DAVE INC. The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited
consolidated financial statements and the notes related thereto which are
included in "Item 8. Financial Statements and Supplementary Data" of this Annual
Report on Form 10-
Overview
In the story of David vs. Goliath, the small underdog is able to outsmart and defeat his larger adversary. This is the spirit behind the name "Dave." We have built an integrated financial services online platform that provides millions of Americans with seamless access to a variety of intuitive financial products at a fraction of the cost and with much higher speed to value than that of the legacy financial services incumbents, such as traditional banks and other financial institutions. Our mission is to build products that level the financial playing field. Our near-term strategy is focused on delivering a superior banking experience for anyone living paycheck to paycheck.
Based on our observation and analysis of Member data, legacy financial
institutions charge high fees for consumer banking and other financial services
products, which disproportionately burdens tens of millions of Americans who can
least afford them. We see this dynamic playing out with our Members who we
believe are on average paying between
Further, we see a significant opportunity to address the broader short-term
credit market. According to a report by FHN, legacy financial institutions
charge approximately
Dave offers a suite of innovative financial products aimed at helping our Members improve their financial health. To help Members avoid punitive overdraft fees and access short-term liquidity, Dave offers cash advances through its flagship 0% interest ExtraCash product. Through Dave Banking, we provide a digital checking account experience, seamlessly integrated with ExtraCash advances, with no hidden fees. With a Dave Banking account, Members have access to valuable tools for building long-term financial health, such as Goals savings accounts and customizable automatic round-up savings on debit spend transactions. We also help Members generate extra income for spending or emergencies through our Side Hustle product, where we present Members with supplemental work opportunities, and through our recently launched Surveys product, where Members can earn supplemental income by taking surveys. Our budgeting tool helps Members manage their upcoming bills to avoid overspending.
We have only begun to address the many inequities in financial services, but our progress to date demonstrates the demand for Dave to rewire the financial system for the everyday person. Since inception and through the date of this report, over 10 million Members have registered on the Dave app and over eight million of them have used at least one of our current products and we believe that we have a substantial opportunity to continue growing our Member base going forward. We strongly believe that the value proposition of our platform approach will continue to accelerate as a result of our data-driven perspective of our Members, allowing us to introduce products and services that address their changing life circumstances.
COVID-19 Impact
There are many uncertainties regarding the current global pandemic involving a novel strain of coronavirus, and we continue to closely monitor the impact of the pandemic on all aspects of our business, including how it has and may
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in the future impact our Members, employees, suppliers, vendors, and business
partners. The duration and magnitude of the continuing effects of COVID-19 and
variants of the virus on our Members remain uncertain and dependent on various
factors, including new variants of the virus and their severity and transmission
rates, the nature of and duration for which preventive and containment measures
are taken and remain in place, and the extent and effectiveness of such
measures, including vaccination programs, and the type of stimulus measures and
other policy responses that the
For more information concerning risks related to COVID-19, see the section titled "Risk Factors-Our business, financial condition and results of operations have and may continue to be adversely affected by the COVID-19 pandemic or other similar epidemics or adverse public health developments, including government responses to such events" and "Risk Factors-Our ExtraCash advances expose us to credit risk of our Members and if our underwriting criteria for making advances is not sufficient to mitigate against this risk, our financial condition and operating results could be adversely affected if a substantial number of our Members fail to repay the cash advance they receive."
Comparability of Financial Information
Our future results of operations and financial position may not be comparable to historical results as a result of the consummation of the Business Combination.
Key Factors Affecting Operating Results
Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including Member growth and activity, product expansion, competition, industry trends and general economic conditions.
Member Growth and Activity
We have made significant investments in our platform and our business is dependent on continued Member growth, as well as our ability to offer new products and services and generate additional revenues from our existing members using such additional products and services. Member growth and activity are critical to our ability to increase our scale, capture market share and earn an attractive return on our technology, product and marketing investments. Growth in Members and Member activity will depend heavily on our ability to continue to offer attractive products and services and the success of our marketing and Member acquisition efforts.
Product Expansion
We aim to develop and offer a best-in-class financial services platform with integrated products and services that improve the financial well-being of our Members. We have invested and continue to make significant investments in the development, improvement and marketing of our financial products and are focused on continual growth in the number of products we offer that are utilized by our Members.
