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Item 1A. Risk Factors

2022-05-10 compared with 2021-11-12 · 261 added, 147 removed, 286 unchanged (59% of the section changed)

An investment in our common stock, preferred stock or other securities involves a number of risks.

An investment in our common stock, preferred stock or other securities involves a number of risks.

You should carefully consider each of the risks described below before deciding to invest in our securities.

If any of the following risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the market price of our securities could decline and you may lose all or part of your investment.

The impact of COVID-19 on global commercial activity and the corresponding volatility in financial markets is evolving.

The global impact of the outbreak has led to many federal, state and local governments instituting quarantines and restrictions on travel.

There also have been disruptions in global supply chains that have adversely impacted a number of industries, such as transportation, hospitality and entertainment.

If any of the following risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the market prices of our securities could decline and you may lose all or part of your investment.

The impact of COVID-19 on global commercial activity and the corresponding volatility in financial markets is evolving.

Initially, the global impact of the outbreak led to many federal, state and local governments instituting quarantines and restrictions on travel.

More recently, there have been disruptions in global supply chains that have adversely impacted a number of industries, such as transportation, hospitality and entertainment.

In addition, there have been significant inflation and labor shortages over the past year.

The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.

The rapid development and fluidity of this situation preclude any accurate prediction as to the ultimate impact of COVID-19.

Nevertheless, COVID-19 presents material uncertainty and risk with respect to our performance and financial results.

Nevertheless, COVID-19 presents material uncertainty and risk with respect to our performance and financial results.

For additional information, see "—Other Risks to Our Business—

The global outbreak of COVID-19  

has caused severe disruptions in the U.S.

COVID-19 has caused severe disruptions in the U.S.

economy, and may have an adverse impact on our performance, results of operations and access to capital ".

Our Cash Flows and Net Income Are Dependent Upon Payments from Our Investments in Receivables

The collectability of our investments in receivables is a function of many factors including the criteria used to select who is issued credit, the pricing of the credit products, the lengths of the relationships, general economic conditions, the rate at which consumers repay their accounts or become delinquent, and the rate at which consumers borrow funds. Deterioration in these factors would adversely impact our business. In addition, to the extent we have over-estimated collectability, in all likelihood we have over-estimated our financial performance.

Deterioration in these factors would adversely impact our business.

In addition, to the extent we have over-estimated collectability, in all likelihood we have over-estimated our financial performance.

Some of these concerns are discussed more fully below.

Our portfolio of receivables is not diversified and primarily originates from consumers whose creditworthiness is considered less than prime.

 Historically, we have invested in receivables in one of two ways—we have either (i) invested in receivables originated by lenders who utilize our services or (ii) invested in or purchased pools of receivables from other issuers.

In either case, substantially all of our receivables are from borrowers represented by credit risks that regulators classify as less than prime. Our reliance on these receivables may in the future negatively impact our performance. 

In either case, substantially all of our receivables are from borrowers represented by credit risks that regulators classify as less than prime.

Our reliance on these receivables may in the future negatively impact our performance.

Economic slowdowns increase our credit losses.

 During periods of economic slowdown or recession, we generally experience an increase in rates of delinquencies and frequency and severity of credit losses.

Our actual rates of delinquencies and frequency and severity of credit losses may be comparatively higher during periods of economic slowdown or recession.

Because a significant portion of our reported income is based on management ’

s estimates of the future performance of receivables, differences between actual and expected performance of the receivables may cause fluctuations in net income.

 Significant portions of our reported income (or losses) are based on management’s estimates of cash flows we expect to receive on receivables, particularly for such assets that we report based on fair value.

Because a significant portion of our reported income is based on management’s estimates of the future performance of receivables, differences between actual and expected performance of the receivables may cause fluctuations in net income.

The expected cash flows are based on management’s estimates of interest rates, default rates, payment rates, cardholder purchases, servicing costs, and discount rates.

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For instance, higher than expected rates of delinquencies and losses could cause our net income to be lower than expected.

Similarly, levels of loss and delinquency can result in our being required to repay lenders earlier than expected, thereby reducing funds available to us for future growth. 

Due to our lack of significant experience with Internet consumers, we may not be able to evaluate their creditworthiness.

 We do not have significant experience with the credit performance of receivables owed by consumers acquired over the Internet and other digital channels.

As a result, we may not be able to evaluate successfully the creditworthiness of these potential consumers.

We do not have significant experience with the credit performance of receivables owed by consumers acquired over the Internet and other digital channels.

As a result, we may not be able to successfully evaluate the creditworthiness of these potential consumers.

Therefore, we may encounter difficulties managing the expected delinquencies and losses.

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All of our financing facilities are of finite duration (and ultimately will need to be extended or replaced) and contain financial covenants and other conditions that must be fulfilled in order for funding to be available.

Moreover, some of our facilities currently are in amortization stages (and are not allowing for the funding of any new loans) based on their original terms. The cost and availability of equity and borrowed funds is dependent upon our financial performance, the performance of our industry overall and general economic and market conditions, and at times equity and borrowed funds have been both expensive and difficult to obtain.

If additional financing facilities are not available in the future on terms we consider acceptable, we will not be able to purchase additional receivables and those receivables may contract in size.

Moreover, some of our facilities currently are in amortization stages (and are not allowing for the funding of any new loans) based on their original terms.

The cost and availability of equity and borrowed funds is dependent upon our financial performance, the performance of our industry overall and general economic and market conditions, and at times equity and borrowed funds have been both expensive and difficult to obtain.

If additional financing facilities are not available in the future on terms we consider acceptable, we will not be able to purchase additional receivables and those receivables may contract in size.

Capital markets may experience periods of disruption and instability, which could limit our ability to grow our receivables.

 From time-to-time, capital markets may experience periods of disruption and instability.

For example, from 2008 to 2009, the global capital markets were unstable as evidenced by the lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions.

Despite actions of the U.S.

federal government and various foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.

These events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.

If similar adverse and volatile market conditions repeat in the future, we and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow our receivables.

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Unfavorable economic and political conditions, including future recessions, political instability, geopolitical turmoil and foreign hostilities, and disease, pandemics and other serious health events, also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.

The outbreak of COVID-19 continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets.

The global impact of the outbreak has been rapidly evolving, and many national, state and local governments have instituted quarantines, restrictions on travel and closures or limitations on non-essential businesses.

There also have been disruptions in global supply chains, that have adversely impacted a number of industries, such as transportation, hospitality and entertainment.

COVID-19 continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets.

The pandemic has, in part, caused disruptions in global supply chains that have adversely impacted a number of industries, such as transportation, hospitality and entertainment.

In addition, there have been significant inflation and labor shortages over the past year.

The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.

The rapid development and fluidity of this situation preclude any accurate prediction as to the ultimate adverse impact of the coronavirus.

Nevertheless, the coronavirus presents material uncertainty and risk with respect to our performance and financial results.

The rapid development and fluidity of this situation preclude any accurate prediction as to the ultimate adverse impact of the coronavirus.

Nevertheless, the pandemic presents material uncertainty and risk with respect to our performance and financial results.

We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume of receivables we purchase or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

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The aggregate amount of outstanding receivables is a function of many factors including purchase rates, payment rates, interest rates, seasonality, general economic conditions, competition from credit card issuers and other sources of consumer financing, access to funding, and the timing and extent of our receivable purchases.

