ITEM 1A. RISK FACTORS.
Our business involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of
the other information in this Annual Report on Form 10-K. The occurrence of any of the events described below could harm our business, operating results, financial condition, liquidity, or prospects. In any
such event, the market price of our common stock and warrants could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our
business. See “Forward-Looking Statements.”
Risks Related to Our Business
We have a limited operational history.
We have a limited history upon which an evaluation of our prospects and future performance can be made. Our ongoing and future operations are
subject to all business risks associated with new enterprises. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the expansion of a
business operation, and the continued development of a business strategy and customer base. This is compounded by the fact that we operate in the mobility industry, which is a rapidly transforming sector. There is a possibility that we could sustain
losses in the future, and there are no assurances that we will operate profitably in the future.
Additionally, given our limited
operational history, our recent financial performance may not be indicative of our future performance including the future impact of being a public company.
Our business is heavily concentrated in loans secured by taxicab medallions as well as Owned Medallions, which carry a high risk of loss and could be
adversely affected by an economic downturn as well as the regulatory policies of the City of New York and the New York City Taxi and Limousine Commission.
Our business is heavily concentrated in medallion collateralized lending and Owned Medallions, including leasing medallions to fleets or other
drivers. As a result, we are more susceptible to fluctuations and risks particular to the New York City taxicab industry than a more diversified company, including as a result of
the COVID-19 pandemic. For example, our business is particularly sensitive to macroeconomic conditions that affect the U.S. economy, travel and tourism as well as those that affect the City of New
York. We are also more susceptible to the risks of increased regulations and legal and other regulatory actions that are targeted at the for-hire-vehicle, taxicab or automotive industry. Our business
concentration could lead to developments that may have a material adverse effect on our results of operations.
By its nature, medallion
collateralized lending to sole proprietors that own cars, fleet operators who own and operate cars, and leasing medallions to fleets or other drivers involves high risk of loss. Although the net interest margins are intended to be higher to
compensate us for this increased risk, an economic downturn could result in higher loss rates and lower returns than expected, and could affect the profitability of our medallion loan portfolios. During periods of economic slowdown, delinquencies,
defaults, repossessions, and losses generally increase, and may reduce discretionary spending in areas such as recreation and tourism, which would have a detrimental effect on the taxicab industry, which would in turn impact the value of taxicab
medallions. In addition, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our net interest income.
Furthermore, our business is significantly affected by monetary and regulatory policies of the U.S. Federal Government and its agencies, the
monetary and regulatory policies of the State of New York and its agencies as well as the regulatory policies of the City of New York, particularly regulations promulgated by the TLC. For example, since 2017, New York State, New York City Council
and the TLC have made several changes to the medallion classes and regulations forcing greater transparency and equal regulation among transportation companies, including eliminating the distinction between individual and corporate medallions,
temporarily
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capping the number of ride-sharing licenses, minimum-wage regulations for for-hire vehicle (“FHV”) companies, and
congestion pricing. The long-term impact of these changes is still uncertain. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control and could have a material adverse effect on us
through interest rate changes, costs of compliance with increased regulation, and other factors. All medallion owners must be approved by TLC, and if we fail to follow TLC regulations and registration requirements, we may lose our license as a
medallion leasing agent and taxi fleet operator or receive fines or face other costly penalties, which may have a material adverse effect on our business.
The TLC also governs the transfer of medallions. In the event of a TLC transfer as a result of a UCC disposition, the TLC does not require
anything from the original owner of the medallion so long as the secured party has properly obtained the legal right to the medallion.
Risks associated with the TLC transfer process include properly obtaining the legal right to the medallion (e.g., issues with the
auction or surrender of the medallion), properly documenting the right to the medallion (e.g., affidavits detailing the auction), and the risk of outstanding prior liens, taxes, fines, summons, or other “open items” that need to be
resolved in order to proceed with the TLC closing. There are also general regulatory risks associated with medallion ownership and potential changes to the regulatory framework and TLC practices, including, but not limited to, the TLC slowing or
stopping the processing of transfer application packages and the TLC changing the rules or practices associated with medallion ownership and the transfer of ownership, including determining that a certain party is “unfit” to own
medallions.
The process we use to estimate losses inherent in our credit exposure requires complex judgments, including forecasts of
economic conditions and how those economic conditions might impair the ability of our borrowers to repay their loans. Historically, we have not used the current expected credit losses model or preceding authoritative GAAP for loss reserving, which
is used by other specialty financing companies and requires us to have to book all losses for all loan loss reserves because we may not recover on the full amount of a loan. However, in many instances with loans in our portfolio, we do not expect to
recover on the full amount of such a loan because we acquired the loans at a meaningful discount to its unpaid principal balance through our historical portfolio acquisitions. We have historically and per audits have used fair value accounting to
value our medallion loan portfolios and medallions. The degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of the process and the quality of our
assets.
DePalma I’s balance sheet consists substantially of loans secured by taxicab medallions, which historically have been associated with
significant delinquency rates and risk of default. If we are unable to recover meaningful amounts relative to our acquisition prices on loans in default, our results of operations could be adversely impacted.
DePalma I’s balance sheet consists substantially of loans secured by taxicab medallions, which historically have been associated with
higher-than-average delinquency rates and defaults as substantially all of the loans were acquired after they had defaulted. As of December 31, 2024, we held approximately $346.6 million in aggregate of NYC taxicab medallion loans
including MRP+ Loans and Non-MRP+ Loans, of which approximately 46% of Non-MRP+ Loans by medallion count were in default. Defaulted loans may result
in foreclosure or sale at auction of the medallions securing such loans, which may result in us collecting less interest income over the original stated life of the loan. For many loans in default we may attempt to restructure the
debt to bring it out of default or attempt to recover meaningful amounts in other ways, however these methods may not be successful. If we fail to realize enough value on loans in default to cover the price we paid to acquire the loans in the
secondary market and service these loans then our results of operations could be adversely impacted. The actual rates of delinquencies, defaults, repossessions, and losses on these loans could be more dramatically affected by a general economic
downturn. As described in more detail in “Item 1. Business”, a significant portion of our loans are backed by a Supplemental Loan Deficiency Guaranty, which is a program that was established to benefit participating NYC taxi
medallion loan lenders like us by providing municipal credit
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support in the event of defaults by eligible and participating taxi medallion owners. Although the MRP+ is designed to lower the risk of incurring losses from borrowers in default, the MRP+ may
not be successful, or as successful as we anticipate. While the original deadline to sign up to participate in the MRP+ ended on January 31, 2023 and the official deadline to close MRP+ loans was June 30, 2023, as of December 31,
2024, the TLC has continued to close loans under the program for eligible borrowers who registered prior to the June 30, 2023 deadline but were unable to close due to extenuating circumstances, although no assurance can be made that such
exceptions will continue. If additional borrowers cannot participate in the MRP+, our operations will be adversely affected. Additionally, we may in the future have loan portfolios that do not consist of loans acquired in the secondary market at
discount prices.
We also have Non-MRP+ Loans. We may not be able to
efficiently resolve an adequate number of Non-MRP+ Loans. If a borrower defaults on their loan, the medallion could be foreclosed on or sold at auction, which could result in us receiving less income
than expected. Our ability to efficiently resolve the amount of any medallion loans on beneficial terms may impact our business and results of operations by not producing cash in the short term.
The mobility industry is highly competitive, with many well-established, low-cost alternatives,including government-run/based mass transportation options, low switching costs, and well-capitalized competitors in nearly every major geographic region. If taxis are unable to compete effectively for
drivers and passengers in this industry, our business and financial prospects would be adversely impacted.
Our business, which
currently consists of acquiring, restructuring and owning loans secured by taxicab medallions or the medallions themselves is entirely based in the mobility industry. Additionally, in the future the Company will sell medallions, potentially
including seller financing. Taxis face significant competition in the mobility industry from existing, well-established, and low-cost alternatives, and in the future we expect taxis to face
competition from new market entrants. In addition, within the mobility market, the cost for consumers to switch between modes of transportation is low. Passengers have a propensity to shift to the lowest-cost or highest-quality provider and drivers
have a propensity to shift to the platform with the highest earnings potential. Drivers who have medallion loans are often more reluctant to shift platforms as a consequence of their loans, although this does not necessarily mean that they
won’t default on their loans.
