance and determine an appropriate provision and allowance for credit losses is critical to our business and financial results. The allowance for credit losses is established through a provision for credit losses based on management’s evaluation of the risk inherent in the portfolio, the composition of the portfolio, specific impaired Contracts and Direct Loans, and current economic conditions. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in Item 7 of this Form 10-K, which is incorporated herein by reference.

There can be no assurance that our performance forecasts will be accurate. In periods with changing economic conditions, such as is the case currently, accurately forecasting the performance of Contract and Direct Loans is more difficult. Our allowance for credit losses is an estimate, and if actual Contract and Direct Loan losses are materially greater than our allowance for credit losses, or more generally, if our forecasts are not accurate, our financial position, liquidity and results of operations could be materially adversely affected. For example, uncertainty surrounding the continuing economic impact of COVID-19 and the indirect effects of the conflict between Russia and Ukraine, whether through increases in the price of gasoline and other consumer goods or otherwise, on our customers has made historical information on credit losses slightly less reliable in the current environment, and there can be no assurances that we have accurately estimated loan losses.

Other than limited representations and warranties made by dealers in favor of the Company, Contracts are purchased from the dealers without recourse, and we are therefore only able to look to the borrowers for repayment.

Our level of indebtedness could adversely affect our financial health, ability to obtain financing in the future, ability to react to changes in our business and ability to fulfill our obligations under such indebtedness.

As of March 31, 2024, we had no outstanding indebtedness under our Credit Facility compared to $29.1 million under our predecessor facility as of March 31, 2023. Any material increase in our level of indebtedness could:

Any of the foregoing impacts of our level of indebtedness then in effect could have a material adverse effect on us.

We are heavily reliant upon our executive management team.

We depend heavily on the efforts and services of our executive officers and other members of our management team to manage our operations. The unexpected loss or unavailability of key members of management may have a material adverse effect on our business, financial condition, results of operations, or prospects. Although our executive officers devote most of their business time to us and are highly active in our management, they may expend part of their time on other business ventures. If any key executive officers are unable to dedicate adequate time to our businesses and operations, we could experience an adverse effect on our operations due to the demands placed on our management team by other professional obligations.

We are subject to risks associated with litigation.

As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things:

Some litigation against us could take the form of class action complaints by consumers. As the assignee of Contracts originated by dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of actions can be substantial. The relief requested by the plaintiffs varies but may include requests for compensatory, statutory, and punitive damages. We also are periodically subject to other kinds of litigation typically experienced by businesses such as ours, including employment disputes and breach of contract claims. No assurances can be given that we will not experience material financial losses in the future as a result of litigation or other legal proceedings.

Our business is highly dependent upon general economic conditions.

We have been subject to changes in general economic conditions that are beyond our control. During periods of economic uncertainty, such as has existed for much of the past years, delinquencies, defaults, repossessions, and losses generally increase, absent offsetting factors. These periods also may be accompanied by decreased consumer demand for automobiles and declining values of automobiles securing outstanding loans, which weakens collateral coverage on our loans and increases the amount of a loss we would experience in the event of default. Because we focused on non-prime borrowers, the actual rates of delinquencies, defaults, repossessions, and losses on these loans were higher than those experienced in the general automobile finance industry and could be more dramatically affected by a general economic downturn. In addition, during an economic slowdown or recession, our servicing costs may have increased without a corresponding increase in our servicing income. No assurances can be given that our underwriting criteria and collection methods to manage the higher risk inherent in loans made to non-prime borrowers have afforded adequate protection against these risks. Any sustained period of increased delinquencies, defaults, repossessions, or losses, or increased servicing costs could have a material adverse effect on our business and financial condition.

The auction proceeds received from the sale of repossessed vehicles and other recoveries are subject to fluctuation due to economic and other factors beyond our control.

If a vehicle securing a Contract, is repossessed, it will typically be transported to an automobile auction for sale. Auction proceeds from the sale of repossessed vehicles and other recoveries are usually not sufficient to cover the outstanding balance of the Contract, and the resulting deficiency is charged off. In addition, there is, on average, approximately a 30-day lapse between the time of repossession of a vehicle and the time it is sold. The proceeds received from such sales under our servicing agreement depend upon various factors, including the supply of, and demand for, used vehicles at the time of sale. Such supply and demand are dependent on many factors. For example, during periods of economic uncertainty, the demand for used cars may soften, resulting in decreased auction proceeds from the sale of repossessed automobiles. Furthermore, depressed wholesale prices for used automobiles may result from significant liquidations of rental or fleet inventories, and from increased volume of trade-ins due to promotional financing programs offered by new vehicle manufacturers. Newer, more expensive vehicles securing larger dollar loans are more susceptible to wholesale pricing fluctuations than are older vehicles and also experience depreciation at a much greater rate. Ultimately, softer auction activity and reduced vehicle values could have a material adverse effect on our business, financial condition and results of operations.

We partially rely on third parties to deliver services, and failure by those parties to provide these services or meet contractual requirements could have a material adverse effect on our business, financial condition and results of operations.