The recent growth of our investments in point-of-sale  

finance and direct-to-consumer receivables may not be indicative of our ability to grow such receivables in the future.

 Our period-end managed receivables balance for point-of-sale finance and direct-to-consumer receivables grew to $1,441.5 million at September 30, 2021 from $982.5 million at September 30, 2020.

The amount of such receivables has fluctuated significantly over the course of our operating history. Furthermore, even if such receivables continue to increase, the rate of such growth could decline.

The recent growth of our investments in private label credit and general purpose credit card receivables may not be indicative of our ability to grow such receivables in the future.

Our period-end managed receivables balance for private label credit and general purpose credit card receivables grew to $1,677.6 million at March 31, 2022 from $1,088.5 million at March 31, 2021.

The amount of such receivables has fluctuated significantly over the course of our operating history.

Furthermore, even if such receivables continue to increase, the rate of such growth could decline.

If we cannot manage the growth in receivables effectively, it could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.

Reliance upon relationships with a few large retailers in the point-of-sale finance operations may adversely affect our revenues and operating results from these operations.

 Our five largest retail partners accounted for over 60% of our outstanding point-of-sale receivables as of December 31, 2020. Although we are adding new retail partners on a regular basis, it is likely that we will continue to derive a significant portion of this operations’

receivables base and corresponding revenue from a relatively small number of partners in the future. If a significant partner reduces or terminates its relationship with us, these operations’

Reliance upon relationships with a few large retailers in the private label credit operations may adversely affect our revenues and operating results from these operations.

Our five largest retail partners accounted for over 65% of our outstanding private label credit receivables as of December 31, 2021.

Although we are adding new retail partners on a regular basis, it is likely that we will continue to derive a significant portion of this operations’

receivables base and corresponding revenue from a relatively small number of partners in the future.

If a significant partner reduces or terminates its relationship with us, these operations’

revenue could decline significantly and our operating results and financial condition could be harmed.

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Furthermore, negative publicity relating to any specific inquiry or investigation could hurt our ability to conduct business with various industry participants or to generate new receivables and could negatively affect our stock price, which would adversely affect our ability to raise additional capital and would raise our costs of doing business.

If any deficiencies or violations of law or regulations are identified by us or asserted by any regulator, or if the CFPB, the FDIC, the FTC or any other regulator requires us or issuing banks to change any practices, the correction of such deficiencies or violations, or the making of such changes, could have a material adverse effect on our financial condition, results of operations or business.

If any deficiencies or violations of law or regulations are identified by us or asserted by any regulator or requires us or issuing banks to change any practices, the correction of such deficiencies or violations, or the making of such changes, could have a material adverse effect on our financial condition, results of operations or business.

In addition, whether or not these practices are modified when a regulatory or enforcement authority requests or requires, there is a risk that we or other industry participants may be named as defendants in litigation involving alleged violations of federal and state laws and regulations, including consumer protection laws.

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If litigation on similar theories were brought against us when we work with a federally insured bank that makes loans and were such an action successful, we could be subject to state usury limits and/or state licensing requirements, loans in such states could be deemed void and unenforceable, and we could be subject to substantial penalties in connection with such loans.

The case law involving whether an originating lender, on the one hand, or a third-party, on the other hand, is the “true lenders”

The case law involving whether an originating lender, on the one hand, or a third-party, on the other hand, is the “true lender”

of a loan is still developing and courts have come to different conclusions and applied different analyses.

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To that end, the court granted Madden’s motion for class certification.

At this time, it is unknown whether Madden will be applied outside of the defaulted debt context in which it arose. The facts in Madden are not directly applicable to our business, as we do not engage in practices similar to those at issue in Madden .

At this time, it is unknown whether Madden will be applied outside of the defaulted debt context in which it arose.

The facts in Madden are not directly applicable to our business, as we do not engage in practices similar to those at issue in Madden .

However, to the extent that the holding in Madden is broadened to cover circumstances applicable to our business, or if other litigation on related theories were brought against us or others and were successful, or we otherwise were found to be the “true lender,”

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doctrine and clarified that when a bank sells, assigns, or otherwise transfers a loan, the interest rates permissible prior to the transfer continue to be permissible following the transfer.

In the summer of 2020, a number of states filed suits against the OCC and the FDIC, challenging these "valid when made" rules. 

In the summer of 2020, a number of state attorneys general filed suits against the OCC and the FDIC, challenging these "valid when made" rules.

In February 2022, the U.S.

District Court for the Northern District of California entered two orders granting summary judgement in favor of the OCC and the FDIC.

The court held that the bank regulators had the power to issue the rules reaffirming the "valid when made" doctrine.

While the state attorneys general can appeal this ruling to the U.S.

Court of Appeals for the Ninth Circuit, that court issued an opinion in September 2020 that agreed with the policy rationale advanced by the bank regulators.

Although the practical consequences of Madden have diminished since the initial ruling, uncertainty remains in this area of law.

The bank that we support in connection with its extension of loans and one of our subsidiaries currently are involved in a dispute with the Maryland Commissioner of Financial Regulation with respect to the extent to which federal preemption preempts state regulation of bank activities related to the lending process, such as lender licensing requirements and aspects of those licensing requirements that purport to limit the rate of interest that can be charged.

The Commissioner issued a "charge letter" making various assertions regarding the applicability of the licensing requirements and interest rate limitations, the bank and our subsidiary removed the resulting administrative proceeding to federal court, and the Commissioner currently is contesting that removal.

The Commissioner issued a "charge letter" making various assertions regarding the applicability of the licensing requirements and interest rate limitations, the bank and our subsidiary removed the resulting administrative proceeding to federal court, and the Commissioner currently is contesting that removal.

The ultimate remedy sought by the Commissioner is the invalidation of loans to Maryland residents.

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We support a single bank that markets general purpose credit cards and certain other credit products directly to consumers.

 We acquire interests in and service the receivables originated by that bank. The bank could determine not to continue the relationship for various business reasons, or its regulators could limit its ability to issue credit cards utilizing our technology platform or to originate some or all of the other products that we service or require the bank to modify those products significantly and could do either with little or no notice.

Any significant interruption or change of our bank relationship would result in our being unable to acquire new receivables or develop certain other credit products. Unless we were able to timely replace our bank relationship, such an interruption would prevent us from acquiring newly originated credit card receivables and growing our investments in point-of-sale and direct-to-consumer receivables. In turn, it would materially adversely impact our business.

The FDIC has issued examination guidance affecting the bank that utilizes our technology platform to market general purpose credit cards and certain other credit products and these or subsequent new rules and regulations could have a significant impact on such credit products.

 The bank that utilizes our technology platform and other services to market general purpose credit cards and certain other credit products is supervised and examined by both the state that charters it and the FDIC.

We acquire interests in and service the receivables originated by that bank.

The bank could determine not to continue the relationship for various business reasons, or its regulators could limit its ability to issue credit cards utilizing our technology platform or to originate some or all of the other products that we service or require the bank to modify those products significantly and could do either with little or no notice.

Any significant interruption or change of our bank relationship would result in our being unable to acquire new receivables or develop certain other credit products.

Unless we were able to timely replace our bank relationship, such an interruption would prevent us from acquiring newly originated credit card receivables and growing our investments in private label credit and general purpose credit card receivables.