For example, ridesharing applications, or ridesharing apps, including Uber and Lyft, utilized by for-hire vehicles were introduced in the City of New York in 2011 and continue to expand domestically and globally. Many of these ridesharing companies operate outside of the
regulatory regime which we and our borrowers operate. As a result, there is an increased risk of competition because such companies are able to pass the cost savings of not having to comply with certain regulations to its passengers. As competitors
introduce new products and offerings, and as existing products evolve, taxis expect to become subject to additional competition. In addition, taxi competitors may adopt certain product features, or may adopt innovations that drivers and passengers
value more highly than that offered by taxis, which would render taxis less attractive.
With regard to passengers, taxis compete with
personal vehicle ownership and usage and ridesharing companies, including Uber and Lyft. In addition, public transportation can be a superior substitute to taxis for passengers and in many cases, offers a faster and lower-cost travel option in many
cities, including the City of New York where the majority of our taxi medallions are based. The City of New York and other major metropolitan areas may also encourage persons to
utilize non-automotive transportation, such as walking and biking, by improving bicycle lanes and pedestrian walkways. The City of New York and other major metropolitan areas have launched pilot
programs to provide free or subsidized bike and scooter rentals. Taxis also compete with other traditional transportation services and for hire vehicles, such as livery and other car services.
In the case of drivers, the primary competition for fleet operators is the ride-sharing companies such as Uber and Lyft, along with
Street-hail Liveries, known colloquially in the City of New York as “Green Taxis,” although
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Green Taxis are not available in the Borough of Manhattan. Many of the taxi industry’s competitors are well-capitalized and offer discounted services, driver incentives, passenger discounts
and promotions, innovative products and offerings, and alternative pricing models, which may be more attractive to passengers than those offered by taxis. In addition, we currently benefit from certain regulations and proposals in the City of New
York that are favorable to taxicabs and unfavorable to ride-share companies, see “—Current regulations or proposed regulations in the City of New York that are favorable to taxicabs may change or cease to be in effect, which could
negatively impact our business.” We cannot guarantee these regulations will remain unchanged and in force, and if they were to change it may be in a way that increases the competition for taxicabs.
For all of these reasons, changing consumer and driver preferences about modes of transportation and/or other alternatives for drivers (such
as ride-share) could have an impact on borrowers’ ability to service debt on a medallion which could impact the value of our Owned Medallions and the medallions underlying the loans and the ability of borrowers to pay off medallion loans, both
of which would adversely affect our results of operations.
A significant portion of our medallion loans that are not participating in the MRP+ are
in default and non-performing.
As of December 31, 2024, 46% of our NYC Non-MRP+ medallion loan portfolio was in default based on the number of medallions that are collateral for the loans. While historically we have been successful in restructuring, reperforming or
resolving defaulted loans, either by restructuring eligible loans into the MRP+ or via other forms of resolution, our ability to continue such programs is uncertain and subject to many risks, including litigation, foreclosure and ultimate collateral
values. For example, foreclosure processes are often lengthy and expensive, and the results of foreclosure processes may be uncertain, as claims may be asserted by the relevant borrower or by other creditors or investors in such borrower that
interfere with enforcement of our rights, such as claims that challenge the validity or enforceability of our medallion loan or the priority or perfection of our security interests. Although it has not been our experience to date, our borrowers may
attempt to file suit to stop or delay foreclosure actions by asserting numerous claims, counterclaims and defenses against us, including, without limitation, lender liability claims and defenses, even when the assertions may have no merit, in an
effort to prolong the foreclosure action and seek to force us into a modification or buy-out of our loan for less than we are owed. Additionally, the transfer of certain collateral to us may be
limited or prohibited by applicable laws and regulations. Even if we are successful in foreclosing on collateral property securing our medallion loans, the liquidation proceeds upon sale of the underlying medallions or other collateral may not be
sufficient to recover our loan. Any costs or delays involved in the foreclosure on the collateral asset will reduce the net proceeds realized and, thus, increase the potential for loss.
We may not be able to fully realize the benefits of our participation in the MRP+, which may adversely affect our financial performance.
As of December 31, 2024, 79% of our current New York City medallion loans based on the number of NYC taxi medallions that are either
collateral to medallion loans or that we own are MRP+ loans, which is a Supplemental Loan Deficiency Guaranty program that was established to benefit participating NYC taxi medallion loan lenders by providing municipal credit support in the event of
defaults by eligible and participating taxi medallion owners. As part of this initiative, the Reserve Fund was established in 2022. Initially funded with $49 million, the City of New York’s obligations to replenish the Reserve Fund shall
be subject to and dependent upon appropriations being made from time to time by the New York City Council for such purpose. The City of New York is not legally required to appropriate such funds, and the ability of the City of New York to replenish
the Reserve Fund may depend on various factors, including the financial condition of the City of New York at the time. As discussed under the heading “Item 1. Business—Our Market,” the City of New York agreed to provide an
upfront principal reduction payment in the form of a grant equal to $30,000 per medallion to lenders who participated in the MRP+ program. The City of New York also agreed to provide a deficiency credit support mechanism via the Reserve Fund
covering payment deficiencies on the remaining unpaid principal balance of up
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to $170,000 per medallion, plus interest and collection costs. As of December 31, 2024, no additional funding in excess of the initial funding has been committed. The initial funding amount
may fall short, and until the program is closed and all participants and statistics are quantified we are unable to estimate how long the initial $49 million grant will last As a result, the amount held in the Reserve Fund may not be sufficient
to support all of the loans participating in the MRP+ in need of debt relief.
The Reserve Fund is not a guarantee of the City of New York
to repay the MRP+ Loans, nor is it an asset of the Company nor pledged to the Company. Furthermore, the City of New York’s agreement to replenish the Reserve Fund is not a debt of the City of New York under or within the meaning of the New York
State Constitution or the Local Finance Law of the State, nor are the MRP+ Loans deemed to be debts of the City of New York. As a result, the City of New York has no obligation to pay principal of or interest on any of the MRP+ Loans. See
“Item 1. Business—Our Market—MRP and MRP+—Reserve Fund” for more information.
Under the MRP+, a “loan
enhancement administrator” is required to release funds from the Reserve Fund to pay contractual monthly payments to pay any deficiencies on outstanding amounts owed to the lender upon completion of a disposition of the collateral. If the loan
enhancement administrator defaults on its obligation to release those funds, or if the Reserve Fund is depleted without the City of New York making further appropriations to restore it, our operations and loan portfolio may be impacted.
To the extent the MRP+’s loan enhancement administrator defaults on its obligations on administering the program, such default could
result in litigation or subject us to delays in collecting payments due to us as a result of our participation in MRP+. If the Reserve Fund is depleted without further appropriations, it would directly tie the collectability of regular payments of
MRP+ Loans to the willingness of the borrower to make payments. As of December 31, 2024, 32% of our MRP+ Loans (based on medallion count), representing approximately $72.0 million of unpaid principal balance were delinquent. All delinquent
loans that were outside of their grace period had regular payments being made out of the Reserve Fund. Additionally, upon either disposition or resolution of medallion collateral for an MRP+ Loan, if the sale prices attainable in the market are
insufficient to cover the outstanding amounts on the loan, it is unlikely we would be able to collect any deficiencies as recover under the loan documents are limited to the medallion collateral with no personal guarantees.
The lack of liquidity in our medallion loan portfolio and Owned Medallions as well as rising interest rates may adversely affect our business.
The illiquidity of our loan portfolio and Owned Medallions may adversely affect our ability to dispose of these assets at times
when it may be advantageous for us to monetize their value, or at any time. In addition, if we were required to liquidate some or all of the medallion loans or Owned Medallions, the proceeds of such liquidation may be significantly less than the
current value of such assets. Because we may borrow money to make or acquire medallion loans and other assets, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these
funds.
Increase in interest rates has not had an identifiable impact on our interest income, gross income spread, or our ability to
passon interest costs to the borrower. The majority of our loan portfolio historically has been non-performing and has not made regular interest payments. As such, the increase in interest rates has
not had an identifiable impact on interest income. The majority of our current interest income is from the MRP+ loans, which have a fixed interest rate of 7.3%. Additionally, DePalma I and DePalma II currently have no external borrowings, so the
increase in interest rates have not impacted gross income spread or interest expense. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of DePalma—Overview—Key Factors Affecting
Operating Results—Changes in Interest Rates” for more information.