We have depended on third-party service providers for many aspects of our business operations, including loan origination, loan servicing, title processing, and online payments, which increased our operational complexity and decreased our control. We relied on these service providers to provide a high level of service and support, which subjected us to risks associated with inadequate or untimely service. If a service provider failed to provide the services that we required or expected, or failed to meet contractual requirements, such as service levels or compliance with applicable laws, a failure could negatively impact our business by adversely affecting our ability to process customers’ transactions in a timely and accurate manner, otherwise hampering our ability to service our customers, or subjecting us to litigation or regulatory risk for poor vendor oversight. We may be unable to replace or be delayed in replacing these sources and there is a risk that we would be unable to enter into a similar agreement with an alternate provider on terms that we consider favorable or in a timely manner. Such a failure could have a material adverse effect on our business, financial condition, and results of operations.

The success of our business depends upon our ability to retain and attract a sufficient number of qualified employees.

Although we believe that we can attract and retain qualified and experienced personnel needed to conduct our business operations, no assurance can be given that we will be successful in doing so. Competition to hire personnel possessing the skills and experience required by us could contribute to an increase in our employee turnover rate. High turnover or an inability to attract and retain qualified personnel could have an adverse effect on our, financial condition and results of operations.

Natural disasters, acts of war, terrorist attacks and threats, or the escalation of military activity in response to these attacks or otherwise may negatively affect our business, financial condition, and results of operations.

Natural disasters (such as hurricanes), acts of war, terrorist attacks and the escalation of military activity in response to these attacks or otherwise may have negative and significant effects, such as disruptions in our operations, imposition of increased security measures, changes in applicable laws, market disruptions and job losses. Our headquarters are located in Clearwater, Florida and much of our revenue is generated in Florida. Florida is particularly susceptible to hurricanes. These events may have an adverse effect on the economy in general. Moreover, the potential for future terrorist attacks and the national and international responses to these threats could affect the business in ways that cannot be predicted. The effect of any of these events or threats could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Regulation

Federal or state regulatory reform could have an adverse impact on the Company. The Dodd-Frank Act is extensive legislation that impacts financial institutions and other non-bank financial companies, such as the Company. In addition, the Dodd-Frank Act impacts the offering, marketing and regulation of consumer financial products and services. Many of the implementing regulations have been finalized, but in some cases, additional rulemaking has not yet been finalized. Until all of the implementing regulations have been issued, there can be no assurance that any new requirements will not have an adverse impact on the servicing of the Direct Loans and the Contracts or on the regulation and supervision of the Company.

The Dodd-Frank Act established the CFPB with broad authority over federal consumer financial laws and regulations (“Consumer Financial Laws”). In December 2020, the CFPB issued a final rule governing the activities of third-party debt collectors. The final rule was effective on November 30, 2021. While the final rule did not address first-party debt collectors, the CFPB has previously indicated that it would address this activity in a later rulemaking. It is unclear what effect, if any, the final rule or any subsequent changes may have on Direct Loans and Contracts or the servicer’s practices, procedures and other servicing activities relating to Direct Loans and Contracts in ways that could reduce the associated recoveries.

The CFPB also issued a Compliance Bulletin in February 2022 stating its position that automobile loan holders and servicers are responsible for ensuring that their repossession-related practices, and the practices of their service providers do not violate applicable law, and the CFPB also described its intention to hold loan holders and servicers liable for unfair, deceptive, or abusive acts or practices related to the repossession of automobiles. In its Supervisory Highlights for Spring and Fall of 2022, the CFPB also identified certain auto loan servicing concerns, including the failure to ensure customers received add-on product refunds after events such as repossession or early payoff of the account. It is possible that the CFPB may bring enforcement actions against holders of automobile loans, such as the Company, and servicers, such as Westlake, in the future.

In addition, the FTC and state attorneys general have recently increased their scrutiny of motor vehicle dealers and auto lending, particularly with respect to antidiscrimination and deception concerns related to the prices of and fees charged in connection with automobile financing, including add-on products such as GAP insurance and extended warranties. Also, on June 23, 2022 the FTC issued a proposed rule that would (i) prohibit motor vehicle dealers from making certain misrepresentations in the course of selling, leasing, or arranging financing for motor vehicles, (ii) require accurate pricing disclosures in dealers’ advertising and sales discussions, (iii) require dealers to obtain consumers’ express, informed consent for charges, (iv) prohibit the sale of any add-on product or service that confers no benefit to the consumer, and (v) require dealers to keep records of advertisements and customer

transactions. At this stage, it is unknown whether a final rule will be issued, the exact requirements of any final rule if issued or if any final rule would have a broader potential impact on auto lending practices See “Item 1. Business – Regulation” for additional information.

The CFPB has broad authority to pursue administrative proceedings and litigation for violations of federal consumer financing laws.

The CFPB has the authority to obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties ranging from over $6,300 per day for minor violations of Consumer Financial Laws (including the CFPB’s own rules) to more than $31,600 per day for reckless violations and more than $1,264,600 per day for knowing violations. If we are subject to such administrative proceedings, litigation, orders or monetary penalties in the future, this could have a material adverse effect on our operations and financial performance. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations under Title X, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions for the kind of cease-and-desist orders available to the CFPB (but not for civil penalties). If the CFPB or one or more state officials believe we have violated the foregoing laws, they could exercise their enforcement powers in ways that would have a material adverse effect on us. See “Item 1. Business – Regulation” for additional information.

Our use of vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention.