In turn, it would materially adversely impact our business.

The FDIC has issued examination guidance affecting the bank that utilizes our technology platform to market general purpose credit cards and certain other credit products and these or subsequent new rules and regulations could have a significant impact on such credit products.

If the FDIC or a state supervisory body considers any aspect of the products originated utilizing our technology platform to be inconsistent with its guidance, the bank may be required to alter or terminate some or all of these products.

On July 29, 2016, the board of directors of the FDIC released examination guidance relating to third-party lending as part of a package of materials designed to “improve the transparency and clarity of the FDIC’s supervisory policies and practices”

In July 2016, the board of directors of the FDIC released examination guidance relating to third-party lending as part of a package of materials designed to “improve the transparency and clarity of the FDIC’s supervisory policies and practices”

and consumer compliance measures that FDIC-supervised institutions should follow when lending through a business relationship with a third party.

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While the guidance has never formally been adopted, it is our understanding that the FDIC has relied upon it in its examination of third-party lending arrangements.

Changes to consumer protection laws or changes in their interpretation may impede collection efforts or otherwise adversely impact our business practices.

On July 20, 2020, the FDIC announced that it is seeking the public's input on the potential for a public/private standard-setting partnership and voluntary certification program to promote the effective adoption of innovative technologies at FDIC-supervised financial institutions.

Released as part of the FDiTech initiative, the request asks whether the proposed program might reduce the regulatory and operational uncertainty that may prevent financial institutions from deploying new technology or entering into partnerships with technology firms, including "fintechs." For financial institutions that choose to use the system, a voluntary certification program could help standardize due diligence practices and reduce associated costs.

At this time, it is unclear what impact this request and potential proposal will have on our operations.

On July 13, 2021, the Federal Reserve, Office of the Comptroller of the Currency, and the FDIC issued proposed guidance on managing risks associated with third-party relationships, including relationships with fintech entities and bank/fintech sponsorship arrangements.

The guidance sets forth expectations for managing risk throughout the life cycle of such arrangements, including planning, due diligence and contract negotiation, oversight and accountability, ongoing monitoring, and termination.

We will continue to monitor this guidance as it potentially becomes final.

Changes to consumer protection laws or changes in their interpretation may impede collection efforts or otherwise adversely impact our business practices. 

Federal and state consumer protection laws regulate the creation and enforcement of consumer credit card receivables and other loans.

Many of these laws (and the related regulations) are focused on non-prime lenders and are intended to prohibit or curtail industry-standard practices as well as non-standard practices.

For instance, Congress enacted legislation that regulates loans to military personnel through imposing interest rate and other limitations and requiring new disclosures, all as regulated by the Department of Defense. Similarly, in 2009 Congress enacted legislation that required changes to a variety of marketing, billing and collection practices, and the Federal Reserve adopted significant changes to a number of practices through its issuance of regulations.

Similarly, in 2009 Congress enacted legislation that required changes to a variety of marketing, billing and collection practices, and the Federal Reserve adopted significant changes to a number of practices through its issuance of regulations.

While our practices are in compliance with these changes, some of the changes (e.g., limitations on the ability to assess up-front fees) have significantly affected the viability of certain credit products within the U.S.

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Material regulatory developments may adversely impact our business and results from operations.

Our Automobile Lending Activities Involve Risks in Addition to Others Described Herein

Our Automobile Lending Activities Involve Risks in Addition to Others Described Herein

Automobile lending exposes us not only to most of the risks described above but also to additional risks, including the regulatory scheme that governs installment loans and those attendant to relying upon automobiles and their repossession and liquidation value as collateral.

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Funding for automobile lending may become difficult to obtain and expensive.

In the event we are unable to renew or replace any Auto Finance segment facilities that bear refunding or refinancing risks when they become due, our Auto Finance segment could experience significant constraints and diminution in reported asset values as lenders retain significant cash flows within underlying structured financings or otherwise under security arrangements for repayment of their loans. If we cannot renew or replace future facilities or otherwise are unduly constrained from a liquidity perspective, we may choose to sell part or all of our auto loan portfolios, possibly at less than favorable prices.

If we cannot renew or replace future facilities or otherwise are unduly constrained from a liquidity perspective, we may choose to sell part or all of our auto loan portfolios, possibly at less than favorable prices.

Our automobile lending business is dependent upon referrals from dealers.

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In the event of certain defaults, we may repossess automobiles and sell repossessed automobiles at wholesale auction markets located throughout the U.S.

Auction proceeds from these types of sales and other recoveries rarely are sufficient to cover the outstanding balances of the contracts;

Auction proceeds from these types of sales and other recoveries generally are not sufficient to cover the outstanding balances of the contracts;

where we experience these shortfalls, we will experience credit losses.

Decreased auction proceeds resulting from depressed prices at which used automobiles may be sold would result in higher credit losses for us.

Repossession of automobiles entails the risk of litigation and other claims.

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As a result, the impact of any acquisition or sale on our future performance may not be as favorable as expected and actually may be adverse.

Portfolio purchases may cause fluctuations in our reported Credit and Other Investments segment’s managed receivables data, which may reduce the usefulness of this data in evaluating our business.

Our reported Credit and Other Investments segment managed receivables data may fluctuate substantially from quarter to quarter as a result of recent and future credit card portfolio acquisitions.

Portfolio purchases may cause fluctuations in our reported CaaS segment’s managed receivables data, which may reduce the usefulness of this data in evaluating our business.

Our reported CaaS segment managed receivables data may fluctuate substantially from quarter to quarter as a result of recent and future credit card portfolio acquisitions.

Receivables included in purchased portfolios are likely to have been originated using credit criteria different from the criteria of issuing bank partners that have originated accounts utilizing our technology platform.

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Other Risks of Our Business

The global outbreak of  

COVID-19 has caused severe disruptions in the U.S.

economy and may have an adverse impact on our performance, results of operations and access to capital.

 On March 13, 2020, a national emergency was declared under the National Emergencies Act due to a new strain of coronavirus ("COVID-19"). Measures taken across the U.S.

and worldwide to mitigate the spread of the virus have significantly impacted the macroeconomic environment, including consumer confidence, unemployment and other economic indicators that contribute to consumer spending behavior and demand for credit.

In March 2020, a national emergency was declared under the National Emergencies Act due to a new strain of coronavirus ("COVID-19").

Measures initially taken across the U.S.

and worldwide to mitigate the spread of the virus significantly impacted the macroeconomic environment, including consumer confidence, unemployment and other economic indicators that contribute to consumer spending behavior and demand for credit.

More recently, policy responses to the COVID-19 pandemic have, in part, caused, supply chain disruptions, significant inflation and labor shortages.

Our results of operations are impacted by the relative strength of the overall economy.

As general economic conditions improve or deteriorate, the amount of consumer disposable income tends to fluctuate, which, in turn, impacts consumer spending levels and the willingness of consumers to finance purchases.

Furthermore, to the extent that supply chain disruptions result in deferred purchases, there will be a corresponding decrease in our receivable purchases.

The extent to which COVID-19 will impact our business, results of operations and financial condition is dependent on many factors, which are highly uncertain, including, but not limited to, the duration and severity of the outbreak, the actions to contain the virus or mitigate its impact, and how quickly and to what extent normal economic and operating conditions will resume.