As a result, there can be no assurance that a
significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds would increase, which would reduce our net operating income before net
realized and unrealized gains and materially affect our results of operations.
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The insolvency of American Transit Insurance Company, the largest insurer of for-hire vehicles in New York City, may result in rising prices for liability insurance and a lack of available coverage, which may negatively impact our business.
American Transit Insurance Company (“American Transit”), the largest liability insurer of
for-hire vehicles in New York City has been declared insolvent. We anticipate that the taxi industry will be negatively impacted by the insolvency of American Transit, as fleets and owners/operators of taxis
may struggle to find alternative insurance providers. The lack of insurance providers could expose us and our borrowers to significant cost increases. The loss of American Transit may lead to an increase in the price of our own insurance
policies, thereby adversely affecting our financial condition and results of operations.
Changes in taxicab industry regulations that result in the
issuance of additional medallions or increases in the expenses involved in operating a medallion could lead to a decrease in the value of our medallion loan collateral or our Owned Medallions.
Every city in which we own medallion loans and medallions, including and primarily the City of New York, and most other major cities in the
United States, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market
could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then-outstanding medallion loans and Owned Medallions in that market could be adversely affected. While we do not believe there
are plans to issue new medallions in the future, we are unable to forecast with any degree of certainty whether any other potential increases in the supply of medallions will occur.
In the City of New York and in other markets where we own medallion loans and medallions, taxicab fares are generally set by government
agencies. Expenses associated with operating taxicabs are largely unregulated. As a result, the ability of taxicab operators to recoup increases in expenses is limited in the short term. Escalating expenses, such as rising gas prices, can render
taxicab operations less profitable, could cause borrowers to default on loans from us, and could potentially adversely affect the value of our collateral and our Owned Medallions. On December 19, 2022, the TLC implemented a fare increase for
passengers of NYC taxicabs. Per the TLC, they expect the impact of such increase to result in passenger fares to increase by 22.9%. From November 2022 to December 2024, farebox per day increased 39%.
Current regulations or proposed regulations in the State and City of New York that are favorable to taxicabs may change or cease to be in effect, which
could negatively impact our business.
In December 2018, the TLC implemented a per-mile and per-minute minimum trip payment formula, designed to establish a minimum pay standard, for drivers
providing for-hire services the City of New York, such as those provided by drivers on ride-sharing platforms. These minimum rates took effect in February 2019. Since implementation, these
regulations have had an adverse impact on the performance of ride-share providers in the City of New York and may continue to do so in the future. In August 2018, the New York City Council voted to approve various measures to further regulate
ride-share providers, including driver earning rules and licensing requirements.
Additionally, in October 2021, the City of New York
proposed certain legislation requiring any autonomous cars operated by ridesharing companies to still require a valid medallion. There can be no guarantee that such legislation will be passed and go into effect.
Currently, the aggregate number of medallions in NYC is capped at the current status quo, and thus our share of the medallion market remains
stable and somewhat insulated from competition from other collateralized medallion lenders. However, if TLC created more medallions, there could be increased risk of competition from other collateralized medallion lenders or the value of existing
medallions could decline as a result of increased medallion supply. See “Item 1. Business” for more information.
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We cannot predict the status of these and other similar regulations in the future, and if
the resulting regulations are not favorable to taxicabs it may negatively impact our business operations by causing borrowers to default on loans from us and adversely affecting the value of our collateral and our Owned Medallions.
As a result of our geographic concentration, our business may be adversely affected if the New York City taxicab industry experiences a sustained
economic downturn.
Substantially all of our revenue and asset value is derived from NYC taxi medallion loans collateralized by NYC
taxicab medallions and owned NYC taxi medallions. An economic downturn in the NYC taxicab industry could lead to an increase in defaults by our loan borrowers on our medallion loans and lower cash flows on all of our medallion assets. We cannot
assure you that we will be able to sufficiently diversify our operations outside of the NYC taxicab market.
Changes to Septuagint, our operating
joint venture with Kirie Eleison (“Kirie Eleison”), an unaffiliated strategic joint venture partner, could have negative impacts on our business.
In 2019, we commenced activities to deploy DePalma II’s Owned Medallions through Septuagint, an operating joint venture with Kirie
Eleison, an unaffiliated joint venture partner. Septuagint is a medallion leasing agent and taxi fleet operating company based in Long Island City, Queens, New York, licensed by the TLC as an agent/broker for managing NYC taxi medallions. As of
December 31, 2024, Septuagint utilized 231 of our Owned Medallions and managed a fleet of approximately 231 vehicles and 261 drivers via a TLC-licensed fleet. We will have the right to exercise governance
control once 85% of DePalma II’s Owned Medallions (as of November 1, 2019) have been leased to and are operated by Septuagint. As of December 31, 2024, approximately 62% of DePalma II’s Owned Medallions as of November 1,
2019 are being leased to and operated by Septuagint.
On September 26, 2024, DePalma II provided notice to Kirie Eleison of its
default under certain provisions of the OSA, including a provision requiring Kirie Eleison to lease all of the medallions owned by Kirie Eleison and its affiliates and transfer their medallion leases to Septuagint. Pursuant to the OSA, Kirie Eleison
had 30 days from the date of the notice to cure its default. However, on October 17, 2024, the DePalma Companies and Kirie Eleison signed an amendment to the OSA that eliminated Septuagint’s exclusive right under the OSA to lease DePalma
II’s medallions and provided for a transition period until December 15, 2024 for DePalma II to decide whether to (i) have Kirie Eleison transfer its 50% interest in Septuagint to DePalma II or (ii) wind down Septuagint. The
amendment allows DePalma II to either wind down Septuagint or have Kirie Eleison transfer its ownership interest in Septuagint to DePalma II or a designee. While the transition period originally expired on December 15, 2024, pursuant to the
October 17, 2024 amendment, DePalma II and Kirie Eleison subsequently agreed to further extend the transition period through March 31, 2025 in order to allow DePalma II and Kirie Eleison additional time to, among other things, evaluate
their options and consider whether to continue Septuagint’s operations, or wind Septuagint down and have DePalma II continue to pursue other alternative fleet servicing arrangements with third parties and/or to establish its own fleet servicing
entity. Accordingly, there have been no quantitative and qualitative changes to Septuagint’s ownership or Septuagint’s organizational or operating agreements during this transition period, as the parties are continuing to operate under the
original OSA, as amended on October 17, 2024, which, as noted, only removed the exclusivity provisions. If DePalma II winds down Septuagint, DePalma II would no longer lease any of its Owned Medallions through Septuagint. DePalma II intends to
continue to pursue its leasing strategy by leasing Owned Medallions either through Septuagint or through a newly formed, wholly owned subsidiary of DePalma II. DePalma II intends to enter into non-exclusive
commercial agreements with third party fleets to assist the company in leasing medallions.
The DePalma Companies are in ongoing
discussions with Kirie Eleison regarding the restructuring of its affiliates’ debt. On March 31, 2025, DePalma II and Kirie Eleison agreed to further extend the transition period by which DePalma II may elect to require Kirie Eleison to
transfer its membership interest in Septuagint to April 30, 2025.
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As of the date of this Annual Report on Form 10-K, the transfer of ownership has not yet
occurred.
DePalma II entered into agreements with Septuagint which grant Septuagint the exclusive right to operate or sublease medallions
and related taxicab vehicles owned by the mini-LLCs. Following the termination of the OSA, Septuagint will no longer have the exclusive right to operate or sublease DePalma II’s medallions. The monthly rental payments for the leases of the
medallions are $1,500 per medallion. Septuagint is separately obligated to pay for the vehicles under various guaranty agreements. As a result of COVID-19, Septuagint’s ability to make payments on the
medallion and vehicle leases significantly deteriorated and DePalma II implemented a payment holiday beginning in March 2020 through April 30, 2022. Commencing in May 2022, Septuagint began making payments on the vehicle leases, which are
currently recorded as a deposit liability in the Consolidated Balance Sheets of DePalma II, however, payments on the medallion leases have not yet resumed through December 31, 2024.