We have regularly used vendors and subcontractors as part of our business. We also depended on our substantial ongoing business relationships with our dealers, merchants, and other third parties. These types of third-party relationships, particularly with our dealer partners and our third-party servicing and collection vendors, are subject to increasingly demanding regulatory requirements and oversight by regulators. Regulators may expect certain non-bank entities to maintain an effective process for managing risks associated with vendor relationships, including compliance-related risks. In connection with this vendor risk management process, we may be expected to perform due diligence reviews of potential vendors, review their policies and procedures and internal training materials to confirm compliance-related focus, include enforceable consequences in contracts with vendors regarding failure to comply with consumer protection requirements, and take prompt action, including terminating the relationship, in the event that any vendor fails to meet our expectations.

Regulators may hold us responsible for deficiencies in our oversight and control of third-party relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over vendors and subcontractors or other ongoing third-party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines, as well as requirements for consumer remediation, any of which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to many other laws and governmental regulations, and any material violations of or changes in these laws or regulations could have a material adverse effect on our financial condition and business operations.

As a provider of consumer financial services, the Company has operated in a highly regulated environment. The Company is subject to state licensing requirements and state and federal laws and regulations. In addition, the Company may be subject to governmental and regulatory examinations, information gathering requests, and investigations from time to time at the state and federal levels. Compliance with applicable law is costly and can affect the Company’s results of operations. Compliance requires forms, processes, procedures, controls and the infrastructure to support these requirements. Compliance may create operational constraints and place limits on pricing, as the laws and regulations in the financial services industry are designed primarily for the protection of consumers. Changes in laws and regulations could restrict the Company’s ability to operate its business as currently operated, could impose substantial additional costs or require it to implement new processes, which could adversely affect the Company’s business, prospects, financial performance or financial condition. The failure to comply with applicable laws and regulations could result in significant statutory civil and criminal fines, penalties, monetary damages, attorney or legal fees and costs, restrictions on the Company’s ability to operate its business, possible revocation of licenses and damage to the Company’s reputation, brand and valued customer relationships. Any such costs, restrictions, revocations or damage could adversely affect the Company’s business, prospects, results of operations or financial condition. See “Item 1. Business – Regulation” for additional information.

The CFPB and the FTC may investigate the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities. As a result of such investigations, the CFPB and the FTC have announced various enforcement actions against lenders in the past few years involving significant penalties, consent orders, cease and desist orders and similar remedies that, if applicable to the Company or the products, services and operations the Company has offered, may require the Company to cease or alter certain business practices, which could have a material adverse effect on the Company’s results of operations, financial condition, and liquidity. Supervision and investigations by these agencies may result in monetary penalties, increase the Company’s compliance costs, require changes in its business practices, affect its competitiveness, impair its profitability, harm its reputation or otherwise adversely affect its business.

Our financing operations are subject to regulation, supervision, and licensing under various other federal, state and local statutes and ordinances. In addition, the Company and its service providers must comply with certain federal and state requirements in connection with the servicing and collection on Direct Loans and Contracts, and the repossession of vehicles securing Direct Loans and Contracts in the states in which the Company has done business. The various federal, state and local statutes, regulations, and ordinances applicable to our business govern, among other things:

We believe that we have maintained all material licenses and permits required to conduct our consumer financial services and are in substantial compliance with all applicable local, state and federal regulations. Our failure, or the failure by dealers who originate the Contracts we have purchased, or the failure by our service providers, to maintain all requisite licenses and permits, and to comply with other regulatory requirements, could result in consumers

having rights of rescission and other remedies that could have a material adverse effect on our financial condition. Furthermore, any changes in applicable laws, rules and regulations, such as the passage of the Dodd-Frank Act and the creation of the CFPB, may make our compliance therewith more difficult or expensive or otherwise materially adversely affect our business and financial condition.

Some litigation against us could take the form of class action complaints by consumers. As the assignee of contracts originated by dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of actions can be substantial. The relief requested by the plaintiffs varies but may include requests for compensatory, statutory, and punitive damages. We also are periodically subject to other kinds of litigation typically experienced by businesses such as ours, including employment disputes and breach of contract claims. No assurances can be given that we will not experience material financial losses in the future as a result of litigation or other legal proceedings.

Risks Related to Privacy and Cybersecurity

Failure to properly safeguard confidential customer information could subject us to liability, decrease our profitability, and damage our reputation.

In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and personally identifiable information of our customers, on our computer networks, and share such data with third parties, including our service providers. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy.

Any failure, interruption, or breach in our cybersecurity, including through employee misconduct or any failure of our back-up systems or failure to maintain adequate security surrounding customer information, could result in reputational harm, disruption in the management of our customer relationships, or the inability to originate, process and service our products. Further, any of these cybersecurity and operational risks could result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to lawsuits by customers for identity theft or other damages resulting from the misuse of their personal information and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity. In addition, regulators may impose penalties or require remedial action if they identify weaknesses in our security systems, and we may be required to incur significant costs to increase our cybersecurity to address any vulnerabilities that may be discovered or to remediate the harm caused by any security breaches. As part of our business, we may share confidential customer information and proprietary information with clients, vendors, service providers, and business partners. The information systems of these third parties may be vulnerable to security breaches and we may not be able to ensure that these third parties have appropriate security controls in place to protect the information we share with them. If our confidential information is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition, and liquidity. If any vendor fails to provide the services we require, fails to meet contractual requirements (including compliance with applicable laws and regulations), fails to maintain adequate data privacy controls and electronic security systems, or suffers a cyber-attack or other security breach, we could be subject to CFPB, FTC and other regulatory enforcement actions, claims from third parties, including our consumers, and suffer economic and reputational harm that could have an adverse effect on our business. Further, we may incur significant costs to resolve any such disruptions in service, which could adversely affect our business.