Competition
We face competition from several financial services-oriented institutions. In our reportable segment, as well as in potential new lines of business, we may compete with more established institutions, some of which have more financial resources. We compete at multiple levels, including competition among other financial institutions and lenders in our ExtraCash business, competition for deposits in and debit card spending from our Dave Banking product from traditional banks and digital banking products and competition for subscribers to our personal financial management tools. Some of our competitors may at times seek to increase their market share by undercutting pricing terms prevalent in that market, which could adversely affect our market share for any of our products and services or require us to incur higher member acquisition costs.
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Key Components of Statements of Operations
Basis of presentation
Currently, we conduct business through one operating segment which constitutes a single reportable segment. For more information about our basis of presentation, refer to Note 2 in the accompanying audited consolidated financial statements of Dave included in this report.
Service based revenue, net
Service based revenue, net primarily consists of optional tips, optional express processing fees and subscriptions charged to Members, net of processor-related costs associated with advance disbursements. Service based revenue, net also consists of lead generation fees from our Side Hustle advertising partners as well as fees earned related to the Rewards Product for Members who make debit card spending transactions at participating merchants.
Transaction based revenue, net
Transaction based revenue, net primarily consists of interchange and ATM revenues from our Checking Product, net of interchange and ATM-related fees, fees earned from withdrawal-related transactions, volume support from a certain co-branded agreement, and deposit referrals and are recognized at the point in time the transactions occur, as the performance obligations are satisfied and the variable consideration is not constrained.
Operating expenses
We classify our operating expenses into the following five categories:
Provision for Unrecoverable Advances
The provision for unrecoverable advances to Members primarily consists of an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in the outstanding advances receivable. We currently estimate the allowance balance required using historical loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors such as cash received subsequent to period-end. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the audited consolidated statement of operations. We consider advances more than 120 days past due or which become uncollectible based on information available to us as impaired. All impaired advances are deemed uncollectible and subsequently written off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries, if any, of Member advances written-off are recorded as a reduction to Member advances, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances in the audited consolidated statements of operations when collected.
Processing and Servicing Costs
Processing and servicing fees consist of fees paid to our processing partners for the recovery of advances, optional tips, optional express processing fees and subscriptions. These expenses also include fees paid for services to connect Members' bank accounts to our application. Except for processing and servicing fees associated with advance disbursements which are recorded net against revenue, all other processing and service fees are expensed as incurred.
Advertising and Marketing
Advertising and marketing expenses consist primarily of fees we pay to our platform partners. We incur advertising, marketing and production-related expenses for online, social media and television advertising and for partnerships and promotional advertising. Advertising and marketing expenses are expensed as incurred although they typically deliver a benefit over an extended period.
Compensation and Benefits
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Compensation and benefits expenses represent the compensation, inclusive of stock-based compensation and benefits, that we provide to our employees and the payments we make to third-party contractors. While we have an in-house customer service function, we employ third-party contractors to conduct call center operations and handle routine customer service inquiries and support.
Other Operating Expenses
Other operating expenses consist primarily of technology and infrastructure (third-party Software as a Service "SaaS"), commitments to charity, transaction based costs (program expenses, association fees, processor fees, losses from Member-disputed transactions, bank card fees and fraud), depreciation and amortization of property and equipment and intangible assets, general and recurring legal fees, rent, certain sales tax related costs, office related expenses, public relations costs, professional service fees, travel and entertainment, and insurance. Costs associated with technology and infrastructure, rent, depreciation and amortization of our property and equipment and intangible assets, professional service fees, travel and entertainment, public relations costs, utilities, office-related expenses and insurance technology and infrastructure (third-party subscriptions), depreciation and amortization of property and equipment and intangible assets, general and recurring legal fees, rent, office-related expenses, public relations costs, professional service fees, travel and entertainment and insurance vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.
Other (income) expenses
Other (income) expenses consist of interest income, interest expense, legal settlement and litigation expenses, other strategic financing and transactional expenses, gain on extinguishment of a liability, earnout liabilities fair value adjustments, derivative asset fair value adjustments, and changes in fair value of warrant liabilities.
Provision for income taxes
Provision for income taxes consists of the federal and state corporate income taxes accrued on income resulting from the sale of our services.