DePalma II continues to monitor Septuagint’s ability to pay its medallion lease payment obligations, as well as its working capital note
and vehicle payment obligations. In light of Septuagint’s current cash constraints, Septuagint continues to delay payment on its medallion leases. Currently, DePalma II does not have an anticipated date for when Septuagint will resume its
medallion lease payment obligations. DePalma II’s and Septuagint’s management each currently believe the continued delay of medallion lease payments is the best course of action because it allows Septuagint to retain such payments for
working capital, which is primarily deployed to Septuagint’s workforce at this time. In order for Septuagint to grow its fleet consistent with its growth strategy, Septuagint will need to attract and retain additional drivers. Accordingly,
Septuagint remains focused on the goal of achieving profitability by attracting and retaining additional drivers over time, at which point medallion lease payments could recommence. However, the market for drivers remains fluid and subject to
general economic conditions. As a result, DePalma II is currently unable to determine when, if at all, Septuagint’s fleet will achieve profitability. In the event that Septuagint is wound down, we do not expect to be repaid on the medallion
lease payments or the working capital notes that mature in June 2026.
Further, certain entities owned by the principals of Kirie Eleison
are borrowers of Non-MRP+ Loans and, as a result, owe approximately $38 million in principal (excluding accrued unpaid regular and default interest payment obligations) to DePalma I under such loans.
Similar to substantially all of DePalma I’s Non-MRP+ Loan portfolio, these loans are in default. Although distinct contractually, given overlap of the parties, a resolution between Kirie Eleison and
DePalma I regarding the Non-MRP+ Loans could adversely impact DePalma II’s current operating relationship with Septuagint and the potential termination of the OSA and wind down of Septuagint. The DePalma
Companies may resolve DePalma I’s lending relationship through negotiating a resolution with the owners of Kirie Eleison that (i) removes Kirie Eleison as an owner and joint-venture partner in Septuagint and/or (ii) results in
Septuagint being wound-down. The agreement between the DePalma Companies and the principals of Kirie Eleison signed on October 17, 2024, would provide debt forgiveness to the principals of Kirie Eleison in exchange for assisting in
transitioning or transferring our medallions and vehicles to a new garage as we see fit and surrendering to DePalma or its designee the medallions that serve as collateral on their loans.
Any changes to the current Septuagint relationship will likely cause short-term operational disruptions and may negatively impact results,
including our ability to collect on the DePalma Companies’ various obligations from Septuagint. See “Item 1. Business—Our Market—Owned Medallions—Fleet and Leasing” for more information.
Increases in fuel, food, labor, energy, and other costs due to inflation and other factors could adversely affect our operating results. In addition,
supply chain disruptions may make expansion and maintenance of our existing taxi fleet challenging or prohibitively expensive.
Factors such as inflation, increased fuel prices, and increased vehicle purchase, rental, or maintenance costs, including increased prices of
new and used vehicle parts as a result of recent global supply chain challenges, may
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increase the costs incurred by taxi drivers. Similarly, factors such as inflation, increased food costs, increased labor costs, increased rental costs, and increased energy costs may increase
driver operating costs. In many cases, these increased costs may cause taxis to spend less time providing service. Likewise, these increased costs may cause fleet operators to pass costs on to drivers by increasing prices, which would likely cause
fleet utilization to decline. A decreased supply of taxi drivers could lead to an increase in defaults by our loan borrowers on our medallion loans and lower cash flows on all of our medallion assets.
Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations, or our prospects.
The funds in our operating account and our trust account are held in banks or other financial institutions. Such funds exceeding $250,000 are
not insured against loss by the Federal Deposit Insurance Corporation (“FDIC”). Should events, including limited liquidity, defaults, non- performance or other adverse developments occur with
respect to the banks or other financial institutions that hold our funds, or that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, our liquidity
may be adversely affected. For example, on March 10, 2023, the FDIC announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. Although we did not have any funds in Silicon Valley
Bank or other institutions that have been closed, we cannot guarantee that the banks or other financial institutions that hold our funds will not experience similar issues.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing
terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us
in connection with a potential business combination, or at all, and could have material adverse impacts on our liquidity, our business, financial condition or results of operations, and our prospects.
The impact of economic conditions, including the resulting effect on discretionary passenger spending, may harm our business and operating results.
Our performance is subject to economic conditions and their impact on levels of discretionary passenger spending. Some of the
factors that have an impact on discretionary passenger spending include general economic conditions, slower growth or recession, inflation, unemployment, passenger debt, reductions in net worth, residential real estate and mortgage markets,
taxation, energy prices, interest rates, passenger confidence, and other macroeconomic factors. Passenger preferences tend to shift to lower-cost alternatives during recessionary periods and other periods in which disposable income is adversely
affected. In such circumstances, passengers may choose to forgo taxis for lower-cost personal vehicle or public transportation alternatives, or may reduce total miles traveled as economic activity decreases. Such a shift in passenger behavior may
harm our business, financial condition, and operating results. Likewise, small businesses and individuals that do not have substantial resources, including many of the taxi drivers we do business with, tend to be more adversely affected by poor
economic conditions than large businesses.
In addition, economic instability or uncertainty, and other events beyond our control, such as
the COVID-19 pandemic, have, and may continue to, put pressure on economic conditions, which has led and could lead to reduced demand for services on our platform or greater operating expenses. We
regularly maintain cash balances at third-party financial institutions in excess of the FDIC insurance limit and are therefore reliant on banks and other financial institutions to safeguard and allow ready access to these assets. If banks or
financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be
threatened. If general economic conditions deteriorate in the United States, and in particular in the City of
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New York, discretionary spending may decline and demand for taxi service may be reduced, adversely affecting the value of our collateral and our Owned Medallions. A recessionary period may have a
further adverse effect on our revenue.
If autonomous vehicle technologies continue to improve and provide passengers with additional transportation
alternatives, and the taxi industry fails to adapt to the use of autonomous vehicle technologies, our financial performance and prospects would be adversely impacted.
Autonomous vehicle technologies may have the ability to meaningfully impact the taxi and ride share industry. Several companies are developing
autonomous ride share technology, including Aurora, Waymo, Cruise Automation, Tesla, Apple, Zoox (which Amazon has acquired), Aptiv, and Nuro, either alone or through collaborations with car manufacturers, and we expect that they will use such
technology to further compete in the mobility and logistics industries. Waymo has already introduced a commercialized ridehailing fleet of autonomous vehicles, and it is possible that additional companies could introduce autonomous vehicle
offerings. In the event that our competitors bring autonomous vehicles to market before the taxi industry is able to adjust, they may be able to leverage such technology to compete more effectively with taxis, which would adversely impact our
financial performance and our prospects. For example, the use of autonomous vehicles could substantially reduce the cost of providing mobility or logistics services, which could allow ride sharing companies to offer such services at a substantially
lower price as compared to the price available to passengers using taxis. If a significant number of passengers choose to use these offerings instead of taxis, thereby causing the value of taxicab medallions to decrease, our financial performance
and prospects would be adversely impacted. However, in October 2021, the City of New York proposed certain legislation requiring any autonomous cars operated by ridesharing companies to still require a valid medallion. There can be no guarantee that
such legislation will be passed and go into effect. If it were to be passed, it could mitigate some of the risks of autonomous vehicle technology.
We are subject to climate change risks, including physical and transitional risks, and if we are unable to manage such risks, our business may be
adversely impacted.
We face climate change-related physical and transition risks, which include the risk of market shifts toward
electric vehicles (“EVs”) and lower carbon business models and risks related to extreme weather events or natural disasters. Climate-related events, including the increasing frequency, severity and duration of extreme weather events
and their impact on critical infrastructure in the United States and elsewhere, have the potential to disrupt our business.
Congress and
other governmental authorities have either considered or implemented various laws and regulations in response to climate change and the reduction of greenhouse gases. Existing environmental regulations could be revised or reinterpreted, new laws and
regulations could be adopted, and future changes in environmental laws and regulations could occur, which could impose additional costs on the operation of our borrowers and other partners. Regulations to cut gasoline use and control greenhouse gas
emissions from new cars could adversely affect taxicab driver customers. The taxicab industry may have to make significant capital and other expenditures to comply with these laws and regulations. Changes in, or new, environmental restrictions may
force taxicab drivers and fleet operators to incur significant expenses or expenses that may exceed their estimates. There can be no assurance that we or our borrowers would be able to recover all or any increased environmental costs or that our
borrowers’ businesses, financial condition or results of operations would not be materially and adversely affected by such expenditures or any changes in environmental laws and regulations, in which case the value of medallion loans and Owned
Medallions could be adversely affected.