Providers of consumer financial services are subject to specific requirements to protect consumer data. In 2021, the FTC updated its Safeguards Rule implementing Section 501(b) of GLBA, to set forth specific criteria relating to the safeguards that certain nonbank financial institutions must implement as a part of their information security programs. These safeguards, among other things, limit who can access customer information, require the use of encryption to secure such information, and require the designation of a single qualified individual to oversee an institution’s information security program and report at least annually to the institution’s board of directors or equivalent governing body. The CFPB recently issued Consumer Financial Protection Circular 2022-04, which warned that data security shortcomings could subject financial services companies to unfairness claims under the Consumer Financial Protection Act—even if those firms comply with the GLBA Safeguards Rule, the primary data security regulation for non-bank financial institutions.

We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to secure online transmission of confidential customer information. Advances in computer

capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against, or alleviate problems caused by, security breaches or other cybersecurity incidents. Although we have not experienced any material cybersecurity incidents to dates, there can be no assurance that a cyber-attack, security breach or other cybersecurity incident will not have a material adverse effect on our business, financial condition or results of operations in the future. Our security measures are designed to protect against security breaches, but our failure to prevent security breaches could subject us to liability, decrease our profitability and damage our reputation.

Risks Related to our Common Stock

Our stock is thinly traded, which may limit your ability to resell your shares.

The average daily trading volume of our common shares on the NASDAQ Global Select Market for the fiscal year ended March 31, 2024 was approximately 7,573 shares, which makes ours a thinly traded stock. Thinly traded stocks pose several risks for investors because they have wider spreads and less displayed size than other stocks that trade in higher volumes or an active trading market. Other risks posed by thinly traded stocks include difficulty selling the stock, challenges attracting market makers to make markets in the stock, and difficulty with financings. Our financial results, the introduction of new products and services by us or our competitors, and various factors affecting the industries in which we operate generally may also have a significant impact on the market price of our common shares. In recent years, the stock market has experienced a high level of price and volume volatility, and market prices for the stocks of many companies, including ours, have experienced wide price fluctuations that have not necessarily been related to their operating performance. These risks could affect a shareholder’s ability to sell their shares at the volumes, prices, or times that they desire.

We currently do not have any analysts covering our stock which could negatively impact both the stock price and trading volume of our stock.

The trading market for our common stock will likely be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not currently have, and may never obtain, research coverage by financial analysts. If no or few analysts commence coverage of us, the trading price of our stock may not increase. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluation of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. Furthermore, if our operating results fail to meet analysts’ expectations our stock price would likely decline.

Some provisions of our Articles may deter third parties from acquiring us and diminish the value of our common stock.

Our Articles provide for, among other things:

These provisions may discourage, delay or prevent a transaction involving a change in control of our Company that is in the best interest of our shareholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts. These provisions could also make it more difficult for shareholders to nominate directors for election to our board of directors and take other corporate actions.

We are a “smaller reporting company” as defined in SEC regulations, and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.

We are a “smaller reporting company” as defined under SEC regulations and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies including, among other things, reduced financial disclosure requirements, including being permitted to provide only two years of audited financial statements and reduced disclosure obligations regarding executive compensation. As a result, our shareholders may not have access to certain information that they may deem important. We could remain a smaller reporting company indefinitely. As a smaller reporting company, investors may deem our stock less attractive and, as a result, there may be less active trading of our common stock, and our stock price may be more volatile.

Our common shares may be delisted from the NASDAQ Global Select Market, which could adversely affect the price of such common shares and your ability to sell or purchase shares.

Our failure to meet NASDAQ’s continued listing requirements could result in a delisting of our common shares from the NASDAQ Global Select Market. If we fail to satisfy NASDAQ’s continued listing requirements NASDAQ may take steps to delist our common shares. A delisting would likely have a negative effect on the price of our common shares and would impair your ability to sell or purchase our securities when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities or prevent future non-compliance with NASDAQ’s listing requirements. At the present time, the Company meets NASDAQ’s continued listing requirements.

General Risk Factors

Epidemics, pandemics, and other outbreaks (including the coronavirus (COVID-19) pandemic) can disrupt the Company’s operations and adversely affect its business, financial condition, results of operations, and cash flows.