Results of Operations
Comparison of the Years Ended
Operating revenues
For Year Ended Change
(in thousands, except for December 31,
percentages) $ %
2022 2021 2022/2021 2022/2021
Service based revenue, net
Processing fees, net $ 106,664 $ 79,101 $ 27,563 35 %
Tips 61,951 45,106 16,845 37 %
Subscriptions 19,146 17,203 1,943 11 %
Other 1,099 772 327 42 %
Transaction based revenue, net 15,978 10,831 5,147 48 %
Total $ 204,838 $ 153,013 $ 51,825 34 %
Service based revenue, net-
Processing fees, net
Processing fees, net of processor costs associated with advance disbursements,
for the year ended
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million to approximately
Tips
Tips for the year ended
Subscriptions
Subscriptions for the year ended
Other
Other revenue for the year ended
Transaction based revenue, net-Transaction based revenue, net for the year ended
Operating expenses
For Year Ended Change
(in thousands, except for December 31,
percentages) $ %
2022 2021 2022/2021 2022/2021
Provision for unrecoverable
advances $ 66,266 $ 32,174 $ 34,092 106 %
Processing and servicing
costs 31,946 23,459 8,487 36 %
Advertising and marketing 69,038 51,454 17,584 34 %
Compensation and benefits 103,432 49,544 53,888 109 %
Other operating expenses 68,551 43,260 25,291 58 %
Total $ 339,233 $ 199,891 $ 139,342 70 %
Provision for unrecoverable advances-The provision for unrecoverable advances
totaled
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advances aged over 120 days and those that have become uncollectible based on
information available to us, in addition to an increase in provision expense of
The increase in provision expense related to Member advances aged over 120 days
and those which have become uncollectible based on information available to us,
period over period, was attributed to significant increases in average advance
amounts and total advance volume from
The increase in provision expense related to Member advances aged 120 days and
under was primarily attributed to significant increases in average advance
amounts and total advance volume during the last 4 months for the year ended
Throughout the year ended
For information on the aging of Member advances and a rollforward of the allowance for unrecoverable advances, refer to the tables in Note 6 Member Cash Advances, Net in the accompanying audited consolidated financial statements of Dave included in this report.
Processing and service costs-Processing and servicing costs totaled
Advertising and marketing-Advertising and marketing expenses totaled
Compensation and benefits-Compensation and benefits expenses totaled
•
an increase in payroll and related costs of
•
an increase in stock-based compensation of
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Other operating expenses-Other operating expenses totaled
•
an increase in insurance related costs of
•
an increase in accounting costs of
•
an increase in technology and infrastructure expenses of
•
an increase in expenses related to our Checking Product of
•
an increase in legal fees of
•
an increase in various administrative expenses of
•
an increase in depreciation and amortization of
•
an increase in rent expense of
•
a decrease in charitable contribution expenses of
•
a decrease of
Other (income) expense
For Year Ended Change
(in thousands, except for December 31,
percentages) $ %
2022 2021 2022/2021 2022/2021
Interest income $ (2,953 ) $ (287 ) $ (2,666 ) 929 %
Interest expense 9,197 2,545 6,652 261 %
Legal settlement and litigation
expenses 6,282 1,667 4,615 277 %
Other strategic financing and
transactional expenses 4,591 264 4,327 1639 %
Gain on extinguishment of
liability (4,290 ) - (4,290 ) -100 %
Changes in fair value of earnout
liabilities (9,629 ) - (9,629 ) -100 %
Changes in fair value of
derivative asset on loans to
stockholders 5,572 (34,791 ) 40,363 -116 %
Changes in fair value of warrant
liabilities (14,192 ) 3,620 (17,812 ) -492 %
Total $ (5,422 ) $ (26,982 ) $ 21,560 -80 %
Interest income- Interest income totaled
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Interest expense- Interest expense totaled
Legal settlement and litigation expenses-Legal settlement and litigation
expenses totaled
Other strategic financing and transactional expenses-Other strategic financing
and transactional expenses totaled
Gain on extinguishment of liability-Gain on extinguishment of liability totaled
Changes in fair value of earnout liability-Changes in fair value of earnout
liabilities totaled a benefit of
Changes in fair value of derivative asset on loans to stockholders-Changes in
fair value of derivative asset on loans to stockholders totaled
Changes in fair value of warrant liability-Changes in fair value of warrant
liability totaled a benefit of
Provision for income taxes
For Year Ended Change
(in thousands, except for December 31,
percentages) $ %
2022 2021 2022/2021 2022/2021
(Benefit from) provision
for income taxes (67 ) 97 (164 ) -169 %
Total $ (67 ) $ 97 $ (164 ) -169 %
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Provision for income taxes for the year ended
Comparison of Years Ended
A discussion regarding our results of operations for the year ended
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measure is useful in evaluating our operational performance. We use the following non-GAAP measure to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that the non-GAAP financial information may be helpful in assessing our operating performance and facilitates an alternative comparison among fiscal periods. The non-GAAP financial measure is not, and should not be viewed as, a substitute for GAAP reporting measures.