The Central Business District Tolling Program could result in significantly increased costs to operate
taxis.
On January 5, 2025, the Metropolitan Transportation Authority enacted a Central Business District
(“CBD”) Tolling Program (the “Tolling Program”) that imposes tolls on vehicles that enter or remain in the CBD, defined as the area of Manhattan south of 60th Street, in an effort to reduce congestion and improve
air quality. Under the
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Tolling Program, app-based ride share companies such as Uber and Lyft will be charged $1.50 per trip and NYC taxis will be charged $0.75 per trip, which
could result in a relative benefit for taxis. Nevertheless, the Tolling Program could result in significantly increased costs to operate taxis within the CBD, which has historically been one of the areas of NYC most heavily served by taxis. Such
increased costs could adversely affect the attractiveness of operating a taxi as a business and, as a result, the value of a taxi medallion, which could have a material adverse effect on the value of our Owned Medallions, loan collateral and general
business operations.
On February 19, 2025, the Trump administration moved to revoke federal approval of New York City’s nascent
CBD Tolling Program effective March 21, 2025, prompting New York’s Metropolitan Transportation Authority to file a lawsuit challenging the move, arguing that the Trump administration’s move to unilaterally end congestion pricing is
unlawful. On March 4, 2025, Riders Alliance and Sierra Club, represented by Earthjustice, also filed to join such lawsuit as interveners, raising additional claims. The deadline set by the Trump administration was extended by 30 days as of the
date of the Annual Report on Form 10-K. Uncertainty around the CBD Tolling Program makes it difficult for us to predict the effect of such program on our financial condition and results of operations.
Decreases in the value of our medallion loan collateral, including the impact on loans in process of foreclosure, have had, and may continue to have, a
material adverse effect on our business.
In recent years, increased competition has reduced the overall market for taxi services,
income generated from operating medallions, and the value of taxi medallions. If these trends continue, there will be further negative impacts to our medallion loans and related assets.
Government entities may take other actions in the future, which could have adverse effects on the market for taxi medallions and which could
affect our financial condition and results of operations. The City of New York, like most other major cities in the United States, limits the supply of taxi medallions. This regulation results in supply restrictions that support the value of
medallions. Actions that loosen these restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. Loosening restrictions that result in the issuance of additional taxi
medallions could decrease the value of taxi medallions in the NYC metropolitan area and in turn, adversely affect the value of the collateral securing our then-outstanding medallion loans in that market.
If taxi medallion values decline in the future, there is likely to be an increase in medallion loan delinquencies, foreclosures and borrower
bankruptcies. See “—DePalma I’s balance sheet consists substantially of loans secured by taxicab medallions, which historically have been associated with significant delinquencyrates and risk of default. If we are unable to
recover meaningful amounts relative to our acquisition prices on loans in default, our results of operations could be adversely impacted.” Our ability to recover on defaulted medallion loans by foreclosing on and selling the taxi medallion
collateral would be diminished, which would result in future losses on defaulted medallion loans that could have an effect on our business. If we are required to liquidate all or a portion of our medallion loans quickly, we could realize less than
the value at which we had previously recorded such medallions.
Uncertainty relating to the reporting of collateral values for our loans may
adversely affect the value of our portfolio.
Medallion loans are primarily collateral-based lending. Collateral values for
medallion loans reflect a combination of recent sales prices obtained from the regulatory agency in a particular local market and intrinsic value analyses based on management estimates and other factors. The illiquidity and distressed nature of the
taxi industry over the last several years has resulted in a wide range of reported medallion sale transaction values, including many which we believe are not reflective of the intrinsic value of the collateral or the potential recoveries on our
loans as all of our Non-MRP+ Loans also benefit from the personal guarantees of the borrowers or their affiliates.
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Decreases or increases in prevailing interest rates could adversely affect our business, our cost of
capital and our net interest income.
Under the MRP+, borrowers have explicit prepayment rights with respect to their medallion
loans whereby they can make prepayment at par once a month with no penalty. Borrowers of Non-MRP+ Loans can generally make prepayments as well, which creates a risk for reperformed loans. A borrower
is likely to exercise prepayment rights at a time when the interest rate payable on the borrower’s loan is high relative to prevailing interest rates. Any future collateralized medallion lending may be at lower yields than the debt that was
repaid. As a result, our results of operations could be materially adversely affected if a substantial number of borrowers elect to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result
in a decline in the market price of our common stock.
Our profitability may be directly affected by interest rate levels and fluctuations
in interest rates. Although all of our current loans have fixed interest rates, and therefore are not impacted by changing interest rates, for any new lending and future restructurings of existing defaulted loans (which comprises 100% of non-MRP loans), we would intend to set interest rates based on current market conditions at the time. If interest rates were to increase, it may make it more difficult for borrowers to accept the terms of new or
restructured loans. As interest rates change, our gross interest rate spread on loans either increases or decreases because the rates potentially charged on future seller financings provided in medallion sales are limited by market and competitive
conditions, restricting our ability to pass on increased interest costs to the borrower. While we monitor the interest rate environment and seek to mitigate the impact of increased interest rates, we cannot provide assurance that the impact of
changes in interest rates can be successfully mitigated.
As we may borrow in the future to fund our loans and investments, and a portion
of our income could be dependent upon the interest rate at which we borrow funds as compared to the fixed interest rate on all of our MRP+ Loan portfolio.
We are reliant on third-party service providers in our taxi leasing operations. If our third-party service providers fail to perform as needed, our
business may be adversely impacted.
We are reliant on third-party service providers in our taxi leasing operations to assist us in
managing a garage for our fleet and repairing our vehicles, among other services. While these arrangements would allow us to focus on our business, they reduce our direct control over the services necessary for our fleet to function. If our
third-party logistics service providers fail to comply with applicable NYC rules and regulations or provide the critical services, our business may be materially and adversely affected. If any of our third-party service providers’ operations or
services are disrupted or terminated, we may not be able to find alternative third-party service providers in a timely manner.
We signed
a non-exclusive operating agreement with a third-party taxi fleet who will provide us with services in exchange for a fee. Such services will include, but not be limited to, access to their garage facilities,
taxicab repairs and operational support. If these third-party service providers fail to satisfy their obligations, it will negatively impact our operating results.
Our third-party service providers are increasingly dependent on information technology and our ability to process data in order to operate, and if we
(or our third-party service providers) are unable to protect against software and hardware vulnerabilities, service interruptions, data corruption, cyber-based attacks, ransomware or security breaches, or if we fail to comply with our commitments
and assurances regarding the privacy and security of such data, our operations could be disrupted, our ability to provide our services could be interrupted, our reputation may be harmed and we may be exposed to liability and loss of customers and
business.
Our third-party service providers rely on information technology networks and systems and data processing to collect,
receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of and share (“Process” or “Processing”) personal information, confidential or proprietary information, financial
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information and other information, to manage a variety of business processes and activities, for financial reporting purposes, to operate our business and to comply with regulatory, legal and tax
requirements (“Business Functions”). These information technology networks and systems, and the Processing they perform, may be vulnerable to data security and privacy threats, cyber and otherwise. Moreover, the risk of unauthorized
circumvention of our security measures or those of our third parties on whom we rely has been heightened by advances in computer and software capabilities and the increasing sophistication of hackers who employ complex techniques, including, without
limitation, “phishing” or social engineering incidents, ransomware, extortion, account takeover attacks, denial or degradation of service attacks and malware. Further, breaches experienced by other companies may also be leveraged against
us. For example, credential stuffing attacks are becoming increasingly common and sophisticated actors can mask their attacks, making them increasingly difficult to identify and prevent. If our or our third-party providers’ information
technology networks and systems or data processing suffers damage, security breaches, vulnerabilities, disruption or shutdown, and we do not effectively resolve the issues in a timely manner, they could cause a material adverse impact to our
Business Functions and our business, reputation and financial condition.