Epidemics, pandemics, and other outbreaks of an illness, disease, or virus, including novel coronavirus disease (“COVID-19”), have adversely affected, and could adversely affect in the future, workforces, customers, economies, and financial markets globally, potentially leading to economic downturns. The significance of the impact on the Company’s operations of an epidemic, pandemic, or other outbreak depends on numerous factors that the Company may not be able to accurately predict or effectively respond to, including without limitation: the duration and scope of the outbreak (including the extent of surges, mutations, or strains of the outbreak and the efficacy of vaccination and other efforts to contain the outbreak or treat its effects); actions taken by governments, businesses, and individuals in response to the outbreak; the effect on economic activity and actions taken in response; the effect on customers and their demand for the Company’s products and services; the effect on the health, wellness, and productivity of the Company’s employees; and the Company’s ability to sell, and service its products, including without limitation as a result of supply chain challenges, facility closures, social distancing, restrictions on travel, fear or anxiety by the populace, and shelter in place orders. These and other factors relating to or arising from an epidemic, pandemic or other outbreak could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows, as well as the trading price of the Company’s securities. Additionally, many of the other risk factors described herein may be exacerbated by the effects of an epidemic, pandemic, or other outbreak and related economic conditions, which in turn could materially adversely affect our business, financial condition, results of operations, cash flows, access to financing and liquidity.

We have in the past had material weaknesses in our internal control over financial reporting. Failure to maintain an effective system of internal control over financial reporting and disclosure controls and procedures could lead to a loss of investor confidence in our financial statements and have an adverse effect on our stock price.

We may in the future discover areas of our internal financial and accounting controls and procedures that need improvement. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, regardless of how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no

evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, investors could lose confidence in our reported financial information, which could lead to a decline in the market price of our common stock and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities.

Additionally, the existence of any material weakness could require management to devote significant time and incur significant expense to remediate any such material weakness and management may not be able to remediate any such material weakness in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause the holders of our common stock to lose confidence in our reported financial information, all of which could materially adversely affect our business and share price.

Item 1B. Unresolved Staff Comments

None.

Item 1C. Cybersecurity

Risk Management and Strategy

We are committed to maintaining the confidentiality, integrity, and availability of our information systems and data. As part of this commitment, we have implemented a comprehensive cybersecurity program to protect against unauthorized access, use, disclosure, modification, or destruction of our information assets. We are committed to ensuring the security and protection of our Company’s information assets and the personal information of our employees, customers, and stakeholders.

We recognize that cybersecurity threats are constantly evolving and have the potential to cause significant harm to our Company and our stakeholders. In order to address these risks, we have established a cybersecurity risk management framework that is aligned with industry best practices and regulatory requirements.

Our program includes regular risk assessments, vulnerability management, access controls, incident response planning, and employee training and awareness programs. We also work closely with third-party service providers to ensure that they are meeting our cybersecurity standards.

There can be no assurance that our cybersecurity program will prevent all incidents. In the event of a cybersecurity incident, we have established procedures for prompt investigation, containment, and remediation to minimize the impact on our operations and stakeholders. We believe that our cybersecurity program is robust and effective, and we will continue to invest in and improve our capabilities to address evolving threats. We are committed to transparency and will provide updates on any material cybersecurity incidents that may impact our Company or our stakeholders.

During the fiscal year ended March 31, 2024, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced undetected cybersecurity incidents. For additional information about these risks, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K.

Governance

Our board of directors addresses the Company’s cybersecurity risk management as part of its general oversight function. The board of directors’ audit committee is responsible for overseeing Company’s cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.

Our cybersecurity risk assessment and management processes are implemented and maintained by certain Company personnel. Our IT staff has over 30 years of experience in roles that include oversight of cybersecurity risk management programs. In addition, the IT staff is consulted by an external agency with long term expertise in cybersecurity.

Our IT staff is responsible for helping to integrate cybersecurity risk considerations into the Company’s overall risk management strategy, communicating key priorities to relevant personnel, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.

Our cybersecurity incident response processes are designed to escalate certain cybersecurity incidents to members of management depending on the circumstances, including the CEO, who help the Company mitigate and remediate cybersecurity incidents of which they are notified. In addition, the Company’s incident response processes include reporting to the audit committee for certain cybersecurity incidents.

The audit committee will receive periodic reports from our management concerning cybersecurity issues, including certain threats and risks and the processes the Company has implemented to address them, as applicable. The audit committee also has access to various reports, summaries or presentations related to cybersecurity threats, risk, and mitigation.

Item 2. Properties

The Company leases its corporate headquarters and branch office facilities. The Company’s headquarters, located at 26133 US HWY 19 North, Suite 300, in Clearwater, Florida, consist of approximately 1,769 square feet of office space leased at an annual rate of approximately $18.50 per square foot. The current lease relating to this space was entered into effective February 1, 2023 and expires on January 31, 2026. The Company’s central business operations hub, which was located at 452 Lakeshore Parkway, Suite 115, Rock Hill, South Carolina, consisted of approximately 1,990 square feet of office space leased at an annual rate of approximately $16.08 per square foot. The lease relating to this space was terminated effective January 31, 2024.

As of March 31, 2023, the Company has closed each of its 47 branch offices located in Alabama, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky, Michigan, Missouri, Nevada, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, and Wisconsin. The Company previously acquired Contracts in Idaho and Texas through its virtual expansion office operations based in the Charlotte, North Carolina corporate location.

Item 3. Legal Proceedings

In the ordinary course of its business operations, the Company is involved, from time to time, in ordinary routine litigation and other legal proceedings incidental to its business. No such current litigation or proceedings, individually or in the aggregate, are expected to have a material effect on the business or financial condition of the Company, other than the specific litigation involving Jeremiah Gross, which is disclosed as part of Note 11, Commitments and Contingencies, to the Company’s consolidated financial statements.