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Furthermore, the COVID-19 pandemic could negatively impact our access to capital.

The COVID-19 pandemic also resulted in us modifying certain business practices, such as minimizing employee travel and executing on a company-wide remote work program.

The COVID-19 pandemic also resulted in us modifying certain business practices, such as minimizing employee travel and transitioning to a hybrid distributed work model.

We may take further actions as required by government authorities or as we determine to be in the best interests of our employees and consumers.

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an increased volume of borrower and regulatory requests for information and support, or new regulatory requirements, which could require additional resources and costs to address.

Even after the COVID-19 pandemic has subsided, our business may continue to be unfavorably impacted by the economic turmoil caused by the pandemic.

Even after the COVID-19 pandemic has subsided, our business may continue to be unfavorably impacted by the economic turmoil caused by the pandemic.

There are no recent comparable events that could serve to indicate the ultimate effect the COVID-19 pandemic may have and, as such, we do not at this time know what the extent of the impact of the COVID-19 pandemic will be on our business.

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For additional discussion of the impact of COVID-19 on our business, see additional risk factors included in this Part II, Item 1A, as well as Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our business and operations may be negatively affected by rising prices and interest rates.

Our financial performance and consumers’

ability to repay indebtedness may be affected by uncertain economic conditions, including inflation and changing interest rates.

Higher inflation increases the costs of goods and services, reduces consumer spending power and may negatively affect our ability to purchase receivables.

In 2022, inflation reached a four-decade high.

The Federal Reserve has indicated that it intends to raise interest rates to combat inflation.

Increased interest rates may adversely impact the spending levels of consumers and their ability and willingness to borrow money.

Higher interest rates often lead to higher payment obligations, which may reduce the ability of consumers to remain current on their obligations and, therefore, lead to increased delinquencies, defaults, customer bankruptcies and charge-offs, and decreased recoveries, all of which could have an adverse effect on our business.

Recently, prices for energy and food have been particularly volatile in light of Russia’s invasion of Ukraine and the resulting trade restrictions and sanctions imposed on Russia by the U.S.

and other countries.

These recent events have increased inflationary pressures.

We are a holding company with no operations of our own.

 As a result, our cash flow and ability to service our debt is dependent upon distributions from our subsidiaries.

The distribution of subsidiary earnings, or advances or other distributions of funds by subsidiaries to us, all of which are subject to statutory and could be subject to contractual restrictions, are contingent upon the subsidiaries’

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We are party to litigation.

We are party to certain legal proceedings that include litigation customary for a business of our nature.

We are party to certain legal proceedings which include litigation customary for a business of our nature.

In each case we believe that we have meritorious defenses or that the positions we are asserting otherwise are correct.

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Adverse outcomes or settlements of these matters could require us to pay damages, make restitution, change our business practices or take other actions at a level, or in a manner, that would adversely impact our business.

We may be unable to use some or all of our net operating loss ( “

) carryforwards.

At December 31, 2020, we had U.S.

federal NOL carryforwards of $51.0 million the deferred tax assets on which were not offset by valuation allowances.

Our NOLs have resulted from prior period losses and are available to offset future taxable income.

If not used, $1.3 million of the NOLs will expire in 2030, $24.8 million will expire in 2033, and $24.9 million will expire in 2037.

Additionally, we had $2.5 million of U.S.

state and local and foreign deferred tax assets which were not offset by valuation allowances.

Such NOLs exist in a variety of jurisdictions with a variety of expiration dates.

Under Section 382 of the Internal Revenue Code, our ability to use NOLs in any taxable year may be limited if we experience an "ownership change." A section 382 "ownership change" generally occurs if one or more shareholders or groups of shareholders, who own at least 5% of our stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.

We have not completed a Section 382 analysis through December 31, 2020.

If we have previously had, or have in the future, one or more Section 382 “ownership changes,”

or if we do not generate sufficient taxable income, we may not be able to use a material portion of the NOLs.

If we are limited in our ability to use the NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully use our NOLs.

This could materially and adversely affect our results of operations.

Because we outsource account-processing functions that are integral to our business, any disruption or termination of these outsourcing relationships could harm our business.

We generally outsource account and payment processing.

If these outsourcing relationships were not renewed or were terminated or the services provided to us were otherwise disrupted, we would have to obtain these services from alternative providers.

There is a risk that we would not be able to enter into similar outsourcing arrangements with alternate providers on terms that we consider favorable or in a timely manner without disruption of our business.

Furthermore, we are currently transitioning to a new system provider. This conversion could cause service disruptions or other operational challenges.

If these outsourcing relationships were not renewed or were terminated or the services provided to us were otherwise disrupted, we would have to obtain these services from alternate providers.

There is a risk that we would not be able to enter into similar outsourcing arrangements with alternate providers on terms that we consider favorable or in a timely manner without disruption of our business.

Failure to keep up with the rapid technological changes in financial services and e-commerce could harm our business.

 The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services.

The effective use of technology increases efficiency and enables financial and lending institutions to better serve customers and reduce costs.

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We may not be able to effectively implement new technology-driven products and services as quickly as some of our competitors.

Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete with our competitors. Any such failure to adapt to changes could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.

If we are unable to protect our information systems against service interruption, our operations could be disrupted and our reputation may be damaged.

Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to compete with our competitors.

Any such failure to adapt to changes could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.

If we are unable to protect our information systems against service interruption, our operations could be disrupted and our reputation may be damaged. 

We rely heavily on networks and information systems and other technology, that are largely hosted by third-parties to support our business processes and activities, including processes integral to the origination and collection of loans and other financial products, and information systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting and legal and tax requirements.

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If our information systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to collect payments in a timely manner.

We also could be required to spend significant financial and other resources to repair or replace networks and information systems. 

Unauthorized or unintentional disclosure of sensitive or confidential customer data could expose us to protracted and costly litigation, and civil and criminal penalties.

 To conduct our business, we are required to manage, use, and store large amounts of personally identifiable information, consisting primarily of confidential personal and financial data regarding consumers across all operations areas.

We also depend on our IT networks and systems, and those of third parties, to process, store, and transmit this information.

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An increasing number of websites have reported breaches of their security.

If any person, including our employees or those of third-party vendors, negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to costly litigation, monetary damages, fines, and/or criminal prosecution. Any unauthorized disclosure of personally identifiable information could subject us to liability under data privacy laws. Further, under credit card rules and our contracts with our card processors, if there is a breach of credit card information that we store, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses.

Any unauthorized disclosure of personally identifiable information could subject us to liability under data privacy laws.

Further, under credit card rules and our contracts with our card processors, if there is a breach of credit card information that we store, we could be liable to the credit card issuing banks for their cost of issuing new cards and related expenses.

In addition, if we fail to follow credit card industry security standards, even if there is no compromise of customer information, we could incur significant fines.

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Internet and data security breaches also could impede our bank partners from originating loans over the Internet, cause us to lose consumers or otherwise damage our reputation or business.

 Consumers generally are concerned with security and privacy, particularly on the Internet. As part of our growth strategy, we have enabled lenders to originate loans over the Internet.

Consumers generally are concerned with security and privacy, particularly on the Internet.

As part of our growth strategy, we have enabled lenders to originate loans over the Internet.

The secure transmission of confidential information over the Internet is essential to maintaining customer confidence in such products and services offered online.

Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology used by us to protect our client or consumer application and transaction data transmitted over the Internet. In addition to the potential for litigation and civil penalties described above, security breaches could damage our reputation and cause consumers to become unwilling to do business with our clients or us, particularly over the Internet.

In addition to the potential for litigation and civil penalties described above, security breaches could damage our reputation and cause consumers to become unwilling to do business with our clients or us, particularly over the Internet.

Any publicized security problems could inhibit the growth of the Internet as a means of conducting commercial transactions.

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Also, a party that is able to circumvent our security measures could misappropriate proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business.

Regulation in the areas of privacy and data security could increase our costs.

 We are subject to various regulations related to privacy and data security/breach, and we could be negatively impacted by these regulations.

Regulation in the areas of privacy and data security could increase our costs.

We are subject to various regulations related to privacy and data security/breach, and we could be negatively impacted by these regulations.

For example, we are subject to the Safeguards guidelines under the Gramm-Leach-Bliley Act.

The Safeguards guidelines require that each financial institution develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities and the sensitivity of any customer information at issue.

Broad-ranging data security laws that affect our business also have been adopted by various states.

The Safeguards guidelines require that each financial institution develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities and the sensitivity of any customer information at issue.

Broad-ranging data security laws that affect our business also have been adopted by several states.

The California Consumer Privacy Act (the “CCPA”) became effective on January 1, 2020.

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The CCPA provides for civil penalties for violations and a private right of action for data breaches.

In addition, on November 3, 2020, California voters approved the California Privacy Rights Act of 2020 (the “CPRA”) ballot initiative.

Although the CPRA will not take effect until January 1, 2023, it will establish a privacy regulator before that date.

We anticipate that CPRA will apply to our business and we will work to ensure compliance with the CPRA by its effective date.

In addition, in November, 2020, California voters approved the California Privacy Rights Act of 2020 (the “CPRA”) ballot initiative, which will become effective on January 1,2023.

The CPRA established the California Privacy Protection Agency to implement and enforce the CCPA and CPRA.

We anticipate that the CPRA and certain regulations promulgated by the California Privacy Protection Agency will apply to our business and we will work to ensure compliance with such laws and regulations by their effective dates.

Compliance with these laws regarding the protection of consumer and employee data could result in higher compliance and technology costs for us, as well as potentially significant fines and penalties for non-compliance.

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Unplanned system interruptions or system failures could harm our business and reputation.

 Any interruption in the availability of our transactional processing services due to hardware, operating system failures, or system conversion will reduce our revenues and profits.

Any unscheduled interruption in our services results in an immediate, and possibly substantial, reduction in our ability to serve consumers, thereby resulting in a loss of revenues.

Any interruption in the availability of our transactional processing services due to hardware, operating system failures, or system conversion will reduce our revenues and profits.

Any unscheduled interruption in our services results in an immediate, and possibly substantial, reduction in our ability to serve our customers, thereby resulting in a loss of revenues.

Frequent or persistent interruptions in our services could cause current or potential consumers to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our websites or services, and could permanently harm our reputation.

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Our systems also are subject to break-ins, sabotage, and intentional acts of vandalism.

Despite any precautions we may take, the occurrence of a natural disaster, pandemic, a decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons or other unanticipated problems at our hosting facilities could cause system interruptions, delays, and loss of critical data, and result in lengthy interruptions in our services.

Our business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures. Furthermore, we are currently transitioning to a new system provider. This conversion could cause service disruptions or other operational challenges.

Climate change and related regulatory responses may impact our business . Climate change as a result of emissions of greenhouse gases is a significant topic of discussion and may generate federal and other regulatory responses. We are uncertain of the ultimate impact, either directionally or quantitatively, of climate change and related regulatory responses on our business.

The most direct impact is likely to be an increase in energy costs, which would adversely impact consumers and their ability to incur and repay indebtedness. 

We elected the fair value option for certain of our loans effective as of January 1, 2020, and we use estimates in determining the fair value of our loans.

Despite any precautions we may take, the occurrence of a natural disaster, pandemic, a decision by any of our third-party hosting providers to close a facility we use without adequate notice for financial or other reasons or other unanticipated problems at our hosting facilities could cause system interruptions, delays, and loss of critical data, and result in lengthy interruptions in our services.

Our business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures.

Climate change and related regulatory responses may impact our business.

Climate change as a result of emissions of greenhouse gases is a significant topic of discussion and may generate federal and other regulatory responses.

We are uncertain of the ultimate impact, either directionally or quantitatively, of climate change and related regulatory responses on our business.

The most direct impact is likely to be an increase in energy costs, which would adversely impact consumers and their ability to incur and repay indebtedness.

We elected the fair value option effective as of January 1, 2020, and we use estimates in determining the fair value of our loans.

If our estimates prove incorrect, we may be required to write down the value of these assets, adversely affecting our results of operations.

 Our ability to measure and report our financial position and results of operations is influenced by the need to estimate the impact or outcome of future events on the basis of information available at the time of the issuance of the financial statements.

Further, most of these estimates are determined using Level 3 inputs for which changes could significantly impact our fair value measurements.

Further, most of these estimates are determined using Level 3 inputs for which changes could significantly impact our fair value measurements.

A variety of factors including, but not limited to, estimated yields on consumer receivables, customer default rates, the timing of expected payments, estimated costs to service the portfolio, interest rates, and valuations of comparable portfolios may ultimately affect the fair values of our loans and finance receivables.

If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows.

Management has processes in place to monitor these judgments and assumptions, but these processes may not ensure that our judgments and assumptions are correct.

Management has processes in place to monitor these judgments and assumptions, but these processes may not ensure that our judgments and assumptions are accurate.

Our allowance for uncollectible loans is determined based upon both objective and subjective factors and may not be adequate to absorb loan losses.

We face the risk that customers will fail to repay their loans in full.

Through our analysis of loan performance, delinquency data, charge-off data, economic trends and the potential effects of those economic trends on consumers, we establish an allowance for uncollectible loans, interest and fees receivable as an estimate of the probable losses inherent within those loans, interest and fees receivable that we do not report at fair value. We determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique to each type of receivable pool:

historical loss rates;

current delinquency and roll-rate trends;

vintage analyses based on the number of months an account has been in existence;

the effects of changes in the economy on consumers;

changes in underwriting criteria;

We determine the necessary allowance for uncollectible loans, interest and fees receivable by analyzing some or all of the following unique to each type of receivable pool:

historical loss rates;

current delinquency and roll-rate trends;

vintage analyses based on the number of months an account has been in existence;

the effects of changes in the economy on consumers;

changes in underwriting criteria;

and estimated recoveries.

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Risks Relating to an Investment in Our Securities

The price of our common stock and Series B Preferred Stock may fluctuate significantly, and this may make it difficult for you to resell your shares when you want or at prices you find attractive.

 The price of our common stock and Series B Preferred Stock on the NASDAQ Global Select Market constantly changes.

We expect that the market price of our stock will continue to fluctuate.

The market price of our stock may fluctuate in response to numerous factors, many of which are beyond our control.

The prices of our securities may fluctuate significantly, and this may make it difficult for you to resell our securities when you want or at prices you find attractive.

The prices of our securities on the NASDAQ Global Select Market constantly change.

We expect that the market prices of our securities will continue to fluctuate.