Hackers and data thieves are increasingly sophisticated and
operate large-scale and complex automated attacks, which may remain undetected until after they occur. Despite our and our third-party service providers’ efforts to protect our information technology networks and systems, Processing, and
information, we may not be able to anticipate or to implement effective preventive and remedial measures against all data security and privacy threats. Our and our third-party service providers’ security measures may not be adequate to prevent
or detect service interruption, system failure data loss or theft, or other material adverse consequences. No security solution, strategy, or measures can address all possible security threats. Our and our third-party service providers’
applications, systems, networks, software, and physical facilities could have material vulnerabilities or be breached, or personal or confidential information could be otherwise compromised due to error or malfeasance, if, for example, third parties
attempt to fraudulently induce our personnel or our customers to disclose information or user names and/or passwords, or otherwise compromise the security of our networks, systems and/or physical facilities. We cannot be certain that we or our and
our third-party service providers’ will be able to address any such vulnerabilities, in whole or part, and there may be delays in developing and deploying patches and other remedial measures to adequately address vulnerabilities, and taking
such remedial steps could adversely impact or disrupt our operations.
An actual or perceived breach of our security systems or those of
our third-party service providers may require notification under applicable data privacy regulations or for customer relations or publicity purposes, which could result in reputational harm, costly litigation (including class action litigation),
material contract breaches, liability, settlement costs, loss of sales, regulatory scrutiny, actions or investigations, a loss of confidence in our business, systems and Processing, a diversion of management’s time and attention, and
significant fines, penalties, assessments, fees, and expenses.
The costs to respond to a security breach or to mitigate any security
vulnerabilities that may be identified could be significant, and our efforts to address these problems may not be successful. These costs include, but are not limited to, retaining the services of cybersecurity providers; compliance costs arising
out of existing and future cybersecurity, data protection and privacy laws and regulations; and costs related to maintaining redundant networks, data backups, and other damage-mitigation measures. We could be required to fundamentally change our
business activities and practices in response to a security breach of our third-party service providers or related regulatory actions or litigation, which could have an adverse effect on our business. Additionally, most jurisdictions have enacted
laws requiring companies to notify individuals, regulatory authorities, and others of security breaches involving certain types of data. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers to lose
confidence in the effectiveness of our third-party service providers’ security measures, and require us to expend significant capital and other resources to respond to or alleviate problems caused by the actual or perceived security breach.
Our board of directors will manage and oversee cybersecurity risks, including oversight of Field Point and any other third-party service
providers with access to confidential or private information relating to our business.
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The audit committee will oversee the establishment of an enterprise risk framework that will cover a spectrum of business risks which the combined company will actively manage, including
cybersecurity risks. Our board of directors will assess the adequacy of our protection of technology, including physical security, proprietary information and information security, as well as implement an appropriate cybersecurity risk management
policy designed to protect against threats and vulnerabilities, containing such preventive and detective controls as deemed appropriate, including, but not limited to, firewalls, penetration testing, anti-virus software, and encryption. Our board
directors, the audit committee and management team will be regularly briefed on our cybersecurity policies and practices, including effective monitoring of third-party service providers, and ongoing efforts to improve security, as well as periodic
updates on cybersecurity events. Our board of directors and the audit committee will consider such additional protective measures as may be required to comply with rapidly evolving data privacy and security standards and protocols imposed by law,
regulation, industry standards or contractual obligations. These measures may cause us to incur substantial expenses. Failure to timely upgrade or maintain computer systems, software and networks as necessary could also make our third-party service
providers susceptible to breaches and unauthorized access and misuse. We may be required to expend significant additional resources to modify, investigate or remediate vulnerabilities or other exposures arising from data and cybersecurity risks.
We and our third-party service providers may not have adequate insurance coverage for handling security incidents or breaches, including
fines, judgments, settlements, penalties, costs, attorney fees, and other impacts that arise out of incidents or breaches. If the impacts of a security incident or breach, or the successful assertion of one or more large claims against us that
exceeds our available insurance coverage, or the insurance coverage of our third-party service providers, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), it could harm our business. In addition, we cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or that our insurers will
not deny coverage as to all or part of any future claim or loss. Moreover, our privacy risks are likely to increase as we continue to expand, grow our customer base, and process, store, and transmit increasingly large amounts of personal and/or
sensitive data.
Any such access, disclosure, destruction or other loss of information could result in legal claims or proceedings,
liability under laws that protect the privacy of personal information and regulatory penalties, disrupt our operations and damage our reputation, which could adversely affect our business. In addition, we may also be required to incur significant
costs in connection with any regulatory investigation or civil litigation resulting from a security breach or other information technology disruption that affects us.
To date, cyber-attacks have not had a material impact on our financial condition, results or business; however, we could suffer material
financial or other losses in the future and we are not able to predict the severity of these attacks. Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the current global
economic and political environment, the current work-from-home environment, the outsourcing of the majority of our business operations, the ongoing shortage of qualified cybersecurity professionals, and the interconnectivity and interdependence of
third parties to our systems.
Lending to individual taxi owners/operators, taxi fleet operators or passive investors involves a high degree of risk
and is highly speculative.
Lending to individual taxi owners/operators, taxi fleet operators or passive investors involves a high
degree of business and financial risk, which can result in substantial losses and should be considered speculative.
Historically, our
borrower base consists primarily of individual taxi owners/operators, taxi fleet operators or passive investors that may have limited resources and that are generally unable to obtain financing from traditional sources. There is generally no
publicly available information about these borrowers, and we must rely
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on the diligence conducted by the employees of our affiliates, our Manager, Field Point and other third-party service providers to obtain information in connection with our credit decisions. In
addition, these borrowers often do not have audited financial statements.
Changes in the regulations and interpretations of existing regulations
applicable to small business lending could negatively impact our business.
Our loans secured by taxicab medallions are often made
to small businesses and sole proprietors. A growing number of states have adopted laws that require certain commercial lenders to (i) deliver disclosures summarizing loan terms to commercial borrowers and (ii) register with state
regulatory authorities in some instances, which could require alterations to our lending procedures and increase our legal and compliance costs. In addition, these loans are not consumer loans, and therefore are not subject to the collection rules
and regulations contained in the Fair Debt Collection Practices Act or within the scope of the Consumer Financial Protection Bureau’s (“CFPB”) authority, though the general restrictions against abusive, unfair, or deceptive
collections practices contained in the Unfair, Deceptive, or Abusive Acts or Practices provisions of the Dodd-Frank Act may apply to our collections practices. In addition, the CFPB has recently signaled a desire to be more aggressive regarding
debt collection in general as well as a strong interest in protection of small business credit programs, even though such commercial programs are generally outside its purview. Should the authority of the CFPB be expanded to expressly include
regulation of small business lending, we could be required to alter our lending and collections practices, which could materially increase the cost of enforcing our remedies with respect to defaulted taxi medallion loans and negatively impact
recoveries.
Our loan portfolio is, and we expect it to continue to be, concentrated in the NYC taxicab medallion industry and sector, which will
subject us to a risk of significant loss by a downturn in the particular industry or sector.
Our loan portfolio is, and we expect
it to continue to be, concentrated within the NYC taxicab medallion industry and sector. Taxi companies that constitute separate issuers may have related management or guarantors and constitute larger business relationships to us. As a result, the
aggregate returns we realize may be adversely affected if a small number of loans perform poorly or if we need to write down the value of any one loan. Additionally, a downturn in any particular industry or sector in which we are invested could also
negatively impact the aggregate returns we realize.
We depend on the accuracy and completeness of information about borrowers.
In deciding whether to extend credit or enter into other transactions, and in evaluating and monitoring our medallion loan portfolio on an
ongoing basis, we may rely on information furnished by or on behalf of borrowers, including financial statements, credit reports and other financial information. We may also rely on representations of those borrowers or of other third parties, such
as independent auditors, as to the accuracy and completeness of that information. The failure to receive financial statements, credit reports or other financial or business information related to our borrowers on a timely basis, or the inadvertent
reliance by us on inaccurate, incomplete, fraudulent or misleading forms of any of the foregoing information, could result in loan losses, reputational damage or other effects that could have a material adverse effect on our business, financial
condition or results of operations.
Insurance providers may not be able to service our claims. We rely on a limited number of third-party insurance
service providers for our insurance claims, and if such providers fail to service insurance claims to our expectations or we do not maintain business relationships with them, our business, financial condition and results of operations could be
adversely affected.