Item 4. Mine Safety Disclosures

Not Applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock

The Company’s common shares are traded on the NASDAQ Global Select Market under the symbol “NICK.”

Holders of Record of Common Stock

As of June 28, 2024, there were approximately 108 holders of record of the Company’s common shares.

Dividends

The Company has not declared and paid cash dividends on its common shares in the recent past and has no current plans to declare or pay any cash dividends in the foreseeable future. During the Company’s time as a corporation incorporated under the laws of British Columbia, Canada, there were no Canadian foreign exchange controls or laws that would affect the remittance of dividends or other payments to the Company’s non-Canadian resident shareholders. There are no Canadian laws that restrict the export or import of capital, other than the Investment Canada Act (Canada), which requires the notification or review of certain investments by non-Canadians to establish or acquire control of a Canadian business. The Company is not a Canadian business as defined under the Investment Canada Act because it has no place of business in Canada, has no individuals employed in Canada in connection with its business, and has no assets in Canada used in carrying on its business.

Canada and the United States of America are signatories to the Convention Between the United States of America and Canada With Respect to Taxes on Income and on Capital (the “Tax Treaty”). The Tax Treaty contains provisions governing the tax treatment of interest, dividends, gains, and royalties paid to or received by a person residing in the United States. The Tax Treaty also contains provisions to prevent the occurrence of double taxation, essentially by permitting the taxpayer to claim a tax credit for taxes paid in the foreign jurisdiction.

Earnings from U.S. subsidiaries are permanently invested in the U.S. The Company has not provided any Canadian income tax or U.S. withholding tax on unremitted earnings. If a dividend had been paid to the Company as a British Columbia corporation from the current or accumulated earnings and profits of the U.S. subsidiary, the dividend would have been subject to a U.S. withholding tax of 5%. The gross dividend (i.e., before payment of the withholding tax) would generally have been included in the Company's Canadian taxable income. However, under certain circumstances, the Company may have been allowed to deduct the dividends in the calculation of its Canadian taxable income. If the Company had no other foreign (i.e., non-Canadian) non-business income, no relief would have been available in that case to recover the withholding taxes previously paid.

A 15% Canadian withholding tax would have applied to dividends paid by the Company as a British Columbia corporation to a U.S. shareholder (including those that own less than 10% of the Company’s voting shares) that is an individual. The U.S. shareholder would have had to include the gross amount of the dividends in the shareholder’s net income to be taxed at the regular rates. In general, a U.S. shareholder can obtain a foreign tax credit for U.S. federal income tax purposes with respect to the Canadian withholding tax on such dividends, but the amount of such credit is subject to a limitation that depends, in part, on the amount of the shareholder’s income and losses from other sources. A U.S. shareholder that is an individual also can elect to claim a deduction (rather than a foreign tax credit) for all non-U.S. income taxes paid by the shareholder during the particular year. The benefit of any deduction for foreign taxes may be negatively impacted by the overall limitation on deducting income and other taxes. U.S. shareholders are urged to consult their own tax advisors regarding the U.S. federal income tax treatment of any Canadian withholding tax imposed on dividends from the Company.

Purchases of Equity Securities by the Company and Affiliated Purchasers

In May 2019, the Company’s Board of Directors (“Board”) authorized a stock repurchase program allowing for the repurchase of up to $8.0 million of the Company’s outstanding shares of common stock in open market purchases, privately negotiated transactions, or through other structures in accordance with applicable federal securities laws. The authorization was effective immediately.

The timing and actual number of sharers will depend on a variety of factors, including stock price, corporate and regulatory requirements and other market and economic conditions. The Company’s stock repurchase program may be suspended or discontinued at any time.

In August 2019, the Company’s Board authorized additional repurchase of up to $1.0 million of the Company’s outstanding shares.

There were no shares of our Common Stock repurchased by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the final three months of the fiscal year ended March 31, 2024.

Item 6. [Reserved]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Nicholas Financial Parent started as a Canadian holding company incorporated under the laws of British Columbia in 1986. Nicholas Financial Parent conducted its business activities exclusively through a wholly-owned indirect Florida subsidiary, Nicholas Financial, during the fiscal years ended March 31, 2024 and 2023. Nicholas Financial has been a specialized consumer finance company engaged primarily in servicing automobile finance installment contracts (“Contracts”) for purchases of used and new automobiles and light trucks. To a lesser extent, prior to the end of the third fiscal quarter of the fiscal year ended March 31, 2024, Nicholas Financial also originated Contracts, and prior to the end of the third fiscal quarter of the fiscal year ended March 31, 2023, direct consumer loans (“Direct Loans”) and sold consumer-finance related products. Nicholas Financial’s financing activities represent a primary source of consolidated revenue for the fiscal years ended March 31, 2024 and 2023. A second Florida subsidiary, NDS, serves as an intermediate holding company for Nicholas Financial.

Nicholas Financial Parent, Nicholas Financial, and NDS are collectively referred to herein as the “Company”.

Introduction

The Company’s consolidated revenues decreased from $44.3 million for the fiscal year ended March 31, 2023 to $22.2 million for the fiscal year ended March 31, 2024. The Company’s net loss per share decreased from $4.65 per share for the fiscal year ended March 31, 2023 to a net loss of $2.86 per share for the fiscal year ended March 31, 2024. The Company’s loss before income tax decreased from $32.7 million for the year ended March 31, 2023 to a loss before income tax of $20.8 million for the year ended March 31, 2024. The decrease in profitability was primarily driven by a decrease in average finance receivables from $165.4 million to $88.2 million for the years ended March 31, 2023 and 2024, respectively.