The market prices of our securities may fluctuate in response to numerous factors, many of which are beyond our control.

These factors include the following:

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changes in interest rates;

inflation and supply chain disruptions;

the announcement of enforcement actions or investigations against us or our competitors or other negative publicity relating to us or our industry;

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global pandemics (such as the COVID-19 pandemic).

In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies.

These broad fluctuations may adversely affect the trading price of our stock, regardless of our actual operating performance.

Future sales of our common stock or equity-related securities in the public market, including sales of our common stock pursuant to share lending agreements, could adversely affect the trading price of our stock and our ability to raise funds in new stock offerings.

 Sales of significant amounts of our common stock or equity-related securities in the public market, including sales pursuant to share lending agreements, or the perception that such sales will occur, could adversely affect prevailing trading prices of our stock and could impair our ability to raise capital through future offerings of equity or equity-related securities.

Future sales of shares of stock or the availability of shares of stock for future sale, may have a material adverse effect on the trading price of our stock.

The shares of Series A Convertible Preferred Stock and Series B Preferred Stock rank prior to our common stock with respect to dividends, distributions and payments upon liquidation and have other terms that could negatively impact the value of shares of our common stock.

 In December 2019, we issued 400,000 shares of Series A Convertible Preferred Stock.

The rights of the holders of our Series A Convertible Preferred Stock with respect to dividends, distributions and payments upon liquidation rank senior to similar obligations to our holders of common stock. Holders of the Series A Convertible Preferred Stock are entitled to receive dividends on each share of such stock equal to 6% per annum on the liquidation preference of $100.00. The dividends on the Series A Convertible Preferred Stock are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.

Further, on and after January 1, 2024, the holders of the Series A Convertible Preferred Stock will have the right to require us to purchase outstanding shares of Series A Convertible Preferred Stock for an amount equal to $100 per share plus any accrued but unpaid dividends. This redemption right could expose us to a liquidity risk if we do not have sufficient cash resources at hand or are not able to find financing on sufficiently attractive terms to comply with our obligations to repurchase the Series A Convertible Preferred Stock upon exercise of such redemption right.

In June and July 2021, we issued 3,188,533 shares of Series B Preferred Stock. The rights of the holders of our Series B Preferred Stock with respect to dividends, distributions and payments upon liquidation rank junior to similar obligations to our holders of Series A Convertible Preferred Stock and senior to similar obligations to our holders of common stock. Holders of the Series B Preferred Stock are entitled to receive dividends on each share of such stock equal to 7.625% per annum on the liquidation preference of $25.00 per share. The dividends on the Series B Preferred Stock are cumulative and non-compounding and must be paid before we pay any dividends on the common stock. 

In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies.

These broad fluctuations may adversely affect the trading prices of our securities, regardless of our actual operating performance.

Future sales of our common stock or equity-related securities in the public market could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.

Sales of significant amounts of our common stock or equity-related securities in the public market or the perception that such sales will occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities.

Future sales of shares of common stock or the availability of shares of common stock for future sale, including sales of our common stock in short sale transactions, may have a material adverse effect on the trading price of our common stock.

The shares of Series A Convertible Preferred Stock and Series B Preferred Stock are senior obligations, rank prior to our common stock with respect to dividends, distributions and payments upon liquidation and have other terms, such as a redemption right, that could negatively impact the value of shares of our common stock.

In December 2019, we issued 400,000 shares of Series A Convertible Preferred Stock.

Holders of the Series A Convertible Preferred Stock are entitled to receive dividends on each share of such stock equal to 6% per annum on the liquidation preference of $100.

The dividends on the Series A Convertible Preferred Stock are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.

This redemption right could expose us to a liquidity risk if we do not have sufficient cash resources at hand or are not able to find financing on sufficiently attractive terms to comply with our obligations to repurchase the Series A Convertible Preferred Stock upon exercise of such redemption right.

In June and July 2021, we issued 3,188,533 shares of Series B Preferred Stock.

The rights of the holders of our Series B Preferred Stock with respect to dividends, distributions and payments upon liquidation rank junior to similar obligations to our holders of Series A Convertible Preferred Stock and senior to similar obligations to our holders of common stock.

Holders of the Series B Preferred Stock are entitled to receive dividends on each share of such stock equal to 7.625% per annum on the liquidation preference of $25.00 per share.

The dividends on the Series B Preferred Stock are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.

In the event of our liquidation, dissolution or the winding up of our affairs, the holders of our Series A Convertible Preferred Stock and Series B Preferred Stock have the right to receive a liquidation preference entitling them to be paid out of our assets generally available for distribution to our equity holders and before any payment may be made to holders of our common stock.

Our obligations to the holders of Series A Convertible Preferred Stock and Series B Preferred Stock also could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition and the value of our common stock.

Our outstanding Series A Convertible Preferred Stock has anti-dilution protection that, if triggered, could cause substantial dilution to our then-existing holders of common stock, which could adversely affect our stock price.

 The document governing the terms of our outstanding Series A Convertible Preferred Stock contains anti-dilution provisions to benefit the holders of such stock.

Our outstanding Series A Convertible Preferred Stock has anti-dilution protection that, if triggered, could cause substantial dilution to our then-existing holders of common stock, which could adversely affect our stock price.

The document governing the terms of our outstanding Series A Convertible Preferred Stock contains anti-dilution provisions to benefit the holders of such stock.

As a result, if we, in the future, issue common stock or other derivative securities, subject to specified exceptions, for a per share price less than the then existing conversion price of the Series A Convertible Preferred Stock, an adjustment to the then current conversion price would occur.

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In the past, we have not paid cash dividends on our common stock on a regular basis, and an increase in the market price of our common stock, if any, may be the sole source of gain on an investment in our common stock.

 With the exception of dividends payable on our Series A Convertible Preferred Stock and Series B Preferred Stock, we currently plan to retain any future earnings for use in the operation and expansion of our business and may not pay any dividends on our common stock in the foreseeable future. The declaration and payment of all future dividends on our common stock, if any, will be at the sole discretion of our board of directors, which retains the right to change our dividend policy at any time.

The declaration and payment of all future dividends on our common stock, if any, will be at the sole discretion of our board of directors, which retains the right to change our dividend policy at any time.

Any decision by our board of directors to declare and pay dividends in the future will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions, restrictions on dividends imposed by the documents governing the terms of the Series A Convertible Preferred Stock and Series B Preferred Stock and other factors that our board of directors may deem relevant.

Consequently, appreciation in the market price of our common stock, if any, may be the sole source of gain on an investment in our common stock for the foreseeable future.

Holders of the Series A Convertible Preferred Stock and Series B Preferred Stock are entitled to receive dividends on such stock that are cumulative and non-compounding and must be paid before we pay any dividends on the common stock.

Holders of the Series A Convertible Preferred Stock and Series B Preferred Stock are entitled to receive dividends on such stock that are cumulative and noncompounding and must be paid before we pay any dividends on the common stock.

We have the ability to issue additional preferred stock, warrants, convertible debt and other securities without shareholder approval.

 Our common stock may be subordinate to additional classes of preferred stock issued in the future in the payment of dividends and other distributions made with respect to common stock, including distributions upon liquidation or dissolution.