We rely on a limited number of insurance service providers to service our claims. If any of our insurance
service providers fails to service claims to our expectations, discontinues or increases the cost of coverage or changes the terms of such coverage in a manner not favorable to drivers or to us, we cannot guarantee that we
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would be able to secure replacement coverage or services on reasonable terms in an acceptable time frame or at all. If we cannot find alternate insurance service providers on terms acceptable to
us, we may incur additional expenses related to servicing claims using internal resources.
Risks Related to Growth and Operations
Competition with other lenders could adversely affect us.
The NYC taxi medallion lending market historically has been served by a variety of entities, including banks, savings and loan associations,
credit unions, independent finance companies, and financial technology companies. This level of competition may increase in more stable or favorable economic conditions. Increasing competition could also require us to lower the rates we charge on
loans in order to maintain our active loan portfolio, which could also have a material adverse effect on our business, financial condition and results of operations.
The United States District Court for the Southern District of New York issued to a ruling requiring all new NYC taxi cabs to be wheelchair accessible
vehicles (“WAV”). This ruling may adversely affect our business.
On September 3, 2024, the United States
District Court for the Southern District of New York issued a ruling that requires all new yellow taxicabs joining NYC’s active taxicab fleet to be WAV until 50% of NYC’s authorized medallions are on WAV. Because certain drivers may prefer
to drive non-WAV, this new ruling may materially adversely affect DePalma’s business and may decrease revenue if we struggle to lease out WAV.
Terrorist attacks, other acts of violence or war, public health crises, political crises, natural disasters and other unexpected events may affect any
market for our securities, impact the businesses in which we invest, and harm our operations and profitability.
Any unexpected
events, including terrorist attacks, natural disasters and other disruptions may harm our results of operations and your investment.
A
significant natural disaster, such as an earthquake, fire, hurricane, tornado, flood or significant power outage, could disrupt our operations or the operations of our third-party technology providers. The impact of climate change may increase these
risks. In addition, any public health crises, such as the COVID-19 pandemic, other epidemics, political crises, such as terrorist attacks, war and other political or social instability and other
geopolitical developments, or other catastrophic events could adversely affect our operations or the economy as a whole. In particular, our business is focused in the NYC metropolitan area, which suffered a terrorist attack in 2001 and has faced
continued threats. Another terrorist attack in the City of New York or elsewhere could severely impact our results of operations. The impact of any natural disaster, act of terrorism or other disruption to us or our third-party providers’
abilities could adversely affect our business, financial condition and results of operations. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate. Losses resulting from terrorist attacks are
generally uninsurable.
Global health crises or catastrophes, such as the COVID-19, pandemic, and
related significant negative impacts on the global economy and financial markets, have had and could a material adverse impact on our business, operating results, and financial condition, particularly given our concentration in the lending business.
Our business could be adversely affected by global health crises or catastrophes. For example, the spread of COVID-19 created a global public-health crisis that resulted in widespread volatility and deteriorations in employment levels, as well as business, economic, and market conditions that materially and
adversely affected our business, operating results and financial condition. The full extent of the adverse impact of the COVID-19 pandemic on our business, results of operations, financial position (including
capital and liquidity) and prospects depends on several evolving factors, including:
• The duration, extent, and severity of the pandemic.
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• The response of governmental and non-governmental authorities.
• The effect on economies and markets.
Any future pandemic or global health catastrophe would likely materially impact the taxi industry. For example, during the COVID-19 pandemic recurring payments of principal and interest on our medallion loan portfolio decreased significantly compared to payments in prior periods and we were forced to engage with non-performing borrowers about modifying their loan agreements.
As a result of these
foregoing factors or other risks and consequences, a future pandemic or global health catastrophe could materially and adversely affect our business, results of operations and financial condition and heighten the other risk described in these Risk
Factors. The full extent to which a future pandemic or global health catastrophe would impact our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and
scope of the continued outbreak and the actions taken to contain or mitigate the pandemic.
Our business is heavily reliant on the services provided
by our Manager and Field Point, and any disruption to them or to our relationship with either of them could adversely affect our business.
As we currently have no employees, we rely heavily on our Manager and our third-party service provider, Field Point, for most of the day-to-day services we require. Since inception, our Manager and Field Point have provided various services to us on a day-to-day basis, including, but not limited to, providing management oversight of the DePalma Companies, evaluating, managing, negotiating and overseeing the acquisition and disposition of our
assets, including NYC taxi medallions, NYC taxi medallion loans and other assets or property, and evaluating, managing, negotiating and overseeing the sale, structuring, restructuring and workout of NYC taxi medallion loans held by us and evaluating
our financial and operational performance. In addition, the Manager and Field Point may provide services related to the future selling of medallions, potentially with seller financing. As a result, we are heavily reliant on our Manager, which has
significant discretion as to the implementation and execution of our business strategies and risk management practices. We are subject to the risk of discontinuation of our Manager’s operations or termination of the Management Service Agreement
that we entered into upon consummation of the Business Combination and the risk that, upon such event, no suitable replacement will be found. We believe that our success depends to a significant extent upon the expertise and services of the
executive officers and other key personnel provided to us through our Manager and that discontinuation of its operations or the loss of its key management personnel could have a material adverse effect on our ability to achieve our investment
objectives. See “Risks Relating to the Externalization and Our Manager.”
Since our inception, Field Point has serviced
our medallion loans starting from the initial acquisition and onboarding of each acquired loan portfolio. Under the terms of the servicing agreements, Field Point provides services to us and is responsible for managing and assisting in making
collections on the medallion loans, assisting with loan documentation, credit reporting, foreclosures, loan restructuring, and other crucial operations. We believe Field Point is the largest servicer of taxi medallion loans in the NYC taxi market.
While outsourcing arrangements may lower our cost of operations, they also reduce our direct control over the services rendered. It is
uncertain what effect such diminished control will have on the quality of services rendered, on our ability to quickly respond to changing market conditions, or on our ability to ensure compliance with all applicable federal and local laws and
regulations. If we do not effectively develop and manage our outsourcing strategies, if our third-party service providers pass on the cost of inflation to us or do not perform as anticipated, or do not adequately protect our data from cyber-related
security breaches, or if there are delays or difficulties in enhancing business operational difficulties, increased costs, and loss of sensitive data, quality and compliance issues, any of which could materially and adversely affect our business,
financial condition and results of operations.
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Certain other companies managed by our Manager or its affiliates, Field Point and other
third-party service providers, which have investment objectives or business operations similar to ours, also rely on many of these same officers and professionals. Our Manager or its affiliates, Field Point and other third-party service operators
may face conflicts of interest if we enter into transactions with an affiliate. In addition, our Manager and certain of its affiliates, Field Point and certain other third-party service providers are presently, and plan in the future to continue to
be, involved with activities that are unrelated to us. As a result of these activities, our Manager, its employees and certain of its affiliates, as well as Field Point and its employees and other third-party service providers will have conflicts of
interest in allocating their time between us and the other activities in which they are or may become involved. See “Risks Relating to the Externalization and Our Manager.”
If we are unable to effectively manage our relationship and the agreement under which Field Point operates or we may have with any other
third-party service providers where we outsource our operation, our results of operations and cash flows could be adversely impacted. Further, failure of Field Point or other third-party service providers to meet its obligations to us or substantial
disruptions in the relationships between such service providers and us could adversely impact our operations and financial results.
Misconduct by
current or former affiliates’ employees and service providers could expose us to significant legal liability and reputational harm.
Current and former employees of our affiliates and our service providers could engage or could have engaged in misconduct that adversely
affects our business. For example, if such a person were to engage, or previously engaged, in fraudulent, illegal or suspicious activities, we could be subject to regulatory sanctions and suffer serious harm to our reputation (as a consequence of
the negative perception resulting from such activities), financial position, third-party relationships and ability to forge new relationships with third-party dealers or contractors. Our business often requires that we deal with confidential
information. If our current and former affiliates’ employees and service providers were to improperly use or disclose this information or previously improperly used or disclosed this information, even if inadvertently, we could suffer serious
harm to our reputation, financial position and current and future business relationships. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. Misconduct
by our affiliates’ employees and service providers, or former employees of our affiliates or former service providers, or even unsubstantiated allegations of misconduct, could result in a material adverse effect on our business, financial
condition or results of operations.
We may in the future pursue new strategies and lines of business that are not taxicab-related, and we may face
enhanced risks as a result of these changes in strategy, including from transacting with a broader array of counterparties and exposure to new assets, activities and markets.