Adjusted EBITDA
"Adjusted EBITDA" is defined as net loss adjusted for interest expense, net, provision for income taxes, depreciation and amortization, stock-based compensation and other discretionary items determined by management. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that, when evaluating Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA on a supplemental basis. The reconciliation of net loss to Adjusted EBITDA below should be reviewed, and no single financial measure should be relied upon to evaluate our business.
The following table reconciles net loss to Adjusted EBITDA for the years ended
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For Year Ended
(in thousands) December 31,
2022 2021
Net loss $ (128,906 ) $ (19,993 )
Interest expense, net 6,244 2,258
(Benefit from) provision for income taxes (67 ) 97
Depreciation and amortization 6,661 2,976
Stock-based compensation 40,639 7,381
Legal settlement and litigation expenses 6,282 1,667
Other strategic financing and transactional
expenses 4,591 264
Gain on extinguishment of liability (4,290 ) -
Changes in fair value of earnout liabilities (9,629 ) -
Changes in fair value of derivative asset on
loans to stockholders 5,572 (34,791 )
Changes in fair value of warrant liabilities (14,192 ) 3,620
Adjusted EBITDA $ (87,095 ) $ (36,521 ) Liquidity and Capital Resources
Since inception, we have financed our operations primarily from the issuance of
preferred stock, issuances of convertible notes, funds from borrowings under the
Debt Facility and the Credit Facility, and funds received as a result of the
Business Combination. As of
As an early-stage company, the expenses we have incurred since inception are consistent with our strategy and approach to capital allocation. We expect to incur net losses in accordance with our operating plan as we continue to expand and improve upon our financial platform.
Our ability to access capital when needed is not assured and, if capital is not available to Dave when, and in the amounts needed, Dave could be required to delay, scale back or abandon some or all of our development programs and other operations, which could materially harm our business, prospects, financial condition and operating results.
We believe that our cash on hand should be sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months from the date of this report and sufficient to fund our operations. We may raise additional capital through private or public equity or debt financings. The amount and timing of our future funding requirements, if any, will depend on many factors, including the pace and results of our product development efforts. No assurances can be provided that additional funding will be available at terms acceptable to us, if at all. If we are unable to raise additional capital, we may significantly curtail our operations, modify existing strategic plans and/or dispose of certain operations or assets.
Material Cash Requirements
While the effect of COVID-19 and other macro-economic factors have created economic uncertainty and impacted how we manage our liquidity and capital resources, we intend to continue to invest in people, marketing and user acquisition, technology and infrastructure, and new and existing financial products and programs we believe are critical to meeting our strategic objectives. As growth of our ExtraCash product scales, material cash will be required to fund advances until the point at which those advances are subsequently collected. The amount and timing of these related cash outflows in future periods are difficult to predict and is dependent on a number of factors including the hiring of new employees, the rate of change in technology used in our business and our business outlook as a result of the COVID-19 pandemic. While we anticipate certain cash outflows related to these objectives could exceed amounts spent in prior years, we expect to fund these cash outflows primarily through our cash flows provided by operating, investing and financing activities.
We may use cash to acquire businesses and technologies. The nature of these transactions, however, makes it difficult to predict the amount and timing of such cash requirements.
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In the normal course of business, we enter into various agreements with our
vendors that may subject us to minimum annual requirements. While our
contractual commitments will have an impact on our future liquidity, we believe
that we will be able to adequately fulfill these obligations through cash
generated from operations and from our existing cash balances. Dave does not
have any "off-balance sheet arrangements," as defined by the
In response to our remote employee workforce strategy in the
We also have certain contractual payment obligations for principal and interest
owed under the Debt Facility. Interest payments are required to be made on a
monthly basis. At
Cash Flows Summary
(in thousands) For Year Ended Total cash (used in) provided by: December 31, 2022 December 31, 2021 Operating activities $ (44,883 ) $ (541 ) Investing activities (285,579 ) (37,202 ) Financing activities 321,767 65,046 Net (decrease) increase in cash and cash equivalents and restricted cash $ (8,695 ) $ 27,303
Cash Flows From Operating Activities
We recorded a net loss of
During the year ended
Net cash used in operating activities for the year ended
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million, an increase in accounts payable of
Cash Flows From Investing Activities
During the year ended
During the year ended
Cash Flows From Financing Activities
During the year ended
During the year ended
Critical Accounting Estimates
Our audited consolidated financial statements have been prepared in accordance
with
(i) Fair value of a derivative asset;
(ii) Fair value of warrant liabilities;
(iii) Fair value of earnout liabilities;
(iv) Allowance for unrecoverable advances;
(v) Fair value of common stock; and
(vi) Income taxes.
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Actual results may differ from these estimates under different assumptions or
conditions. We believe that the accounting estimates discussed below are
critical to understanding our historical and future performance, as these
estimates relate to the more significant areas involving management's judgments
and estimates. Please refer to Note 2 in our accompanying audited consolidated
financial statements for the years ended
While our significant accounting estimates are described in the notes to our audited consolidated financial statements, we believe that the following accounting estimates require a greater degree of judgment and complexity and are the most critical to understanding our financial condition and historical and future results of operations.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Derivative Asset
We recorded a derivative asset related to call option on loans to stockholders. The derivative asset was carried at its estimated fair value on our audited consolidated balance sheets and was extinguished as at the close of the Business Combination as all of the call options related to the Loans to Stockholders were exercised and the related loans were settled. Changes in the estimated fair value of the derivative asset were driven by changes in the underlying value of our Common stock and any changes in fair value were reported as a loss (gain) on derivatives in the accompanying audited consolidated statements of operations. We utilized the binomial option pricing model to compute the fair value of the derivative asset and to mark to market the fair value of the derivative at each balance sheet date. The binomial option-pricing model considers a range of assumptions related to the fair value of common stock (see below Fair Value of Common Stock for further details), volatility, dividend yield and risk-free interest rate. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates.
Warrant Liabilities
We recorded a warrant liability associated with the Debt Facility. The warrant liability was carried on our audited consolidated balance sheets as a long-term liability estimated at fair value and extinguished immediately prior to close of the Business Combination as the warrants were exercised. Changes in the estimated fair value of this warrant liability were driven by changes in the underlying value of our Common stock and were reported as a loss (gain) in the accompanying audited consolidated statements of operations. We utilized the binomial option-pricing model to compute the fair value and to mark to market the fair value of the warrant liability at each audited consolidated balance sheet date. The binomial option-pricing model considers a range of assumptions related to the fair value of common stock (see below Fair Value of Common Stock for further details), volatility, dividend yield and risk-free interest rate. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates.
We also recorded warrant liabilities for both public and private warrants associated with the Business Combination. The warrant liabilities are carried on our audited consolidated balance sheets as a long-term liability estimated at fair value. Changes in the estimated fair value of the warrant liabilities were driven by changes in the underlying value of our Common stock and were reported as a loss (gain) in the accompanying audited consolidated statements of operations. We utilize the Black-Scholes model to compute the fair value and to mark to market the fair value of the private placement warrant liability at the time of the Business Combination and at each audited consolidated balance sheet date. The public warrants were valued using the Black-Scholes model and public trading price of the warrants, when available. The Black-Scholes model considers a range of assumptions such as stock price, strike price, volatility, time to maturity, dividend yield and risk-free interest rate. The Black-Scholes pricing model includes subjective input assumptions that can materially affect the fair value estimates.
Earnout Liabilities
We recorded earnout liabilities associated with the Business Combination. The earnout liabilities are carried on our audited consolidated balance sheets as a long-term liability estimated at fair value. Changes in the estimated fair
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value of the earnout liabilities are reported as a loss (gain) in the accompanying audited consolidated statements of operations. We utilized a Monte Carlo Simulation Method to compute the fair value and to mark to market the fair value of the earnout liabilities at each audited consolidated balance sheet date. The Monte Carlo Simulation Method considers a range of assumptions such as stock price, volatility, and risk-free interest rate. The Monte Carlo Simulation Method includes subjective input assumptions that can materially affect the fair value estimates.
Fair Value of Common Stock
We are required to estimate the fair value of the common stock underlying our share-based awards. The fair value of the common stock underlying our stock-based awards has been determined, in each case, based on a valuation model as discussed further below, and was approved by our Board of Directors. Our Board of Directors intends all stock options granted to be exercisable at a price per share not less than the fair value per share of the ordinary share underlying those stock options on the date of grant.
Before the Company's shares were traded publicly, there was no public market for
its Common Stock. The valuation has been determined using appropriate valuation
methodologies in accordance with the guidelines outlined in the
We considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:
•
Historical financial performance;
•
Our business strategy;
•
Industry information, such as external market conditions and trends;
•
Likelihood of achieving a liquidity event, such as an initial public offering, SPAC merger, or strategic sale given prevailing market conditions and the nature and history of our business;
•
Prices, privileges, powers, preferences and rights of our convertible preferred stock relative to those of Dave Common Stock;
•
Forecasted cash flow projections for Dave's business;
•
Publicly traded price of the special purpose acquisition company ("SPAC");
•
Primary preferred stock financings and secondary common stock transactions of our equity securities;
•
Lack of marketability/illiquidity of the common stock underlying our stock-based awards involving securities in a private company; and
•
Macroeconomic conditions.
The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. The probability of a liquidity event, the derived discount rate, and the selected multiples that are applied to our financial statistics are significant assumptions used to estimate the fair value of our common stock. If we had used different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
During 2019 and 2020, our estimated fair value of our common stock remained relatively consistent before a potential public listing through a business combination with a special purpose acquisition company was first considered in 2021 ("SPAC Transaction").
The fair value for our common stock was estimated to be
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valuation performed as of
The
The
The increase in the fair value of our common stock between the
For further details, please refer to Note 2 in our accompanying audited
consolidated financial statements for the year ended
Allowance for Unrecoverable Advances
We maintain an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in outstanding Member advances. We currently estimate the allowance balance required using historical
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loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors such as cash received subsequent to period-end. Interpretations of the nature of volume of the portfolio and projections of future economic conditions involve a high degree of subjectivity. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the audited consolidated statement of operations.
We consider advances over 120 days past due or which become uncollectible based on information available to us as impaired. All impaired advances are deemed uncollectible and subsequently written-off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries of Member advances written-off, if any, are recorded as a reduction to Member advances when collected, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances expense in the audited consolidated statements of operations.
Income Taxes
We follow ASC 740, Income Taxes ("ASC 740"), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the audited consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more-likely-than-not that the asset will not be realized.
ASC 740 provides that a tax benefit from an uncertain tax position may be
recognized when it is more-likely-than-not that the position will be sustained
in a court of last resort, based on the technical merits. If
more-likely-than-not, the amount recognized is the largest amount of tax benefit
that is greater than 50% likely of being realized upon examination, including
compromise settlements. For tax positions not meeting the more-likely-than-not
threshold, no tax benefit is recorded. We have estimated
We are subject to income tax in jurisdictions in which we operate, including
We recognize deferred taxes for temporary differences between the basis of
assets and liabilities for financial statement and income tax purposes. We
recorded a valuation allowance against our deferred tax assets, net of certain
deferred tax liabilities, at
Emerging Growth Company Status
We are an "emerging growth company" as defined in Section 2(a) of the Securities
Act of 1933, as amended, and have elected to take advantage of the benefits of
the extended transition period for new or revised financial accounting
standards. We expect to remain an emerging growth company and to continue to
take advantage of the benefits of the extended transition period, although we
may decide to early adopt such new or revised accounting standards to the extent
permitted by such standards. We expect to use this extended transition period
for complying with new or revised accounting standards that have different
effective dates for public and non-public companies until the earlier of the
date we (i) are no longer an emerging growth company or (ii) affirmatively and
irrevocably opt out of the extended transition period provided in the JOBS Act.
This may make it difficult or impossible to compare our financial results with
the financial results of another public company that is either not an emerging
growth company or is an emerging growth company that has chosen not to take
advantage of the extended transition period exemptions because of the potential
differences in accounting standards used. See Note 2 of our accompanying audited
consolidated financial statements included in this report for the recent
accounting pronouncements adopted and the recent accounting pronouncements not
yet adopted for the years ended
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In addition, we intend to rely on the other exemptions and reduced reporting
requirements provided by the JOBS Act for emerging growth companies. Subject to
certain conditions set forth in the JOBS Act, if we intend to rely on such
exemptions, we are not required to, among other things: (a) provide an auditor's
attestation report on our system of internal control over financial reporting
pursuant to Section 404(b) of the Sarbanes-Oxley Act; (b) provide all of the
compensation disclosure that may be required of non-emerging growth public
companies under the Dodd- Frank Wall Street Reform and Consumer Protection Act;
(c) comply with any requirement that may be adopted by the
We will remain an emerging growth company under the JOBS Act until the earliest
of (1) the last day of the fiscal year (a) following
Recently Issued Accounting Standards
Refer to Note 2, "Significant Accounting Policies," of our audited consolidated financial statements included in this report for a discussion of the impact of recent accounting pronouncements.
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