The Company’s consolidated net loss decreased from $34.1 million for the fiscal year ended March 31, 2023 to a net loss of $20.8 million for the fiscal year ended March 31, 2024.

The gross portfolio yield of the portfolio for the fiscal years ended March 31, 2024 and 2023 was 33.6% and 26.8%, respectively. For the fiscal years ended March 31, 2023 and 2024, the average dealer discount decreased from 6.5% to 6.3%, primarily as a result of market conditions in the 2024 fiscal year. The APR (and therefore overall yield) on new purchases declined in fiscal 2024 and fiscal 2023 to 22.1% from 22.5%, which was primarily driven by the Company’s continuing commitment to its core principles of disciplined underwriting and risk-based pricing.

Operating expenses as presented include restructuring costs of $1.2 million for the twelve months ended March 31, 2024 and $4.8 million for the twelve months ended March 31, 2023.

Critical Accounting Estimates

A critical accounting estimate is an estimate that: (i) is made in accordance with generally accepted accounting principles, (ii) involves a significant level of estimation uncertainty and (iii) has had or is reasonably likely to have a material impact on the Company’s financial condition or results of operations.

The Company’s critical accounting estimates (i.e., that involves a significant level of estimation uncertainty and has or is reasonably likely to have a material impact on the Company’s financial condition or results of operations) relates to the determination of the fair value of finance receivables held for sale which determines the held for sale valuation allowance necessary to carry finance receivables held for sale at the lower of amortized cost or fair value.

There have been changes in our critical accounting policies from those disclosed in our 2023 Annual Report on Form 10-K related to the following:

Fair Value of Finance Receivables Held for Sale

Finance receivables held for sale are carried at the lower of amortized cost basis or fair value which generally established a new held for sale valuation allowance through earnings in the same reporting period. The Company compared the fair value and amortized cost of finance receivables held for sale and recorded a held for sale valuation allowance through earnings to reduce the amortized cost basis to fair value as of March 31, 2024. The Company estimates the fair value of finance receivables held for sale utilizing a discounted cash flow approach which includes an evaluation of the collateral and underlying loan characteristics, as well as assumptions to determine the discount rate such as credit loss and prepayment forecasts. In determining the appropriate discount rate, prepayment and credit assumptions, the Company monitors other capital markets activity for similar collateral being traded and /or

interest rates currently being offered for similar products. Significant increases (decreases) in assumptions in isolation could result in a significantly lower (higher) fair value measurement. Changes in the held for sale valuation allowance are recorded through earnings along with charge offs and recoveries as "Fair value and other adjustments, net" in the Consolidated Statements of Operations.

Fiscal 2024 Compared to Fiscal 2023

Interest and Fee Income on Finance Receivables

Interest and fee income on finance receivables, predominantly finance charge income, decreased to $22.2 million in fiscal 2024 as compared to $44.3 million in fiscal 2023. The average finance receivables totaled $88.3 million for the fiscal year ended March 31, 2024, a decrease of 46.6% from $165.4 million for the fiscal year ended March 31, 2023. Specifically, origination of direct loans decreased to $0 in fiscal year 2024 compared to $15.8 million in fiscal year end 2023, and Contract purchases decreased to $5.5 million in fiscal year 2024 compared to $47.5 million in fiscal year 2023.Purchasing volume decreased to $5.5 million in fiscal 2024 from $47.5 million in fiscal 2023. Purchasing volume decreased from fiscal 2023 primarily as a result of implementation of our restructuring strategy.

Competition continued to affect the Company’s ability to acquire Contracts at desired yields. The average APR on new Contract purchases was 22.1% for fiscal 2024 and 22.5% for fiscal 2023. Concurrently, the dealer discount on new Contract purchases decreased from 6.5% for fiscal 2023 to 6.3% for fiscal 2024, primarily as a result of competitive pressures. Overall, the Company maintains its strategy focused on risk-based pricing (rate, yield, advance, term, etc.) and a commitment to the underwriting discipline required for optimal portfolio performance.

The gross portfolio yield decreased to 25.19% for the fiscal year ended March 31, 2024 as compared to 26.76% for the fiscal year ended March 31, 2023. The gross portfolio yield decreased primarily as a result of the decrease in average finance receivables.

Operating Expenses

Our operating expenses consisted primarily of servicing expenses, payroll and employee benefits, administrative expenses, and other miscellaneous expenses. Operating expenses decreased to $15.5 million for the fiscal year ended March 31, 2024 compared to $32.4 million for the fiscal year ended March 31, 2023 as a result of restructuring initiatives undertaken by the Company.