We may change our strategy and enter new lines of business, including through acquisitions of new types of loan portfolios or other asset
classes, or otherwise, in the future. We may grow the operating business through acquisitions which could be either straightforward acquisition transactions or in satisfaction of amounts owned. Any new business initiatives may expose us to new and
enhanced risks, including new credit-related, compliance, fraud, market and operational risks, increased compliance and operating costs, different and potentially greater regulatory scrutiny of such new activities and assets and expose us to new
types of counterparties as well as asset classes, activities and markets.
Any new business initiatives and strategies we may pursue in
the future may be less successful than anticipated and may not advance our intended business strategy. We may not realize a satisfactory return on investments or acquisitions, we may experience difficulty in managing new portfolios or integrating
operations, and management’s attention from our other businesses could be diverted. Any of these results could ultimately have an adverse effect on our business, financial condition or results of operations.
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Risks Related to Regulation and Litigation
We operate in a highly regulated environment, and if we are found to be in violation of any of the federal, state, or local laws or regulations
applicable to us, our business could suffer.
Changes in the laws or regulations applicable to us may negatively impact the
profitability of our business activities, require us to change certain of our business practices, materially affect our business model, limit the activities in which we may engage, affect retention of key personnel, require us to raise additional
regulatory capital, increase the amount of liquid assets that we hold, or otherwise affect our funding profile or expose us to additional costs (including increased compliance costs). Any such changes may also require us to invest significant
management attention and resources to make any necessary changes and may adversely affect our ability to conduct our business as previously conducted or our results of operations or financial condition.
We are also subject to a wide range of federal, state, and local laws and regulations, such as local licensing requirements, and we expect
these costs to increase going forward. The violation of these or future requirements or laws and regulations could result in administrative, civil, or criminal sanctions against us, which may include fines, a cease and desist order against the
subject operations or even revocation or suspension of our license to operate the subject business. As a result, we have incurred and will continue to incur capital and operating expenditures and other costs to comply with these requirements and
laws and regulations.
Litigation or legal proceedings could expose us to significant liabilities and have a negative impact on our reputation or
business.
From time to time, we may be party to various claims and lawsuits, arbitration proceedings, government investigations
and other legal and regulatory proceedings in the ordinary course of business, some of which we may institute ourselves, and some of which we may be defending against. For example, we are party to hundreds of court actions involving the enforcement
of, and collection and/or foreclosure on, our taxi medallions loans, which matters include, among other things, claims for breach of contract and replevin. In addition, a number of our borrowers have also filed for bankruptcy, and we are
involved in certain adversary proceedings against the debtors in these bankruptcy cases, some of whom might assert counterclaims. In all cases, we evaluate these claims and litigation proceedings to assess the likelihood of unfavorable outcomes and
to estimate, if possible, the nature and amount of potential recoveries or losses. Based on these assessments and estimates, we may establish reserves, as appropriate. These assessments and estimates are based on the information available to
management at the time and involve a significant amount of management judgment. Actual outcomes, gains or losses may differ materially from our assessments and estimates. We may also, from time to time, take certain positions in respect of
contractual or other relationships with third parties which may result a dispute, and, ultimately, litigation. We are not currently party to any material litigation.
Even when not merited, the commencement or defense of these lawsuits may divert management’s attention, and we may incur significant
expenses in pursuing or defending these lawsuits. The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments or settlements in some of these legal disputes may result in adverse monetary damages, penalties
or injunctive relief against us, which could negatively impact our financial position, cash flows or results of operations. Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to
compete effectively or to obtain adequate insurance in the future. Furthermore, under certain circumstances, we have contractual and other legal obligations to indemnify and to incur legal expenses on behalf of our business, commercial, and
government partners and current and former directors and officers.
Furthermore, while we maintain insurance for certain potential
liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable. Even if we believe a claim is covered by insurance, insurers may dispute our
entitlement to recovery for a variety of potential reasons, which may affect the timing and, if the insurers prevail, the amount of our recovery.
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There is a risk of litigation between the principals of Kirie Eleison and us, which may adversely
affect our business.
We are in active discussions with the principals of Kirie Eleison to resolve their loan defaults along with
their defaults under the OSA. As of December 31, 2024, certain entities owned by the principals of Kirie Eleison are borrowers of Non-MRP+ Loans and, as a result, owe approximately $38 million in
principal (excluding accrued unpaid regular and default interest payment obligations) to DePalma I under such loans. These loans are currently in default.
On September 26, 2024, DePalma II provided notice to Kirie Eleison of its default under certain provisions of the OSA, including a
provision requiring Kirie Eleison to lease all of the medallions owned by Kirie Eleison and its affiliates and transfer their medallion leases to Septuagint. Pursuant to the OSA, Kirie Eleison had 30 days from the date of the notice to cure its
default. However, on October 17, 2024, the DePalma Companies and Kirie Eleison signed an amendment to the OSA that eliminated Septuagint’s exclusive right under the OSA to lease DePalma II’s medallions and provided for a transition
period until December 15, 2024 for DePalma II to decide whether to (i) have Kirie Eleison transfer its 50% interest in Septuagint to DePalma II or (ii) wind down Septuagint. The amendment allows DePalma II to either wind down
Septuagint or have Kirie Eleison to transfer its ownership interest in Septuagint to DePalma II or a designee. While the transition period originally expired on December 15, 2024, pursuant to the October 17, 2024 amendment, DePalma II and
Kirie Eleison subsequently agreed to further extend the transition period through March 31, 2025 in order to allow DePalma II and Kirie Eleison additional time to, among other things, evaluate their options and consider whether to continue
Septuagint’s operations, or wind Septuagint down and have DePalma II continue to pursue other alternative fleet servicing arrangements with third parties and/or to establish its own fleet servicing entity. The DePalma Companies are in ongoing
discussions with Kirie Eleison regarding the restructuring of its affiliates’ debt. On March 31, 2025, DePalma II and Kirie Eleison agreed to further extend the transition period by which DePalma II may elect to require Kirie Eleison to
transfer its membership interest in Septuagint to April 30, 2025. As of the date of this Annual Report on Form 10-K, the transfer of ownership has not yet occurred.
There is a risk that discussions with these parties will result in litigation, which would lead to increased legal fees, costs and other
expenses, which may adversely affect our business.
Regulations relating to privacy, information security and data protection could increase our
costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
We are subject
to various privacy, information security, and data protection laws, including requirements concerning security breach notification, and we could be negatively affected by these laws. For example, our business may be subject to the Gramm-Leach-Bliley
Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to borrowers
about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (iii) requires that we
develop, implement and maintain a written comprehensive information security program containing safeguards appropriate based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process,
as well as plans for responding to data security breaches. Various state and federal regulators have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification
in certain circumstances in the event of a security breach. Moreover, legislators and regulators are increasingly adopting or revising privacy, information security, and data protection laws that potentially could have a significant impact on our
current and planned privacy, data protection, and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities. This
could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission, as
well as at the state level.
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Compliance with current or future privacy, data protection, and information security laws
(including those regarding security breach notification) could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business,
financial conditions or results of operations. Our failure to comply with privacy, data protection, and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines,
sanctions, and damage to our reputation, which could have a material adverse effect on our business, financial condition, or results of operations.
Changes in statutory, regulatory, accounting, and other legal requirements, including changes in accounting principles generally accepted in the United
States, could potentially impact our operating and financial results.
We are subject to numerous statutory, regulatory, and legal
requirements. Our operating results could be negatively impacted by developments in these areas due to the costs of compliance in addition to possible government penalties and litigation in the event of deemed noncompliance. Changes in the
regulatory environment in the area of privacy and information security, wage, and hour laws, among others, could potentially impact our operations and financial results.
Generally accepted accounting principles in the United States (“GAAP”) are subject to interpretation by the Financial
Accounting Standards Board, the American Institute of Certified Public Accountants, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a
significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.
Moreover, while we believe that we maintain insurance customary for businesses of our size and type, there are types of losses we may incur
that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could harm our business.
DePalma I and
DePalma II have identified a material weakness in their internal control over financial reporting. If we are unable to remediate the material weakness, or if other control deficiencies are identified, we may not be able to report our financial
results accurately or file periodic reports as a public company in a timely manner.