ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NEW MAC
Unless context otherwise requires, all references in this section to “we,” “us,”, “our”, or
“New MAC” refer to Marblegate Capital Corporation Inc., a Delaware corporation and its wholly owned subsidiary MAC Merger Sub, Inc. (“Merger Sub”). References to our “management” or our “management
team” refer to our officers and directors. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this Annual Report on Form
10-K.
Overview
New MAC is a Delaware corporation, formed by MAC on February 2, 2023 (inception), to consummate the Business Combination. New MAC has
adopted a fiscal year-end of December 31. New MAC was formed to be the surviving company in connection with the proposed Business Combination between MAC, MAM, DePalma I, and DePalma II. New MAC has no prior
operating activities.
Proposed Business Combination and Recent Developments
On February 14, 2023, New MAC entered into the Business Combination Agreement with MAC, MAM, Merger Sub, DePalma I and DePalma II,
pursuant to which MAC agreed to combine with the DePalma Companies in a series of transactions that will result in New MAC becoming a public company. Under the Business Combination Agreement, the aggregate consideration payable to the DePalma
Companies at the closing of the Business Combination is based on a valuation of the DePalma Companies of approximately $750 million plus minimum cash anticipated to be required at closing for working capital purposes. The closing of the
Business Combination is subject to the satisfaction or waiver of certain conditions defined in the Business Combination Agreement, including, among others, approval by MAC stockholders and the Nasdaq Stock Market’s approval for listing the
common stock of New MAC issued in connection with the Business Combination. On April 5, 2025, New MAC, MAC, MAM, Merger Sub, DePalma I and DePalma II entered into a Waiver to the Business Combination to waive the approval by the Nasdaq Stock
Market of New MAC’s initial listing application. Immediately upon Closing, which is expected to occur on April 7, 2025, MAC will delist from Nasdaq and merge with Merger Sub and New MAC, whereupon New MAC intends for its common stock and
warrants to be quoted, as soon as possible following the consummation of the Business Combination, on the OTCQX ® Best Market operated on The OTC Market systems under the symbols
“GATE” and “GATEW”, respectively. There is no guarantee, however, that a broker will make a market in New MAC’s securities or that trading thereof will continue on the OTC Market or otherwise. The Business Combination
received the requisite stockholder approval on March 25, 2025, and closed April 7, 2025, following the fulfillment or waiver of other customary closing conditions.
Results of Operations
We incurred
expenses for the fiscal years ended December 31, 2024 and 2023 for organization activities. We do not expect to generate any operating revenues until after the completion of the Business Combination.
For the year ended December 31, 2024, we incurred a net loss of $0.04 million related to accounting and other organization
activities. For the period from inception to December 31, 2023, we incurred a net loss of $0.02 million related to legal expenses and other organization activities.
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Liquidity and Capital Resources
In connection with New MAC’s assessment of going concern considerations in accordance with Financial Accounting Standards Board’s
Accounting Standards Codification Subtopic 205-40, “Presentation of Financial Statements—Going Concern,” the liquidity of New MAC raises a substantial doubt about its ability to continue as a
going concern through the twelve months following the issuance of the financial statements. If New MAC is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not
necessarily be limited to, mandatory liquidation and subsequent dissolution. New MAC cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
Contractual Obligations and Commitments
As of December 31, 2024 and 2023, we have no contractual obligations and commitments outside of the agreements to which we are party in
connection with the Business Combination.
Off-Balance Sheet Arrangements
As of December 31, 2024 and 2023 we had no obligations, assets or liabilities which would be considered
off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities, and the reported amounts of expenses during the reporting period. Actual results could materially differ from those estimates.
Management has determined New MAC does not have any critical accounting policies or significant estimates.
Recent Accounting Pronouncements
See
Note 2 in the sections entitled “Summary of Significant Accounting Policies—Recent Accounting StandardsNot Yet Adopted” and“Summary of Significant Accounting Policies—Accounting StandardsRecently Adopted”as referred to in the consolidated financial statements of New MAC included elsewhere in this Annual Report on Form 10-K for a discussion about accounting pronouncements
recently adopted and recently issued not yet adopted.
Quantitative and Qualitative Disclosures about Market Risk
As of December 31, 2024 and 2023, we have no material exposure to market risk.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF DEPALMA
Unless context otherwise requires, (i) all references in this section to “DePalma I” refer to DePalma
Acquisition I LLC and its consolidated subsidiaries, (ii) all references in this section to “DePalma II” refer to DePalma Acquisition II LLC and its consolidated subsidiaries, and (iii) all references in this section to
“DePalma,” “DePalma Companies,” “we,” “us” or “our” refer to DePalma I and DePalma II. The following discussion and analysis is intended to help the reader understand results of operations and
financial condition of the DePalma Companies. This discussion and analysis is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and notes thereto of DePalma I, and consolidated financial
statements and notes thereto of DePalma II, in each case included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this
Annual Report on Form 10-K, including information with respect to DePalma’s plans and strategy for DePalma’s business, includes forward-looking statements that involve risks and uncertainties.
DePalma’s actual results may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” and “Cautionary Note
Regarding Forward-Looking Statements.” The objective of this section is to provide investors an understanding of the financial drivers and levers in DePalma’s business and describe the financial performance of the business.
Overview
We are comprised of two
companies primarily engaged in the NYC taxi medallion business, namely DePalma I and DePalma II. The DePalma Companies were formed as two Delaware limited liability companies on February 23, 2018 and commenced operations on March 29, 2018.
Our core philosophy has been to work with key stakeholders in the NYC taxi industry to help facilitate an industry-wide restructuring of historical medallion lending practices and to standardize a key piece of the NYC mobility infrastructure. The
DePalma Companies’ goal is to achieve superior risk adjusted returns for its shareholders by maintaining a focus on capital preservation, current revenues and capital appreciation. The DePalma Companies will continue to act in a manner
consistent with maximizing the underlying value of a medallion and improving the health of the taxicab industry.