Interest Expense

Interest expense decreased to $0.9 million for the fiscal year ended March 31, 2024, as compared to $3.9 million for the fiscal year ended March 31, 2023, due to a decrease in average outstanding debt, which was partially offset by a higher interest rate. The average outstanding debt during the year ended March 31, 2024 decreased to $8.0 million from $54.2 million during the year ended March 31, 2023. The following table summarizes the Company’s average cost of borrowed funds for the fiscal years ended March 31:

Analysis of Credit Losses

The following table sets forth a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans under ASC 326 and the impact of adoption of ASU 2016-13 for the fiscal years ended March 31. 2024 and a reconciliation of the changes in the allowance for credit losses on Contracts and Direct Loans under the incurred loss model for the fiscal year ended March 31, 2023:

(1) Provision for credit losses and reversal of allowance for credit losses is presented net as "Provision for credit losses" in the Consolidated Statements of Operations.

(2) Amounts shown represents charge-off and recoveries through October 31, 2023. Since November 1, 2023 charge-offs and recoveries are included in "Fair value and other adjustment, net" in the Consolidated Statements of Operations.

Implementation of ASU 2016-13

On April 1, 2023 the Company adopted ASU 2016-13, as further described in "Significant Accounting Policies" to the Consolidated Financial Statements. Upon implementation of ASU 2016-13, the Company recognized a decrease to its opening retained earnings balance of approximately $0.2 million, which reflects an increase to the allowance for credit losses (ACL) of approximately $0.2 million.

ASU 2016-13 introduced a new accounting model to measure credit losses for financial assets measured at amortized costs. In contrast to the previous incurred loss model, ASU 2016-13 requires credit losses for financial assets measured at amortized cost to be determined based on the total current expected credit losses over the life of those financial assets or group of assets.

For the period from April 1, 2023 through October 31, 2023, preceding the decision to sell the portfolio, our process for determining the ACL considered a customer's willingness and ability to pay along with other risk characteristics, including loan size, effective interest rate, loan term, geographic location, expected loss patterns, loan modification programs and other macroeconomic factors. In addition to our quantitative ACL, we also incorporated qualitative adjustments that may relate to risks and changes in current economic conditions that may not be reflected in quantitatively derived results.

On November 1, 2023, concurrent with the decision to sell the portfolio, the Company reclassified its finance receivables to held for sale, which are carried at the lower of amortized cost or fair value. As a result of this reclassification, the Company eliminated the allowance for credit losses under ASC 326, which resulted in a reversal of previously recorded provisions for credit losses for the period from April 1, 2023 through October 31, 2023. The Company compared the fair value and amortized cost of finance receivables to held for sale and recorded a held for sale valuation allowance through earnings to reduce the amortized cost basis to fair value as of March 31, 2024.

Beginning on November 1, 2023, the Company estimates the fair value of these finance receivables held for sale utilizing a discounted cash flow approach which includes an evaluation of the collateral and underlying loan characteristics, as well as assumptions to determine the discount rate such as credit loss and prepayment forecasts. In determining the appropriate discount rate, prepayment and credit assumptions, the Company monitors other capital markets activity for similar collateral being traded and/or interest rates currently being offered for similar products. Discussions related to the fair value of these finance receivables held for sale are held between Company management and external valuation specialists to review the key assumptions used in arriving at the final estimates. As such, these finance receivables are therefore classified within Level 3 of the valuation hierarchy.

Prior to adoption of ASU 2016-13 the Company used a trailing twelve-month charge-off analysis to calculate the allowance for credit losses and took into consideration the composition of the portfolio, current economic conditions, estimated net realizable value of the underlying collateral, historical loan loss experience, delinquency, non-performing assets, and bankrupt accounts when determining management’s estimate of probable credit losses and adequacy of the allowance for credit losses. By including recent trends such as delinquency, non-performing assets, and bankruptcy in its determination, management believed that the allowance for credit losses reflected the current trends of incurred losses within the portfolio and was aligned with the portfolio’s performance indicators.

If the allowance for credit losses was determined to be inadequate, then an additional charge to the provision was recorded to maintain adequate reserves based on management’s evaluation of the risk inherent in the loan portfolio. Conversely, the Company could identify abnormalities in the composition of the portfolio, which would indicate the calculation is overstated and management's judgment may be required to determine the allowance of credit losses for both Contracts and Direct Loans.

Non-performing assets are defined as accounts that are contractually delinquent for 61 or more days past due or Chapter 13 bankruptcy accounts. For these accounts, the accrual of interest income is suspended, and any previously accrued interest is reversed. Upon notification of a bankruptcy, an account is monitored for collection with other Chapter 13 accounts. In the event the debtors’ balance is reduced by the bankruptcy court, the Company will record a loss equal to the amount of principal balance reduction. The remaining balance will be reduced as payments are received by the bankruptcy court. In the event an account is dismissed from bankruptcy, the Company will decide based on several factors, whether to begin repossession proceedings or allow the customer to begin making regularly scheduled payments.

Beginning March 31, 2018, the Company allocated a specific reserve for the Chapter 13 bankruptcy accounts using a look back method to calculate the estimated losses. Based on this look back, management calculated a specific reserve of approximately $381 thousand for these accounts as of October 31, 2023.

Prior to April 1, 2023, the Company recorded losses based on the trailing twelve-month charge-offs and applied this calculated percentage to ending finance receivables to calculate estimated probable credit losses for purposes of determining the allowance for credit losses. Upon adoption of ASC 326 on April 1, 2023, expected credit losses were determined by comparing the amortized cost of finance receivables with the present value of the estimated future principal and interest cash flows. The current period provision reflects the change in the difference between the amortized cost basis and the present value of the expected cash flows of finance receivables.