Nicholas Financial(NICK) - 2022 Q4 - Annual Report

Financial Performance - Consolidated net income for the year ended March 31, 2022, was $3.0 million, down from $8.4 million for the year ended March 31, 2021[83]. - The average dealer discount on contracts purchased for the fiscal years ended March 31, 2022, and 2021, was 6.9% and 7.5%, respectively[91]. - The average APR on contracts purchased for the fiscal years ended March 31, 2022, and 2021, was 23.1% and 23.4%, respectively[91]. - As of March 31, 2022, the aggregate outstanding indebtedness under the Credit Facility was $55.0 million, compared to $88.3 million under the predecessor facility as of March 31, 2021[98]. - The company obtained a PPP loan of $3,243,900, which was fully repaid on May 23, 2022, along with accrued interest of $64,518[102]. Economic and Competitive Environment - The company may experience materially adverse impacts due to the economic effects of COVID-19, including funding availability and potential future recessions[80]. - The company has faced increasing pressure to reduce interest rates, fees, and dealer discounts due to competition in the non-prime consumer-finance industry[91]. - Economic conditions significantly impact the company's business, particularly affecting delinquencies, defaults, and losses among non-prime borrowers[113]. - The company faces increased competition in a low interest-rate environment, which pressures it to reduce interest rates and fees[114]. - Auction proceeds from repossessed vehicles are often insufficient to cover outstanding contract balances, leading to potential financial losses[115]. Management and Governance - The resignation of the President and CEO on May 9, 2022, may have a material adverse effect on the company's business[107]. - The company appointed a new Interim CEO on May 9, 2022, who has over 20 years of experience with the company[109]. - The company is subject to various consumer claims and litigation, which could result in substantial damages and penalties[110]. - The company relies heavily on relationships with dealers for contract origination, and there are no assurances that these relationships will remain strong[112]. Regulatory and Compliance Issues - Regulatory changes, particularly from the CFPB, could materially affect the company's operations and financial performance[123]. - The company maintains compliance with various federal, state, and local regulations, but any violations could have a material adverse effect on its financial condition[130]. Operational Risks - The company depends on third-party service providers for critical operations, and failures by these providers could adversely affect its business[118]. - The company's growth strategy includes opening new offices, which depends on attracting qualified personnel[119]. - The company has not recently entered into new interest rate swap agreements to mitigate the impact of interest rate changes on its interest expense[106]. Internal Controls and Cybersecurity - The company has remediated two material weaknesses in internal control over financial reporting identified in the fiscal year ended March 31, 2021[142]. - The existence of any material weakness in internal control could lead to errors in financial statements, requiring restatements and potentially affecting investor confidence[144]. - The company has not experienced any material cybersecurity incidents to date, but future incidents could have a material adverse effect on its business and financial condition[135]. - The company relies on third-party encryption and authentication technology, which may be vulnerable to breaches, potentially compromising customer data[135]. - The company may need to invest significantly in cybersecurity to address vulnerabilities, which could impact its financial resources[134]. Market Position and Investor Relations - The average daily trading volume of the company's common shares on NASDAQ for the fiscal year ended March 31, 2022, was approximately 9,100 shares, indicating it is a thinly traded stock[136]. - The company is classified as a "smaller reporting company," which allows it to provide reduced financial disclosures, potentially making its stock less attractive to investors[140]. - The company may face challenges in attracting analysts to cover its stock, which could negatively impact stock price and trading volume[137]. - The company's Articles may deter third parties from acquiring it, which could diminish the value of its common stock[139]. - The company may experience difficulties in keeping pace with technological developments, which could affect its competitive position in the market[146].