DePalma I is focused on
acquiring, restructuring and owning medallion loans collateralized by NYC taxi medallions, whereas DePalma II is engaged in the business of owning and investing in taxi medallions as well as redeploying such medallions over time into the NYC taxi
medallion lending and fleet operations market. Further, during the year ended December 31, 2024, DePalma II began selling medallions with seller financing attached. In February 2019, DePalma II entered into a
non-controlling joint venture with Kirie Eleison Corp (“Kirie Eleison”), an unaffiliated strategic partner, and formed Septuagint Solutions LLC (“Septuagint”), in which DePalma II
holds a 50% interest and 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 Septuagint. Septuagint is a fully functioning 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, formed for the purpose of operating and servicing taxicab medallions. The formation of Septuagint also
allowed DePalma II to lease the medallions for its fleet operation business. Given the non-controlling nature of the relationship between DePalma II and Septuagint, Septuagint’s financial statements have
not been consolidated with DePalma II. Summarized financial information of Septuagint is presented below within this discussion and analysis.
Septuagint is governed by an Operating Services Agreement, dated October 15, 2019 (the “OSA”). On September 26, 2024, we
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
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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. As of the date of this Annual Report on Form 10-K, the transfer of ownership has not yet occurred.
On November 15, 2024, DePalma II entered into a non-exclusive servicing agreement (the
“Consulting Agreement”) with an unrelated taxi fleet (the “Consultant”) to provide operational support and access to physical garage and office space for our medallion leasing business. DePalma II and the Consultant entered into
the Consulting Agreement primarily to assist in establishing and growing DePalma II’s taxi fleet operations. In connection with the Consulting Agreement, DePalma II, as lessee, entered into a lease agreement for taxicab business and garage
space to run its taxicab operations. The Consulting Agreement and garage lease each have an initial term of five years, with the garage lease having an additional renewal option available to DePalma II.
We believe we are the largest NYC taxi medallion lender with a medallion loan portfolio collateralized by approximately 1,760 NYC taxi
medallions as of December 31, 2024. In addition to our ownership of medallion loans, we believe we are also the largest owner of NYC taxi medallions, with 2,061 Owned Medallions as of December 31, 2024. 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.
Prior to the Business Combination, the DePalma Companies are managed and directly owned by their respective members, which in turn are the
DePalma Equityholders managed by the Manager, a firm founded in 2009 to make secondary investments in event-driven, distressed credit, primarily in the U.S. middle market. Our Manager is also the managing member of the Sponsor. DePalma I holds its
assets, mainly its medallion loans, either directly or indirectly through certain trusts it has established, whereas DePalma II holds its assets, primarily taxi medallions, indirectly through various holding entities that have been formed for the
sole purpose of owning taxi medallions. Due to some member sensitivities around effectively connected income, upon foreclosure of a loan or surrender agreement, the underlying medallion collateral for the loan will be distributed out (in-kind) by DePalma I to the respective members and their respective feeders who then recontribute the medallion collateral (in-kind) into DePalma II, which is less sensitive
to effectively connected income.
Over time, we plan to transition our portfolio of non-performing
loans and Owned Medallions by selling medallions, primarily with seller financing attached, which will have the impact of increasing interest income from loans. Consistent with the DePalma Companies’ strategy over the last several years, and in
response to industry dynamics, we may choose to lease Owned Medallions until sufficient market demand exists to execute a subsequent sale either for cash or with seller financing. The DePalma Companies intend to conduct these activities with the
primary purposes of protecting the value of the original investment while enabling the DePalma Companies to achieve their objectives of capital appreciation and interest income from loans.
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DePalma II continues to monitor Septuagint’s ability to pay its obligations when due
which was notably impacted by the COVID-19 pandemic. As of December 31, 2024, DePalma II has approximately, $15.3 million due and payable from Septuagint, inclusive of $3.4 million in working
capital notes inclusive of PIK interest, $11.7 million in medallion lease payments and $0.2 million in other reimbursable expenses. In light of Septuagint’s current cash constraints, Septuagint continues to delay payment on its
medallion leases. In addition, DePalma II enters into vehicle lease agreements with Septuagint as lessee. During the COVID-19 pandemic, many drivers became unable to repay the amount due to Septuagint under
separate driver lease contracts. As a result, Septuagint became unable to make payments to DePalma II for its vehicle leases. To address this, DePalma II implemented a payment holiday for Septuagint from February 2020 to April 30, 2022,
reducing collections during this period. For the fiscal year ended December 31, 2022, DePalma II received payments only in the last three quarters following the end of the payment holiday. DePalma II has continued to receive payments through
December 31, 2024, totaling $7.1 million. If the OSA is terminated, no further collections are anticipated. 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 that 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 our relationship with Septuagint is terminated, we do not expect to be repaid on the medallion lease payments or the
working capital notes that mature in June 2026.
Financial Overview
For the fiscal years ended December 31, 2024 and 2023, DePalma I generated total revenues of $20.5 million and $20.2 million,
income from operations of $11.2 million and $9.3 million, other income of $3.2 million and $36.4 million, and net income of $14.4 million and $45.7 million, respectively. Other revenue includes payments made from the
Reserve Fund. Through December 31, 2024, we have received approximately $34 million of revenue from MRP+ loans, of which 28% of such payments were made from the Reserve Fund. As of December 31, 2024, DePalma I had loans held for
investment, at fair value of $278.6 million. For the fiscal years ended December 31, 2024 and 2023, DePalma I had gross collections of $36 million and $75.7 million, respectively, where 40% and 74% of such collections were
related to payments made on account of restructurings or resolutions of medallion loans. The decrease in gross collections was due to significantly less borrowers entering the MRP+ program during the fiscal year ended December 31, 2024, as
compared to the fiscal year ended December 31, 2023. The fiscal year ended December 31, 2023 included upfront payments from a substantial number of borrowers entering the MRP+ program. For the fiscal year ended December 31, 2024,
DePalma I realized a year-over-year decrease of $0.9 million in regular monthly payments (which includes interest income and amortization) from borrowers who restructured in connection with the MRP+ program, a $25.9 million year-over-year
decrease in upfront principal reduction payments received in connection with MRP+ closings, and a $1.6 million year-over-year increase in payments received from the Reserve Fund in connection with delinquent MRP+ loans. Additionally, during the
fiscal year ended December 31, 2024, DePalma I realized a $8.9 million year-over-year increase in non-MRP+ restructuring activity from an escalation of enforcement and collection activities against
defaulted loans that did not participate in the MRP+ program. The 52% decrease in gross collections during the fiscal year ended December 31, 2024 as compared to the same period in the prior year was primarily attributable to significantly less
borrowers entering the MRP+ program during the fiscal year ended December 31, 2024, as compared to the fiscal year ended December 31, 2023.