Our articles of incorporation permit our board of directors to issue preferred stock without first obtaining shareholder approval, which we did in December 2019 when we issued the Series A Convertible Preferred Stock and in June and July 2021 when we issued the Series B Preferred Stock.

If we issue additional classes of preferred stock, these additional securities may have dividend or liquidation preferences senior to the common stock.

If we issue additional classes of convertible preferred stock, a subsequent conversion may dilute the current common shareholders’

If we issue additional classes of convertible preferred stock, a subsequent conversion may dilute the current common shareholders’

We have similar abilities to issue convertible debt, warrants and other equity securities.

Our executive officers, directors and parties related to them, in the aggregate, control a majority of our common stock and may have the ability to control matters requiring shareholder approval.

 Our executive officers, directors and parties related to them own a large enough share of our common stock to have an influence on, if not control of, the matters presented to shareholders.

As a result, these shareholders may have the ability to control matters requiring shareholder approval, including the election and removal of directors, the approval of significant corporate transactions, such as any reclassification, reorganization, merger, consolidation or sale of all or substantially all of our assets and the control of our management and affairs.

Accordingly, this concentration of ownership may have the effect of delaying, deferring or preventing a change of control of us, impede a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could have an adverse effect on the market price of our common stock.

The Series B Preferred Stock rank junior to our Series A Convertible Preferred Stock and all of our indebtedness and other liabilities and are effectively junior to all indebtedness and other liabilities of our subsidiaries. 

In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series B Preferred Stock only after all of our indebtedness and other liabilities have been paid and the liquidation preference of the Series A Convertible Preferred Stock has been satisfied.

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Thus holders of the Series B Preferred Stock bear the risk of our future offerings reducing the market price of the Series B Preferred Stock and diluting the value of their holdings in us.

We may issue additional shares of the Series B Preferred Stock and additional series of preferred stock that rank on a parity with the Series B Preferred Stock as to dividend rights, rights upon liquidation or voting rights. 

We are allowed to issue additional shares of Series B Preferred Stock and additional series of preferred stock that would rank on a parity with the Series B Preferred Stock as to dividend payments and rights upon our liquidation, dissolution or winding up of our affairs pursuant to our Articles of Incorporation and the Articles of Amendment Establishing the Series B Preferred Stock without any vote of the holders of the Series B Preferred Stock.

Our Articles of Incorporation authorize us to issue up to 10,000,000 shares of preferred stock in one or more series on terms determined by our board of directors, and we currently have outstanding 400,000 shares of Series A Convertible Preferred Stock and 3,188,533 shares of Series B Preferred Stock.

We may issue up to 6,411,467 additional shares of preferred stock.

We may issue up to 6,411,467 additional shares of preferred stock.

The issuance of additional shares of Series B Preferred Stock and additional series of parity preferred stock could have the effect of reducing the amounts available to the holders of Series B Preferred Stock upon our liquidation or dissolution or the winding up of our affairs.

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Such issuances may also reduce or eliminate our ability to pay dividends on our common stock.

Holders of Series B Preferred Stock have extremely limited voting rights. 

Holders of Series B Preferred Stock have limited voting rights.

Holders of Series B Preferred Stock have extremely limited voting rights.

Holders of Series B Preferred Stock have limited voting rights.

Our common stock is the only class of our securities that carries full voting rights.

Voting rights for holders of Series B Preferred Stock exist primarily with respect to the ability to elect (together with the holders of other outstanding series of our preferred stock, or additional series of preferred stock we may issue in the future and upon which similar voting rights have been or are in the future conferred and are exercisable) two additional directors to our board of directors in the event that six quarterly dividends (whether or not declared or consecutive) payable on the Series B Preferred Stock are in arrears, and with respect to voting on amendments to our Articles of Incorporation or Articles of Amendment Establishing the Series B Preferred Stock (in some cases voting together with the holders of other outstanding series of our preferred stock as a single class) that materially and adversely affect the rights of the holders of Series B Preferred Stock (and other series of preferred stock, as applicable) or create additional classes or series of our stock that are senior to the Series B Preferred Stock, provided that in any event adequate provision for redemption has not been made.

Other than in limited circumstances, holders of Series B Preferred Stock do not have any voting rights. 

The conversion feature of the Series B Preferred Stock may not adequately compensate holders of such stock, and the conversion and redemption features of the Series B Preferred Stock may make it more difficult for a party to take over our company and may discourage a party from taking over the Company. 

Other than in limited circumstances, holders of Series B Preferred Stock do not have any voting rights.

Upon the occurrence of a Delisting Event or Change of Control (as defined in the document governing the terms of the Series B Preferred Stock), holders of the Series B Preferred Stock will have the right (unless, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we have provided or provide notice of our election to redeem the Series B Preferred Stock) to convert some or all of the Series B Preferred Stock into our common stock (or equivalent value of alternative consideration), and under these circumstances we will also have a special optional redemption right to redeem the Series B Preferred Stock.

Upon such a conversion, the holders will be limited to a maximum number of shares of our common stock equal to the Share Cap (as defined in the document governing the terms of the Series B Preferred Stock) multiplied by the number of shares of Series B Preferred Stock converted.

If the common stock price is less than $19.275, subject to adjustment, the holders will receive a maximum of 1.29702 shares of our common stock per share of Series B Preferred Stock, which may result in a holder receiving value that is less than the liquidation preference of the Series B Preferred Stock.

Upon such a conversion, the holders will be limited to a maximum number of shares of our common stock equal to the Share Cap (as defined in the document governing the terms of the Series B Preferred Stock) multiplied by the number of shares of Series B Preferred Stock converted.

If the common stock price is less than $19.275, subject to adjustment, the holders will receive a maximum of 1.29702 shares of our common stock per share of Series B Preferred Stock, which may result in a holder receiving value that is less than the liquidation preference of the Series B Preferred Stock.

In addition, those features of the Series B Preferred Stock may have the effect of inhibiting a third party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change of control of the Company under circumstances that otherwise could provide the holders of our common stock and Series B Preferred Stock with the opportunity to realize a premium over the then-current market price or that shareholders may otherwise believe is in their best interests.

Holders of Series B Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to  “

qualified dividend income.

Holders of Series B Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.”

Distributions paid to corporate U.S.

holders on the Series B Preferred Stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S.

holders on the Series B Preferred Stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S.

holders on the Series B Preferred Stock may be subject to tax at the preferential tax rates applicable to “qualified dividend income,”

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holders may not be eligible for the preferential tax rates applicable to “qualified dividend income”

and generally would be required to reduce their tax basis in the Series B Preferred Stock by the extent to which the distribution is not treated as a dividend. 

Holders of Series B Preferred Stock may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the Series B Preferred Stock even though such holders do not receive a corresponding cash dividend. 

and generally would be required to reduce their tax basis in the Series B Preferred Stock by the extent to which the distribution is not treated as a dividend.

The conversion rate for the Series B Preferred Stock is subject to adjustment in certain circumstances.

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In April 2016, the U.S.

Treasury issued proposed income tax regulations in regard to the taxability of changes in conversion rights that will apply to the Series B Preferred Stock when published in final form and may be applied to us before final publication in certain instances. 

The indenture governing the 6.125% Senior Notes due 2026 (the “Senior Notes”) does not prohibit us from incurring additional indebtedness.

If we incur any additional indebtedness that ranks equally with the Senior Notes, the holders of that debt will be entitled to share ratably with holders of the Senior Notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization or dissolution.