With respect to delinquencies, as of December 31, 2024 and 2023, the percentage of NYC loans by medallion count in default were 35% and
45%, respectively. The decrease in delinquencies at December 31, 2024 was largely due to the foreclosure of a significant portion of non-performing loans during the year ended December 31, 2024.
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For the fiscal years ended December 31, 2024 and 2023, the DePalma Companies completed
restructurings of loans collateralized by 139 and 268 NYC medallions, respectively. The substantial decrease in restructurings in 2024 was due to MRP+ restructurings occurring in 2023.
For the fiscal years ended December 31, 2024 and 2023, the DePalma Companies foreclosed on 254 and 739 medallions, respectively. The
decrease in the pace of foreclosures is due to the reduced size of the non-performing loan pool as the Company has foreclosed on a significant portion of its
non-performing loans.
Business Combination and Public Company Costs
On February 14, 2023, MAC entered into the Business Combination Agreement, with the Manager, New MAC, Merger Sub, DePalma I and DePalma
II. Pursuant to the Business Combination Agreement, and subject to the terms and conditions contained therein, the Business Combination was effected as follows: (i) immediately prior to the consummation of the transactions contemplated by the
Business Combination Agreement, New MAC and the DePalma Companies effected the Pre-Closing Transactions, resulting in New MAC becoming the owner of approximately 83.7% of the DePalma Companies, with the
remaining 16.3% continuing to be owned by certain current limited partners of the DePalma Companies; and (ii) Merger Sub merged with and into MAC in the Merger, with MAC surviving as a wholly owned subsidiary of New MAC. As a result of the
Business Combination, New MAC became a new publicly-traded company.
The Business Combination closed on April 7, 2025, following the
receipt of the requisite stockholder approval on March 25, 2025. At the closing of the Business Combination, the aggregate merger consideration paid to the holders of capital stock of the DePalma Companies was $638.9 million, which
consisted of 63,892,449 newly issued shares of New MAC Common Stock.
As a consequence of the Business Combination, New MAC became the
owner of approximately 83.7% of the DePalma Companies, with the remaining 16.3% continuing to be owned by certain current limited partners of the DePalma Companies, and New MAC became an SEC-registered and
publicly-listed company. As a result, New MAC may be required to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. New MAC expects to incur additional annual
expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal
fees.
Key Factors Affecting Operating Results
The DePalma Companies’ performance and future success depends on several factors that present significant opportunities, but also pose
risks and challenges, including those discussed below and in the section entitled “Risk Factors.”
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 $347 million in aggregate principal of NYC taxicab medallion loans, of which approximately 65% 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, 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. DePalma II’s
balance sheet consists substantially of taxicab medallions which are reported at cost and evaluated for impairment. As of December 31, 2024, DePalma
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II held an aggregate of 2,210 taxicab medallions with a carrying value of $345.4 million. The value of our taxicab medallion and loan portfolio, and the taxi industry in general, is
susceptible to risk of loss resulting from, including but not limited to, changes in taxicab industry regulations that result in the issuance of additional medallions or increases in the expenses involved in operating a medallion. 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. 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. 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, 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 collateralized loan 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.
MRP+
As of December 31,
2024, 36% of our current medallion loans based on the number of NYC taxi medallions that are either collateral to medallion loans or that we own, have participated in the MRP+, 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 is subject to and dependent upon appropriations being made from time to time by the New York City Council for such purpose. Any
funding in excess of the initial $49 million is not legally required and is not committed by the City of New York and is subject to future appropriations by the New York City Council. 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. The Reserve Fund balance is approximately $37 million as of December 31, 2024.
Under the MRP+, eligible medallion loans with a principal balance of $200,000 or more will be reduced to an initial principal balance of
$200,000, and further reduced to $170,000 per medallion (after a $30,000 per medallion principal reduction payment in the form of a grant from the Reserve Fund). Existing medallion loans with a principal balance of $200,000 or less will have a
principal balance equal to the existing principal balance reduced by (i) $30,000 per medallion and (ii) further reduced by 5% of the post-paydown principal balance per medallion resulting from (i) above. In no event will the principal
balance of any eligible medallion loan exceed$170,000 per medallion. A reduction in the outstanding principal balance to the restructured principal balance is recorded as a writedown of principal in which no cash is received, at which time a loss is
recorded based on the reduction in principal balance. The fair value of loans before and after entering the MRP+ program have seen minimal immediate change in fair value due to DePalma I’s fair value accounting policies for MRP+ and Non-MRP+ loans and the historical valuations of underlying NYC medallion collateral for the period of time in which the MRP+ program has existed.
Changes in Interest Rates
Our
exposure to changes in interest rates primarily relates to the interest income generated by our medallion loans. In addition, the value of our MRP+ loans is determined by applying a discount to the anticipated future cash flows of the underlying
loans. The two factors determining the discount are the movement in interest rates and a risk premium for likelihood of transaction close. A change in interest rates may impact the valuation of MRP+ loans.
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Our profitability may be directly affected by interest rate levels and fluctuations in
interest rates. As interest rates change, our gross interest rate spread on loans will either increase or decrease 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.
Changes in interest rates historically have not
had an identifiable impact on our interest income, gross income spread, or our ability to pass on interest costs to the borrower. The majority of our loan portfolio historically has been non-performing and has
not made regular interest payments. 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 fluctuations in
interest rates have not historically impacted gross income spread or interest expense.
As the impact of interest rates has generally not
been material to our historical operating results, we have not entered into any interest rate swaps or other hedging transactions to mitigate such risks. However, we may do so in the future if interest rates increase and our exposure to interest
rates becomes more significant. Furthermore, with respect to our assets that are not MRP+ Loans, which consist of NYC Non-MRP+ Loans (approximately 65% of which are in default) and Owned Medallions, we believe
that we are able to mitigate the impact from any rising interest rates as we are generally able to pass on such increased interest rate costs to the borrowers. For example, with respect to such assets, we generally expect to either refinance the
defaulted loans into new medallion loans or restructure the existing loans with new loan terms, in each case at a rate that would reflect the then current market interest rate. As a result, we believe that we have the flexibility to adjust our
interest rate exposure with respect to some of our asset portfolio.
While we continue to monitor the interest rate environment and seek
to mitigate the impact of interest rates, including potentially implementing any market based hedging strategies, we cannot provide assurance that the impact of changes in interest rates can be successfully mitigated.
Key Components of Results of Operations
Each of the DePalma Companies has historically operated and managed its business in one reportable segment. The following discussion of results
of operations are based on each of the DePalma Companies’ reportable segment for the periods presented.
Revenue
DePalma I’s revenue has historically been primarily comprised of interest income from the taxicab medallion loans and any interest earned
from cash on hand. All of the medallion loans are collateralized by one or more taxicab medallions, with a significant portion of the loans participating in the MRP+ program established by the City of New York and the New York City Taxi and
Limousine Commission (“TLC”). These loans are nonrecourse loans that do not carry a personal guarantee, but rather have credit support from funds provided by the City of New York. Medallion loans that do not participate in the MRP+ program
(or its predecessor, MRP) are often further secured by personal guarantees of the borrowers, shareholders or equity members and, in some cases, collateralized with additional collateral such as real estate of the borrowers. In addition, DePalma
I’s other revenue has historically been comprised of restructuring fees borrowers are requested to pay as part of the MRP+ program, payments received from the Reserve Fund as they are not contractual payments made by the borrowers, fees
received in connection with non-MRP+ restructurings and settlements, and the resolution of certain litigation and bankruptcy proceedings, as discussed further below.
DePalma II’s revenue has historically been nominal due to the fact that the majority of the Unregistered Medallions have not yet been
placed in operation through Septuagint or otherwise, however more recently, and during the fiscal year ended December 31, 2024, has recognized interest income from originating medallion loan financings and from cash on hand.
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Operating Expenses
DePalma I’s operating expenses have historically been comprised of (1) service fee expenses, consisting of fees paid to its
third-party servicer, Field Point, for servicing its medallion loans, (2) professional fees, consisting of fees for third-party professional services, including consulting, legal, accounting and lobbying, as well as (3) general and
administrative fees, consisting of certain fees for third-party professional services and general and administrative expenses.
DePalma
II’s operating expenses have historically been comprised of (1) depreciation expense on taxicab vehicles (2) professional fees, consisting of fees for third-party professional services, including consulting, legal, accounting and
lobbying, (3) general and administrative fees, consisting of fees for third-party professional services, medallion administration costs, and general and administrative expenses, as well as (4) fleet servicing fees, consisting of net
expenses incurred as a result of the Consulting Agreement.
The DePalma Companies expect their expenses, in particular professional fees
and general and administrative fees, to increase for the foreseeable future as a result of their parent entity, New MAC, operating as a public company after the completed Business Combination, thereby requiring compliance with the rules and
regulations of the SEC. As a result, the DePalma Companies expect an increase in legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.
Other Income
DePalma I treats the
loans purchased as a pool of loans in its books and records. DePalma I’s purchases of taxicab medallion loans have been transacted at significant discounts to par value and DePalma I has been working to resolve those loans. Resolution of the
loans to date have resulted from (i) loan principal payments (at agreed upon amounts, either at or below par) and/or (ii) foreclosure and possession of collateral (taxi medallions). In either case, DePalma I recognizes a gain or loss which
is the difference between the sale proceeds of a loan, or collateral value less foreclosure costs in a foreclosure, and the carrying value. Gains on loans held for investment may derive from principal payments in cash or collateral that exceed the
carrying value of the principal amount that was relieved. Losses on loans held for investment may occur upon a reduction in principal balance in a restructuring, including when loans enter the MRP+ program. For foreclosed loans, the difference
between fair value of the collateral less foreclosure costs compared to the loan carrying value is recorded as a gain or loss. DePalma I and DePalma II record changes in fair value on loans held for investment as a result of changes in the fair
value of loans collateralized by taxi medallions, as applicable, which are primarily generated through changes in medallion pricing and changes in unpaid principal balances on outstanding loans. Prior period changes in fair value have been included
in the carrying value of such loans up until foreclosure. DePalma II recognizes an in-kind gain or loss upon the reinstatement of certain taxi medallion loans and transfer of medallion collateral to DePalma I,
and also recognizes a gain or loss from medallion sales to third-parties.
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Results of Operations of DePalma I
Comparison of the Fiscal Years Ended December 31, 2024 and 2023
The following table summarizes our results of operations of DePalma I for the fiscal years ended December 31, 2024 and 2023:
For the Years EndedDecember 31,
(in thousands)
Revenue:
Operating expenses:
Other income:
* Percentage not meaningful
Revenue
Interest income.
Interest income of DePalma I of $14.7 million decreased by $0.5 million, or 3%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such decrease was due to a $2.9 million
decrease in interest income from MRP+ program driven by a $1.3 million decrease from borrower defaults, a $0.2 million decrease from borrower payoffs, and a $1.4 million decrease due to the initial booking of MRP+ loans and borrowers
entering the program during the fiscal year ended December 31, 2023. The decrease in interest income from the MRP+ program was partially offset by a $0.5 million increase in interest in money market funds, as well as a $1.9 million
increase in payments received on Non-MRP+ loans driven by more borrowers performing on their restructured obligations.
Other revenue. Other revenue of DePalma I of $5.8 million increased by $0.8 million, or 15%, for the fiscal year ended
December 31, 2024 compared to the fiscal year ended December 31, 2023. $1.0 million of such increase was due to an increase in payments from the Reserve Fund due to a larger number of MRP+ borrowers becoming delinquent, which was
partially offset by a $0.2 million decrease due to a decrease in restructuring related fees from Non-MRP+ borrowers.
Operating Expenses
Service
fees. Service fees of DePalma I of $4.5 million decreased by $0.1 million, or 2%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such decrease was primarily due to a decrease
in charges related to third party servicing activities from Field Point.
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Professional fees. Professional fees of DePalma I of $4.6 million decreased by
$1.5 million, or 25%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such decrease was due to a $0.8 million decrease in legal fees and a $0.7 million decrease in other professional
fees.
General and administrative fees. General and administrative fees of DePalma I of $0.2 million decreased by
$0.05 million, or 21%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such decrease was due to reductions in DePalma I’s share of third party administration costs resulting from
DePalma I’s decrease in net asset value.
Other Income
For the fiscal year ended December 31, 2024, principal payments were received on 1,155 loans secured by 1,494 medallions and DePalma I
foreclosed on 254 medallions. For the fiscal year ended December 31, 2023, principal payments were received on 1,566 loans secured by 1,999 medallions and DePalma I foreclosed on 734 medallions.
Gains on loans held for investment, net. Gains on loans held for investment, net of DePalma I of $3.2 million decreased by
$33.2 million, or 91%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. $27.7 million of such decrease was due to a $13.2 million decrease in gains from cash paydowns and a
$14.5 million decrease from medallion foreclosures. Further, $5.5 million of such decrease was due to a net decrease in changes in fair value on loans held for investment, of which $3.8 million and $1.7 million was from MRP+
loans and Non-MRP loans, respectively. The decrease in changes in fair value on MRP+ loans was driven by a decrease in fair value of MRP+ loans during 2024 of $0.5 million due to a decrease in value of
$1.0 million from DePalma I extending the maturity date used to value MRP+ loans offset by a $0.5 million increase in value due to a decrease in the discount rate applied to loan cash flows in accordance with decreases in market discount
rates. For the fiscal year ended December 31, 2023, there was an increase in the value of MRP+ loans of $3.3 million driven by a reduction in execution risk of loans moving into the MRP+ program and successful implementation of the
program. The decrease in changes in fair value on Non-MRP+ loans was due to a revaluation of loans in non-NYC jurisdictions due to a decrease in the value of the
underlying medallion collateral of Chicago medallion loans based on market observations during the fiscal year ended December 31, 2024.
Results
of Operations of DePalma II
Comparison of the Fiscal Years Ended December 31, 2024 and 2023
The following table summarizes our results of operations of DePalma II for the fiscal years ended December 31, 2024 and 2023:
For the Years EndedDecember 31,
(in thousands)
Revenue:
Operating expenses:
Fleet servicing fees, net 542 — 542 *
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For the Years EndedDecember 31,
(in thousands)
Other income:
Gains from sale of medallions 83 — 83 *
Gains from in-kind medallion transfers, net — related parties 19 34 (15 ) (44 )%
* Percentage not meaningful
Revenue
Interest income.
Interest income was $0.5 million for the fiscal year ended December 31, 2024. The increase in interest income was due to a $0.4 million increase in interest from cash on hand, and a $0.1 million increase from DePalma II beginning to
originate medallion loan financings.
Operating Expenses
Depreciation expense. Depreciation expense of DePalma II of $1.9 million increased by $0.5 million, or 41%, for the fiscal
year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such increase was due to the purchase and placement of additional taxicab vehicles in service.
Professional fees. Professional fees of DePalma II of $2.9 million increased by $1.3 million, or 82%, for the fiscal year
ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such increase was due to an increase in legal expenses related to the increase of Owned Medallions that went through the TLC transfer process.
General and administrative fees. General and administrative fees of DePalma II of $0.3 million increased by $0.2 million, or
126%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such increase was a result of an increase in DePalma II’s share of third party administration costs due to DePalma II’s
increase in net asset value.
Fleet servicing fees, net. Fleet servicing fees, net was $0.5 million for the fiscal year ended
December 31, 2024. Such increase was due to DePalma II entering into the fleet servicing Consulting Agreement commencing November 15, 2024.
Other Income
Gains from sale
of medallions. Gains from sale of medallions was $0.1 million for the fiscal year ended December 31, 2024. This was due to DePalma II beginning to initiate medallion sales to third parties during the period.
Gains from in-kind medallion transfers, net — related parties. Gains from in-kind medallion transfers, net — related parties of $0.02 million decreased by $0.02 million, or 44%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended
December 31, 2023. This decrease was due to medallions contributed in-kind to DePalma I as a result of taxi medallions being converted back and reinstated to promissory notes having higher carrying values
within DePalma II before contributing in-kind to DePalma I comparatively to the preceding period as the medallions are contributed to DePalma I at fair value.
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Summarized Financial Information of Septuagint
DePalma II’s investment in Septuagint is accounted for under the equity method to which DePalma II has elected the fair value option. As
of December 31, 2024 and 2023, the fair value of DePalma II’s equity investment in Septuagint was $0.
DePalma II and Septuagint
have historically, and continue to, conduct related party transactions with each other. The most notable transactions include, but are not limited to, various working capital promissory notes issued from DePalma II to Septuagint in an aggregate
amount of $3.4 million inclusive of PIK interest through December 31, 2024. These working capital notes were amended in June 2023 to extend the maturity date of principal and accrued interest to June 2026. As of December 31, 2024 and
2023, the fair value of the working capital notes are determined to be $0 based on DePalma II’s assessment of its historical collections and expected future collections. Furthermore, DePalma II does not expect to receive future payment related
to the working capital notes upon termination of the OSA. In addition, DePalma II leases medallions and taxicab vehicles to Septuagint that Septuagint may use in its taxicab fleet operations. The monthly rental payment for each medallion is $1,500
per month, and the monthly rental payment for taxicab vehicles varies by lease. Please refer to the financial statements of DePalma II included within this Annual Report on Form 10-K for additional information
on DePalma II’s transactions with Septuagint and resulting impact to DePalma II’s financials statements, financial condition, and results of operations.
The primary factors that have limited the number of taxis in Septuagint’s fleet are availability of cars, the availability of drivers at
certain times of the year, a desire by Septuagint to grow the fleet in a methodical manner that would not require the need for a capital infusion, and Septuagint’s need to scale up its operations as the fleet grows. In addition, Septuagint
needs access to medallions in order to grow its fleet. DePalma II has discretion to determine, in its business judgment, the pace at which it will deploy its medallions for lease to Septuagint.
The following tables provide unaudited summarized financial information of the assets, liabilities, and results of operations of Septuagint
for the periods presented:
Summary Financial Data (unaudited): As of December 31,
(in thousands)
For the Years EndedDecember 31,
(in thousands)
Financial Condition
The Manager and the members of the DePalma Companies evaluate the financial condition and capital requirements of the DePalma Companies at the
DePalma I and DePalma II levels, as well as on a combined basis. Historically, dependent upon the working capital needs of each of the DePalma Companies, DePalma I will, at times, advance working capital on behalf of DePalma II, and DePalma II will
reimburse DePalma I in a timely manner. In addition, DePalma I may, via its Members, distribute capital to DePalma II that is not reimbursable to DePalma I. In addition, upon foreclosure of a loan or surrender agreement, the underlying medallion
collateral
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for the loan will be distributed out (in-kind) by DePalma I to the respective members and their respective feeders who then recontribute the medallion
collateral (in-kind) into DePalma II, consistent with the objective of each of the DePalma Companies. These in-kind transfers are largely dependent upon the activities
of DePalma I, most notably including the frequency at which it obtains medallions secured as loan collateral. These in-kind transfers can have a significant impact on the reported amount of assets on each of
the DePalma Companies’ balance sheets, as well as the resulting assessments of financial condition by the Manager and the members on each of the DePalma Companies. During the fiscal years ended December 31, 2024 and 2023, DePalma I,
through its members, made distributions of underlying medallion collateral in-kind to DePalma II of approximately $49.1 million and $130.4 million, respectively.
On a combined basis, the DePalma Companies’ most notable changes in financial condition from December 31, 2023 to December 31,
2024 include an increase in intangible assets of approximately $44.8 million, a decrease in loans held for investment, at fair value of approximately $53.8 million, and a decrease in cash and cash equivalents of approximately
$1.1 million. The increase in intangible assets was driven by contributions received on the medallion collateral (in-kind) into DePalma II resulting from medallion foreclosures. The decrease in loans held
for investment, at fair value was driven by cash paydowns received and medallion foreclosures. The decrease in cash and cash equivalents was driven by purchases of Non-MRP+ loans by DePalma I of
$2.8 million, payments for capital redemptions of approximately $22.5 million to the members of DePalma I, vehicle purchases by DePalma II of $1.1 million, and Non-MRP+ loan originations of
DePalma II of $1.6 million, and was partially offset by cash flows from operations of DePalma I of $10.4 million, and payments received by DePalma I on its loans held for investment, at fair value of approximately $16.7 million.
Liquidity and Capital Resources
Cash Flows of
DePalma I
DePalma I uses traditional measures of cash flow, including net cash provided by its operating activities, net cash
provided by its investing activities, and net cash used in financing activities, as well as cash available for distribution to evaluate its periodic cash flow results. As of December 31, 2024 and 2023, DePalma I had available cash and cash
equivalents of $2.4 million and $35.7 million, respectively, which are available to fund its operations. Based on its current expectations, DePalma I believes that its existing cash and cash equivalents, together with cash provided by
operating and investing activities, will be sufficient to fund its working capital requirements for at least the next twelve months.
Comparison of
the Fiscal Years Ended December 31, 2024 and 2023
The following table reflects the changes in cash flows of DePalma I for
the fiscal years ended December 31, 2024 and 2023:
For the Years EndedDecember 31,
(in thousands)
* Percentage not meaningful
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Operating Activities
The increase to net cash provided by operating activities was $2.7 million, or 34% for the fiscal year ended December 31, 2024
compared to the fiscal year ended December 31, 2023. Such increase was driven by a decrease in professional fees of $1.5 million and loan payments received in advance of $1.4 million.
Investing Activities
The decrease to net
cash provided by investing activities was $44.3 million, or 76%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such decrease was due to a reduction in loans entering the MRP+ program
in the preceding period.
Financing Activities
The increase to net cash used in financing activities was $13.2 million, or 30%, for the fiscal year ended December 31, 2024 compared
to the fiscal year ended December 31, 2023. This increase was driven by distributions made to DePalma II of $35.2 million through its Members, partially offset by a decrease in distributions to its Members’ at the discretion of the
Investment Manager of $22.0 million.
Cash Flows of DePalma II
DePalma II uses traditional measures of cash flow, including net cash provided by operating activities, net cash used in investing activities,
and net cash provided by financing activities, as well as cash available for distribution to evaluate its periodic cash flow results. As of December 31, 2024 and 2023, DePalma II had available cash and cash equivalents of $32.8 million and
$0.5 million, respectively, which are available to fund its operations. Based on its current expectations, DePalma II believes that its existing cash and cash equivalents, together with cash provided by operating and financing activities, will
be sufficient to fund its working capital requirements for at least the next twelve months.
The table below sets forth the cash flows due
and received by Septuagint for the periods presented. The taxi industry is competitive and there are uncertainties around our cash flows. There is no guarantee that Septuagint will be able to continue making cash vehicle payments or be able to make
payments on either medallion leases or working capital notes in the future. The business of operating a taxi fleet is competitive. Septuagint competes with other established fleets, technology enabled ride sharing apps, and public transit among
other competitors. On September 26, 2024, we 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
agreement that eliminated Septuagint’s exclusive right to lease DePalma II’s medallions and provides 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 agreement gives DePalma II the right to either wind down Septuagint or require 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. 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
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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. As of
the date of this Annual Report on Form 10-K, the transfer of ownership has not yet occurred.
For the Years EndedDecember 31,
(in thousands)
Amounts Owed Medallion Lease Payments $ 4,158 $ 1,807
Amounts Paid Medallion Lease Payments $ — $ —
Comparison of the Fiscal Years Ended December 31, 2024 and 2023
The following table reflects the changes in cash flows of DePalma II for the fiscal years ended December 31, 2024 and 2023:
For the Years EndedDecember 31,
(in thousands)
Net increase (decrease) in cash and cash equivalents 32,316 (476 ) 32,792 *
Cash and cash equivalents, at beginning of period 493 969 (476 ) (49 )%
* Percentage not meaningful
Operating Activities
The increase to net
cash used in operating activities was $1.4 million, or 114% for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such increase was primarily due to an increase in cash outflows associated
with operating expenses including $1.9 million from professional fees and $0.4 million from fleet servicing fees, net, partially offset by an increase in payments received on vehicle leases from Septuagint of $1.2 million.
Investing Activities
The decrease to net
cash used in investing activities was $2.0 million, or 44%, for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. Such decrease was driven by a $3.1 million decrease in vehicles
purchased during the period, partially offset by an increase in originations of Non-MRP+ loans of $1.1 million.
Financing Activities
The increase to net
cash provided by financing activities was $32.2 million for the fiscal year ended December 31, 2024 compared to the fiscal year ended December 31, 2023. The increase was driven by capital contributions received from DePalma I through
its Members.
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Future sources and uses of liquidity
Our future capital requirements will depend on many factors, including our degree of success in collecting contractual payments on MRP+ Loans,
reperforming, restructuring or resolving Non-MRP+ Loans, sales of medallions (which may include seller financing), growth in volume and collections of medallion and vehicle leases, general economic conditions,
future market growth and competition in the mobility market.
In the future, we may be required or choose to seek additional equity or
debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our
operations, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition. In addition, we cannot assure you that such measures and our cash flows from operations and cash and cash
equivalents will be sufficient to meet our working capital requirements and to meet our commitments in the future.
During the year ended
December 31, 2024, DePalma II entered into an operating lease for taxicab garage and office space. DePalma II’s contractual obligations under this operating lease, excluding periods covered by renewal options, include minimum lease
payments of $0.7 million for each of the fiscal years ending December 31, 2025 through 2029. The DePalma companies have no other long-term contractual commitments as of December 31, 2024.
Off-Balance Sheet Arrangements
DePalma I and DePalma II do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred
to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
The DePalma Companies’ consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K are prepared in accordance with U.S. GAAP. The preparation of the DePalma Companies’ consolidated financial statements requires each management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent liabilities, and the reported amounts of revenue, costs and expenses, and related disclosures. Each of the DePalma Companies’ management bases their estimates on historical experience
and on various other assumptions that they believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by each management. To the extent that there are differences between their estimates and
actual results, future financial statement presentation, financial condition, results of operations, and cash flows of the DePalma Companies will be affected.
An accounting policy or estimate is considered to be critical or significant if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could
materially impact the consolidated financial statements.
Management of each of the DePalma Companies believes the following critical
accounting policies reflect the more significant estimates and assumptions used in the preparation of its consolidated financial statements. For a description of DePalma I’s significant accounting policies, see Note 2 “Summary of
Significant Accounting Policies,” of the notes to DePalma I’s consolidated financial statements included elsewhere in this Annual Report on Form 10-K. For a description of DePalma II’s
significant accounting policies, see Note 2 “Summary of Significant Accounting Policies,” of the notes to DePalma II’s consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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Fair Value Measurements
Each of the DePalma Companies applies the provisions of ASC 820, Fair Value Measurement (“ASC 820”) which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly
transaction between market participants at the measurement date.
ASC 820 establishes a hierarchical disclosure framework which
prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Under U.S. GAAP, a fair value hierarchy is implemented for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained
from sources independent of the DePalma Companies. Unobservable inputs reflect respective members’ own assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information
available in the circumstances. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The fair value hierarchy is categorized into three levels based on the inputs as follows:
In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair
value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Changes in the observability of valuation inputs
may result in a reclassification for certain financial assets or liabilities.
With respect to instruments valued by management, the
valuation techniques that may be considered are the evaluation of arm’s-length transactions with third parties, an income approach reflecting a discounted cash flow analysis, and a market approach that
includes a comparative analysis of acquisition multiples and pricing multiples generated by market participants.
DePalma I
As of December 31, 2024 and 2023, DePalma I had loans held for investment, at fair value of $278.6 million and $334.4 million,
respectively. The following table presents information about DePalma I’s loans held for investment, at fair value by levels within the valuation hierarchy as of December 31, 2024 and 2023.
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As of December 31,
Level 3
(in thousands)
Loans held for investment, at fair value
Private Loans:
Total loans held for investment, at fair value $ 278,571 $ 334,353
The following tables summarize the valuation techniques and significant unobservable inputs used for DePalma
I’s investments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2024 and 2023:
(in thousands)
Non-MRP+ Loans — Other 16,469 MarketApproach MarketMedallionPrice $ 10 $ 12 $ 11
1 Used to value MRP+ loan cash flows.
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(in thousands)
Non-MRP+ Loans — Other 21,511 MarketApproach MarketMedallionPrice $ 12 $ 13 $ 12
1 Used to value MRP+ loan cash flows.
DePalma II
As of December 31, 2024 and 2023, DePalma II had investments at fair value of $2.4 million and $0.5 million, respectively. The
following table presents information about DePalma II’s investments by levels within the valuation hierarchy as of December 31, 2024 and 2023.
As of December 31,
Level 3
(in thousands)
Working Capital Note $ — $ —
Loans held for investment, at fair value
Private loans:
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The following tables summarize the valuation techniques and significant unobservable inputs
used for DePalma II’s investments that are categorized within Level 3 of the fair value hierarchy as of December 31, 2024 and 2023:
(in thousands)
(in thousands)
Intangible Assets
DePalma II’s taxi medallions are indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other. Costs incurred for
renewal of taxi medallions are included within general and administrative expenses.
Indefinite-lived intangible assets are not amortized but instead
tested for impairment. DePalma II evaluates indefinite-lived intangible assets for impairment annually on October 1st of each year or more frequently whenever events or changes in circumstances indicate that it is more likely than not that the asset
is impaired.
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DePalma II evaluates its taxi medallions as a single unit of accounting for purposes of testing for impairment, as taxi medallions are homogeneous assets, which are interchangeable and have
identical characteristics. In DePalma II’s evaluation of indefinite-lived intangible assets for impairment, a qualitative assessment is typically performed prior to performing the quantitative analysis. If, after assessing the qualitative
factors, DePalma II determines that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value, a quantitative assessment is performed. The fair value of the indefinite-lived intangible
asset is compared to its carrying amount and if the carrying value exceeds its fair value, an impairment loss will be recognized. Performing the qualitative and quantitative assessments, including determining the fair value of these assets is
judgmental in nature and involves the use of significant estimates and assumptions, notably including the determination of anticipated impacts of changes in regulatory and macroeconomic factors impacting our industry, as well as the use of limited
readily available market information of third party medallion transfers, including those reported by the TLC. DePalma II performed its annual impairment analysis and concluded the fair value of its taxi medallions exceeded the carrying value.
Therefore, no impairment losses were recognized for the years ended December 31, 2024 and 2023.
Recent Accounting Pronouncements
See Note 2 in the section entitled “Summary of Significant Accounting Policies — Recent Accounting Pronouncements” as
referred to in the notes to consolidated financial statements of DePalma I, and Note 2 in the section entitled “Summary of Significant Accounting Policies — Recent Accounting Pronouncements” as referred to in the notes to
consolidated financial statements of DePalma II, in each case included elsewhere in this Annual Report on Form 10-K for a discussion about accounting pronouncements recently adopted and recently issued not yet
adopted.
Quantitative and Qualitative Disclosures about Market Risk
The DePalma Companies are exposed to market risks in the ordinary course of their business. We consider the principal types of risk to be risk
of potential adverse changes to the value of financial instruments because of changes in market conditions, such as interest and currency rate movements and volatility in commodity or security prices, liquidity risk arising in the general funding of
our trading activities, as well as inflation risk on asset values and increased costs. We are also impacted by general macroeconomic conditions and state of the taxi industry, governmental initiatives and medallion transfers. Accordingly, our risk
management systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits, and to continually monitor these risks and limits by means of reliable administrative and information systems and other
policies and programs.
In addition, the illiquidity of portions of our medallion loans, medallions and related assets may adversely
affect our ability to dispose of them at times when it may be advantageous for us to liquidate such assets. In addition, if we were required to liquidate some or all of our assets, the proceeds of such liquidation may be significantly less than the
current fair value of such assets.
We do not believe that an increase or decrease in interest rates of 100 basis points would have a
material effect on our operating results or financial condition. However, in periods of sharply rising interest rates, our cost of funds would increase if we were to conduct any external borrowings in the future, which would reduce our net interest
income. As such, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. See “—Overview—Key Factors Affecting Operating Results—Changes in
Interest Rates.”
Emerging Growth Company Status
As a result of the consummation of the Business Combination, New MAC is an “emerging growth company” within the meaning of the
Securities Act, as modified by the JOBS Act, and New MAC may take advantage of certain exemptions from various reporting requirements that are applicable to other public
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companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in the periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any
golden parachute payments not previously approved. As a result, New MAC’s stockholders may not have access to certain information they may deem important. New MAC could be an emerging growth company for up to five years, although circumstances
could cause New MAC to lose that status earlier, including if the market value of the New MAC Common Stock held by non-affiliates exceeds $700 million as of any December 31 before that time, in which
case New MAC would no longer be an emerging growth company as of the following December 31. New MAC cannot predict whether investors will find our securities less attractive because New MAC will rely on these exemptions. If some investors find New
MAC’s securities less attractive as a result of New MAC’s reliance on these exemptions, the trading prices of New MAC’s securities may be lower than they otherwise would be, there may be a less active trading market for New MAC’s
securities and the trading prices of New MAC’s securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act
exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a
class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the
requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. New MAC has elected not to opt out of such extended transition period which means that when a standard
is issued or revised and it has different application dates for public or private companies, New MAC, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make
comparison of New MAC’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of
the potential differences in accounting standards used.
New MAC will remain an emerging growth company until the earlier of: (1) the
last day of the fiscal year (a) following the fifth anniversary of the closing of New MAC’s initial public offering, (b) in which New MAC has total annual gross revenue of at least $1.235 billion or (c) in which New MAC is
deemed to be a “large accelerated filer” under the rules of the SEC which, in addition to certain other criteria, means the market value of New MAC’s common equity that is held by non-affiliates
exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which New MAC has issued more than $1.0 billion in non-convertible debt securities
during the prior three-year period.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risks in the ordinary course of our business. We consider the principal types of risk to be risk of potential
adverse changes to the value of financial instruments because of changes in market conditions, such as interest and currency rate movements and volatility in commodity or security prices, liquidity risk arising in the general funding of our trading
activities, as well as inflation risk on asset values and increased costs. We are also impacted by general macroeconomic conditions and state of the taxi industry, governmental initiatives and medallion transfers. Accordingly, our risk management
systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits, and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and
programs.
In addition, the illiquidity of portions of our medallion loans, medallions and related assets may adversely affect our ability
to dispose of them at times when it may be advantageous for us to liquidate such assets. In addition, if we were required to liquidate some or all of our assets, the proceeds of such liquidation may be significantly less than the current value of
such assets.
We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our
operating results or financial condition. However, in periods of sharply rising interest rates, our cost of funds would increase if we were to conduct any external borrowings in the future, which would reduce our net interest income. As such, there
can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required to be filed pursuant to this Item 8
are appended to this report. An index of those financial statements is found in Item 15 of Part IV of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is
required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.