This may have the effect of reducing the amount of proceeds paid to holders of Senior Notes.

Incurrence of additional debt would also further reduce the cash available to invest in operations, as a result of increased debt service obligations.

If new debt is added to our current debt levels, the related risks that we now face could intensify.

Our level of indebtedness could have important consequences to holders of the Senior Notes, because:

it could affect our ability to satisfy our financial obligations, including those relating to the Senior Notes;

a substantial portion of our cash flows from operations would have to be dedicated to interest and principal payments and may not be available

for operations, capital expenditures, expansion, acquisitions or general corporate or other purposes;

it may impair our ability to obtain additional debt or equity financing in the future;

it may limit our ability to refinance all or a portion of our indebtedness on or before maturity;

it may limit our flexibility in planning for, or reacting to, changes in our business and industry;

it may make us more vulnerable to downturns in our business, our industry or the economy in general.

Our operations may not generate sufficient cash to enable us to service our debt.

If we fail to make a payment on the Senior Notes, we could be in default on the Senior Notes, and this default could cause us to be in default on other indebtedness, to the extent outstanding.

Conversely, a default under any other indebtedness, if not waived, could result in acceleration of the debt outstanding under the related agreement and entitle the holders thereof to bring suit for the enforcement thereof or exercise other remedies provided thereunder.

In addition, such default or acceleration may result in an event of default and acceleration of other indebtedness, entitling the holders thereof to bring suit for the enforcement thereof or exercise other remedies provided thereunder.

If a judgment is obtained by any such holders, such holders could seek to collect on such judgment from the assets of Atlanticus.

If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it.

Even if new financing were then available, it may not be on terms that are acceptable to us.

However, no event of default under the Senior Notes would result from a default or acceleration of, or suit, other exercise of remedies or collection proceeding by holders of, our other outstanding debt, if any.

As a result, all or substantially all of our assets may be used to satisfy claims of holders of our other outstanding debt, if any, without the holders of the Senior Notes having any rights to such assets.

The Senior Notes are unsecured and therefore are effectively subordinated to any secured indebtedness that we currently have or that we may incur in the future.

The Senior Notes are not secured by any of our assets or any of the assets of our subsidiaries.

As a result, the Senior Notes are effectively subordinated to any secured indebtedness that we or our subsidiaries have currently outstanding or may incur in the future to the extent of the value of the assets securing such indebtedness.

The indenture governing the Senior Notes does not prohibit us or our subsidiaries from incurring additional secured (or unsecured) indebtedness in the future.

In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness and may consequently receive payment from these assets before they may be used to pay other creditors, including the holders of the Senior Notes.

The Senior Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The Senior Notes are obligations exclusively of Atlanticus and not of any of our subsidiaries.

None of our subsidiaries is a guarantor of the Notes, and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future.

Therefore, in any bankruptcy, liquidation or similar proceeding, all claims of creditors (including trade creditors) of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Senior Notes) with respect to the assets of such subsidiaries.

Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims.

Consequently, the Senior Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise.

The indenture governing the Senior Notes does not prohibit us or our subsidiaries from incurring additional indebtedness in the future or granting liens on our assets or the assets of our subsidiaries to secure any such additional indebtedness.

In addition, future debt and security agreements entered into by our subsidiaries may contain various restrictions, including restrictions on payments by our subsidiaries to us and the transfer by our subsidiaries of assets pledged as collateral.

The indenture governing the Senior Notes contains limited protection for holders of the Senior Notes.

The indenture under which the Senior Notes were issued offers limited protection to holders of the Senior Notes.

The terms of the indenture and the Senior Notes do not restrict our or any of our subsidiaries’

ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on the Senior Notes.

In particular, the terms of the indenture and the Senior Notes does not place any restrictions on our or our subsidiaries’

issue debt securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Senior Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Senior Notes to the extent of the value of the assets securing such indebtedness or other obligations, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore would be structurally senior to the Senior Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Senior Notes with respect to the assets of our subsidiaries;

pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities subordinated in right of payment to the Senior Notes;

sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);

enter into transactions with affiliates;

create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;

make investments;

create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

In addition, the indenture does not include any protection against certain events, such as a change of control, a leveraged recapitalization or “going private”

transaction (which may result in a significant increase of our indebtedness levels), restructuring or similar transactions.

Furthermore, the terms of the indenture and the Notes does not protect holders of the Senior Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.

Also, an event of default or acceleration under our other indebtedness would not necessarily result in an “event of default”

under the Senior Notes.

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the indenture may have important consequences for holders of the Senior Notes, including making it more difficult for us to satisfy our obligations with respect to the Senior Notes or negatively affecting the trading value of the Senior Notes.

Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Senior Notes, including additional covenants and events of default.

The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Senior Notes.

We may not be able to generate sufficient cash to service all of our debt, and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.

Our ability to make scheduled payments on, or to refinance our obligations under, our debt will depend on our financial and operating performance and that of our subsidiaries, which, in turn, will be subject to prevailing economic and competitive conditions and to financial and business factors, many of which may be beyond our control.

We may not maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our debt.

In the future, our cash flow and capital resources may not be sufficient for payments of interest on, and principal of, our debt, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

We may not be able to refinance any of our indebtedness or obtain additional financing.

In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.

We may not be able to consummate those sales, or if we do, at an opportune time, the proceeds that we realize may not be adequate to meet debt service obligations when due.

Repayment of our indebtedness, to a certain degree, is also dependent on the generation of cash flows by our subsidiaries (none of which are guarantors of the Senior Notes) and their ability to make such cash available to us, by dividend, loan, debt repayment, or otherwise.

Our subsidiaries may not be able to, or be permitted to, make distributions or other payments to enable us to make payments in respect of our indebtedness.

Each of our subsidiaries is a distinct legal entity and, under certain circumstances, applicable U.S.

and foreign legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries.

In the event that we do not receive distributions or other payments from our subsidiaries, we may be unable to make required payments on our indebtedness.

An increase in market interest rates could result in a decrease in the value of the Senior Notes.

In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value.

Consequently, if market interest rates increase, the market value of the Senior Notes may decline.

We may issue additional notes.

Under the terms of the indenture governing the Senior Notes, we may from time to time without notice to, or the consent of, the holders of the Senior Notes, create and issue additional notes which may rank equally with the Senior Notes.

If any such additional notes are not fungible with the Senior Notes initially offered hereby for U.S.

federal income tax purposes, such additional notes will have one or more separate CUSIP numbers.

The rating for the Senior Notes could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency.

Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency.

A rating is not a recommendation to purchase, sell or hold the Senior Notes.

Ratings do not reflect market prices or suitability of a security for a particular investor and the rating of the Senior Notes may not reflect all risks related to us and our business, or the structure or market value of the Senior Notes.

We may elect to issue other securities for which we may seek to obtain a rating in the future.

If we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the Senior Notes.

Note Regarding Risk Factors

The risk factors presented above are all of the ones that we currently consider material.

The risk factors presented above are all of the ones that we currently consider material.

However, they are not the only ones facing our company.

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If any of the risks that we face actually occurs, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make.

In such case, the trading price of our common stock, Series B Preferred Stock or other securities could decline, and you could lose part or all of your investment.

In such case, the trading price of our common stock or other securities could decline, and you could lose part or all of your investment.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors