This prospectus supplement (the “Prospectus
Supplement”) is being filed to update and supplement the information contained in the prospectus dated October 22, 2021 (as supplemented
or amended from time to time, the “Prospectus”) with the information contained in:
Accordingly, we have attached the 10-K and
8-K to this Prospectus Supplement.
This Prospectus Supplement, together with the
Prospectus, is to be used by the selling shareholders listed in the Prospectus in connection with offers and sales from time to time of
the Class A common stock and warrants to purchase Class A common stock of MoneyLion Inc.
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The aggregate market value of common shares held
by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such
common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2021, was
approximately $348,250,000. Shares of the registrant’s Class A common stock held by each executive officer and director and
by each person who may be deemed to be an affiliate of the registrant have been excluded from this computation. This calculation does
not reflect a determination that certain persons are affiliates of the registrant for any other purpose.
There were 230,763,139 shares of Class A common
stock, par value $0.0001 per share, issued and outstanding as of March 4, 2022.
Part I
Item 1. Business
Mission
Rewire the American banking
system to positively change the financial path for every hard-working American.
Company Overview
MoneyLion was founded on a
simple observation: the current financial system fails to meet the needs of 100 million middle-class Americans. We believe these
Americans deserve a better alternative in financial services, and MoneyLion can be a partner in improving their financial well-being.
We offer a personalized, all-in-one, digital financial platform that provides convenient, low-cost access to banking, borrowing and investing
solutions tailored for our customers, rooted in data, and delivered through our proprietary technology platform.
We use innovative, data-driven
approaches to address our customers’ individual life inflection points and financial circumstances. When our customers enjoy periods
of financial excess, we provide tools for them to easily manage their spending and saving goals through our digital banking and automated
investing solutions. When our customers experience moments of financial need, we provide them immediate access to innovative lending or
earned income advance products and credit improvement programs that can bridge these times of financial stress and improve their financial
health. We provide access to personalized proprietary products as well as financial and non-financial products offered by third-party
providers. Our subsidiary, Malka Media Group LLC (“MALKA”), provides digital
media and content production services to us and to its own clients in entertainment, sports, gaming, live streaming and other sectors.
Our technology platform has
been purpose-built to support our strategy of creating a relationship with the customer. How Americans consume financial information and
advice is evolving, with many Americans engaging with financial content online and on select social media channels. We endeavor for the
MoneyLion platform to become a daily destination for product discovery, education, advice and financial transactions, allowing our customers
to better understand their individual financial circumstances and take action to live a better financial life. Our comprehensive, modern
approach to providing money-related content, products and services to our customers is designed to allow MoneyLion to own the end-to-end
financial product buying cycle.
In addition, the technical
architecture of our platform, which centers around a data-driven, multifaceted understanding of our customers built upon our longstanding
experience in risk management, underwriting and origination, differentiates us from the transactional solutions provided by incumbents
in our industry. Consumer financial services remain oriented around siloed service providers with incomplete customer data and fee-first
product delivery models. We believe consumers benefit when their financial partner understands their entire financial life and can provide
both access and advice at the right time, the right place and, importantly, with the appropriate solution. Traditional providers generally
attempt to sell consumers specific financial products, only seeking to qualify them as a suitable buyer and generate a fee. With a deep,
data-driven understanding of our customers and a broad set of integrated, tailor-made products, we can guide our customers to use our
products when and if appropriate for their needs, creating a mutually beneficial partnership.
We address large, pervasive
problems in the $3.5 trillion financial services industry by focusing on the largest segment of consumers, the hardworking American
middle class. American consumers face enormous costs to obtain the basic elements of financial life — spend, save, invest
and borrow — that in aggregate generate over $250 billion in fees for the financial services industry on an annual
basis. With 100 million middle-class Americans as our core focus — defined as individuals with household incomes
up to $150,000 and FICO scores up to 750 — the breadth of our potential customers, and the costs they face in obtaining financial
services, are substantial.
We have only just begun to
address these problems, but our progress to date demonstrates the demand for MoneyLion to rewire the banking system. As of December 31,
2021, over 3.3 million customers have opened an account on our platform to use at least one of our current products. We added approximately
3.0 million of these customers since the beginning of 2019, and we believe that we have a substantial opportunity to grow our customer
base going forward. We focus on delivering the benefits of our personalized, all-in-one, digital financial platform to our customers.
We believe the value proposition of our platform approach will increase the network effects for sustained user growth. Our data-driven
perspective of our customers and our capability to create content to engage with our customers increases their time spent on our platform,
allowing us to introduce products and guidance that address their changing life circumstances.
Our Strategy
We address our customers’
needs by pursuing a differentiated strategy. Our personalized, all-in-one, digital financial platform is designed to foster a relationship
with consumers and provide them with the tools to discover and learn about their finances and our solutions, as well as to transact in
a variety of different financial and non-financial products based on their individual circumstances, all through one app. Our strategy
is supported by:
| 1) | Team: a leading management team and employees across
the globe with backgrounds in technology, product design and development, financial services, digital experiences, content creation and
media; |
|
2) |
Data: innovative products and services and personalized customer experiences delivered from our near-decade long, data-driven understanding of our customers and their needs; |
|
3) |
Technology: a purpose-built, scalable technical architecture built to connect the dynamic needs of the American consumer with our proprietary, as well as third-party, products; |
| 4) | Platform: proven track record and continued ability
to add the next set of key features to give our customers easy access to a comprehensive suite of products and services within the MoneyLion
ecosystem; |
| 5) | Guidance: financial recommendations that are highly
personalized, real-time and automated, spanning lifestyle, saving, spending, borrowing and investing; and |
| 6) | Content: curated content created in partnership
with thought leaders and influencers supporting the financial discovery and decision-making process in order to acquire, engage and retain
customers and improve financial literacy and know-how. |
Organize a Team to
Address the Problem: The complexity of the problems faced by our customers required a different type of team
to address them. The American middle class is under tremendous, ongoing financial stress with many individuals living paycheck to paycheck
without enough savings to navigate through a small financial setback, even before COVID-19. We believed building yet another provider
of standard financial products, whether delivered digitally or at a branch, was unlikely to impact their financial well-being for the
better.
What was required were individuals
who understood the current ecosystem of solutions in detail, including its legacy technology, exorbitant pricing models and myopic single
transaction-focused view of customers. But understanding the problem set was only the beginning. Experience in solving seemingly intractable
problems through the application of modern data and technology tools was necessary. Our team grew to include individuals who had built
advanced technologies to algorithmically identify and eliminate inefficiencies in some of the most demanding and competitive markets.
To this team, we added experts in product development and financial planning to translate these solutions into a data-driven platform
that maximized the benefit of these innovations for our customers.
Organizing a team that understands
the complex problems of both our customers and the financial system and has the experience to address such problems was our foundation.
However, to generate meaningful benefits for our customers, we had to go farther. Customers required a partner who could deliver products
that were transparent and made addressing their problems both easy to understand and enjoyable. We added team members experienced in delivering
best-in-class consumer digital experiences, bringing to market a beautiful, easy-to-use interface for our customers to access our platform,
consume our products and receive advice.
Lastly, as we established
an institution built for every hardworking American to use, we acquired capabilities in content creation, talent relationships and production.
We have a differentiated ability to introduce MoneyLion to our prospective consumers through culturally relevant, personalized content
and stories told through thought leaders and influencers in a cost-effective manner. We believe our innovations in customer acquisition,
engagement and retention have provided us with network effects that we expect to continue as we scale.
Understand the Problem
Through Data: We build innovative consumer financial products that address our customers’ individual
and complex problems by leveraging advancements in data science from both Silicon Valley and Wall Street and applying those advancements
for the benefit of America’s middle class. We believe this approach separates us both from incumbent providers and new market entrants.
MoneyLion begins and ends every
conversation with data. We have a near-decade long track record of underwriting, pricing risk and originating credit at scale across the
American credit spectrum. We now benefit from the compounding improvements made to our data models since 2013. This compounding data advantage
garnered through conducting scaled consumer diligence, underwriting and servicing allows us to offer differentiated, personalized experiences
across our platform. This advantage drives our approach to understanding the problems of our customers, how we can address these problems
with products and guidance and how we approach prospective customers in a timely, cost-effective manner.
We consume an enormous flow
of data about the American middle class to understand their problems. Since inception, we have engaged with millions of Americans through
our web and mobile applications, linked to over 17 million bank accounts, and integrated over 100 external data sources, coming to
understand the cycle of financial excess and deficit that permeates our prospective customer base. Each day we ingest billions of
transactional data points such that our understanding grows, and with it, our ability to address both legacy and emerging problems in
our customers’ lives. We are constantly analyzing this data reservoir through our 55 machine learning models to generate three billion
inferences, categorizations and predictions per day that we distill into over 14,000 insights for each of our customers.
These insights allow us to
understand our customers and drive the development of innovative products. On a standalone basis, our products reflect deep insights in
our customers’ needs:
|
● |
RoarMoney Banking product: modern mobile
banking offering premium features with no minimums, ability to get paid two days early with direct deposit, bill pay and
credit-card like rewards; |
| ● | MoneyLion
Investment product: the first
investment account for a significant portion of our customers, automatically manages their
investments on a discretionary basis in custom portfolios from leading providers like Global X
Management Company LLC (“Global X”) and Wilshire Advisors, LLC (“Wilshire”),
and offered without account minimums; |
|
● |
MoneyLion Crypto product: an easy-to-use account that allows users to buy and sell popular cryptocurrencies as well as automatically “round-up” their debit card purchases into Bitcoin, which we believe provides broader and more convenient access to investing in cryptocurrency for our customers, with no trading commissions or account minimums; |
|
● |
Instacash Earned Income Advance product: short-term 0% APR advances against expected salary or other recurring income deposits; available in moments of need, providing funds to help avoid overdraft fees or finance daily transactions; and |
|
● |
Credit Builder Plus membership program: a suite of services that help customers establish or repair credit, gain financial literacy and track financial health in a bundled membership subscription that includes banking and investing accounts, a loyalty rewards program and access to cost-effective credit. |
Our data-driven customer insights
drive the power of our platform, where our current products can work in conjunction to drive better outcomes for our customers. Selected
examples include:
| ● | Customers can track their account balances from the MoneyLion
mobile application so they can request a 0% APR Instacash advance to be delivered to their account to avoid costly overdraft fees; |
| ● | When a customer earns a cashback reward using their MoneyLion
debit card, it is automatically invested in a fully managed investment account where it can be withdrawn and spent or remain invested;
and |
| ● | Credit Builder Plus secured personal loans are collateralized
in part by assets in the customers’ investment account, allowing a customer to enjoy the benefits of a lower rate while leaving
their assets invested. |
Lastly, we use our data advantage
to drive our efficient customer acquisition strategy through peer-to-peer referrals, dynamic performance marketing strategies, affiliates,
brand marketing and search engine optimizations. Drawing upon the best practices of advertising technology, we use our deep understanding
of our prospective customers to cost effectively introduce the MoneyLion platform at the right time and place.
Build Technology to Scale
and Innovate: When we started MoneyLion, we recognized that both incumbent providers of financial services
and new market entrants generally chose to build technology to deliver a single product to market. While certainly an easier path than
building a platform, a monoline product model can never deliver a fully integrated platform experience or support rapid product innovation.
We chose to build differently.
We built a single core platform
from an array of microservices that allows us to deliver both our current products as well as all those we have in development. We believe
this technology development model is more in line with the best practices of leading global technology companies, rather than the legacy
models still largely employed in the financial services industry.
The primary beneficiary of
our technology strategy is our customers. Products we have introduced are integrated across our platform. Customers can move money from
their bank account to their investment or crypto account and invest that money into an ETF or a cryptocurrency. Customers can request
a salary advance and deposit that money into their bank account. These seamless product experiences can occur within a single app, without
friction, in real-time and reflects the benefit of our original design decision.
We have experienced additional
benefits from our decision to build a truly integrated technology platform, that we believe will only compound as we add additional products
and features to the platform:
| ● | Deliver new products to our customers, from prototype to onboarding,
in under six months; |
| ● | Reduce our cost to deliver our products and service on an ongoing
basis; |
| ● | Approve customer requests for new accounts, loans, advances,
etc. in under ten seconds; |
| ● | Transact across the platform on our own payment rails, allowing
for instantaneous, costless transfers; and |
| ● | Utilize decision engines that automate over 99% of our customer
interactions. |
We built this platform to deliver
a uniform customer experience alongside near complete flexibility in terms of the regulated and unregulated partners we utilize to support
our products. For example, MoneyLion is not a bank. However, our customers can open and utilize a Federal Deposit Insurance Corporation
(“FDIC”)-insured digital demand deposit account, provided by a partner bank, that is fully integrated into our platform. This
model allows MoneyLion to adopt best-of-breed partners to support an ever-increasing range of financial activities, shortening the time
to deliver new products to our customers, while maintaining a seamless customer experience.
We utilize Amazon Web Services
(“AWS”) to host and deliver our platform to customers. Delivery through AWS allows for reliable, secure, cost-effective and
high-performance scaling.
We have also invested in specific
technologies to attract prospective customers to MoneyLion and convert those individuals into customers. Our technological approach to
customer acquisition and retention is a core competitive advantage of MoneyLion and an area in which we will continue to invest resources
to maintain what we believe is a material advantage in our cost of marketing.
Solve with a Platform,
not a Product: Many new companies have entered the market since our inception that seek to provide an individual
or single-point financial product to American consumers, while fewer, if any, have attempted to deliver a complete platform of products
as we do. We continue to believe that a single product strategy is neither advantageous for consumers nor a tenable long-term strategy
for the providers of these products.
Our customers require a variety
of products and services to successfully manage their financial lives. By providing a complete platform for these customers, they can
address these financial needs both conveniently and seamlessly, and we are able to architect a unique user experience, personalized to
the individual customer. Most importantly, by addressing the complete financial life of our customers, we can provide much needed guidance
to our customers as to their saving, spending, borrowing and investing decisions, with substantially better insight into their life circumstances.
We believe a valuable financial partner needs to both see and provide guidance based on the whole problem, rather than only a portion,
and our platform approach is fundamental to achieving our mission to improve financial outcomes for the American middle class.
In addition to being a better
alternative for our customers, we believe that our platform approach is a substantially better long-term model as a business. The cost
to acquire customers in a competitive market such as consumer financial services is a material portion of the variable cost structure
for both incumbent providers as well as new market entrants. A platform approach allows us to generate multiple income streams from a
single customer and deliver our products at pricing levels that we believe will be comparatively lower over the long-term while maintaining
attractive operating margins. Lastly, as we continue to mature our customer relationships, we believe that we will continue to grow wallet
share with our customers in a manner only available to a full-service platform.
Similarly, our platform approach
has also proved advantageous in acquiring new customers. We believe our ability to selectively market multiple products at once allows
us to more cost effectively reach prospective customers initially seeking at least one of the products on our platform.
Guidance Brings it All
Together: Providing our customers with access to financial products is fundamental to our mission. However,
products alone, without discovery, education and personalized insights, will not adequately address the financial needs of our customers.
We believe that contextual and relevant financial education and guidance is an essential component of the required service model of a
personalized, all-in-one, digital financial platform.
When we refer to guiding our
customers, we are not referring to an asset allocation strategy or a specific investment opportunity. We use the term guidance to reflect
a holistic, customer-centric set of automated suggestions, recommendations, behavioral nudges, goal ingestion and adjustment, planning
tips and reporting across the entire spectrum of financial product discovery, saving, spending, borrowing and investing activities driven
by our knowledge of the customer, their peers and our customers’ own goals.
Our model is most similar
to goals-based planning, a methodology used by certain incumbent providers of financial planning services to address multiple customer
objectives across different time horizons. Historically, goals-based planning has been used by financial planning providers to assist
high-net-worth customers navigate their allocation of resources across current and future objectives. Through our acquisition of Wealth
Technologies Inc. (“WTI”), we acquired WTI’s market-leading wealth management decisioning and administration technology,
including fGPS (Financial Goals Positioning System), a version of goals-based planning that we adopted, customized and refined for our
middle-class American customers and which we believe to be more advanced than those employed by even the most sophisticated financial
planning organizations. Amongst our many advancements, we expect to deliver real-time goals-based planning services, customized to the
individual customer and their goals, on a fully automated basis, covering millions of concurrent customers and goals.
To date, we have focused our
guidance on addressing the immediate and near-term problems of our customers to assist them in making decisions to place them on a path
to a better financial future. Examples include:
| ● | Avoiding overdraft fees; |
| ● | Managing short-term gaps in cash flow; |
| ● | Improving their credit score; |
| ● | Building a rainy-day fund; |
| ● | Opening an investment account. |
As our customers make progress
on the basic elements of managing their financial lives, we will assist them in setting and maintaining progress towards longer-dated
goals and aspirations. Examples of longer-dated goals we will seek to assist our customers achieve include:
| ● | Planning for a vacation; |
Our platform utilizes affiliates,
third-party providers of products and services to whom we may introduce our customers from our network to assist customers in making purchases
in-line with their goals. We expect to grow our affiliate network over time to address the range of customer-defined goals. We earn revenue
from fees from our affiliate partners in exchange for meeting certain success metrics related to their campaigns such as customers’
clicks, impressions or completed transactions. This revenue is reflected in affiliates income.
Content to Drive Engagement
and Financial Literacy: Our customers not only want to successfully manage their financial lives, but
they want to do so in a way that is both informative and enjoyable. Consistent with our vision of establishing MoneyLion as a lifestyle
brand, we introduced MoneyLife, an online financial education content destination. MoneyLife is a video content-driven educational platform
available on the MoneyLion app and our website where customers can share and discover ideas, advice and insights regarding their financial
lives. With high usability and sleek design, MoneyLife includes highly personalized content driven by financial advice and education
influencers, tools to achieve financial goals and additional ways of earning rewards to shop and save. Through MoneyLife, we provide
an additional daily destination site for current customers, drive additional prospective customers and increase customer engagement and
cross-sell opportunities for us and our affiliate partners. Our acquisition of MALKA, a creator network and content platform, accelerates
our ability to engage with consumers across all digital and emerging channels, allowing us to directly connect with communities natively
inside and outside of our platform. We will expand our vision of a daily destination, which started with our own MoneyLife content, with
personalized content that educates, informs and supports consumers’ financial decision making and other general interests. MALKA
operates as an independent wholly-owned subsidiary of MoneyLion and produces digital media and content for us as well as its own clients
across entertainment, sports, gaming, live streaming and other sectors. We earn revenue from fees that MALKA charges its clients in connection
with its digital media and content production, client services and licensing. This revenue is reflected in other income.
Our Product Platform
Once consumers download the
free MoneyLion app, they are ready to improve their financial health, with a full range of financial services across banking, borrowing
and investing, delivered through a personalized, all-in-one, easy-to-use digital financial platform.
Our intuitive and user-friendly
app provides a fast, seamless experience across all our products. We continually listen to our customers’ feedback and implement
improvements on an accelerated release cycle, always remaining committed to delivering a delightful customer experience. As of December 31,
2021, we had received over 130,000 five-star ratings across all app stores, with a 4.7 average on Apple, a 4.3 average on Google
and a 4.7 average on TrustPilot, and had an overall Net Promoter Score of 51 for December 2021.
MoneyLion’s current product
platform includes:
|
● |
RoarMoney: modern mobile banking offering premium features with no minimums, ability to get paid two days early with direct deposit, bill pay and credit-card like rewards; |
|
● |
MoneyLion Investing: the first investment account for a significant portion of our customers, automatically manages their investments on a discretionary basis in custom portfolios from leading providers like Global X and Wilshire, and offered without account minimums; |
|
● |
MoneyLion Crypto: an easy-to-use account that allows users to buy and sell popular cryptocurrencies as well as automatically “round-up” their debit card purchases into Bitcoin which we believe provides broader and more convenient access to investing in cryptocurrency for our customers, with no trading commissions or account minimums; |
|
● |
Instacash Earned Income Advances: short-term 0% APR advances against expected salary or other recurring income deposits, available in moments of need, providing funds to help avoid overdraft fees or finance daily transactions; |
|
● |
Credit Builder Plus: a suite of services that help customers establish or repair credit, gain financial literacy and track financial health in a bundled membership subscription that includes banking and investing accounts, a loyalty rewards program and access to cost-effective credit; |
|
● |
Financial Tracking: intelligent, automated platform that evaluates a customer’s financial situation across four key dimensions and delivers personalized guidance that helps them decide what actions to take and which products to use to improve their financial health, along with a personalized action plan meant to help customers reach their financial goals; and |
|
● |
MoneyLife: online financial education content destination where customers can share and discover ideas, advice and insights regarding their financial lives, delivered through a personalized financial feed tailored to each user based on intent and interests. |
Premium Mobile Banking: RoarMoney
RoarMoney is our FDIC-insured
digital demand deposit account with zero minimums, premium features and rewards. Our RoarMoney demand deposit accounts are currently issued
by MetaBank®, N.A. (“MetaBank”), a South Dakota-based, nationally chartered bank owned by Meta Financial Group,
Inc. (NASDAQ: CASH).
Customers can open a RoarMoney
account in minutes through the MoneyLion mobile application, add funds to their account and begin spending using a RoarMoney virtual debit
card. RoarMoney accounts also include a physical MoneyLion Debit Mastercard that can be used at any of the approximately 55,000 Allpoint
ATM network locations to make no-fee withdrawals.
Our RoarMoney account includes
some of the best features and rewards in banking, including:
| ● | Approximately 55,000 Allpoint ATM network locations to make
no-fee withdrawals; |
| ● | Paychecks delivered up to two days earlier than the scheduled
payment date with direct deposit into the RoarMoney account, a feature accessible with no additional mandatory fees; |
| ● | Price Protection, a Mastercard-sponsored insurance benefit,
worth up to $1,000 in individual coverage limits per year per MoneyLion Debit Mastercard cardholder; |
| ● | Access to mobile wallets such as Apple Pay and Google Pay; |
| ● | Shake ‘N’ Bank cashback rewards. Through Shake ‘N’
Bank rewards, customers can shake their phones after purchases of more than $10 for a reward, allowing them to earn up to five times the
amount of their purchases back, subject to a cap of $500. Shake ‘N’ Bank rewards are deposited automatically into a customer’s
MoneyLion investment account. Maintaining an investment account is a requirement in order to earn Shake ‘N’ Bank rewards;
and |
| ● | Other cashback rewards opportunities when customers make qualified
purchases with eligible merchants using their debit card. Rewards are automatically added to the RoarMoney account or to a MoneyLion
investment account, through which a customer can either withdraw the cash reward or keep it invested. RoarMoney customers may receive 1-5%
cashback on transactions at eligible merchants or merchant categories that are determined by MoneyLion. |
RoarMoney offers robust security
controls such as multi-factor authentication, contactless payment, instant card lock and robust protection against unauthorized purchases
if cards are lost or stolen.
Each RoarMoney account is charged
a $1 per month administrative fee, which is deducted from the customer’s RoarMoney account. The account administrative fee is retained
by MoneyLion and is not shared with any of its third-party partners/vendors. If a customer’s account has less than $1 on deposit,
the account will not be charged the administrative fee. We began charging this fee in 2020 and assessed the administrative fee on approximately
49% and 20%, respectively, of total RoarMoney accounts during the years ended December 31, 2021 and 2020.
Our RoarMoney demand deposit
accounts are currently issued by MetaBank. MetaBank is also the issuer of all RoarMoney debit cards and sponsors access to debit networks
for payment transactions, funding transactions and associated settlement of funds under a sponsorship agreement with MoneyLion. MetaBank
also provides sponsorship and support for ACH and associated funds settlement. Under the agreement between MoneyLion and MetaBank, MetaBank
receives all of the program revenue and transaction fees, and passes them on to MoneyLion, minus any obligations owed to MetaBank. MoneyLion
pays all payment network fees and other program-specific expenses associated with RoarMoney. These payment network fees are set directly
by the various payment networks and based on the transactions processed on their respective network. See “Our Business Model”
herein for additional information.
RoarMoney accounts can be
funded with a direct deposit, an external debit card, an external bank account, or mobile check capture. For an additional retail service
fee of up to $4.95 paid to the retailer, customers may also make cash deposits to their RoarMoney debit cards through a network of over
90,000 retailers across the country, a service provided by Green Dot Corporation (“Green Dot”). Under our network membership
agreement with Green Dot, all transactions made by customers through the Green Dot network are settled by MetaBank. MoneyLion does not
pay Green Dot any fees for this service, nor does MoneyLion receive any of the retail service fee revenue collected by retailer. Green
Dot may have revenue sharing arrangements with the retailer.
Shake ‘N’ Bank
and other cashback rewards are paid for by MoneyLion and included in our marketing expense on our consolidated statement of operations.
We pay a nominal fee to MetaBank for our customers to access their direct deposits up to two days earlier than the scheduled payment
date. As part of a fee arrangement between MoneyLion and Allpoint, MoneyLion pays Allpoint a fee to provide RoarMoney customers with access
to approximately 55,000 Allpoint ATM network locations at no additional cost to RoarMoney customers. Price Protection is an insurance
benefit sponsored by Mastercard and provided to MoneyLion Debit Mastercard cardholders by the Member Companies of AIG Insurance Company
and paid for by MoneyLion.
Personalized Investing: MoneyLion
Investing
MoneyLion Investing is an
online investment account that offers access to separately managed accounts invested based on model portfolios comprised of ETFs and managed
on a discretionary basis. Advisory services related to the MoneyLion investment account are provided by ML Wealth LLC (“ML Wealth”),
an SEC-registered investment adviser and an indirect wholly-owned subsidiary of MoneyLion Inc. Brokerage and custodial services are provided
by DriveWealth LLC (“DriveWealth”), a third-party provider. See “Our Business Model” herein for additional information
regarding our agreement with DriveWealth.
This fully-managed account
model allows customers to set their investment strategy and let ML Wealth manage investment decisions to implement that strategy on a
discretionary basis. An investment account holder simply identifies their investing comfort zone to receive a personalized portfolio,
a mix of stock and bond ETFs. The customer is then free to make the portfolio more or less aggressive, if their preferences or goals change.
Additionally, accounts are monitored on an ongoing basis and are managed to and rebalanced toward target allocations whenever there is
money movement within an account, when model allocations are updated, as well as on a periodic basis. Auto-investing allows customers
to automatically contribute into their investment account with recurring deposits directly into the account.
Investment strategies range
from Steady-Income (most conservative; consistent investment income with an all-bond ETF portfolio and minimal exposure to market fluctuation)
to Equity Only (most aggressive; taking on higher potential risk by investing in equity ETFs, in pursuit of the highest long-term potential
gains). Thematic investing allows customers to invest in their interests and passions, with thematic ETFs aligned to specific topics such
as technology innovation and social responsibility, by adding additional models to their investment account to be incorporated as part
of their target allocations alongside their core allocation model.
Each active investment account
is charged a $1 per month administrative fee, which is deducted from the customer’s investment account. The account administrative
fee is retained by MoneyLion and is not shared with any of its third-party partners/vendors. If a customer’s account has no balance,
the account will not be charged the administrative fee. We began charging this fee in the fourth quarter of 2019 and for the years ended
December 31, 2021 and 2020, approximately 60% and 87%, respectively, of our investment accounts have been charged the administrative
fee. There are no asset-based management fees charged or minimum balance required to maintain an investment account.
Portfolios are powered by two
of the leading global investment solution providers in the industry, Wilshire and Global X. Wilshire provides ML Wealth with
consulting services with respect to the development and maintenance of risk-based asset allocation and ETF selection for the core allocation
models that ML Wealth offers to customers. Global X and Wilshire each provide research and consulting regarding the construction
of the thematic portfolios that ML Wealth offers to customers. ML Wealth compensates Wilshire directly through a flat fee investment consulting
arrangement for these services, including asset allocation research and advice, as well as security due diligence and selection. ML Wealth
does not compensate Global X for these services.
As of December 31, 2021, ML
Wealth had assets under management of approximately $14.7 million. Certain cashback rewards offered by MoneyLion (or its affiliates)
may be added directly to the MoneyLion investment account. In those cases, the customer is required to maintain an investment account
to be eligible for the reward. These rewards are offered and funded by MoneyLion and not by ML Wealth. See “Premium Mobile Banking:
RoarMoney” herein.
Crypto
MoneyLion Crypto is an online
cryptocurrency account that enables customers to buy, sell and hold cryptocurrency. The account is provided by Zero Hash LLC and its affiliate,
Zero Hash Liquidity Services LLC (collectively, “Zero Hash”), both of which are registered as money services businesses and
have the required state-level licenses for engaging in digital assets activities where the Zero Hash services are offered.
RoarMoney accountholders can
open a MoneyLion Crypto account through the MoneyLion mobile application and fund it via their RoarMoney account. Customers are subject
to a minimum purchase per transaction of $1 and a daily maximum total purchase limit of $2,500. In addition, customers can also round
up purchases made either on their RoarMoney account or an external bank account to the nearest dollar. The accrued round ups can then
be transferred into the customer’s MoneyLion Crypto account and invested in Bitcoin.
As of December 31, 2021, the
only cryptocurrencies available through the MoneyLion Crypto account were Bitcoin and Ether. In January 2022, MoneyLion Crypto expanded
to include Bitcoin Cash and Litecoin. Transactions in additional digital assets may only be made available through the MoneyLion Crypto
account if mutually agreed between us and Zero Hash. MoneyLion’s evaluation of whether to provide any additional digital currency-related
products or services on our platform will depend on customer demand, estimated costs, potential risks and applicable regulatory requirements,
among other factors.
There are no mandatory fees
or minimum account balances associated with the MoneyLion Crypto account.
Access to Earned Money: Instacash
Instacash is our 0% APR advance
product that gives customers early access to their recurring income deposits. Customers can access Instacash advances at any time during
a regular deposit period up to their advance limit, providing customers with the flexibility to cover temporary cash needs and avoid costly
overdraft fees. When customers link their RoarMoney account or an external checking account, they can qualify for Instacash. No credit
check is required.
Eligibility for Instacash is
based on the verification of the customer’s checking account and the customer’s identity, and the advance limit is primarily
based on a percentage of income or other recurring deposit amounts detected through the linked checking account. This process is fully
automated unless there are any issues flagged via our customer identification processes. MoneyLion has the sole authority to make Instacash
advances.
There are no fees associated
with regular delivery of funds to either a RoarMoney account (typically delivered within 12-48 hours) or an external checking
account (typically delivered within two to five business days). However, customers have the option to pay an additional fee in order
to receive their funds on an expedited basis (typically within minutes or less), the amount of which is based on the amount of the disbursement
and whether the funds are delivered to a RoarMoney account or an external checking account. Customers may also choose to leave MoneyLion
an optional tip for use of the Instacash service. Instacash advances are included in receivables, net in our consolidated balance sheets.
Building Credit History and Giving
Access to Credit: Credit Builder Plus
Our Credit Builder Plus membership
program offers a proven path for our customers to access credit and establish or rebuild history, build savings, establish financial literacy
and track their financial health.
For a monthly cost of $19.99,
customers receive a suite of services including banking and investment accounts, credit tracking and financial literacy content, rewards
programs and access to loans of up to $1,000 at competitive rates offered by MoneyLion lending subsidiaries, allowing our customers to
establish up to twelve months of payment history with all three credit bureaus. Credit Builder Plus members do not pay additional
recurring fees for the services included in the membership program — the $1 per month administrative fees for the RoarMoney
account and MoneyLion investment account are waived. Credit Builder Plus members may incur certain fees or other charges for using specific
features of the membership services, such as interest charges on a loan they choose to borrow or non-recurring convenience fees associated
with their RoarMoney account.
We offer our Credit Builder
Plus members access to the Lion’s Share Loyalty Program, where members can earn rewards of up to $19.99 per month. The size of the
Lion’s Share reward depends on a customer’s number of logins into the MoneyLion app and purchases using their RoarMoney account
in that month. Expenses related to our Lion’s Share Loyalty Program are included in our marketing expense. For the year ended December 31,
2021, on average approximately 25% of our Credit Builder Plus customers who met the minimum eligibility criteria received this benefit.
As part of the Credit Builder
Plus membership program, members may apply for a Credit Builder Plus secured personal loan. While most other credit builder products in
the market do not give the consumer any of the loan funds upfront, MoneyLion provides a portion of the loan proceeds right away alongside
access to Instacash advances to help cover everyday expenses. The rest of the loan funds are saved for the customer in a credit reserve
account, an account in the customer’s name maintained by ML Wealth and held at DriveWealth (“Credit Reserve Account”).
Based on the customer’s credit profile, the MoneyLion lending subsidiary will disburse a portion of the loan principal to the customer’s
selected bank account, with the remainder deposited in a Credit Reserve Account. Funds in the Credit Reserve Account serve as collateral
that partially secures the loan, which may not be withdrawn while the loan is outstanding and may be liquidated if the customer defaults
on their loan obligations. Funds in the Credit Reserve Account are held in low-volatility money market funds or cash sweep vehicles and
become fully accessible to the customer once the full loan amount has been repaid. Monitoring of the collateral is done through monthly
reviews of the collateral value relative to the value of the outstanding loan-based finance receivables. With the membership, customers
receive their credit score as well as key credit factors, such as credit utilization, to track their progress.
For the year ended December 31,
2021, the average Credit Builder Plus loan was $705, with a weighted average APR of 21.29%. Credit Builder Plus loans range in size from
$500 to $1,000 with an interest rate range from 5.99% to 29.99%. All Credit Builder Plus loans have 12-month terms. Our underwriting is
driven by proprietary models that combine applicants’ prior credit history, based on credit bureau data, with bank account and income
data and their repayment history with MoneyLion. We do not have a minimum FICO score for approval of the Credit Builder Plus loans. MoneyLion
develops and executes all credit policies and risk management strategies directly. While MoneyLion does not provide a guarantee for the
performance of loans and other receivables that we originate, we sold these loans and other receivables at a discount of approximately
10% to IIA (as defined below). Beginning in the fourth quarter of 2021, we transitioned our primary source of funding for originated
receivables from IIA to special purpose vehicle financings from third-party institutional lenders. The receivables are included in
receivables, net on our consolidated balance sheet.
Prior to our launch of Credit
Builder Plus in 2019, we offered a ML Plus membership through which we originated unsecured personal loans, ML Plus loans. The ML Plus
membership transitioned into the Credit Builder Plus membership in the second quarter of 2020. ML Plus loans were fixed at $500, with
an interest rate of 5.99%. All ML Plus loans had 12-month terms. Our underwriting was driven by proprietary models that combine applicants’
prior credit history, based on credit bureau data, with bank account and income data and their performance history with MoneyLion. MoneyLion
develops and executes all credit policies and risk management strategies directly. While MoneyLion does not provide a guarantee for the
performance of loans and other receivables that we originate, we sold these loans and other receivables at a discount of approximately
10% to IIA. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations
of MoneyLion — Revenues — ML Plus loans” below for more information on ML Plus loans.
Advice and financial wellness: Financial
Tracking
In addition to offering a complementary
suite of financial products, MoneyLion has pioneered a new approach to personal financial management with Financial Heartbeat, an intelligent,
automated tool that guides customers on their financial journey. Financial Heartbeat evaluates customers’ financial situation across
four key dimensions: SAVE (savings and financial preparedness), SPEND (spending and personal budget), SHIELD (insurance
needs and coverage) and SCORE (credit tracking and health). Through our easy-to-use interface, customers can review the key issues
impacting their financial situation, decide what actions to take, evaluate which products to use and receive guidance on how to stay motivated
on their journey towards financial wellness. In addition, GamePlan provides our customers with a personalized action plan, including a
checklist with tasks, meant to help them reach their financial goals across different categories such as spending, saving and more.
Engaging content and improving
financial literacy: MoneyLife
Consistent with our vision
of establishing MoneyLion as a lifestyle brand, in 2021 we introduced MoneyLife, an online financial education content destination. MoneyLife
is a video content-driven educational platform available on the MoneyLion app and our website where customers can share and discover ideas,
advice and insights regarding their financial lives. With high usability and sleek design, MoneyLife includes content driven by financial
advice and education influencers, tools to achieve financial goals and additional ways of earning rewards to shop and save. Our acquisition
of MALKA accelerates our ability to engage with consumers across all digital and emerging channels, allowing us to expand our vision of
a daily destination, which started with our own MoneyLife content, with personalized content that educates, informs and supports consumers’
financial decision making and other general interests. We estimate that in the fourth quarter of 2021, MALKA’s content creators
provided over 69 million MoneyLion brand impressions. MoneyLife will drive additional prospective customers to MoneyLion and increase
customer engagement and cross-sell opportunities for both MoneyLion and its affiliate partners.
Our Business Model
We offer a range of financial
products and services through a single platform delivered via a mobile application. Our subsidiary, MALKA, provides digital media and
content production services to us and to its own clients in entertainment, sports, gaming, live streaming and other sectors.
Our revenue is primarily broken
out into the following categories:
|
● |
Fee income: In 2021, 68% of revenue, $116 million in revenue |
|
● |
MoneyLion Investing (administration fees), Crypto (revenue share) |
|
● |
RoarMoney (interchange fees, out-of-network ATM fees, administration fees) |
|
● |
Instacash (instant transfer convenience fees, tips) |
|
● |
Membership subscription revenue: In 2021, 19% of revenue, $32 million in revenue |
|
● |
Credit Builder Plus (monthly recurring membership fees) |
|
● |
Net interest income on finance receivables: In 2021, 4% of revenue, $7 million in revenue |
|
● |
Credit Builder Plus (loan interest income) |
|
● |
MoneyLion Plus (loan interest income) |
|
● |
Unsecured personal loans (loan interest income) |
|
● |
Affiliates income: In 2021, 6% of revenue, $11 million in revenue |
|
● |
Affiliates (fees earned from affiliate partners) |
|
● |
Other income: In 2021, 3% of revenue, $5 million in revenue |
|
● |
MALKA (media and content production, client services, licensing fees) |
Our Adjusted Revenue is primarily
broken out into the following categories:
|
● |
Fees: In 2021, 76% of Adjusted Revenue, $125 million in Adjusted Revenue |
|
● |
Instacash (instant transfer convenience fees, tips) |
|
● |
Credit Builder Plus (monthly recurring membership fees, loan instant transfer convenience fees) |
|
● |
Payments: In 2021, 8% of Adjusted Revenue, $14 million in Adjusted Revenue |
|
● |
RoarMoney (interchange fees, out-of-network ATM fees, administration fees) |
|
● |
Advice: In 2021, 10% of Adjusted Revenue, $17 million in Adjusted Revenue |
|
● |
MoneyLion Investing (administration fees), Crypto (revenue share) |
|
● |
Affiliates (fees earned from affiliate partners) |
|
● |
MALKA (media and content production, client services, licensing fees) |
|
● |
Interest: In 2021, 6% of Adjusted Revenue, $10 million in Adjusted Revenue |
|
● |
Credit Builder Plus (loan interest income) |
Adjusted Revenue is a non-GAAP
measure. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MoneyLion — Non-GAAP
Measures” for a reconciliation of Adjusted Revenue to total revenues, net.
We originate loans directly
under our lending licenses or pursuant to applicable exemptions across various states in the U.S., and we service all of the loans that
we originate. Our subsidiary, ML Plus LLC, makes Instacash advances that we service.
Receivables originated on our
platform, including Credit Builder Plus loans and Instacash advances, were primarily financed through Invest in America Credit Fund I
LLC (“IIA”) until the end of the fourth quarter of 2021. IIA was formed in 2016 and is an indirect wholly owned subsidiary
of MoneyLion Inc. IIA had been our primary source of funding for originated receivables since 2018. IIA is organized as a Delaware
limited liability company and is treated as a partnership for United States income tax purposes. IIA’s membership interests
were issued in separately designated series, with each series consisting of Class A Units and Class B Units. IIA investors
owned all non-voting Class B Units of the applicable series they invested in, which entitled them to a targeted, non-guaranteed,
preferred return of typically 12% per year. ML Capital III LLC (“ML Capital III”), an indirect wholly owned MoneyLion
subsidiary, is the managing member of IIA and owned the Class A Units of each series, which entitled ML Capital III to
returns that exceeded the targeted preferred return on the Class B Units (if any). IIA used proceeds from the sale of Class B
Units to investors to purchase borrower payment dependent promissory notes from Invest in America Notes SPV I LLC and Invest
in America Notes SPV IV LLC, each an indirect wholly-owned MoneyLion subsidiary. The collateral consisted of a portfolio of underlying
MoneyLion loans and advance receivables. Investors in Class B Units funded their investment into IIA at the time of subscription,
which proceeds were used to finance receivables originated on MoneyLion’s platform. At the end of the fourth quarter of 2021, IIA
was wound down and all assets were returned to investors. As of December 31, 2021, IIA had no assets.
Beginning in the fourth quarter
of 2021, MoneyLion transitioned its primary source of funding for originated receivables from IIA to special purpose vehicle financings
from third-party institutional lenders. In September 2021, ROAR 1 SPV Finance LLC, an indirect wholly owned subsidiary of MoneyLion (the
“ROAR 1 SPV Borrower”), entered into a $100 million credit agreement (the “ROAR 1 SPV Credit Facility”) with a
lender for the funding of receivables, which secure the ROAR 1 SPV Credit Facility. As of December 31, 2021, there was an outstanding
principal balance of $78 million under the ROAR 1 SPV Credit Facility. In December 2021, ROAR 2 SPV Finance LLC, an indirect wholly owned
subsidiary of MoneyLion (the “ROAR 2 SPV Borrower”), entered into a $125 million credit agreement (the “ROAR 2 SPV Credit
Facility”) with a lender for the funding of receivables, which secure the ROAR 2 SPV Credit Facility. As of December 31, 2021, there
was an outstanding principal balance of $68 million under the ROAR 2 SPV Credit Facility.
We depend on certain key third-party
partners to provide certain of our products and services. Our RoarMoney demand deposit accounts and associated debit cards are currently
issued by MetaBank. Our subsidiary, ML Plus LLC, is party to an Account Servicing Agreement (as amended from time to time, the “Account
Servicing Agreement”) with MetaBank, which had an initial three-year term ending January 2023 and was amended in December 2021
to extend the term until January 2026, with automatic renewal for successive two-year periods unless either party provides written notice
of non-renewal, which may be provided without cause to the other party at least 180 days prior to the end of any such term. In addition,
upon the occurrence of certain early termination events, either we or MetaBank may terminate the Account Servicing Agreement immediately
upon written notice to the other party. The Account Servicing Agreement does not prohibit MetaBank from working with our competitors or
from offering competing services, nor does it prevent us from working with other banks to provide similar services. Our partnership with
MetaBank allows us to provide deposit accounts and debit cards while complying with various federal, state and other laws. MetaBank also
sponsors access to debit networks and ACH for payment transactions, funding transactions and associated settlement of funds. Under the
terms of the Account Servicing Agreement, MetaBank has the right to supervise, oversee, monitor and review our performance, and we have
to comply with applicable laws and regulations, including data privacy, BSA/AML and Customer Identification Program requirements. MetaBank
receives all of the program revenue and transaction fees, and passes it on to MoneyLion, minus any obligations owed to MetaBank. In addition,
we are generally responsible for any expenses related to this arrangement, including payment network fees, marketing expenses, vendor
management expenses and taxes.
In connection with our arrangements
with MetaBank, we have also entered into a multi-year service agreement with Galileo, in which Galileo has agreed to process all of our
transactions for our RoarMoney accounts and debit cards, and to handle corresponding payments and adjustments. Galileo also maintains
cardholder information, implements certain fraud control processes and procedures and provides related services in connection with the
RoarMoney accounts and debit cards. We pay the greater of actual fees or the minimum monthly fee for these services. Following the initial
term, the service agreement renews for successive two-year periods unless either party provides written notice of non-renewal, which may
be provided without cause, to the other party at least 180 days prior to the end of any such term. The occurrence of certain events
would provide each party with an early termination right under the agreement.
Our MoneyLion Investing offering
is currently reliant upon DriveWealth, a third-party broker-dealer partner, which provides brokerage and related services for the investment
accounts facilitated through our platform. Under the terms of ML Wealth’s amended and restated Carrying Agreement with DriveWealth,
which was entered into in October 2020, DriveWealth provides brokerage and custodial services to ML Wealth’s advisory customers,
including by executing orders successfully submitted by ML Wealth via its master trading account. The Carrying Agreement has an initial
three-year term ending October 2023, which automatically renews for successive one-year periods unless either party provides written
notice of non-renewal, which may be provided without cause, to the other party at least 60 days prior to the end of any such term.
In addition, upon the occurrence of certain early termination events, either we or DriveWealth may terminate the agreement immediately
upon written notice to the other party. The Carrying Agreement does not prohibit DriveWealth from working with our competitors or from
offering competing services, and DriveWealth currently provides similar services to a variety of other financial institutions. Under our
arrangement, our customers must sign a Customer Account Agreement with DriveWealth, and DriveWealth maintains ultimate authority on whether
to reject the opening of an account, or to take any actions related to an account, including closing any account, liquidating the assets
under an account or limiting the activities of any account, if DriveWealth deems it necessary to comply with applicable laws or if there
is a reasonable risk-based justification for doing so.
Our MoneyLion Crypto account
offering is currently reliant upon Zero Hash, a third-party regulated digital asset settlement provider. Under the terms of the licensing
and cooperating agreement signed with Zero Hash LLC and its affiliate, Zero Hash Liquidity Services LLC, entered into on March 26, 2021,
Zero Hash pays us a share of the fees that they earn from our customers in exchange for MoneyLion enabling Zero Hash to effect digital
currency-related transactions for our customers with RoarMoney accounts that reside in states where Zero Hash is authorized to conduct
digital assets activities. Under the terms of the agreement, MoneyLion is not directly involved in any cryptocurrency transactions or
the exchange of fiat funds for cryptocurrency taking place at or through Zero Hash. Both parties agreed, at launch, to limit the cryptocurrency
offerings to Bitcoin and Ether, which was subsequently expanded to include Bitcoin Cash and Litecoin in January 2022. Both parties must
consent in writing before adding any additional digital assets to the program. Under our arrangement, each customer opening a MoneyLion
Crypto account is required to enter into a separate user agreement with Zero Hash.
Our Growth Strategy
We believe we are in the early
innings of realizing the full value of our existing platform. We seek to capitalize on the structural advantages inherent in being a digitally
native, customer-centric and built-to-scale platform as we continue capturing market share and economic gains. Our multi-pronged growth
strategy, designed to continue building upon the momentum we have generated to date to create even greater value for consumers, is to:
| ● | Continue penetrating our large addressable market; |
| ● | Increase top-of-funnel conversion; |
| ● | Accelerate cross-sell and attachment rates with our platform
approach; |
| ● | Deliver new products, features and content; |
| ● | Grow our affiliate network and expand our corporate partnerships;
and |
| ● | Evaluate additional strategic acquisitions. |
Continue penetrating our
large addressable market: Our target market is the 100 million middle-class Americans whose needs are
not well-addressed by the current financial system. We define this market as individuals with household incomes up to $150,000 and FICO
scores up to 750. While we have achieved significant growth and scale to date through developing a personalized, all-in-one, digital financial
platform to meet the needs of our customers, the addressable market is vast. We believe we have a long runway for future growth, and we
have the ability to substantially increase our marketing spend versus our historical expenditure levels. We believe we have developed
a highly efficient customer acquisition approach that will allow us to effectively deploy the expanded marketing spend and drive new customer
growth.
Increase top-of-funnel conversion: We
have a significant opportunity to increase the rate at which we convert consumers we reach through various marketing channels into customers.
While we have invested in a technology-based approach to customer acquisition that is highly efficient, we believe scale will allow us
to further enhance top-of-funnel conversion. Expanding our market presence and consumer awareness of our brand is expected to result in
higher rates of customer conversion. In addition, a growing customer base and associated financial and transactional data points will
enhance our consumer insights and allow us to better address the needs of our target market, the middle class. Those insights will allow
us to innovate and offer an even broader suite of financial products, attracting more customers onto the MoneyLion platform.
Accelerate cross-sell and
attachment rates with our platform approach: We take a platform approach to address our customers’ entire
financial lives. The combination of a deep, data-driven understanding of our customers’ pain points and a broad suite of products
allows us to help improve our customers’ financial well-being while producing strong revenue growth and profitability. We believe
the number of customers using two or more products will further expand as more customers see value in our holistic platform approach,
and as we continue to innovate and launch new products. Not only does multiple product engagement increase revenue per customer and drive
revenue growth, it also further enhances our profitability by driving a lower cost to acquire and service customers.
Deliver new products, features
and content: Our product and engineering teams are constantly innovating, leveraging both our data-driven understanding
of our customers and our existing technology infrastructure to build new, impactful products and features. Our products and services follow
established product development steps, including research and development, design, validation and testing. For each product launch, we
generally anticipate expenses related to technology, product design and implementation, including compensation and benefits, to amount
to approximately $1.5 to $2.0 million on average. We are developing several new products and services to continue our mission to
better serve our customers which will provide further financial flexibility for MoneyLion customers.
Another way we aim to better
serve our customers is through the creation of digital media and content that educates our customers about how to improve their financial
health by using MoneyLion’s and our affiliates’ products and services. MoneyLife, our online financial education content destination,
includes content driven by financial advice and education influencers, tools to achieve financial goals and additional ways of earning
rewards to shop and save. Through MoneyLife, we will drive additional prospective customers to MoneyLion and increase customer engagement
and cross-sell opportunities for both MoneyLion and our affiliate partners. Our acquisition of MALKA will accelerate our ability to engage
with consumers across all digital and emerging channels.
Grow our affiliate network
and expand our corporate partnerships: We have established an affiliate network to offer products and services
to our customers as guided by our platform. We will continue to dramatically expand our pool of affiliate partners to provide our customers
an ever-growing selection of products that can lower their cost of living and improve their quality of life.
MoneyLion partners with companies
to provide company-sponsored financial wellness programs that are designed to decrease financial stress and bolster productivity by offering
employees the financial products, education and tailored advice they require. We expect to continue to add corporate partners to deliver
our products in a cost-effective manner to our targeted customer segment.
Evaluate additional strategic
acquisitions: We acquired MALKA in November 2021. MALKA is a creator network and content platform that produces
digital media and content across entertainment, sports, games, live streaming and other sectors. MALKA’s content capabilities can
drive industry-leading customer acquisition and retention at scale to help accelerate MoneyLion’s customer growth. By combining
MALKA’s capabilities with MoneyLion’s financial products and extensive first-party data, we hope to turn the MoneyLion mobile
application into a daily destination for our customers with personalized content that educates, informs and supports customers’
financial decisions.
In addition, on December 15,
2021, we entered into an agreement to acquire Even Financial Inc. (“Even Financial”), an embedded finance marketplace that
digitally connects and matches consumers with real-time personalized financial product recommendations from a growing network of financial
institution, insurance and fintech partners, which closed on February 17, 2022. This acquisition strengthens MoneyLion’s platform
by improving customers’ abilities to find and access the right financial products to help them manage their financial lives. The
acquisition also extends our addressable market, extends the reach of our own products, diversifies our revenue mix and furthers our ambition
to be the premier financial super app for hardworking Americans.
We will continue to evaluate
opportunistic acquisitions that would allow us to either expand our product and service offerings to our existing customers or allow us
to enter new verticals.
Marketing
Our customer acquisition channels
combine a mix of online and offline, as well as paid and unpaid, channels. They include marketing affiliates, sponsorships, radio, direct
mail, organic web traffic, email marketing and online advertising, among others.
MoneyLion applies a full-funnel
marketing approach both in media and in content creation. By creating complete marketing programs, we believe we generate a sustainable
cost advantage across our various customer acquisition channels. We create multiple secondary content pieces from an original long-form
content asset, and then cycle these content assets and marketing narratives across earned media channels and our own platforms, including
our MoneyLion mobile application.
Customer Service
We are dedicated to addressing
the needs of our customers. We believe that our multi-pronged approach to providing cost-effective customer service helps to support customer
satisfaction. We offer a searchable, robust self-service Frequently Asked Questions database within our help center, where most questions
can be easily answered 24 hours a day, seven days a week. In addition, we offer both a chatbot and a live chat service
with an agent, either through the home screen of the MoneyLion app or on the MoneyLion web dashboard. Finally, should a customer wish
to speak with a live agent over the phone or email their inquiries to our customer support team, we offer those support services as well.
Competitive Landscape
Consumer financial services
is a large, fragmented and competitive market, and we compete in varying degrees with a range of existing providers of consumer-focused
banking, lending, investing and other financial products. Our competitors are generally large, well-capitalized financial services companies.
Some of our current and potential competitors have longer operating histories, particularly with respect to financial products similar
to what we offer, significantly greater financial, technical, marketing and other resources and a larger customer base. Our competitors
include:
Banking Competitors: Traditional
banks and credit unions (e.g., Chase and Wells Fargo), new entrants obtaining banking licenses (e.g., Varo Money) and other non-bank digital
providers that white label regulated products, offering banking-related services (e.g., Chime);
Lending and Earned Income
Advance Competitors: Traditional banks and credit unions, specialty finance and other non-bank providers, offering
consumer lending-related or advance products (e.g., Upstart and Dave);
Marketplace Competitors:
Online financial product and service marketplaces and aggregators that offer consumer financial products and services (e.g., Credit
Karma and WalletHub); and
Investing Competitors: Online
wealth management platforms, such as robo-advisors, offering consumer investment services (e.g., Betterment and Stash).
We believe other market participants
do not adequately meet the needs of the 100 million middle-class Americans who make up our target market. We feel our data-driven
approach, single-core technology stack, holistic product offering and financial guidance focus represent compelling competitive differentiators
that will allow us to continue to capture market share and drive growth.
Management Team
We are a founder-led business
with a diverse management team that brings together experienced viewpoints from both technology and financial services.
Employees and Culture
We believe we have built a
unique company culture. We attract smart and talented individuals, who possess a passion for innovation and flourish when provided the
opportunity to learn and grow. We provide our employees with support programs designed to allow employees to thrive and our teams to outperform.
Incentives are further aligned through a broad-based equity compensation program across the employee base.
In operating multiple offices
across the globe, bringing together some of the best talent from both the U.S. and around the world, we place significant emphasis
on having a seamless, one-firm culture and employee experience. This model has paid dividends for our global team members as reflected
in our employee engagement and retention.
As the focal point of our human
capital strategy, we attract and retain a diverse, talented and motivated employee base. Career growth at MoneyLion may include manager
skills and leadership training, peer-based recognition and rewards, transparent incentive and promotion processes and time and budget
allocated to learning and development initiatives.
We place special emphasis on
diversity, from our recruitment process to our career development programs. Our management team members come from diverse backgrounds
and seek to build a company with diversity clearly established as an organization priority. Here Women Roar is an employee resource group
that aims to champion the growth and advancement of women at MoneyLion by investing in their social, personal and professional development.
In 2021, we launched additional employee resource groups to further support our employees of diverse backgrounds.
As of December 31, 2021, we
had a total of 556 employees across all locations, which included 155 MALKA employees who joined the MoneyLion team in connection with
the MALKA acquisition. Of our employees, approximately 15%, 20%, 46%, 6% and 1% are located in our New York City, Jersey City, Kuala Lumpur,
Santa Monica and Sioux Falls offices, respectively, and the remaining approximately 13% work remotely. None of our employees are represented
by a labor union or covered by a collective bargaining agreement.
Privacy and Security
Our business involves the collection,
storage, processing, use, sharing and transmission of personally identifiable information (“PII”) and other sensitive data,
including customer and employee information, financial information and information about how customers interact with our platform. We
collect, store, process, use, share and transmit data while maintaining physical, electronic and procedural safeguards. We maintain physical
security measures designed to guard against unauthorized access to systems and use safeguards such as firewalls and data encryption. We
also enforce physical access controls to our facilities and we authorize access to PII on a least privilege access model only for those
employees or agents who require it to fulfill the responsibilities of their jobs.
To prevent against fraud, we
have built fraud detection capabilities to protect our customers and merchants. We first seek to establish the consumer’s identity
using basic information following our KYC protocols. The consumer is then evaluated by our fraud model, and we will then either move forward
in the approval processes or request additional data from the consumer. Our sophisticated fraud models use approximately 40-80 other
data points to make a near-instantaneous decision on whether to block a transaction. There are also secondary rules that, when triggered,
are designed to ensure a transaction is sent to fraud investigators.
The technology infrastructure
supporting our platform optimizes the storage and processing of large amounts of data and facilitates the deployment and operations of
large-scale products and services in our cloud computing environments. Our technology infrastructure is designed around industry practices
intended to reduce downtime in the event of outages or disaster recovery occurrences. We incorporate multiple layers of protection for
business continuity and system redundancy purposes to address cybersecurity risks and loss of data. We have a robust cybersecurity program
designed to protect our technology, including regularly testing our systems to identify and address potential vulnerabilities. We strive
to continually improve our technology infrastructure to enhance the customer experience and to increase efficiency, scalability and security.
As a result of our collection,
storage, processing, use, sharing and transmission of PII and other sensitive data, we are subject to certain privacy and information
security laws, including, for example, the Gramm-Leach-Bliley Act (“GLBA”), the California Consumer Privacy Act (“CCPA”),
the California Privacy Rights Act (“CPRA”) and other state privacy regulations, and other laws, rules and regulations designed
to regulate consumer information and data privacy, security and protection and mitigate identity theft. These laws impose obligations
with respect to the collection, processing, storage, disposal, use, transfer, retention and disclosure of PII, and some may require that
financial services providers have in place policies regarding information privacy and security. In addition, under certain of these laws,
we must provide notice to consumers of our policies and practices for sharing PII with third parties, provide notice of changes to our
policies and, with limited exceptions, give consumers the right to prevent use of their PII and disclosure of it to third parties. Further,
all 50 states and the District of Columbia have adopted data breach notification laws that impose, in varying degrees, an obligation to
notify affected individuals in the event of a data or security breach or compromise of our systems, including when their PII has or may
have been accessed by an unauthorized person. These laws may also require us to notify relevant law enforcement, regulators or consumer
reporting agencies in the event of a data breach. Some laws may also impose physical and electronic security requirements regarding the
safeguarding of PII. Privacy and information security laws evolve regularly, and complying with these various laws, rules, regulations
and standards, and with any new laws or regulations or changes to existing laws, could cause us to incur substantial costs that are likely
to increase over time, requiring us to adjust our compliance program on an ongoing basis, change our business practices in a manner adverse
to our business, divert resources from other initiatives and projects and restrict the way products and services involving data are offered.
See Part I, Item 1A “Risk Factors — Risks Relating to Cybersecurity — The collection, processing,
use, storage, sharing and transmission of PII and other sensitive data are subject to stringent and changing state, federal and international
laws, regulations and standards and policies and could give rise to liabilities as a result of our failure or perceived failure to protect
such data, comply with privacy and data protection laws and regulations or adhere to the privacy and data protection practices that we
articulate to our customers.”
Regulatory Environment
We operate in a rapidly evolving
regulatory environment and are subject to extensive and complex regulation under U.S. federal law and the laws of the states in which
we operate. These cover most aspects of our business and include laws, regulations, rules and guidance relating to consumer finance and
protection, privacy and data protection, banking, payments and investment advisory services, among other areas. For example, with respect
to our lending business, certain state laws may, if applicable, regulate interest rates and other charges and require certain disclosures
to our customers, and may also require licensing for certain activities. In addition, other federal and state laws, public policy and
general principles of equity, such as with respect to the protection of consumers, unfair and deceptive acts or practices and debt collection
practices, may apply to our activities involving the origination, servicing and collection of consumer loans, as well as to our activities
in banking, cash advances, payments, investment advisory services and other areas. We are impacted by these laws and regulations both
directly and indirectly, including by way of our partnership with MetaBank, which provides deposit accounts and debit cards to our customers.
Ensuring compliance with these laws and regulations imposes significant burdens on our business operations.
We could become subject to
additional legal or regulatory requirements if laws or regulations change in the jurisdictions in which we operate, or if we were to release
new products or services, under applicable laws or regulations to which we are not currently subject today. In addition, the regulatory
framework for our products and services is evolving and uncertain as federal and state governments and regulators consider the application
of existing laws and potential adoption of new laws. Although some of the products and services that we offer are relatively novel, we
are typically required to comply with the existing regulatory regimes for consumer financial products and services. New laws and regulations,
as well as continued uncertainty regarding the application of existing laws and regulations to our products and services, may negatively
affect our business. This could include the need to obtain new or different types of licenses or comply with additional laws and regulations
in order to conduct our business.
State licensing requirements and regulation
Our lending operations must
satisfy the laws and standards of each individual U.S. state in which we operate. This means that when individual states differ in
how they regulate consumer lending activity, we must operate in accordance with those jurisdictional-specific requirements.
We are subject to state licensing
and other requirements with respect to loans that we originate, and we have obtained necessary licenses or conduct operations pursuant
to relevant exemptions in order to originate loans in the jurisdictions in which we do so. Licensing statutes and regulations vary from
state to state and prescribe different requirements, including restrictions on loan origination and servicing practices (including limits
on the type, amount and manner of our fees), interest rate limits, disclosure requirements, periodic examination requirements, surety
bond and minimum specified net worth requirements, periodic financial reporting requirements, notification requirements for changes in
principal officers, stock ownership or corporate control, restrictions on advertising and requirements that loan forms be submitted for
review. We are also subject to supervision and examination by state regulatory authorities in the jurisdictions where we operate, which
have resulted and may continue to result in findings or recommendations that require us to modify our internal controls and/or business
practices. The application of state licensing requirements to our business model is not always clear, and while we believe we are in compliance
with applicable licensing requirements, state regulators may request or require that we obtain additional licenses or otherwise comply
with additional requirements in the future, which may result in changes to our business practices. If we are found to have engaged in
activities that require a state license without having the requisite license or in activities that are otherwise deemed to be in violation
of state lending laws, the licensing authority may impose fines, restrict our operations in the relevant state or seek other remedies
for activities conducted in the state.
U.S. federal consumer protection requirements
We must comply with various
federal consumer protection regimes, both pursuant to the financial products and services we provide directly and as a service provider
to our bank partner, including those set forth in Part I, Item 1A “Risk Factors — Risks Relating to Financial Regulation
— Our business is subject to extensive regulation, examination and oversight in a variety of areas, including registration
and licensing requirements under federal, state and local laws and regulations.”
We are subject to regulation
by the Consumer Financial Protection Bureau (“CFPB”), which oversees compliance with and enforces federal consumer financial
protection laws. The CFPB directly and significantly influences the regulation of consumer financial services, including the origination,
brokering, servicing, transfer and collection of consumer loans, including personal loans and other consumer financial services we may
provide. The CFPB has substantial power to regulate financial products and services received by consumers from both bank and non-bank
providers of consumer financial products or services and their respective service providers, including rulemaking authority in enumerated
areas of federal law applicable to consumer financial products or services such as truth in lending, fair credit reporting and fair debt
collection. Under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the
CFPB has the authority to pursue enforcement actions against companies that offer or provide consumer financial products or services that
engage in unfair, deceptive or abusive acts or practices, which can be referred to as “UDAAP.” The CFPB may also seek a range
of other remedies, including rescission of contracts, refund of money, return of real property, restitution, disgorgement of profits or
other compensation for unjust enrichment, damages, public notification of the violation, and “conduct” restrictions (i.e.,
future limits on the target’s activities or functions). Where a company has violated Title X of the Dodd-Frank Act or CFPB
regulations under Title X, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to enforce
such laws and regulations.
The CFPB also has enforcement
authority with respect to the conduct of third parties that provide services to financial institutions. The CFPB has made it clear that
it expects non-bank entities to maintain an effective process for managing risks associated with vendor relationships, including compliance-related
risks. In connection with this vendor risk management process, we are expected to perform due diligence reviews of potential vendors,
review their policies and procedures and internal training materials to confirm compliance-related focus, include enforceable consequences
in contracts with vendors regarding failure to comply with consumer protection requirements and take prompt action, including terminating
the relationship, in the event that vendors fail to meet our expectations.
Our business activities are
also subject to applicable requirements under other federal statutes and regulations, including, but not limited to:
| ● | Federal Trade Commission Act. The
Federal Trade Commission Act prohibits “unfair” and “deceptive” acts and practices in business or commerce and
gives the Federal Trade Commission (the “FTC”) enforcement authority to prevent and redress violations of this prohibition.
Whether a particular act or practice violates these laws or the UDAAP-prevention laws enforced by the CFPB frequently involves a highly
subjective and/or fact-specific judgment. |
| ● | Truth in Lending Act. The
Truth in Lending Act (“TILA”) and Regulation Z, which implements it, require lenders to provide consumers with uniform
and understandable information concerning certain terms and conditions of their loan and credit transactions prior to the consummation
of a credit transaction and, in the case of certain open-end loans, at the time of a loan solicitation, application, approval and origination
of a credit transaction. TILA also regulates the advertising of credit and gives borrowers, among other things, certain rights regarding
updated disclosures and periodic statements, security interests taken to secure the credit, the right to rescind certain loan transactions,
a right to an investigation and resolution of billing errors and the treatment of credit balances. |
| ● | Equal Credit Opportunity Act. The
federal Equal Credit Opportunity Act (“ECOA”) prohibits creditors from discriminating against credit applicants on the basis
of race, color, sex, age, religion, national origin, marital status, the fact that all or part of the applicant’s income derives
from any public assistance program or the fact that the applicant has in good faith exercised any right under the federal Consumer Credit
Protection Act or any applicable state law. Regulation B, which implements ECOA, restricts creditors from requesting certain types
of information from loan applicants and from using advertising or making statements that would discourage on a prohibited basis a reasonable
person from making or pursuing an application. ECOA also requires creditors to provide consumers and certain small businesses with timely
responses to applications for credit, including notices of adverse action taken on credit applications. |
| ● | Fair Credit Reporting Act. The
federal Fair Credit Reporting Act (“FCRA”), as amended by the Fair and Accurate Credit Transactions Act, promotes the accuracy,
fairness and privacy of information in the files of consumer reporting agencies. FCRA requires a permissible purpose to obtain a consumer
credit report and requires persons that furnish loan payment information to credit bureaus to report such information accurately. FCRA
also imposes disclosure requirements on creditors who take adverse action on credit applications based on information contained in a
consumer report or received from a third party and requires creditors who use consumer reports in establishing loan terms to provide
risk-based pricing or credit score notices to affected consumers. The FCRA also imposes rules and disclosure requirements on creditors’
use of consumer reports for marketing purposes, which impacts our ability to use consumer reports and prescreened lists to market consumer
loans through direct mail and other means. |
| ● | Military Lending Act. The
Military Lending Act (“MLA”) restricts, among other things, the interest rate and other terms that can be offered to active
military personnel and their dependents. The MLA caps the interest rate that may be offered to a covered borrower for most types of consumer
credit to a 36% military annual percentage rate, or “MAPR,” which includes certain fees such as application fees, participation
fees and fees for add-on products. The MLA also requires certain disclosures and prohibits certain terms, such as mandatory arbitration
if a dispute arises concerning the consumer credit product. |
| ● | Electronic Fund Transfer Act and NACHA Rules. The
federal Electronic Fund Transfer Act (“EFTA”) and Regulation E that implements it provide guidelines and restrictions
on the provision of electronic fund transfer services to consumers, and on making an electronic transfer of funds from consumers’
bank accounts. In addition, transfers performed by ACH electronic transfers are subject to detailed timing and notification rules and
guidelines administered by the National Automated Clearinghouse Association (“NACHA”). Most transfers of funds in connection
with the origination and repayment of loans are performed by electronic fund transfers, such as ACH transfers. EFTA requires that lenders
make available loan payment methods other than automatic preauthorized electronic fund transfers and prohibits lenders from conditioning
the approval of a loan transaction on the borrower’s agreement to repay the loan through automatic fund transfers. In 2018, the
NACHA Board of Directors approved a change in the NACHA Operating Rules that requires ACH originators to utilize commercially reasonable
fraudulent transaction detection systems. The rule change requires ACH originators, including lenders, to include account validation
as part of their commercially reasonable fraudulent transaction detection system, for the first use of new account information. The rule
change took effect on March 19, 2021, and will become enforceable for all ACH originators on March 19, 2022. Accordingly, we use NACHA-approved
vendors to perform commercially reasonable verification of external accounts for ACH transactions. |
| ● | GLBA. The GLBA includes
limitations on financial institutions’ disclosure of nonpublic personal information about a consumer to nonaffiliated third parties,
in certain circumstances requires financial institutions to limit the use and further disclosure of nonpublic personal information by
nonaffiliated third parties to whom they disclose such information, and requires financial institutions to disclose certain privacy policies
and practices with respect to information sharing with affiliated and nonaffiliated entities, as well as to safeguard personal customer
information. |
The federal regulatory framework
applicable to consumer financial services providers, such as us, is evolving and uncertain. Additional or different requirements may apply
to our business in the future. While we have developed policies and procedures designed to assist in compliance with these laws and regulations,
no assurance is given that our compliance policies and procedures will be effective or will be adequate as laws change or are applied
in a new manner.
Investment adviser and broker-dealer regulation
We offer investment management
services through our wholly-owned subsidiary ML Wealth, an internet-based investment adviser that is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and is subject to regulation by the SEC. ML
Wealth is subject to, among other things, the anti-fraud provisions of the Advisers Act and fiduciary duties derived from these provisions,
which apply to our relationships with our advisory clients. These provisions and duties impose restrictions and obligations on us with
respect to our dealings with our clients and the investments we manage, including, for example, disclosure of any conflicts of interest.
ML Wealth has in the past and will in the future be subject to periodic SEC examinations. A regular or routine SEC examination will typically
involve, at a minimum, a careful review of the adviser’s books and records and may include interviewing employees. The SEC examination
staff may also conduct more frequent examinations focusing on a limited number of specific issues or conduct an examination “for
cause.” ML Wealth is also subject to other requirements under the Advisers Act and related regulations primarily intended to protect
advisory clients. These additional requirements include maintaining effective and comprehensive compliance programs and written policies
and procedures, record-keeping, reporting and disclosure, advertising and solicitation rules, safeguards for protecting client funds and
securities, limitations on agency cross and principal transactions between an adviser and its advisory clients, restrictions on advisory
contract assignments, privacy protection regulations and anti-corruption rules relating to investors associated with U.S. state or
local governments.
The Advisers Act generally
grants the SEC broad administrative powers, including the power to limit or restrict an investment adviser from conducting advisory activities
in the event it fails to comply with federal securities laws. Additional sanctions that may be imposed for failure to comply with applicable
requirements include the prohibition of individuals from associating with an investment adviser, the revocation of registrations, significant
monetary penalties, disgorgement of gains, cease-and-desist orders and other censures. The SEC may bring civil actions against investment
advisers, and seek damages or other relief, in a U.S. district court or before an administrative law judge. Even if an investigation
or proceeding did not result in a sanction or the sanction imposed against us or our personnel by the SEC were small in monetary amount,
the adverse publicity relating to the investigation, proceeding or imposition of these sanctions could harm our reputation and cause us
to lose existing clients or fail to gain new clients.
One of our subsidiaries, MoneyLion
Securities LLC, is a broker-dealer and is therefore registered with the SEC and a member of the Financial Industry Regulatory Authority,
Inc. (“FINRA”). Although we do not currently engage in any business activity through MoneyLion Securities LLC, as a broker-dealer,
it is subject to SEC and FINRA rules and regulations. The principal purpose of regulating broker-dealers is the protection of clients
and securities markets. The regulations cover all aspects of the broker-dealer business and operations, including, among other things,
sales and trading practices, client onboarding, communications with the public, publication or distribution of research, margin lending,
uses and safekeeping of clients’ funds and securities, capital adequacy, recordkeeping, reporting, fee arrangements, disclosures
to clients, suitability, acting in retail customers’ best interests when making recommendations to them, customer privacy, data
protection, information security and cybersecurity, the safeguarding of customer information, the sharing of customer information, best
execution of customer orders, public offerings, customer qualifications for margin and options transactions, registration of personnel,
business continuity planning, transactions with affiliates, conflicts and the conduct of directors, officers and employees.
MoneyLion Securities LLC is
subject to Rule 15c3-1 (the “Uniform Net Capital Rule”) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and related self-regulatory organization requirements. The Uniform Net Capital Rule specifies minimum capital
requirements that measure the general financial soundness and liquidity of broker-dealers. SEC and FINRA rules require notification to
these regulators when net capital falls below certain defined criteria, or when withdrawals of capital exceed certain thresholds. These
rules also dictate the ratio of debt to equity in the regulatory capital composition of a broker-dealer. If MoneyLion Securities LLC fails
to maintain specified levels of net capital, we could be subject to sanctions, which may include immediate suspension or revocation of
registration, and suspension or expulsion. MoneyLion Securities LLC has been and currently is in compliance with the Uniform Net Capital
Rule and has net capital in excess of the minimum requirements.
The SEC, FINRA and applicable
state securities authorities also have the authority to conduct periodic examinations of MoneyLion Securities LLC and may also conduct
administrative proceedings that could result in sanctions being imposed. To the extent any applicable SEC, state or FINRA rules or regulations
change, MoneyLion Securities LLC will need to adapt to those changes.
Regulation of our bank partnership model
Pursuant to our partnership
with MetaBank, we offer to our customers FDIC-insured, non-interest-bearing deposit accounts and debit cards with which customers can
access their account balances, both of which are provided by MetaBank. We act as the service provider to, among other things, provide
customer support and technology features for customers utilizing their MetaBank account through our platform.
MetaBank is chartered as a
national bank and subject to regulation and supervision as such by the Office of the Comptroller of the Currency (the “OCC”)
and the FDIC. Many laws and regulations that apply directly to MetaBank are indirectly applicable to us as a service provider to
MetaBank. Our partnership with MetaBank is also subject to the supervision and enforcement authority of the OCC, MetaBank’s primary
banking regulator. Additionally, in order for each participating customer’s deposits to be covered by FDIC insurance up to the applicable
maximum deposit insurance amount, we and MetaBank must meet certain eligibility requirements established by the FDIC, such as adequately
evidencing participating customers’ ownership of each account.
Regulation of money services business /
money transmission involving virtual currencies
We offer certain digital currency-related
products and services to our customers through a partnership with Zero Hash. Both of the Zero Hash entities involved in this partnership
are registered as money services businesses with the Financial Crimes Enforcement Network and have the required state-level licenses for
engaging in digital assets activities where the Zero Hash services are offered. Under the terms of our agreement with Zero Hash, we do
not engage directly in any transactions involving the exchange of fiat currency for digital currencies taking place at or through Zero
Hash or the provision of money transmission services on behalf of our customers or of MoneyLion. Therefore, we do not currently expect
to be required to be registered as a money services business or be subject to money transmitter licensing requirements or other regulatory
requirements specific to transactions relating to virtual currencies. Other laws and regulations may apply to us as a service provider
to Zero Hash LLC and Zero Hash Liquidity Services LLC, including Bank Secrecy Act (“BSA”)/ U.S. anti-money laundering
(“AML”) requirements, but these would be similar to the legal and regulatory regimes to which we are already subject. However,
federal and state laws and regulations applicable to digital assets remain uncertain and will continue to evolve, and changes to the applicable
laws, regulations or guidance in this area may require us to meet additional licensing, registration or other requirements.
Other requirements
In addition to the requirements
described above, we are subject to and seek to comply with other state and federal laws and regulations applicable to consumer lending
and other consumer financial services, including additional requirements relating to loan disclosure, credit discrimination, credit reporting,
debt collection and UDAAP prevention. These laws and regulations may be enforced by state banking or consumer protection regulatory agencies,
state attorneys general, the CFPB and private litigants, among others. Given our novel business model and the subjective nature of some
of these laws and regulations, particularly UDAAP-prevention laws, we may become subject to regulatory scrutiny or legal challenge with
respect to our compliance with these requirements.
Given the nature of our business
and our arrangements with third parties, we are subject to compliance obligations related to AML laws and regulations. We have developed
and currently operate an AML program designed to prevent our products from being used to facilitate money laundering, terrorist financing
and other financial crimes. Our program is also designed to prevent our products from being used to facilitate business in certain countries
or territories, or with certain individuals or entities, including those on designated lists promulgated by the U.S. Department of
the Treasury’s Office of Foreign Assets Controls and other U.S. and non-U.S. sanctions authorities. Our AML and sanctions
compliance programs include policies, procedures, reporting protocols and internal controls, including the designation of a BSA/AML compliance
officer to oversee the programs. Our programs are designed to address these legal and regulatory requirements and to assist in managing
risk associated with money laundering and terrorist financing.
We collect, store, use, disclose,
transfer and otherwise process a wide variety of information, including PII, for various purposes in our business, including to help ensure
the integrity of our services and to provide features and functionality to our customers. This aspect of our business, including the collection,
storage, use, disclosure, transfer, processing and protection of the information, including PII, we acquire in connection with our consumers
use of our services, is subject to numerous privacy, data protection, cybersecurity and other laws and regulations in the United States,
including the GLBA as well as state laws such as the CCPA. Accordingly, we publish our privacy policies and terms of service, which
describe our practices concerning the collection, storage, use, disclosure, transmission, processing and protection of information. The
laws and regulations that apply to privacy and security issues are evolving and are subject to interpretation and change, and therefore,
additional laws and regulations may become relevant to us. For additional discussion, please see the risk factors related to regulation
of our business and regulation in the areas of privacy and data use under Part I, Item 1A “Risk Factors — Risks Relating
to Cybersecurity — The collection, processing, use, storage, sharing and transmission of PII and other sensitive data are subject
to stringent and changing state, federal and international laws, regulations and standards and policies and could give rise to liabilities
as a result of our failure or perceived failure to protect such data, comply with privacy and data protection laws and regulations or
adhere to the privacy and data protection practices that we articulate to our customers.”
In addition, there are federal
and state laws and regulations on marketing activities conducted over the internet, or by mail, email or telephone, including without
limitation the federal Telephone Consumer Protection Act (“TCPA”), the federal Controlling the Assault of Non-Solicited Pornography
and Marketing Act (“CAN-SPAM Act”), FTC regulations and guidelines that implement the FTC’s Do-Not-Call Registry
and impose other requirements in connection with telemarketing activities and state telemarketing laws. Our marketing activities may subject
us to some of these laws and regulations. MoneyLion’s policies address the requirements of the TCPA and other laws and regulations
limiting telephone outreach, and we do not engage in certain activities covered by the TCPA. Our email communications with all consumers
are formulated to comply with the CAN-SPAM Act and other applicable requirements.
The offerings of membership
interests in designated series of IIA described under “Our Business Model” herein were not offered publicly to retail investors
and were not registered under the Securities Act of 1933, as amended (the “Securities Act”). IIA membership interests were
offered in private placements only to “accredited investors” within the meaning of the Securities Act, pursuant to the exemption
provided in Regulation D thereunder, or to non-US persons in offshore transactions, pursuant to the exemption provided in Regulation S
thereunder.
Various federal and state regulatory
agencies in the United States continue to examine a wide variety of issues that are applicable to us and may impact our business.
These issues include account management guidelines, antidiscrimination, consumer protection, identity theft, privacy, disclosure rules,
electronic transfers, cybersecurity and marketing. As our business continues to develop and expand, we continue to monitor the additional
rules and regulations that may become relevant.
Intellectual Property
We rely on a combination of
trademark, trade secrets and copyright laws, as well as confidentiality procedures and contractual restrictions, to establish, maintain
and protect our proprietary rights. We own the domain name rights for, among other sites, moneylion.com and malkamedia.com, and, as of
December 31, 2021, we owned 22 registered trademarks, one copyright and four trademark applications in the United States. Despite
substantial investment in research and development activities, we have not focused on patents and patent applications historically. In
addition to the intellectual property that we own, we license certain third-party technologies and intellectual property, which are incorporated
into some of our products and services.
Although we take steps to protect
our intellectual property and proprietary rights, we cannot be certain that the efforts we have taken to protect our intellectual property
may not be sufficient or effective. It may be possible for other parties to copy or otherwise obtain and use the content of our solutions
or other technology without authorization. Moreover, others may independently develop technologies or services that are competitive with
ours or that infringe, misappropriate or otherwise violate our intellectual property and proprietary rights. In addition, third parties
may initiate litigation against us alleging infringement, misappropriation or other violation of their proprietary rights or declaring
their non-infringement of our intellectual property. Failure to protect our intellectual property or proprietary rights adequately could
significantly harm our competitive position, business, financial condition and results of operations. See Part I, Item 1A “Risk
Factors” for a more comprehensive description of risks related to our intellectual property and proprietary rights.
Item 1A. Risk Factors
Risks Relating to Our Business and Operations
Our financial condition and results of operations
may be adversely impacted by the COVID-19 pandemic.
Occurrences of epidemics or
pandemics, depending on their scale, may cause different degrees of disruption to the regional, state and local economies in which we
offer our products and services. The current COVID-19 pandemic could have a material adverse effect on the value, operating results and
financial condition of our business.
The COVID-19 pandemic has caused
substantial changes in consumer behavior, restrictions on business and individual activities and high unemployment rates, which led to
reduced economic activity and may continue to cause economic volatility. Extraordinary actions taken by international, federal, state
and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the
world, including travel bans, quarantines, “stay-at-home” orders, suspension of interest accrual and similar mandates for
many individuals and businesses to substantially restrict daily activities have led to a decrease in consumer activity generally. Additionally,
the COVID-19 pandemic has had a negative impact on consumer finances and on employment levels, which could lead to lower demand for loans,
higher loan delinquencies, less likelihood of signing up for our membership programs, less likelihood of making investments through our
platform and less spending on the MoneyLion platform, all of which would have a negative impact on our financial condition, results of
operations and cash flows.
There continue to be significant
uncertainties associated with the COVID-19 pandemic, including with respect to the course, duration and severity of the virus
and additional variants, future actions that may be taken by governmental authorities and private businesses to contain the COVID-19 pandemic
or to mitigate its impact and the effectiveness of such actions, the timing and speed of economic recovery and the ultimate effectiveness
of vaccinations for COVID-19. We continue to monitor the situation and assess further possible implications to our business.
A continued significant economic slowdown could have a substantial adverse effect on our financial condition, liquidity and results of
operations. COVID-19 could have the following adverse effects on our business and results of operations, among others:
| ● | reduced borrower approval rates, including as a result of credit
eligibility and other adjustments; |
| ● | lower average balances of our loans as a result of changes in
consumer demand and adjustments to our credit decisioning process and credit criteria; |
| ● | reduced pool of customers eligible for our loan or advance products; |
| ● | impeded liquidity and negative fair value adjustments with respect
to our loans or advance products; and |
| ● | reduced funds available for our investment products. |
See Part II, Item 7 “Management’s
Discussion and Analysis of our Financial Condition and Results of Operations — Key Performance Metrics” and “— Results
of Operations for the Twelve Months Ended December 31, 2021 and 2020” for further discussion of the impact of the COVID-19
pandemic in recent periods on our business and operating results. We cannot at this time reasonably estimate the impact to our future
results of operations, cash flows and financial condition; however, if these conditions worsen, we may be materially and adversely impacted.
The COVID-19 pandemic, and its impact, may also have the effect of heightening many of the other risks described herein.
Our business may be adversely affected by
economic conditions and other factors that we cannot control.
Uncertainty and negative trends
in general economic conditions, including significant tightening of credit markets, historically have created a difficult operating environment
for our industry. Many factors, including factors that are beyond our control, may impact our results of operations or financial condition
and our overall success by affecting a customer’s willingness and capacity to use our products and services, including a customer’s
willingness to incur loan obligations or willingness or capacity to make payments on their loans or other services we offer. These factors
include interest rates, unemployment levels, conditions in the housing market, immigration policies, gas prices, energy costs, government
shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war, terrorism, catastrophes and
pandemics.
Many new customers on our platform
have limited or no credit history and limited financial resources. Accordingly, such customers have historically been, and may in the
future become, disproportionately affected by adverse macroeconomic conditions, such as the disruption and uncertainty caused by the COVID-19
pandemic. In addition, major medical expenses, divorce, death or other issues that affect customers could affect a customer’s willingness
or ability to make payments on their loans or advances or engage in investing activities. If borrowers default on loans facilitated on
our platform, the cost to service these loans may also increase without a corresponding increase in revenue earned from lending operations
and the value of the loans could decline. Higher default rates by these borrowers may lead to lower demand by our funding sources and
institutional investors to fund loans and other receivables facilitated by our platform, which would adversely affect our business, financial
condition and results of operations.
During periods of economic
slowdown or recession, our current and potential investors in our special purpose financing structure may reduce the number of loans or
other receivables they are willing to finance or demand terms that are less favorable to us, to compensate for any increased risks. A
reduction in the volume of the loans and other receivables we are able to finance through this structure would negatively impact our ability
to maintain or increase the level of our lending and provision of other services to customers. Any sustained decline in demand for loans
or other services we offer, or any increase in delinquencies or defaults that result from economic downturns, may harm our ability to
maintain robust volumes for our lending operations and other services, which would adversely affect our business, financial condition
and results of operations. For the year ended December 31, 2021, for secured personal loans provided through our Credit Builder Plus
membership program, the average 30+ day delinquency rate was 3.9% and the average monthly default rate was 1.4%. For the year ended
December 31, 2021, the non-repayment rate for advances provided through our Instacash product was 5.4%. See Part I, Item 1 “Business — Our
Product Platform.”
For example, the COVID-19 pandemic
and other related adverse economic events led to a significant increase in unemployment, comparable, and at times surpassing, the unemployment
rates during the peak of the financial crisis in 2008. There can be no assurance that levels of unemployment or underemployment will improve
in the near term. The increase in the unemployment rate could increase the non-repayment rate on our loans and advance products, increase
the rate of customers declaring bankruptcy or decrease our customers’ use of our investment and other products and services, any
of which could adversely affect the attractiveness of our loans and other receivables to our financing sources. If we are unable to adjust
our platform to account for events like the COVID-19 pandemic and the resulting rise in unemployment, or if our platform is unable to
more successfully predict the creditworthiness of potential borrowers compared to other lenders, then our business, financial condition
and results of operations could be adversely affected.
Furthermore, the COVID-19 pandemic
has caused some borrowers on our platform to request a temporary extension or modification of the payment schedules of their loans under
our temporary relief or loan modification programs, or hardship programs. If a large number of borrowers seek to participate in such hardship
programs, the investment returns of our financing sources could decline. Further, if the rate of borrowers that participate in such hardship
programs is greater than those experienced by our competitors, then our financing sources may become less interested providing financing
for our loans and other consumer receivables, which could negatively impact our funding strategy or significantly increase the cost of
obtaining funding. Any of the foregoing could adversely affect our business, financial condition and results of operations.
If there is an economic downturn
that affects our current and prospective customers or our financing sources, or if we are unable to address and mitigate the risks associated
with any of the foregoing, our business, financial condition and results of operations could be adversely affected.
We operate in a cyclical industry. In an
economic downturn, we may not be able to grow our business or maintain expected levels of liquidity or revenue growth.
The timing, severity and duration
of an economic downturn can have a significant negative impact on our ability to generate adequate revenue and to absorb expected and
unexpected losses. For example, in making a decision whether to extend credit to a new or existing customer or determine appropriate pricing
for a loan or whether to provide a customer an advance, our decision strategies rely on robust data collection, including from third-party
sources, proprietary scoring models and market expertise. An economic downturn could place financial stress on our customers, potentially
impacting our ability to make accurate assessments or decisions about our customers’ ability to pay for loans and other services
we provide, as well as our customers’ willingness to use our products and services. Our ability to adapt in a manner that balances
future revenue production and loss management may be tested in a downturn. The longevity and severity of a downturn may also place pressure
on our funding sources. There can be no assurance that our financing arrangements will remain available to us through any particular business
cycle or be renewed on the same terms. The timing and extent of a downturn may also require us to change, postpone or cancel our strategic
initiatives or growth plans to pursue shorter-term sustainability. The longer and more severe an economic downturn, the greater the potential
adverse impact on us, which could be material.
We are a rapidly growing company with a
relatively limited operating history, which may result in increased risks, uncertainties, expenses and difficulties, and makes it difficult
to evaluate our future prospects.
We were founded in 2013 and
have experienced rapid growth in recent years. Our limited operating history may make it difficult to make accurate predictions about
our future performance. Assessing our business and future prospects may also be difficult because of the risks and difficulties we face.
These risks and difficulties include our ability to:
| ● | improve the effectiveness and predictiveness of our data-driven
platform; |
| ● | maintain and increase the volume of loans, advances and other
financial products we provide through our platform; |
| ● | enter into new and maintain existing relationships with third-party
partners and service providers; |
| ● | successfully maintain cost-effective sources of financing for
our operations; |
| ● | maintain competitive interest rates offered to borrowers on
our platform, while enabling our funding sources to achieve an adequate return over their cost of funds; |
| ● | successfully build our brand and protect our reputation from
negative publicity; |
| ● | increase the effectiveness of our marketing strategies, including
our direct consumer marketing initiatives; |
| ● | continue to expand the number of our potential customers; |
| ● | successfully adjust our proprietary models, products and services
in a timely manner in response to changing macroeconomic conditions and fluctuations in the credit market; |
| ● | comply with and successfully adapt to complex and evolving regulatory
environments; |
| ● | protect against increasingly sophisticated fraudulent uses of
financial products and online theft; |
| ● | successfully compete with companies that are currently in, or
may in the future enter, the business of providing consumer financial services; |
| ● | enter into new markets and introduce new products and services; |
| ● | sufficiently obtain, maintain, protect, or enforce our intellectual
property and other proprietary rights; |
| ● | effectively secure and maintain the confidentiality of the information
received, accessed, stored, provided and used across our systems; |
| ● | successfully obtain and maintain funding and liquidity to support
continued growth and general corporate purposes; |
| ● | attract, integrate and retain qualified employees; and |
| ● | effectively manage and expand the capabilities of our operations
teams, outsourcing relationships and other business operations. |
If we are not able to timely
and effectively address these risks and difficulties as well as those described elsewhere in this “Risk Factors” section,
our business and results of operations may be harmed.
Our results of operations and future prospects
depend on our ability to attract new and retain existing customers. We face intense and increasing competition and, if we do not compete
effectively, our competitive positioning and our operating results may be harmed.
We operate in a rapidly changing
and highly competitive industry, and our results of operations and future prospects depend on, among others:
| ● | the continued growth of our customer base; |
| ● | our ability to monetize our customer base, including through
additional products by our existing customers; |
| ● | our ability to acquire customers at a lower cost; and |
| ● | our ability to increase the overall value to us of each of
our customers while they remain on our platform. |
We believe that our ability
to compete depends upon many factors both within and beyond our control, including, among others, the following:
| ● | the size, diversity and activity levels of our customer base; |
| ● | the timing and market acceptance of products and services,
including developments and enhancements to those products and services, offered by us and our competitors; |
| ● | customer service and support efforts; |
| ● | selling and marketing efforts; |
| ● | the ease of use, performance, price and reliability of solutions
developed either by us or our competitors; |
| ● | changes in economic conditions, regulatory and policy developments; |
| ● | general credit markets conditions and their impact on our
liquidity and ability to access funding; |
| ● | the ongoing impact of the COVID-19 pandemic on the lending
and financial services markets we serve; |
| ● | our brand strength relative to our competitors; and |
| ● | competition over highly skilled personnel in the technology
industry. |
We expect our competition to
continue to increase, as there are generally no substantial barriers to entry to the markets we serve. In addition to established enterprises,
we may also face competition from early-stage companies attempting to capitalize on the same, or similar, opportunities as we are. Some
of our current and potential competitors have longer operating histories, particularly with respect to financial services products similar
to ours, significantly greater financial, technical, marketing and other resources and a larger customer base than we do. This allows
them, among other things, to potentially offer more competitive pricing or other terms or features, a broader range of financial products
or a more specialized set of specific products or services, as well as respond more quickly than we can to new or emerging technologies
and changes in customer preferences. Our existing or future competitors may develop products or services that are similar to our products
and services or that achieve greater market acceptance than our products and services. This could attract customers away from our services
and reduce our market share in the future. Additionally, when new competitors seek to enter our markets, or when existing market participants
seek to increase their market share, these competitors sometimes undercut, or otherwise exert pressure on, the pricing terms prevalent
in that market, which could adversely affect our market share and/or ability to capitalize on new market opportunities.
We currently compete at multiple
levels with a variety of competitors, including:
| ● | traditional banks and credit unions; |
| ● | new entrants obtaining banking licenses; |
| ● | other non-bank digital providers that white label regulated
products, offering banking-related services; |
| ● | specialty finance and other non-bank providers, offering consumer
lending-related products or advances; and |
| ● | online wealth management platforms, such as robo-advisors,
offering consumer investment services. |
We compete with traditional
banks for many of the services we offer. Because we do not currently control a bank or a bank holding company, we are subject to regulation
by a variety of state and federal regulators across our products and services and we rely on MetaBank to provide banking accounts and
debit cards to our customers. This regulation by federal, state and local authorities increases our compliance costs, particularly for
our lending business, as we navigate multiple regimes with different examination schedules and processes, varying disclosure requirements
and at times conflicting consumer protection laws. In addition, our ability to compete may be hampered in certain states where the amount
of interest we are permitted to charge customers is capped and we are consequently unable to make loans to all the customers that we believe
may be qualified but to whom we cannot offer the appropriate risk-adjusted margin.
Our current and future business
prospects demand that we act to meet these competitive challenges but, in doing so, our net revenue and results of operations could be
adversely affected if we, for example, increase marketing expenditures or make other expenditures. Competitive pressures could also result
in us reducing the amounts we charge for our various products and services, such as reducing the annual percentage rate on the loans we
originate, or incurring higher customer acquisition costs, and could make it more difficult for us to grow our financial services product
offerings in both number and volume for new as well as existing customers. All of the foregoing factors and events could adversely affect
our business, financial condition, results of operations, cash flows and future prospects.
In addition, our subsidiary,
MALKA, faces competition from others in the digital content creation industry and media companies. MALKA’s current and potential
competitors range from large and established companies to emerging start-ups. Established companies have longer operating histories and
more established relationships with customers and users, and they can use their experience and resources in ways that could affect MALKA’s
competitive position, including by making acquisitions, investing aggressively in research and development, aggressively initiating intellectual
property claims (whether or not meritorious) and competing aggressively for advertisers and websites. Emerging start-ups may be able to
innovate and provide products and services faster than we can. MALKA’s operating results may suffer if its digital content is not
appropriately timed with market opportunities, or if its digital content is not effectively brought to market. As technology continues
to develop, MALKA may be forced to compete in different ways and expend significant resources in order to remain competitive. If MALKA’s
competitors are more successful than MALKA is in developing compelling content or in attracting and retaining clients, MALKA’s revenues
and operating results could be adversely affected.
Demand for our products or services may
decline if we do not continue to innovate or respond to evolving technological or other changes.
We operate in a dynamic industry
characterized by rapidly evolving technology, frequent product introductions and competition based on pricing and other differentiators.
We rely on our proprietary technology to make the MoneyLion platform available to customers, to service customers and to introduce new
products. In addition, we may increasingly rely on technological innovation as we introduce new types of products, expand our current
products into new markets, and continue to streamline the MoneyLion platform. The process of developing new technologies and products
is complex, and if we are unable to successfully innovate and continue to deliver a superior customer experience, customers’ demand
for our products may decrease and our growth and operations may be harmed. Participants in our industry also compete on price, and our
ability to meet the demand of our customers in this respect could affect our ability to maintain demand for our products and services.
In addition, our subsidiary,
MALKA, provides digital media and content production services to clients in entertainment, sports, gaming, live streaming and other sectors.
To the extent that MALKA is unable to successfully innovate and provide superior services to its clients, these actions could reduce demand
for certain services provided by MALKA, which could have an adverse effect on our results of operations and financial position.
Any acquisitions, strategic investments,
entries into new businesses, joint ventures, divestitures and other transactions could fail to achieve strategic objectives, disrupt our
ongoing operations or result in operating difficulties, liabilities and expenses, harm our business and negatively impact our results
of operations.
We have and will continue to
evaluate and consider strategic transactions, combinations, acquisitions, dispositions or alliances, or other entries into new businesses.
These transactions, including the recently completed acquisitions of MALKA and Even Financial, could be material to our financial condition
and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be successful in
negotiating favorable terms and/or consummating the transaction and, even if we do consummate such a transaction, we may be unable to
obtain the benefits or avoid the difficulties and risks of such transaction.
Any strategic transaction,
combination, acquisition, disposition or alliance we have entered into, including the recently completed acquisitions of MALKA and Even
Financial, or may enter into in the future will involve risks encountered in business relationships, including:
| ● | difficulties in assimilating and integrating the operations,
personnel, systems, data, technologies, products and services of the acquired business; |
| ● | inability of the acquired technologies, products or businesses
to achieve expected levels of revenue, profitability, productivity or other benefits; |
| ● | difficulties in retaining, training, motivating and integrating
key personnel; |
| ● | diversion of management’s time and resources from our
normal daily operations; |
| ● | difficulties in successfully incorporating licensed or acquired
technology and rights into our platform; |
| ● | difficulties in maintaining uniform standards, controls, procedures
and policies within the combined organizations; |
| ● | difficulties in retaining relationships with customers, employees
and suppliers of the acquired business; |
| ● | risks of entering markets in which we have no or limited direct
prior experience; |
| ● | regulatory risks, including remaining in good standing with
existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators
with oversight over an acquired business; |
| ● | assumption of contractual obligations that contain terms that
are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; |
| ● | failure to successfully further develop the acquired technology; |
| ● | liability for activities of the acquired or disposed of business
before the acquisition or disposition, including patent and trademark infringement claims, violations of laws, regulatory actions, commercial
disputes, tax liabilities and other known and unknown liabilities; |
| ● | difficulty in separating assets and replacing shared services; |
| ● | assumption of exposure to performance of any acquired loan
portfolios; |
| ● | potential disruptions to our ongoing businesses; and |
| ● | unexpected costs and unknown risks and liabilities associated
with strategic transactions. |
We may not make any transactions,
combinations, acquisitions, dispositions or alliances, or any such transactions, combinations, acquisitions, dispositions or alliances
may not be successful, may not benefit our business strategy, may not generate sufficient revenue to offset the associated costs or may
not otherwise result in the intended benefits. It may take us longer than expected to fully realize the anticipated benefits and synergies
of these transactions, and those benefits and synergies may ultimately be smaller than anticipated or may not be realized at all, which
could adversely affect our business and operating results.
Our recent acquisitions of
MALKA and Even Financial include both cash consideration and issuance of equity. Any future transactions, combinations, acquisitions,
dispositions or alliances may also require us to issue additional equity securities, spend our cash, or incur debt (and increased interest
expense), liabilities and amortization expenses related to intangible assets or write-offs of goodwill, which could adversely affect our
results of operations and dilute the economic and voting rights of our stockholders and the interests of holders of our indebtedness.
We may not be successful in
identifying businesses or opportunities that meet our acquisition or expansion criteria. Even if a potential acquisition target or other
strategic investment is identified, we may not be successful in completing such acquisition or integrating such new business or other
investment. For example, we may not be successful in completing the integration of the MALKA business or the Even Financial business with
our business. We expect that completing the integration process for each acquisition will require significant additional time and resources,
and we may not be able to manage the process successfully. It is possible that we will experience disruption of our, MALKA’s or
Even Financial’s ongoing businesses.
In addition, we cannot assure
you that any future acquisition of new businesses or technology will lead to the successful development of new or enhanced products and
services or that any new or enhanced products and services, if developed, will achieve market acceptance or prove to be profitable. Further,
we may also choose to divest certain businesses or product lines that no longer fit with our strategic objectives. If we decide to sell
assets or a business, we may have difficulty obtaining terms acceptable to us in a timely manner, or at all. Additionally, the terms of
such potential transactions may expose us to ongoing obligations and liabilities.
Because we rely on third parties to provide
services, we could be adversely impacted if they fail to fulfill their obligations or if our arrangements with them are terminated and
suitable replacements cannot be found on commercially reasonable terms or at all.
We depend on certain key third-party
partners, service providers and vendors for certain products and services. The success of our business depends in part on our ability
to work with a bank partner, currently MetaBank, to provide our customers with deposit accounts and debit cards facilitated through our
platform. We are also dependent on our relationship with DriveWealth, a third-party broker-dealer partner, which provides brokerage and
related services for the investment accounts facilitated through our platform, as well as with Zero Hash, a third-party digital asset
settlement provider, which provides certain digital currency-related products and services to our customers. Any changes in these relationships
or loss of these partners could degrade the functionality of our products and services, impose additional costs or requirements or give
preferential treatment to competitors’ services, including their own services, and materially and adversely affect usage of our
products and services. In the event our agreements with these third parties are terminated, or if upon their expiration we are unable
to renew the contracts on terms favorable to us, or at all, it may be difficult for us to replace these services, which may adversely
affect our operations and profitability. Some of these organizations and third-party service providers provide similar services and technology
to our competitors, and we do not have long-term or exclusive contracts with them.
In addition, we rely on relationships
with third-party partners to obtain and maintain customers. Our ability to acquire new customers could be materially harmed if we are
unable to enter into or maintain these relationships on terms that are commercially reasonable to us, or at all.
Our systems and operations
or those of our third-party service providers could be exposed to damage or interruption from, among other things, financial insolvency,
bankruptcy, contractual default, or adverse regulatory changes. In addition, we may be unable to renew our existing contracts with our
most significant third-party relationships, MetaBank and DriveWealth, or they may stop providing or otherwise supporting the products
and services we obtain from them, and we may not be able to obtain these or similar products or services on the same or similar terms
as our existing arrangements, if at all. The failure of these third-party providers to perform their obligations and provide the products
and services we obtain from them in a timely manner for any reason could adversely affect our operations and profitability.
If we fail to comply with the applicable
requirements of our third-party partners, they could seek to suspend or terminate our accounts, which could adversely affect our business.
We rely on agreements with
MetaBank, DriveWealth, Zero Hash and other third-party providers to provide deposit accounts, debit card services, investment advisory
services and cryptocurrency-related services. These agreements and corresponding regulations governing banks and financial institutions
may give them substantial discretion in approving certain aspects of our business practices, including our application and qualification
procedures for customers and require us to comply with certain legal requirements. Our financial institution partners’ discretionary
actions under these agreements could impose material limitations to, or have a material adverse effect on, our business, financial condition
and results of operations. Without these relationships, we would not be able to service our deposit accounts, debit cards, investment
accounts and cryptocurrency accounts, which would have a material adverse effect on our business, financial condition and results of operations.
Furthermore, our financial results could be adversely affected if our costs associated with such relationships materially change or if
any penalty or claim for damages is imposed as a result of our breach of the agreement with them or their other requirements.
We rely on third-party service providers
for payment processing and other functions that are important to our operations. The loss of those service providers could materially
and adversely affect our business, results of operations and financial condition. Additionally, if a third-party service provider fails
to comply with legal or regulatory requirements or otherwise to perform these functions properly, our business may be adversely affected.
We rely on third-party service
providers to perform various functions relating to our business, including underwriting, fraud detection, marketing, operational functions,
cloud infrastructure services, information technology and telecommunications, and, because we are not a bank and cannot belong to or directly
access the ACH payment network, ACH processing and debit card payment processing. While we oversee these service providers to ensure they
provide services in accordance with our agreements and regulatory requirements, we do not have control over the operations of any of the
third-party service providers that we utilize. In the event that a third-party service provider for any reason fails to perform such functions,
including through negligence, willful misconduct or fraud, our ability to process payments and perform other operational functions for
which we currently rely on such third-party service providers will suffer and our business, cash flows and future prospects may be negatively
impacted.
Additionally, if one or more
key third-party service providers were to cease to exist, to become a debtor in a bankruptcy or an insolvency proceeding or to seek relief
under any debtor relief laws or to terminate its relationship with us, there could be delays in our ability to process payments and perform
other operational functions for which we are currently relying on such third-party service provider, and we may not be able to promptly
replace such third-party service provider with a different third-party service provider that has the ability to promptly provide the same
services in the same manner and on the same economic terms. As a result of any such delay or inability to replace such key third-party
service provider, our ability to process payments and perform other business functions could suffer and our business, cash flows and future
prospects may be negatively impacted.
A significant change in consumer confidence
in our products and services or adverse publicity concerning us, our business or our personnel could negatively impact our business.
We have developed a strong
and trusted brand that has contributed significantly to the success of our business. We believe that maintaining and promoting our brand
in a cost-effective manner is critical to achieving widespread acceptance of our products and services, retaining existing customers on
our platform and expanding our base of customers.
Maintaining and promoting our
brand will depend largely on our ability to continue to provide useful, reliable, secure and innovative products and services, the effectiveness
of our marketing efforts, the experience of existing customers and our ability to maintain trust and remain a leading financial services
platform. We may introduce, or make changes to, features, products, services, privacy practices or terms of service that customers do
not like, which may materially and adversely affect our brand. Our efforts to build our brand have involved significant expense, and we
expect to increase our marketing spend in the near term. Our brand promotion activities, including efforts and initiatives to create personalized
content using MALKA’s digital media and content production services, may not generate customer awareness or increase revenue, and
even if they do, any increase in revenue may not offset the expenses we incur in building our brand. Additionally, the successful protection
and maintenance of our brand will depend on our ability to obtain, maintain, protect and enforce trademark and other intellectual property
protection for our brand. If we fail to successfully promote, protect and maintain our brand or if we incur excessive expenses in this
effort, we may lose our existing merchants and customers to our competitors or be unable to attract new merchants and customers. Any such
loss of existing merchants or customers, or inability to attract new merchants or customers, would have an adverse effect on our business
and results of operations.
Harm to our brand can arise
from many sources, including failure by us or our partners and service providers to satisfy expectations of service and quality, inadequate
protection or misuse of PII, compliance failures and claims, litigation and other claims, misconduct by our partners or other counterparties
or any other negative publicity concerning our company or key personnel, including management and MALKA’s content creators. We have
been, from time to time and may in the future be, the target of incomplete, inaccurate and misleading or false statements about our company
and our business that could damage our brand and deter customers from adopting our services.
Any negative publicity relating
to the individuals or entities that we employ or contract with or that otherwise represent our company, including from reported or actual
incidents or allegations of illegal or improper conduct, such as harassment, discrimination or other misconduct, as well as any negative
publicity about our industry or our company, the quality and reliability of our products and services, our compliance and risk management
processes, changes to our products and services, our ability to effectively manage and resolve customer complaints, our privacy, data
protection and information security practices, litigation, regulatory licensing and infrastructure, and the experience of our customers
with our products or services, could result in significant media attention, even if not directly relating to or involving MoneyLion. This
could also have a negative impact on our reputation, potentially resulting in termination of contracts, our inability to attract new customer
or client relationships or the loss or termination of such employees’ services. If we do not successfully maintain a strong and
trusted brand, our business could be materially and adversely affected.
Companies periodically review and change
their advertising and marketing business models and relationships. If MALKA, our wholly-owned subsidiary, is unable to remain competitive
or retain key clients, its business and results of operations and financial position may be adversely affected.
From time to time, MALKA’s
clients put their advertising and marketing business up for competitive review. Key competitive considerations for retaining existing
business and winning new business include the quality and effectiveness of the advertising and marketing services that MALKA offers and
the content that it produces, actions taken by MALKA’s competitors to enhance their offerings, whether MALKA meets the expectations
of its customers, its ability to efficiently serve clients, particularly large international clients, on a broad geographic basis and
a number of other factors. To the extent that MALKA is not able to remain competitive or retain key clients, its revenue may be materially
adversely affected, which could have an adverse effect on our results of operations and financial position. In addition, many factors
can affect corporate spending, including economic conditions, changes in tax rates and tax laws and inflation, and any reduction
in client spending or a delay in client payments could significantly impact MALKA’s operating results. While corporate spending
may decline at any time for reasons beyond our or MALKA’s control, the risks associated with MALKA’s business become more
acute in periods of a slowing economy or recession, which may be accompanied by reductions in corporate sponsorship and advertising.
If the information provided to us by customers
is incorrect or fraudulent, we may misjudge a customer’s qualifications to receive our products and services and our results of
operations may be harmed and could subject us to regulatory scrutiny or penalties.
Our decisions to provide many
of our products and services to our customers are based partly on information customers provide to us or authorize us to receive. To the
extent that these customers provide information to us in a manner that we are unable to verify, our decisioning process may not accurately
reflect the associated risk. In addition, data provided by third-party sources, including consumer reporting agencies, is a component
of our credit decisions and this data may contain inaccuracies. Inaccurate analysis of credit data that could result from false loan application
information could harm our reputation, business and results of operations.
In addition, we use identity
and fraud prevention tools to analyze data provided by external databases to authenticate each applicant’s identity. From time to
time, these checks have failed and there is a risk that these checks could fail in the future, and fraud, which may be significant, may
occur. We may not be able to recoup funds underlying loans or associated with our other services made in connection with inaccurate statements,
omissions of fact or fraud, in which case our revenue, results of operations and profitability will be harmed. Fraudulent activity or
significant increases in fraudulent activity could also lead to regulatory intervention, which could negatively impact our results of
operations, brand and reputation, and require us to take steps to reduce fraud risk, which could increase our costs.
Many of our investment advisory customers
are first-time investors and our revenues could be reduced if these customers stop investing altogether or stop using our platform for
their investing activities.
Our business model focuses
on making the financial markets accessible to a broad demographic of retail investors. In each of the years ended December 31,
2020 and 2019, over half of our customers for the applicable period were first-time investors. Our success, and our ability to increase
revenues and operate profitably, depends in part on such customers continuing to utilize our platform, even as global social and economic
conditions shift. However, our customers do not have long-term contractual arrangements with us and can utilize our platform on a transaction-by-transaction
basis and may also cease to use our platform at any time or use a competitor’s platform. We may face particular challenges in retaining
these investors as customers, for example as a result of a return to pre-COVID-19 behaviors, increased volatility in the financial markets
or increasing availability of competing products that seek to target the same demographic. In particular, a broad decline or volatility
in the equity or other financial markets could result in some of these investors exiting the markets and leaving our platform. Any significant
loss of these customers or a significant reduction in their use of our platform could have a material impact on our investment volumes
and revenues, and materially adversely affect our business, financial condition and results of operations.
If loans and other receivables originated
through our platform do not perform, or significantly underperform, we may incur financial losses on the receivables we originate or lose
the confidence of our financing sources.
Any significant underperformance
of the loans and other receivables facilitated through our platform, especially if they underperform compared to those generated by our
competitors, may adversely impact our relationship with our funding sources and result in their loss of confidence in us, which could
lead to the termination of our existing funding arrangements. Any requirement that we increase the amount of receivables we hold on our
balance sheet due to a decrease or termination by our funding sources in their investments in our credit products and other consumer receivables
could have a material adverse effect on our business, results of operations, financial condition and future prospects.
Borrowers may prepay a loan at any time
without penalty, which could reduce our revenue and limit our ability to obtain financing for our lending operations.
A borrower may decide to prepay
all or a portion of the remaining principal amount on a loan at any time without penalty. If the entire or a significant portion of the
remaining unpaid principal amount of a loan is prepaid, we would receive significantly lower interest associated with such prepaid loan.
Prepayments may occur for a variety of reasons, including if interest rates decrease after a loan is made. If a significant volume of
prepayments occurs, the amount of our servicing fees would decline, which could harm our business and results of operations. Our data-driven
models are designed to predict prepayment rates. However, if a significant volume of prepayments occur that our models do not accurately
predict, returns targeted by our financing sources in our loan funding programs would be adversely affected and our ability to attract
new investors would be negatively affected.
We service all of the loans and advances
we originate. A failure by us to service loans or advances properly could result in lost revenue and negatively impact our business and
operations or subject us to regulatory scrutiny or penalties.
We service all of the loans
and advances we originate. Any failure on our part to perform functions related to our servicing activities to properly service our loans
or advances could result in a significant decrease in the amount of loans or advances we service and therefore adversely impact the amount
of revenue generated from interest income.
We rely on a variety of funding sources
to support our business model. If our existing funding arrangements are not renewed or replaced or our existing funding sources are unwilling
or unable to provide funding to us on terms acceptable to us, or at all, it could have a material adverse effect on our business, results
of operations, financial condition, cash flows and future prospects.
To support the origination
of loans and other receivables on our platform and the growth of our business, we must maintain a variety of funding arrangements. If
we are unable to maintain access to, or expand, our funding arrangements, our business, results of operations, financial condition and
future prospects could be materially and adversely affected.
We cannot guarantee that these
funding arrangements will continue to be available on favorable terms or at all, and our funding strategy may change over time and depends
on the availability of such funding arrangements. For example, disruptions in the credit markets or other factors, such as the impact
of the COVID-19 pandemic, could adversely affect the availability, diversity, cost and terms of our funding arrangements. The broad impact
of COVID-19 on the financial markets has created uncertainty and volatility in many funding markets and with many funding sources. In
addition, our funding sources may reassess their exposure to our industry and either curtail access to uncommitted financing capacity,
fail to renew or extend facilities, or impose higher costs to access our funding.
In addition, there can be no
assurances that we would be able to extend or replace our existing funding arrangements at maturity, on reasonable terms or at all. If
our existing funding arrangements are not renewed or replaced or our existing funding sources are unwilling or unable to provide funding
on terms acceptable to us, or at all, we would need to secure additional sources of funding or reduce our operations significantly. Further,
as the volume of loans and other receivables facilitated through our platform increases, we may require the expansion of our funding capacity
under our existing funding arrangements or the addition of new sources of capital. The availability and diversity of our funding arrangements
depends on various factors and are subject to numerous risks, many of which are outside of our control.
The agreements governing our
funding arrangements require us to comply with certain covenants. A breach of such covenants or other events of default under our funding
agreements could result in the reduction or termination of our access to such funding, could increase our cost of such funding or, in
some cases, could give our lenders the right to require repayment of the loans prior to their scheduled maturity. Certain of these covenants
and restrictions limit our and our subsidiaries’ ability to, among other things: incur additional debt; create liens on certain
assets; pay dividends on or make distributions in respect of their capital stock or make other restricted payments; consolidate, merge,
sell, or otherwise dispose of all or substantially all of their assets; and enter into certain transactions with their affiliates. Our
senior credit facility also contains certain financial maintenance covenants that require us and our subsidiaries to maintain a certain
income level each quarter, and to maintain a minimum level of unrestricted cash while any borrowings under the senior credit facility
are outstanding.
In the event of a sudden or
unexpected shortage of funds in the financial system, we may not be able to maintain necessary levels of funding without incurring high
funding costs, a reduction in the term or size of funding instruments, and/or the liquidation of certain assets. In such a case, if we
are unable to arrange new or alternative methods of financing on favorable terms, we would have to reduce our transaction volume, which
could have a material adverse effect on our business, results of operations, financial condition, cash flows and future prospects.
We may be unsuccessful in managing the effects
of changes in the cost of capital on our business.
In the future, we may seek
to access the capital markets to obtain capital to develop new technologies, expand our business, respond to competitive pressures and
make acquisitions. We may try to raise additional funds through public or private financings, strategic relationships or other arrangements.
However, our future access to the capital markets and ability to obtain debt or equity funding could be restricted due to a variety of
factors, including a deterioration of our earnings, cash flows, balance sheet quality, our credit rating, investor interest or overall
business or industry prospects, our share price, interest rates, adverse regulatory changes, a disruption to or volatility or deterioration
in the state of the capital markets, or a negative bias toward our industry by market participants. Due to the negative bias toward our
industry, certain financial institutions have restricted access to available financing by participants in our industry, and we may have
more limited access to institutional capital than other businesses. Future prevailing capital market conditions and potential disruptions
in the capital markets may adversely affect our efforts to arrange additional financing on terms that are satisfactory to us, if at all.
In addition, our share price has been and may continue to be volatile and any limitation on market liquidity or reduction in the price
of MoneyLion Class A Common Stock, including as a result of a delisting of our securities from a national exchange, could have a material
adverse effect on our ability to raise capital on terms acceptable to us, or at all. If adequate funds are not available, or are not available
on acceptable terms, we may not have sufficient liquidity to fund our operations, make future investments, take advantage of acquisitions
or other opportunities, or respond to competitive challenges and this, in turn, could adversely affect our ability to advance our strategic
plans. In addition, if the capital and credit markets experience volatility, and the availability of funds is limited, third parties with
whom we do business may incur increased costs or business disruption and this could adversely affect our business relationships with such
third parties, which in turn could have a material adverse effect on our business, results of operations, financial condition, cash flows
and future prospects.
If we succeed in raising additional
funds through the issuance of equity or equity-linked securities, then existing stockholders could experience substantial dilution. If
we raise additional funds through the issuance of debt securities or preferred stock, these new securities would have rights, preferences
and privileges senior to those of the holders of our common stock. In addition, any such issuance could subject us to restrictive covenants
relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain
additional capital and to pursue business opportunities, including potential acquisitions. Further, to the extent we incur additional
indebtedness or such other obligations, the risks associated with our existing debt, including our possible inability to service our existing
debt, would increase.
We depend on our key personnel and other
highly skilled personnel, and if we fail to attract, retain and motivate our personnel, our business, financial condition and results
of operations could be adversely affected.
Our success significantly depends
on the continued service of our senior management team, including Diwakar (Dee) Choubey, our Co-Founder and Chief Executive Officer, and
Rick Correia, our Chief Financial Officer, and other highly skilled personnel. Our success also depends on our ability to identify, hire,
develop, motivate and retain highly qualified personnel for all areas of our organization.
Competition for highly skilled
personnel, including engineering and data analytics personnel, is extremely intense, particularly in New York where our headquarters
is located. We have experienced, and expect to continue to face, difficulty identifying and hiring qualified personnel in many areas and
may also encounter difficulties in retaining key employees of acquired companies, especially as we pursue our growth strategy. Further,
as a result of the COVID-19 pandemic, a large and increasing number of companies have adopted permanent work-from-home policies, which
further increases the challenges associated with hiring and retaining qualified personnel. We may not be able to hire or retain such personnel
at compensation or flexibility levels consistent with our existing compensation and salary structure and policies. Many of the companies
with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of
employment. In particular, candidates making employment decisions, specifically in high-technology industries, often consider the value
of any equity they may receive in connection with their employment. Any significant volatility in the price of our stock may adversely
affect our ability to attract or retain highly skilled technical, financial and marketing personnel.
In addition, we invest significant
time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain
our employees, we could incur significant expenses in hiring and training their replacements. While we are in the process of training
their replacements, the quality of our services and our ability to serve our customers could decline, resulting in an adverse effect on
our business.
Increases in the costs of content may have
an adverse effect on MALKA’s business, financial condition and results of operations.
The success of the business
of our subsidiary, MALKA, is dependent in part on its ability to produce popular content. The production of such content depends on MALKA’s
ability to retain its content creators. As MALKA’s business develops, MALKA may incur increasing revenue-sharing costs to compensate
its content creators for producing original content. MALKA relies on its team to generate creative ideas for original content and to supervise
the original content origination and production process, and MALKA intends to continue to invest resources in content production. If MALKA
is not able to compete effectively for talent or attract and retain top influencers at reasonable costs, MALKA’s original content
production capabilities would be negatively impacted.
Our engineering and technical development
teams are based primarily in Malaysia, which could be adversely affected by changes in political or economic stability or by government
policies.
Our engineering and technical
development teams operate a foreign office in Malaysia, which is subject to relatively higher degrees of political and social instability
than the United States and may lack the infrastructure to withstand political unrest or natural disasters. The political or regulatory
climate in the United States, or elsewhere, also could change so that it would not be lawful or practical for us to use international
operations in the manner in which we currently use them. If we had to curtail or cease operations in Malaysia and transfer some or all
of these operations to another geographic area, we would incur significant transition costs as well as higher future overhead costs that
could materially and adversely affect our results of operations. In many foreign countries, particularly in those with developing economies,
it may be common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt
Practices Act of 1977, as amended (“FCPA”). Any violations of the FCPA or local anti-corruption laws by us, our
subsidiaries or our local agents could have an adverse effect on our business and reputation and result in substantial financial penalties
or other sanctions.
Our ability to collect payments on our financial
products and services and maintain accurate accounts may be adversely affected by computer malware, social engineering, phishing, physical
or electronic break-ins, undetected technical errors, bugs and similar disruptions.
The automated nature of our
platform may make it an attractive target for hacking and potentially vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions. It is possible that we may not be able to anticipate or to implement effective preventive measures against all
security breaches of these types, in which case there would be an increased risk of fraud or identity theft, and we may experience losses
on, or delays in the collection of amounts owed on, a fraudulently induced loan or payments relating to our other products and services.
Security breaches could occur from outside our company, and also from the actions of persons inside our company who may have authorized
or unauthorized access to our technology systems. Furthermore, any failure of our computer systems could cause an interruption in operations
and result in disruptions in, or reductions in the amount of, collections on fees and other amounts from our customers.
Additionally, if hackers were
able to access our secure files, they might be able to gain access to the personal information of our customers. If we are unable to prevent
such activity, we may be subject to significant liability, negative publicity and a material loss of customers, all of which may negatively
affect our business.
Our platform and internal systems, and those
of third parties upon whom we rely, rely on software that is highly technical, and if it contains undetected technical errors, our business
could be adversely affected.
Our platform and internal systems
rely on software that is highly technical and complex. In addition, our platform and internal systems depend on the ability of such software
to store, retrieve, process and manage high volumes of data. The software upon which we rely may from time to time contain undetected
technical errors or bugs. Some technical errors or bugs may only be discovered after the code has been released for external or internal
use. Technical errors or other design defects within the software upon which we rely may result in failure to accurately predict a loan
applicant’s creditworthiness or the suitability of other applicants for our other products and services, failure to comply with
applicable laws and regulations, approval of sub-optimally priced loans, incorrectly displayed interest rates or other fees to borrowers
and other customers, or incorrectly charged interest or fees to borrowers and other customers, third-party partners or institutional investors,
failure to detect fraudulent activity on our platform, our inability to accurately evaluate potential customers, a negative experience
for customers or third-party partners, delayed introductions of new features or enhancements or failure to protect customer data, our
intellectual property or other sensitive data or proprietary information. Any technical errors, bugs or defects discovered in the software
upon which we rely could result in harm to our reputation, loss of customers or bank partners, increased regulatory scrutiny, fines or
penalties, loss of revenue or liability for damages, any of which could adversely affect our business, financial condition and results
of operations.
Some aspects of our business processes include
open-source software, which poses risks that could have a material and adverse effect on our business, financial condition and results
of operations. In addition, any failure to comply with the terms of one or more of these open-source licenses could negatively affect
our business.
We incorporate open-source
software into processes supporting our business and anticipate using open-source software in the future. Such open-source software may
include software covered by licenses like the GNU General Public License and the Apache License. The terms of various open-source licenses
to which we are subject have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a
manner that imposes unanticipated conditions or restrictions on our ability to operate our systems, limits our use of the software, inhibits
certain aspects of our systems and negatively affects our business operations.
Some open-source licenses contain
requirements that we make source code modifications or derivative works we create publicly available or make available on unfavorable
terms or at no cost, based upon the type of open-source software we use.
While we monitor our use of
open-source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or
that would otherwise breach the terms of an open-source license, such use could inadvertently occur, or could be claimed to have occurred,
in part because open-source license terms are often ambiguous. We may face claims from third parties claiming ownership of, or demanding
the release or license of, modifications or derivative works that we have developed using such open-source software (which could include
our proprietary source code or artificial intelligence (“AI”) models), or otherwise seeking to enforce the terms of the applicable
open-source license. These claims could result in litigation and if portions of our proprietary AI models or software are determined to
be subject to an open-source license, or if the license terms for the open-source software that we incorporate change, we could be required
to publicly release all or affected portions of our source code, purchase a costly license, cease offering the implicated products or
services unless and until we can re-engineer such source code in a manner that avoids infringement, discontinue or delay the provision
of our offerings if re-engineering could not be accomplished on a timely basis or change our business activities, any of which could negatively
affect our business operations and potentially our intellectual property rights. In addition, the re-engineering process could require
us to expend significant additional research and development resources, and we may not be able to complete the re-engineering process
successfully. If we were required to publicly disclose any portion of our proprietary models, it is possible we could lose the benefit
of trade secret protection for our models.
In addition to risks related
to license requirements, the use of certain open-source software can lead to greater risks than the use of third-party commercial software,
as open-source licensors generally do not provide support, warranties, indemnification, controls or other contractual protections regarding
infringement claims or the quality of the origin of the software. There is little legal precedent in this area, and any actual or claimed
requirement to disclose our proprietary source code or pay damages for breach of contract could harm our business and could help third
parties, including our competitors, develop products and services that are similar to or better than ours. Use of open-source software
may also present additional security risks because the public availability of such software may make it easier for hackers and other third
parties to determine how to breach our website and systems that rely on open-source software. Any of these risks associated with the use
of open-source software could be difficult to eliminate or manage, and if not addressed, could materially and adversely affect our business,
financial condition and results of operations.
Systems defects, failures or disruptions,
including events beyond our control, and resulting interruptions in the availability of our websites, applications, products, or services
could harm our business, harm our reputation, result in significant costs to us, decrease our potential profitability and expose us to
substantial liability.
We use vendors, such as our
cloud computing web services provider, account transaction and card processing companies, and third-party software providers, in the operation
of our platform. The satisfactory performance, reliability and availability of our technology and our underlying network and infrastructure
are critical to our operations and reputation and the ability of our platform to attract new and retain existing customers. We rely on
these vendors to protect their systems and facilities against damage or service interruptions from natural disasters, power or telecommunications
failures, air quality issues, environmental conditions, computer viruses or attempts to harm these systems, criminal acts, unauthorized
access, sabotage, acts of vandalism, military actions, negligence, human errors, fraud, spikes in platform use and denial of service issues,
hardware failures, improper operation, cyberattacks, data loss, wars and similar events. If our arrangement with a vendor is terminated
or if there is a lapse of service or damage to its systems or facilities, we could experience interruptions in our ability to operate
our platform. We also may experience increased costs and difficulties in replacing that vendor and replacement services may not be available
on commercially reasonable terms, on a timely basis, or at all.
In addition, our platform is
accessed by many customers, often at the same time. As we continue to expand the number of our customers, and products and services available
through our platform, we may not be able to scale our technology to accommodate the increased capacity requirements. The failure of data
centers, internet service providers or other third-party service providers to meet our capacity requirements could result in interruptions
or delays in access to our platform or impede our ability to grow our business and scale our operations. Any interruptions or delays in
our platform availability, whether as a result of a failure to perform on the part of a vendor, any damage to one of our vendor’s
systems or facilities, the termination of any of our third-party vendor agreements, software failures, our or our vendor’s error,
natural disasters, terrorism, other man-made problems, security breaches, whether accidental or willful, or other factors, could harm
our relationships with our customers, prevent our customers from accessing their accounts, damage our reputation with current and potential
customers, expose us to liability, cause us to lose customers, cause the loss of critical data, prevent us from supporting our platform,
products or services or cause us to incur additional expense in arranging for new facilities and support or otherwise harm our business
and also harm our reputation.
In addition, we source certain
information from third parties. For example, our risk-scoring model is based on algorithms that evaluate a number of factors and currently
depend on sourcing certain information from third parties, including consumer reporting agencies. In the event that any third party from
which we source information experiences a service disruption, whether as a result of maintenance, natural disasters, terrorism, or security
breaches, whether accidental or willful, or other factors, the ability to score and decision loan applications and applications for our
other products and services through our platform may be adversely impacted. Additionally, there may be errors contained in the information
provided by third parties. This may result in the inability to approve otherwise qualified applicants through our platform, which may
adversely impact our business by negatively impacting our reputation and reducing our transaction volume.
To the extent we use or are
dependent on any particular third-party data, technology, or software, we may also be harmed if such data, technology, or software becomes
non-compliant with existing regulations or industry standards, becomes subject to third-party claims of intellectual property infringement,
misappropriation, or other violation, or malfunctions or functions in a way we did not anticipate. Any loss of the right to use any of
this data, technology, or software could result in delays in the provisioning of our products and services until equivalent or replacement
data, technology, or software is either developed by us, or, if available, is identified, obtained, and integrated, and there is no guarantee
that we would be successful in developing, identifying, obtaining, or integrating equivalent or similar data, technology, or software,
which could result in the loss or limiting of our products, services, or features available in our products or services.
In addition, in the event of
damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery
plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in
the event of an outage. Furthermore, prolonged interruption in the availability, or reduction in the speed or other functionality, of
our platform, products or services could materially harm our reputation and business. Any of the foregoing could prevent us from processing
transactions or posting payments on our platform, damage our brand and reputation, divert the attention of our employees, reduce our revenue,
subject us to liability and cause customers to abandon our platform, any of which could have a material and adverse effect on our business,
results of operations, financial condition and future prospects.
Real or perceived inaccuracies in our key
operating metrics may harm our reputation and negatively affect our business.
We track certain key operating
metrics such as total payment volume, Total Originations and Total Customers (each as defined herein) with internal systems and tools
that are not independently verified by any third party. While the metrics presented in this Annual Report on Form 10-K are based on what
we believe to be reasonable assumptions and estimates, our internal systems and tools have a number of limitations, and our methodologies
for tracking these metrics may change over time. In addition, limitations or errors with respect to how we measure data or with respect
to the data that we measure may affect our understanding of certain details of our business, which could affect our long-term strategies.
If the internal systems and tools we use to track these metrics understate or overstate performance or contain algorithmic or other technical
errors, the key operating metrics we report may not be accurate. If investors do not perceive our operating metrics to be accurate, or
if we discover material inaccuracies with respect to these figures, our reputation may be significantly harmed, and our results of operations
and financial condition could be adversely affected.
We have a history of losses and may not
achieve profitability in the future.
Our net losses were $164.9 million
and $41.6 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had a total
accumulated deficit of $465.3 million. We may continue to incur net losses in the future, and such losses may fluctuate significantly
from quarter to quarter. We will need to generate and sustain significant revenues for our business generally, and achieve greater scale
and generate greater operating cash flows in future periods in order to achieve, maintain or increase our level of profitability. We intend
to continue to invest in sales and marketing, technology and new products and services in order to enhance our brand recognition and our
value proposition to our customers, and these additional costs will create further challenges to generating near-term profitability. We
also expect general and administrative expenses to increase to meet the increased compliance and other requirements associated with operating
as a public company and evolving regulatory requirements.
Our efforts to grow our business
may be more costly than we expect, and we may not be able to increase our revenue sufficiently to offset our higher operating expenses.
We may continue to incur losses and not achieve future profitability or, if achieved, be unable to maintain such profitability, due to
a number of reasons, including the risks described in “Risk Factors” herein, unforeseen expenses, difficulties, complications
and delays and other unknown events.
Risks Relating to Financial Regulation
Our business is subject to extensive regulation,
examination and oversight in a variety of areas, including registration and licensing requirements under federal, state and local laws
and regulations.
We are subject to extensive
regulation, supervision and examination under United States federal and state laws and regulations. Regulators have broad discretion
with respect to the interpretation, implementation and enforcement of these laws and regulations, including through enforcement actions
that could subject us to civil money penalties, customer remediations, increased compliance costs and limits or prohibitions on our ability
to offer certain products or services or to engage in certain activities. Any failure or perceived failure to comply with any of these
laws or regulations could subject us to lawsuits or governmental actions and/or damage our reputation, which could materially and adversely
affect our business. In addition, to the extent that we undertake actions requiring regulatory approval or non-objection, regulators may
make their approval or non-objection subject to conditions or restrictions that could have a material adverse effect on our business.
Moreover, any competitors subject to different, or in some cases less restrictive, legislative or regulatory regimes may have or obtain
a competitive advantage over us.
We are subject to the regulatory
and enforcement authority of the CFPB, which oversees compliance with federal consumer financial protection laws. In addition, if the
CFPB were to expand its supervisory authority by promulgating new regulations, it is possible that the CFPB could be permitted to conduct
periodic examination of our business, which may increase our risk of regulatory or enforcement actions. Further, we are regulated by many
state regulatory agencies through licensing and other supervisory or enforcement authority, which includes regular examination by state
governmental authorities.
In addition, our wholly-owned
subsidiary, ML Wealth, is registered as an investment adviser under the Advisers Act and is subject to regulation by the SEC. The
Advisers Act, together with related regulations and interpretations of the SEC, impose numerous obligations and restrictions on investment
advisers, including requirements relating to the safekeeping of client funds and securities, limitations on advertising, disclosure and
reporting obligations, prohibitions on fraudulent activities, restrictions on agency cross and principal transactions between an adviser
and its advisory clients and other detailed operating requirements, as well as general fiduciary obligations. We also have a wholly-owned
subsidiary, MoneyLion Securities LLC, which is a broker-dealer and is therefore registered with the SEC and a member of FINRA. Although
we do not currently engage in any business activity through MoneyLion Securities LLC, as a broker-dealer, it is subject to SEC and FINRA
rules and regulations.
We are also subject to potential
enforcement and other actions that may be brought by state attorneys general or other state enforcement authorities and other governmental
agencies. Any such actions could result in civil money penalties and fines, customer remediations, increased compliance costs, damage
to our reputation and brand and limits or prohibitions of our ability to offer certain products and services or engage in certain business
practices. Further, in some cases, regardless of fault, it may be less time-consuming or costly to settle these matters, which may require
us to implement certain changes to our business practices, provide remediation to certain individuals or make a settlement payment to
a given party or regulatory body.
The legal and regulatory regimes governing
certain of our products and services are uncertain and evolving. Changing laws, regulations, interpretations or regulatory enforcement
priorities may negatively impact the management of our business, results of operations, ability to offer certain products or the terms
and conditions upon which they are offered and ability to compete.
We are required to comply with
constantly changing federal, state and local laws and regulations that regulate, among other things, the terms of the loans and other
consumer receivables that we originate and the associated fees that may be charged. Federal and state regulators of consumer financial
products and services are also enforcing existing laws, regulations and rules more aggressively and enhancing their supervisory expectations
regarding the management of legal and regulatory compliance risks. Changes in the laws, regulations and enforcement priorities applicable
to our business could have a material impact on our business model, operations and financial position.
Such laws and regulations are
complex and require us to incur significant expenses and devote significant management attention to ensure compliance. In addition, our
failure to comply (or to ensure that our agents and third-party service providers comply) with these laws or regulations may result in
litigation or enforcement actions, the penalties for which could include: revocation of licenses and registrations; fines and other monetary
penalties; civil and criminal liability; substantially reduced payments by our customers; modification of the original terms of loans
and other products, permanent forgiveness of debt, or inability to, directly or indirectly, collect all or a part of the principal of
or interest on loans or other amounts owed by our customers; and indemnification claims. Such consequences could, among other things,
require changes to our business practices and scope of operations or harm our reputation, which in turn, could have a material adverse
effect on our results of operations, financial condition or business.
State attorneys general have
indicated that they will take a more active role in enforcing consumer protection laws, including through use of Dodd-Frank Act provisions
that authorize state attorneys general to enforce certain provisions of federal consumer financial laws and obtain civil money penalties
and other relief available to the CFPB.
Further, we may not be able
to respond quickly or effectively to regulatory, legislative and other developments, and these changes may in turn impair our ability
to offer our existing or planned features, products and services and/or increase our cost of doing business. In addition, if our practices
are not consistent or viewed as not consistent with legal and regulatory requirements, we may become subject to audits, inquiries, whistleblower
complaints, adverse media coverage, investigations or criminal or civil sanctions, all of which may have an adverse effect on our reputation,
business, results of operations and financial condition.
These regulatory changes and
uncertainties make our business planning more difficult and could result in changes to our business model and potentially adversely impact
the results of our operations. New laws or regulations also require us to incur significant expenses to ensure compliance. As compared
to our competitors, we could be subject to more stringent state or local regulations or could incur marginally greater compliance costs
as a result of regulatory changes.
Proposals to change the statutes
affecting financial services companies are frequently introduced in Congress and state legislatures that, if enacted, may affect our operating
environment in substantial and unpredictable ways. In addition, numerous federal and state regulators have the authority to promulgate
or change regulations that could have a similar effect on our operating environment. We cannot determine with any degree of certainty
whether any such legislative or regulatory proposals will be enacted and, if enacted, the ultimate impact that any such potential legislation
or implemented regulations, or any such potential regulatory actions by federal or state regulators, would have upon our business.
In addition, we expect to continue
to launch new products and services in the coming years, which may subject us to additional legal and regulatory requirements under
federal, state and local laws and regulations, but which we expect to be similar to the legal and regulatory regimes to which we are already
subject.
New laws, regulations, policies
or changes in enforcement of existing laws or regulations applicable to our business, or reexamination of current practices, could adversely
impact our profitability, limit our ability to continue existing or pursue new business activities, require us to change certain of our
business practices or alter its relationships with customers, affect retention of key personnel or expose us to additional costs (including
increased compliance costs and/or customer remediation). These changes also may require us to invest significant resources or devote significant
management attention in order to make any necessary changes and could adversely affect our business.
The regulatory regime governing blockchain
technologies and digital assets is uncertain, and new regulations or policies may alter our business practices with respect to digital
assets.
We currently offer certain
cryptocurrency-related products and services available to our customers through Zero Hash. The Zero Hash entities are registered as money
services businesses and have the necessary state-level licenses for engaging in digital assets activities where the Zero Hash services
are offered. Although many regulators have provided some guidance, regulation of digital assets based on or incorporating blockchain,
such as digital assets and digital asset exchanges, remains uncertain and will continue to evolve. Further, regulation varies significantly
among international, federal, state and local jurisdictions. As blockchain networks and blockchain assets have grown in popularity and
in market size, federal and state agencies are increasingly taking interest in, and in certain cases regulating, their use and operation.
Treatment of virtual currencies continues to evolve under federal and state law. Many U.S. regulators, including the SEC, the Financial
Crimes Enforcement Network, the Commodity Futures Trading Commission, (the “CFTC”), the Internal Revenue Service (the “IRS”)
and state regulators including the New York State Department of Financial Services (the “NYSDFS”), have made official
pronouncements or issued guidance or rules regarding the treatment of Bitcoin and other digital currencies. The IRS released guidance
treating virtual currency as property that is not currency for U.S. federal income tax purposes, although there is no indication
yet whether other courts or federal or state regulators will follow this classification. Both federal and state agencies have instituted
enforcement actions against those violating their interpretation of existing laws. Other U.S. and many state agencies have offered
little official guidance and issued no definitive rules regarding the treatment of digital assets. The CFTC has publicly taken the position
that certain virtual currencies, which term includes digital assets, are commodities. To the extent that virtual currencies are deemed
to fall within the definition of a “commodity interest” under the Commodity Exchange Act (the “CEA”),
we may be subject to additional regulation under the CEA and CFTC regulations.
As blockchain technologies
and digital assets business activities grow in popularity and market size, and as new digital assets businesses and technologies emerge
and proliferate, foreign, federal, state and local regulators revisit and update their laws and policies, and can be expected to continue
to do so in the future. Changes in this regulatory environment, including changing interpretations and the implementation of new or varying
regulatory requirements by the government, may significantly affect or change the manner in which we currently conduct some aspects of
our business.
States may require that we obtain licenses
that apply to blockchain technologies and digital assets.
Under the terms of our agreement
with Zero Hash, we are not directly involved in any cryptocurrency transactions or the exchange of fiat funds for cryptocurrency at or
through Zero Hash, and therefore, we do not currently expect to be subject to money services business, money transmitter licensing, or
other licensing or regulatory requirements specific to transactions relating to virtual currencies. However, state and federal regulatory
frameworks around virtual currencies continue to evolve and are subject to interpretation and change, which may subject us to additional
licensing and other requirements.
In the case of virtual currencies,
state regulators such as the NYSDFS have created regulatory frameworks. For example, in July 2014, the NYSDFS proposed the first
U.S. regulatory framework for licensing participants in virtual currency business activity. The regulations, known as the “BitLicense”,
are intended to focus on consumer protection. The NYSDFS issued its final BitLicense regulatory framework in June 2015. The BitLicense
regulates the conduct of businesses that are involved in virtual currencies in New York or with New York customers and prohibits
any person or entity involved in such activity from conducting such activities without a license. The Zero Hash entities do not currently
hold BitLicenses but they are in the process of obtaining it; therefore we do not currently offer cryptocurrency-related products to our
New York customers but we expect to do so in the future.
Other states may adopt similar
statutes and regulations which will require us or our partners to obtain a license to conduct digital asset activities. Effective August
1, 2020, Louisiana adopted the Virtual Currency Business Act, which requires an operator of a virtual currency business to obtain a virtual
currency license to conduct business in Louisiana, and the Louisiana Office of Financial Institutions issued related guidance in December
2021. Other states, such as Texas, have published guidance on how their existing regulatory regimes governing money transmitters apply
to virtual currencies. Some states, such as Alabama, North Carolina and Washington, have amended their state’s statutes to include
virtual currencies in existing licensing regimes, while others have interpreted their existing statutes as requiring a money transmitter
license to conduct certain virtual currency business activities. The Zero Hash entities are money transmitters or the equivalent in a
majority of states and the District of Columbia.
It is likely that, as blockchain
technologies and the use of virtual currencies continues to grow, additional states will take steps to monitor the developing industry
and may require us or our regulated partners to obtain additional licenses in connection with our virtual currency activity.
If loans made by our lending subsidiaries
are found to violate applicable state interest rate limits or other provisions of applicable state lending and other laws, it could adversely
affect our business, results of operations, financial condition and future prospects.
We have 37 subsidiaries through
which we conduct our consumer lending business. These entities originate loans pursuant to state licenses or applicable exemptions under
state law. The loans we originate are subject to state licensing or exemption requirements and interest rate restrictions, as well as
numerous state requirements regarding consumer protection, interest rate, disclosure, prohibitions on certain activities and loan term
lengths. If the loans we originate were deemed subject to and in violation of certain state consumer finance or other laws, we could be
subject to fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas) and
other penalties or consequences, and the loans could be rendered void or unenforceable in whole or in part, any of which could have an
adverse effect on our business, results of operations, financial condition and future prospects.
If we operate without having obtained necessary
state or local licenses, it could adversely affect our business, results of operations, financial condition and future prospects.
Certain states have adopted
laws regulating and requiring licensing, registration, notice filing or other approval by parties that engage in certain activity regarding
consumer finance transactions, including facilitating and assisting such transactions in certain circumstances. Furthermore, certain states
and localities have also adopted laws requiring licensing, registration, notice filing or other approval for consumer debt collection
or servicing and/or purchasing or selling consumer loans. We have also received inquiries from state regulatory agencies regarding requirements
to obtain licenses from or register with those states, including in states where we have determined that we are not required to obtain
such a license or be registered with the state, and we expect to continue to receive such inquiries. The application of some consumer
financial licensing laws to our platform and the related activities it performs is unclear. In addition, state licensing requirements
may evolve over time, including, in particular, recent trends toward increased licensing requirements and regulation of parties engaged
in loan solicitation activities. If we were found to be in violation of applicable state licensing requirements by a court or a state,
federal or local enforcement agency, or agree to resolve such concerns by voluntary agreement, we could be subject to or agree to pay
fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas), criminal penalties
and other penalties or consequences, and the loans facilitated through our platform could be rendered void or unenforceable in whole or
in part, any of which could have an adverse effect on the enforceability or collectability of the loans facilitated through our platform.
The highly regulated environment in which
our third-party financial institution partners operate may subject us to regulation and could have an adverse effect on our business,
results of operations, financial condition and future prospects.
Our third-party partners are
subject to federal and state supervision and regulation. Federal regulation of the banking and investment industries, along with tax and
accounting laws, regulations, rules and standards, may limit their operations significantly and control the methods by which they conduct
business. In addition, compliance with laws and regulations can be difficult and costly, and changes to laws and regulations can impose
additional compliance requirements. Regulatory requirements affect our third-party partners’ banking, investment and virtual currency
practices, among other aspects of their business, and restrict transactions between us and our third-party partners. These requirements
may constrain the operations of our third-party partners, and the adoption of new laws and changes to, or repeal of, existing laws may
have a further impact on our business and the businesses of our third-party partners.
In choosing whether and how
to conduct business with us, current and prospective third-party partners can be expected to take into account the legal, regulatory and
supervisory regime that applies to them, including potential changes in the application or interpretation of regulatory standards, licensing
requirements or supervisory expectations. Regulators may elect to alter standards or the interpretation of the standards used to measure
regulatory compliance or to determine the adequacy of liquidity, certain risk management or other operational practices for financial
services companies in a manner that impacts our current and prospective third-party partners.
Furthermore, the regulatory
agencies have extremely broad discretion in their interpretation of the regulations and laws and their interpretation of the quality of
our third-party partners’ assets. If any regulatory agency’s assessment of the quality of our third-party partners’
assets, operations, lending practices, investment practices or other aspects of their business changes, it may reduce our third-party
partners’ earnings, capital ratios and share price in such a way that affects our business.
Bank holding companies and
financial institutions are extensively regulated and currently face an uncertain regulatory environment. Applicable state and federal
laws, regulations and interpretations, including enforcement policies and accounting principles, have been subject to significant changes
in recent years, and may be subject to significant future changes. We cannot predict with any degree of certainty the substance or
effect of pending or future legislation or regulation or the application of laws and regulations to our current and prospective third-party
partners. Future changes may have an adverse effect on our current and prospective third-party partners and, therefore, on us.
Risks Relating to Cybersecurity
The collection, processing, use, storage,
sharing and transmission of PII and other sensitive data are subject to stringent and changing state, federal and international laws,
regulations and standards and policies and could give rise to liabilities as a result of our failure or perceived failure to protect such
data, comply with privacy and data protection laws and regulations or adhere to the privacy and data protection practices that we articulate
to our customers.
In the course of our operations
and the processing of transactions, we collect, process, store, disclose, use, share and/or transmit a large volume of PII and other sensitive
data from current, past and prospective customers as well as our employees in and across multiple jurisdictions. The regulatory framework
for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. There are federal, state
and foreign laws and regulations regarding privacy, data security and the collection, processing, use, storage, protection, sharing and/or
transmission of PII and sensitive data. For example, the GLBA (along with its implementing regulations) restricts certain collection,
processing, storage, use and disclosure of personal information, requires notice to individuals of privacy practices and provides individuals
with certain rights to prevent the use and disclosure of certain nonpublic or otherwise legally protected information. Additionally, many
states continue to enact legislation on matters of privacy, information security, cybersecurity, data breach and data breach notification
requirements. For example, as of January 1, 2020, the CCPA grants additional consumer rights with respect to data privacy in California.
The CCPA, among other things, entitles California residents to know how their PII is being collected and shared, to access or request
the deletion of their PII and to opt out of certain sharing of their PII. The CCPA is subject to further amendments pending certain
proposed regulations that are being reviewed and revised by the California Attorney General. The CCPA provides for civil penalties for
violations, as well as a private right of action for certain data breaches that result in the loss of PII. This private right of
action may increase the likelihood of, and risks associated with, data breach litigation. We cannot predict the impact of the CCPA on
our business, operations or financial condition, but it could result in liabilities and/or require us to modify certain processes or procedures,
which could result in additional costs.
Additionally, the CPRA was
passed in November 2020. Effective in most material respects starting on January 1, 2023, the CPRA imposes additional obligations
on companies covered by the legislation and will significantly modify the CCPA, including by expanding customers’ rights with respect
to certain sensitive PII. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the
CCPA and the CPRA. The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection
or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure
to regulatory enforcement and/or litigation.
We expect more states to enact
legislation similar to the CCPA and the CPRA, which provide customers with new privacy rights and increase the privacy and security obligations
of entities handling certain PII of such customers. The CCPA has prompted a number of proposals for new federal and state-level privacy
legislation, such as in Virginia, which signed such legislation, the Virginia Consumer Data Protection Act (“VCDPA”), into
law on March 2, 2021 with an effective date of January 1, 2023. In addition, on July 7, 2021, Colorado enacted the Colorado
Privacy Act (the “CoPA”), becoming the third comprehensive consumer privacy law to be passed in the United States (after
the CCPA and VCDPA). The CoPA is set to take effect on July 1, 2023. The VCDPA, CoPA and such other proposed legislation, if enacted,
may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources
in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs
and/or changes in business practices and policies.
Additionally, our investment
adviser, ML Wealth, and broker-dealer, MoneyLion Securities LLC, are subject to SEC Regulation S-P, which requires that businesses
maintain policies and procedures addressing the protection of customer information and records. This includes protecting against any anticipated
threats or hazards to the security or integrity of customer records and information and against unauthorized access to or use of customer
records or information. Regulation S-P also requires businesses to provide initial and annual privacy notices to customers describing
information sharing policies and informing customers of their rights.
Because the interpretation
and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted and applied
in a manner that is inconsistent with our existing data management practices or the features of our services and platform capabilities.
If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities
and practices or modify our platform, which could have an adverse effect on our business. Any violations or perceived violations of these
laws, rules and regulations by us, or any third parties with which we do business, may require us to change our business practices or
operational structure, including limiting our activities in certain states and/or jurisdictions, addressing legal claims by governmental
entities or private actors, sustaining monetary penalties, sustaining reputational damage, expending substantial costs, time and other
resources and/or sustaining other harms to our business. Furthermore, our online, external-facing privacy policy and website make certain
statements regarding our privacy, information security and data security practices with regard to information collected from our customers
or visitors to our website. Failure or perceived failure to adhere to such practices may result in regulatory scrutiny and investigation,
complaints by affected customers or visitors to our website, reputational damage and/or other harm to our business. If either we, or the
third-party service providers with which we share customer data, are unable to address privacy concerns, even if unfounded, or to comply
with applicable privacy or data protection laws, regulations and policies, it could result in additional costs and liability to us, damage
our reputation, inhibit sales and harm our business, financial condition and results of operations.
Cyberattacks and other security breaches
or disruptions suffered by us or third parties upon which we rely could have a materially adverse effect on our business, harm our reputation
and expose us to public scrutiny or liability.
In the normal course of business,
we collect, process, use and retain sensitive and confidential information regarding our customers and prospective customers, including
data provided by and related to customers and their transactions, as well as other data of the counterparties to their payments. We also
have arrangements in place with certain third-party service providers that require us to share consumer information. Although we devote
resources and management focus to ensuring the integrity of our systems through information security and business continuity programs,
our facilities and systems, and those of third-party service providers, are vulnerable to actual or threatened external or internal security
breaches, acts of vandalism, theft, fraud or misconduct on the part of employees, other internal sources or third parties, computer viruses,
phishing attacks, internet interruptions, disruptions or losses, misplaced or lost data, ransomware, unauthorized encryption, denial-of-service
attacks, social engineering, unauthorized access, spam or other attacks, natural disasters, fires, terrorism, war, telecommunications
or electrical interruptions or failures, programming or human errors or malfeasance and other similar malicious or inadvertent disruptions
or events. We and our third-party service providers from time to time have experienced and may in the future continue to experience such
instances. For example, during the third quarter of 2021, we experienced a customer account takeover incident where an unknown third party(ies)
utilized password and other customer credentials found outside of MoneyLion to successfully gain access to MoneyLion customer accounts.
In some cases, the bad actors facilitated unauthorized financial transactions. Our investigation to date shows no signs that our systems
were actually breached by the bad actors, and we have compensated and made whole the customers whose accounts were accessed and financially
impacted. We also worked with our banking partners and advisors to provide notices to affected customers and relevant regulators, and
expect to incur total costs and expenses associated with the incident that are immaterial to our financial statements and operations.
We also face security threats from malicious third parties that could obtain unauthorized access to our systems and networks, which threats
we anticipate will continue to grow in scope and complexity over time. These events could interrupt our business or operations, result
in legal claims or proceedings, result in significant legal and financial exposure, supervisory liability under U.S. federal or state,
or non-U.S. laws regarding the privacy and protection of information, including PII, damage to our reputation and a loss of confidence
in the security of our systems, products and services. Although the impact to date from these events has not had a material adverse effect
on us, no assurance is given that this will be the case in the future.
Information security risks
in the financial services industry have increased recently, in part because of new technologies, the use of the internet and telecommunications
technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities
of organized criminals, perpetrators of fraud, hackers, terrorists and other malicious third parties. In addition to cyberattacks and
other security breaches involving the theft of sensitive and confidential information, hackers, terrorists, sophisticated nation-state
and nation-state supported actors and other malicious third parties recently have engaged in attacks that are designed to disrupt key
business services, such as consumer-facing websites. We and our third-party service providers may not be able to anticipate or implement
effective preventive measures against all security breaches of these types, especially because the techniques used to sabotage or to obtain
unauthorized access to our or our third-party service providers’ technology, systems, networks and/or physical facilities in which
data is stored or through which data is transmitted change frequently and because attacks can originate from a wide variety of sources.
We employ detection and response mechanisms designed to contain and mitigate security incidents. Nonetheless, early detection efforts
may be thwarted by sophisticated attacks and malware designed to avoid detection. We also may fail to detect the existence of a security
breach related to the information of our customers and to prevent or detect service interruption, system failure or data loss. Further,
as the current COVID-19 pandemic continues to result in a significant number of people working from home, these cybersecurity risks may
be heightened by an increased attack surface across our business and those of our customers and third-party service providers. We cannot
guarantee that our efforts, or the efforts of those upon whom we rely and partner with, will be successful in preventing any such information
security incidents.
The access by unauthorized
persons to, or the improper disclosure by us of, confidential information regarding our customers or our proprietary information, software,
methodologies and business secrets could interrupt our business or operations, result in significant legal and financial exposure, supervisory
liability, damage to our reputation or a loss of confidence in the security of our systems, products and services, all of which could
have a material adverse impact on our business. In addition, there recently have been a number of well-publicized attacks or breaches
affecting companies in the financial services industry that have heightened concern by customers, which could also intensify regulatory
focus, cause customers to lose trust in the security of the industry in general and result in reduced use of our services and increased
costs, all of which could also have a material adverse effect on our business.
Most jurisdictions (including
all 50 states) have enacted laws requiring companies to notify individuals, regulatory authorities and/or others of security breaches
involving certain types of data. In addition, our agreements with certain partners and service providers may require us to notify them
in the event of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers, partners
and service providers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and
other resources to respond to and/or alleviate problems caused by the actual or perceived security breach. A security breach of any of
our vendors that processes PII of our customers may pose similar risks.
A security breach may also
cause us to breach customer contracts. Our agreements with certain partners and service providers may require us to use industry-standard
or reasonable measures to safeguard PII. We also may be subject to laws that require us to use industry-standard or reasonable security
measures to safeguard PII. A security breach could lead to claims by our customers or other relevant stakeholders that we have failed
to comply with such legal or contractual obligations. As a result, we could be subject to legal action or our customers could end their
relationships with us. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or
would otherwise protect us from liabilities or damages, and in some cases our customer agreements may not limit our remediation costs
or liability with respect to data breaches.
Litigation resulting from security
breaches may adversely affect our business. Unauthorized access to our technology, systems, networks or physical facilities, or those
of our third-party service providers, could result in litigation with our customers or other relevant stakeholders. These proceedings
could force us to spend money in defense or settlement, divert management’s time and attention, increase our costs of doing business
or adversely affect our reputation. We could be required to fundamentally change our business activities and practices or modify our products
and/or technology capabilities in response to such litigation, which could have an adverse effect on our business. If a security breach
were to occur, and the confidentiality, integrity or availability of PII was disrupted, we could incur significant liability, or our technology,
systems or networks may be perceived as less desirable, which could negatively affect our business and damage our reputation.
While we maintain cybersecurity
insurance, we may not have adequate insurance coverage with respect to liabilities that result from any cyberattacks or other security
breaches or disruptions suffered by us or third parties upon which we rely. The successful assertion of one or more large claims against
us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the
imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be
sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that
our insurers will not deny coverage as to any future claim.
While we take precautions to prevent consumer
identity fraud, it is possible that identity fraud may still occur or has occurred, which may adversely affect the performance of our
products and services or subject us to scrutiny or penalties.
There is risk of fraudulent
activity associated with our platform, customers, service providers and third parties handling consumer information. Our resources, technologies
and fraud prevention tools may be insufficient to accurately detect and prevent fraud. The level of fraud-related charge-offs on the loans
and other products and services facilitated through our platform could be adversely affected if fraudulent activity were to significantly
increase. Significant amounts of fraudulent cancellations or chargebacks could adversely affect our business or financial condition. High
profile fraudulent activity or significant increases in fraudulent activity could also lead to regulatory intervention, negative publicity
and the erosion of trust from our customers, and could materially and adversely affect our business, results of operations, financial
condition, future prospects and cash flows.
Risks Relating to Intellectual Property
We may be unable to sufficiently obtain,
maintain, protect or enforce our intellectual property and other proprietary rights, which could reduce the value of our platform, products,
services and brand, impair our competitive position and cause reputational harm.
Intellectual property and other
proprietary rights are important to the success of our business. Our ability to compete effectively is dependent in part upon our ability
to obtain, maintain, protect and enforce our intellectual property and other proprietary rights, including with respect to our proprietary
technology, and to obtain licenses to use the intellectual property and proprietary rights of others. We rely on a combination of trademarks,
service marks, copyrights, trade secrets, domain names and contractual rights to protect our intellectual property and other proprietary
rights. We own the domain name rights for moneylion.com, and, as of December 31, 2021, we owned 22 registered trademarks and four trademark
applications in the United States. Nonetheless, the steps we take to obtain, maintain, protect and enforce our intellectual property
and other proprietary rights may be inadequate and, despite our efforts to protect these rights, unauthorized third parties, including
our competitors, may duplicate, mimic, reverse engineer, access, obtain, or use the proprietary aspects of our technology, processes,
products, or services without our permission, thereby impeding our ability to promote our platform and possibly leading to customer confusion.
Our competitors and other third parties may also design around or independently develop similar technology or otherwise duplicate or mimic
our services or products such that we would not be able to successfully assert our intellectual property or other proprietary rights against
them. We have filed, and may continue in the future to file, applications to protect certain of our innovations and intellectual property.
We cannot assure that any future patent, trademark, or service mark registrations will be issued for our pending or future applications
or that any of our current or future patents, copyrights, trademarks, or service marks (whether registered or unregistered) will be valid,
enforceable, sufficiently broad in scope, provide adequate protection of our intellectual property or other proprietary rights, or provide
us with any competitive advantage.
Our trademarks, trade names
and service marks have significant value, and our brand is an important factor in the marketing of our services. We rely on, and intend
to rely on, both registrations and common law protections for our trademarks. However, we may be unable to prevent competitors or other
third parties from acquiring or using trademarks, service marks, or other intellectual property or other proprietary rights that are similar
to, infringe upon, misappropriate, dilute, or otherwise violate or diminish the value of our trademarks and service marks and our other
intellectual property and proprietary rights. The value of our intellectual property and other proprietary rights could diminish if others
assert rights in or ownership of our intellectual property or other proprietary rights, or in trademarks or service marks that are similar
to our trademarks or service marks. Additionally, if third parties succeed in registering or developing common law rights in such trademarks
or similar trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks
to develop brand recognition of our platform, products or services. If we are unable to establish name recognition based on our trademarks
and trade names, we may not be able to compete effectively, which could adversely impact our business, financial condition and results
of operations.
In addition to registered intellectual
property rights such as trademark registrations, we rely on non-registered proprietary information and technology, such as trade secrets,
confidential information, know-how and technical information. In order to protect our proprietary information and technology, we rely
in part on confidentiality and intellectual property assignment agreements with our employees and contractors involved in the development
of material intellectual property for us, which require such individuals to assign such intellectual property to us and place restrictions
on the employees’ and contractors’ use and disclosure of our confidential information. However, these agreements may not be
self-executing, and we cannot guarantee that we have entered into such agreements containing obligations of confidentiality with each
party that has or may have had access to proprietary information, know-how, or trade secrets owned or held by us. Individuals that were
involved in the development of intellectual property for us or who had access to our intellectual property may make adverse ownership
claims to our current and future intellectual property. Likewise, to the extent that our employees, independent contractors or other third
parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in
related or resulting works of authorship, know-how and inventions. Moreover, our contractual arrangements may be insufficient, breached
or may otherwise not effectively prevent disclosure of, or control access to, our confidential or otherwise proprietary information or
provide an adequate remedy in the event of an unauthorized disclosure, which could cause us to lose any competitive advantage resulting
from this intellectual property. The measures we have put in place may not prevent misappropriation, infringement, or other violation
of our intellectual property, proprietary rights or information and any resulting loss of competitive advantage, and we may be required
to litigate to protect our intellectual property or other proprietary rights or information from misappropriation, infringement or other
violation by others, which is time-consuming and expensive, could cause a diversion of resources and may not be successful, even when
our rights have been infringed, misappropriated or otherwise violated. Our efforts to enforce our intellectual property and other proprietary
rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property
and other proprietary rights, and if such defenses, counterclaims or countersuits are successful, it could diminish or we could otherwise
lose valuable intellectual property and other proprietary rights. Furthermore, changes to U.S. or foreign intellectual property laws
and regulations may jeopardize the enforceability and validity of our intellectual property portfolio and harm our ability to obtain patent
protection, including for some of our unique business methods. Additionally, the laws of some foreign countries may not be as protective
of intellectual property and other proprietary rights as those in the U.S., and the mechanisms for enforcement of intellectual property
and other proprietary rights may be inadequate.
Furthermore, third parties
may challenge, invalidate, or circumvent our intellectual property and proprietary rights, including through administrative processes
or litigation. The legal standards relating to the validity, enforceability and scope of protection of intellectual property and other
proprietary rights are uncertain and still evolving. Our intellectual property and other proprietary rights may not be sufficient to provide
us with a competitive advantage and the value of our intellectual property and other proprietary rights could also diminish if others
assert rights therein or ownership thereof, and we may be unable to successfully resolve any such conflicts in our favor or to our satisfaction.
We may be sued by third parties for alleged
infringement, misappropriation or other violation of their intellectual property or other proprietary rights which may be costly and may
subject us to significant liability and increased costs of doing business.
Our success depends, in part,
on our ability to develop and commercialize our products and services without infringing, misappropriating or otherwise violating the
intellectual property or other proprietary rights of third parties.
We may become involved in disputes
from time to time concerning intellectual property or other proprietary rights of third parties, which may relate to our own proprietary
technology, or to technology that we acquire or license from third parties, and we may not prevail in these disputes. Relatedly, competitors
or other third parties may raise claims alleging that we, service providers or other third parties retained or indemnified by us, infringe
on, misappropriate or otherwise violate such competitors’ or other third parties’ intellectual property or other proprietary
rights. These claims of infringement, misappropriation or other violation may be extremely broad, and it may not be possible for us to
conduct our operations in such a way as to avoid all such alleged violations of such intellectual property or other proprietary rights.
We also may be unaware of third-party intellectual property or other proprietary rights that cover or otherwise relate to some or all
of our products and services. For example, there may be issued patents of which we are not aware, held by third parties that, if found
to be valid and enforceable, could be alleged to be infringed by our current or future technologies or products. There also may be pending
patent applications of which we are not aware that may result in issued patents, which could be alleged to be infringed by our current
or future technologies or products. Because patent applications can take years to issue and are often afforded confidentiality for
some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover
our current or future technologies or products.
Given the complex, rapidly
changing and competitive technological and business environment in which we operate, and the potential risks and uncertainties of intellectual
property-related litigation, a claim of infringement, misappropriation or other violation against us may require us to spend significant
amounts of time and other resources to defend against the claim (even if we ultimately prevail), pay significant money damages, make significant
payments for legal fees, settlement payments or other costs, lose significant revenues, be prohibited from using the relevant systems,
processes, technologies or other intellectual property (temporarily or permanently), cease offering certain products or services, obtain
a license, which may not be available on commercially reasonable terms or at all, to sell or use the relevant technology or redesign our
allegedly infringing products or services, or functionality therein, to avoid infringement, misappropriation or other violations, which
could be costly, time-consuming or impossible, rebrand our products and services and/or be prevented from selling some of our products
or services if third parties successfully oppose or challenge our trademarks or successfully claim that we infringe, misappropriate or
otherwise violate their trademarks or other intellectual property rights and/or limit the manner in which we use our brands. In addition,
if a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we
cannot license or develop alternative technology for any infringing aspect of our business, we may be forced to limit or stop sales of
our relevant products and technology capabilities or cease business activities related to such intellectual property. We cannot predict
the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial
condition or results of operations.
Some of the aforementioned
risks of infringement, misappropriation or other violation, in particular with respect to patents, are potentially increased due to the
nature of our business, industry and intellectual property portfolio. For instance, it has become common in recent years for certain
third parties to purchase patents or other intellectual property assets for the sole purpose of making claims of infringement, misappropriation
or other violation in an attempt to extract settlements from companies such as ours. In addition, many companies have the capability to
dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against
them than we can. In a patent infringement claim against us, we may assert, as a defense, that we do not infringe the relevant patent
claims, that the patent is invalid or both. The strength of our defenses may depend on the patents asserted, the interpretation of these
patents or our ability to invalidate the asserted patents. However, we could be unsuccessful in advancing non-infringement and/or invalidity
arguments in our defense. In the U.S., issued patents enjoy a presumption of validity, and the party challenging the validity of a patent
claim must present clear and convincing evidence of invalidity, which is a high burden of proof. Conversely, the patent owner need only
prove infringement by a preponderance of the evidence, which is a lower burden of proof. We do not currently have a patent portfolio,
which could prevent us from deterring patent infringement claims from competitors or other third parties and our competitors and others
may now and in the future have significantly larger and more mature patent portfolios than we may have. Any litigation may also involve
patent holding companies or other adverse patent owners that have no relevant product revenue, and therefore, any future patents we may
have may provide little or no deterrence as we would not be able to assert them against such entities or individuals.
In addition to the previously
mentioned impacts of intellectual property-related litigation, while in some cases a third party may have agreed to indemnify us for costs
associated with intellectual property-related litigation, such indemnifying third party may refuse or be unable to uphold its contractual
obligations. In other cases, our insurance may not cover potential claims of this type adequately or at all, and we may be required to
pay monetary damages, which may be significant.
Even if the claims do not result
in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources
of our management and harm our business and operating results. Moreover, there could be public announcements of the results of hearings,
motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it
could have a substantial adverse effect on the price of the MoneyLion Class A Common Stock. The occurrence of infringement and misappropriation
claims may grow as the market for our platform and products grows. Accordingly, our exposure to damages resulting from infringement claims
could increase and this could further exhaust our financial and management resources. Any of the foregoing could adversely impact our
business, financial condition and results of operations.
Our business and platform depend in part
on intellectual property and proprietary rights and technology licensed from or otherwise made available to us by third parties. If we
fail to comply with our obligations under license or technology agreements with third parties, we may be required to pay damages and we
could lose license rights that are critical to our business.
Our business and our platform
rely on technologies developed or licensed by third parties. These third-party software components may become obsolete, defective or incompatible
with future versions of our services, relationships with the third-party licensors or technology providers may deteriorate or our agreements
with the third-party licensors or technology providers may expire or be terminated. Additionally, some of these licenses or other grants
of rights may not be available to us in the future on terms that are acceptable, or at all, or that allow our platform, products and services
to remain competitive. Our inability to obtain licenses or rights on favorable terms could have a material and adverse effect on our business
and results of operations. Furthermore, incorporating intellectual property or proprietary rights licensed from or otherwise made available
to us by third parties on a non-exclusive basis in our products or services could limit our ability to protect the intellectual property
and proprietary rights in our services and our ability to restrict third parties from developing, selling or otherwise providing similar
or competitive technology using the same third-party intellectual property or proprietary rights.
We believe we have all the
necessary licenses and other grants of rights from third parties to use technology and software that we do not own. A third party could,
however, allege that we are infringing its rights, which may deter our ability to obtain licenses or other grants of rights on commercially
reasonable terms from the third party, if at all, or cause the third party to commence litigation against us. Our failure to obtain necessary
licenses or other rights, or litigation or claims arising out of intellectual property matters, may harm or restrict our business. In
addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found
to have willfully infringed a patent or other intellectual property right. Any such litigation or the failure to obtain any necessary
licenses or other rights could adversely impact our business, financial position and results of operations.
Risks Relating to Legal and Regulatory Matters
Failure to comply with anti-money laundering,
economic and trade sanctions regulations and similar laws could subject us to penalties and other adverse consequences.
We maintain an enterprise-wide
program designed to enable us to comply with all applicable anti-money laundering and anti-terrorism financing laws and regulations, including
the BSA and the USA PATRIOT Act of 2001. This program includes policies, procedures, processes and other internal controls designed to
identify, monitor, manage and mitigate the risk of money laundering and terrorist financing. These controls include procedures and processes
to detect and report potentially suspicious transactions, perform consumer due diligence, respond to requests from law enforcement and
meet all recordkeeping and reporting requirements related to particular transactions involving currency or monetary instruments. We are
required to maintain this program under our agreements with our third-party partners, and certain state regulatory agencies have intimated
they expect the program to be in place and followed. We cannot provide any assurance that our programs and controls will be effective
to ensure compliance with all applicable anti-money laundering and anti-terrorism financing laws and regulations we are required to comply
with, and our failure to comply with these laws and regulations could result in a breach and termination of our agreements with our third-party
partners or criticism by state governmental agencies, which would have a material adverse effect on our business, results of operations,
financial condition and future prospects.
We have in the past, and continue to be,
subject to inquiries, subpoenas, exams, pending investigations and enforcement matters by state and federal regulators, the outcomes of
which are uncertain and could cause reputational and financial harm to our business and results of operations.
The financial services industry
is subject to extensive regulation under federal, state and applicable international laws. From time to time, we have been, and continue
to be, subject to inquiries, subpoenas, pending investigations and enforcement matters by state and federal regulators and have been threatened
with or named as a defendant in lawsuits, arbitrations and administrative claims involving securities, consumer financial services and
other matters. We are also subject to periodic regulatory examinations and inspections. Compliance and trading problems that are reported
to regulators, such as the SEC, FINRA, the CFPB or state regulators, by dissatisfied customers or others are investigated by such regulators,
and may, if pursued, result in formal claims being filed against us by customers or disciplinary action being taken against us or our
employees by regulators or enforcement agencies. To resolve issues raised in examinations or other governmental actions, we may be required
to take various corrective actions, including changing certain business practices, making refunds or taking other actions that could be
financially or competitively detrimental to us. We expect to continue to incur costs to comply with governmental regulations. Any such
claims or disciplinary actions that are decided against us could have a material impact on our financial results. For a discussion of
specific legal and regulatory proceedings, inquiries and investigations, to which we are currently subject, please refer to Part I, Item
3 “Legal Proceedings.”
Unfavorable outcomes in legal proceedings
may harm our business and results of operations.
We are, and may in the future
become, subject to litigation, claims, examinations, investigations, legal and administrative cases and proceedings, whether civil or
criminal, or lawsuits by governmental agencies or private parties, which may affect our results of operations. These claims, lawsuits
and proceedings could involve labor and employment, discrimination and harassment, commercial disputes, intellectual property rights (including
patent, trademark, copyright, trade secret and other proprietary rights), class actions, general contract, tort, defamation, data
privacy rights, antitrust, common law fraud, government regulation, compliance, alleged federal and state securities and “blue sky”
law violations or other investor claims and other matters. Due to the consumer-oriented nature of our business and the application of
certain laws and regulations, participants in our industry are regularly named as defendants in litigation alleging violations of federal
and state laws and regulations and consumer law torts, including fraud. Many of these legal proceedings involve alleged violations of
consumer protection laws. In addition, we have in the past and may in the future be subject to litigation, claims, examinations, investigations,
legal and administrative cases and proceedings related to our loan products and other financial services we provide. For instance, our
membership model and some of the products and services we offer are relatively novel and have been subject to limited regulatory scrutiny,
but there has been, and may continue to be, increasing regulatory interest in and/or litigation challenging our membership model, our
products or our services.
Any unfavorable results of
pending or future legal proceedings may result in contractual damages, usury-related claims, fines, penalties, injunctions, the unenforceability,
rescission or other impairment of loans originated on our platform or other censure that could have a material adverse effect on our business,
results of operations and financial condition. Even if we adequately address the issues raised by an investigation or proceeding or successfully
defend a third-party lawsuit or counterclaim, we may have to devote significant financial and management resources to address these issues,
which could harm our business, financial condition and results of operations.
Although we currently maintain
insurance, there can be no assurance that we will be able to maintain such insurance on acceptable terms in the future, if at all, or
that any such insurance will provide adequate protection against potential liabilities. Additionally, we do not carry insurance for all
categories of risk that our business may encounter. Any significant liability that is uninsured or not fully insured may require us to
pay substantial amounts. There can be no assurance that any current or future claims will not materially and adversely affect our business,
financial position, results of operations and cash flows.
Changes in tax law and differences in interpretation
of tax laws and regulations may adversely impact our financial statements.
We operate in multiple jurisdictions
and are subject to tax laws and regulations of the U.S. federal, state and local and non-U.S. governments. U.S. federal,
state and local and non-U.S. tax laws and regulations are complex and subject to varying interpretations. U.S. federal, state
and local and non-U.S. tax authorities may interpret tax laws and regulations differently than we do and challenge tax positions
that we have taken. This may result in differences in the treatment of revenues, deductions, credits and/or differences in the timing
of these items. The differences in treatment may result in payment of additional taxes, interest or penalties that could have an adverse
effect on our financial condition and results of operations. Further, future changes to U.S. federal, state and local and non-U.S. tax
laws and regulations could increase our tax obligations in jurisdictions where we do business or require us to change the manner in which
we conduct some aspects of our business.
As the regulatory framework for artificial
intelligence and machine learning technology evolves, our business, financial condition and results of operations may be adversely affected.
The regulatory framework for
artificial intelligence and machine learning technology is evolving and remains uncertain. It is possible that new laws and regulations
will be adopted in the U.S., or existing laws and regulations may be interpreted in new ways, that would affect the operation of our platform
and the way in which we use artificial intelligence and machine learning technology, including with respect to fair lending laws. Further,
the cost to comply with such laws or regulations could be significant and would increase our operating expenses, which could adversely
affect our business, financial condition and results of operations.
If we fail to maintain an effective system
of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements
or comply with applicable regulations could be impaired.
As a public company, we are
now subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), and the rules and regulations of the applicable listing standards of the NYSE. We expect that the requirements of these
rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult,
time-consuming and costly and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires,
among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are
continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to
be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated
to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In
order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting,
we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs, and significant
management oversight. Our current controls and any new controls that we develop may become inadequate because of changes in conditions
in our business.
The nature of our business
is such that our financial statements involve a number of complex accounting policies, many of which involve significant elements of judgment,
including determinations regarding the consolidation of variable interest entities, determinations regarding the fair value of derivative
warrant liabilities and the appropriate classification of various items within our financial statements. The inherent complexity of these
accounting matters and the nature and variety of transactions in which we are involved require that we have sufficient qualified accounting
personnel with an appropriate level of experience and controls in our financial reporting process commensurate with the complexity of
our business. While we believe we have sufficient internal accounting personnel and external resources and appropriate controls to address
the demands of our business, we expect that the growth and development of our business will place significant additional demands on our
accounting resources. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or
improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement
of our financial statements. Any failure to implement and maintain effective internal control over financial reporting could also adversely
affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding
the effectiveness of our internal control over financial reporting that we will be required to include in our periodic reports that will
be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause
investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading
price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on
the NYSE. As a public company, we are now subject to the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and
will be required to provide an annual management report on the effectiveness of our internal control over financial reporting. There can
be no assurance that we will maintain internal control over financial reporting sufficient to enable us to identify or avoid material
weaknesses in the future.
Our independent registered
public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until
we are no longer an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”). At such time, our independent registered public accounting firm may issue a report that is adverse in the event
it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure
to maintain effective disclosure controls and internal control over financial reporting could materially and adversely affect our business,
results of operations and financial condition and could cause a decline in the trading price of our common stock.
MoneyLion has identified material weaknesses
in its internal control over financial reporting which remain un-remediated as of December 31, 2021. If MoneyLion is unable to develop
and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results
in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating
results.
A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material
misstatement of an entity’s annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with U.S. GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal
controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls.
Subsequent to the issuance
of MoneyLion’s consolidated financial statements for the years ended December 31, 2020 and December 31, 2019, MoneyLion had to restate
such financial statements with respect to the treatment of the noncontrolling interests attributable to the Class B investors of IIA.
For additional information with respect to the restatement, see Note 2 to MoneyLion’s audited financial statements for the years
ended December 31, 2020 and December 31, 2019 included in our prospectus (File No. 333-255936), filed with the SEC on September 3, 2021
pursuant to Rule 424(b) under the Securities Act. As a result of the foregoing, MoneyLion identified a material weakness in its internal
control over financial reporting as of December 31, 2020 and December 31, 2019. MoneyLion did not maintain an effective control environment
as there were certain areas in which the accounting function did not operate as expected, resulting in the foregoing restatement of previously
issued financial statements. Despite efforts to improve the deficiencies in our internal control over financial reporting, as described
below under Part II, Item 9A “Controls and Procedures,” the Company’s management has concluded that the material weakness
in our internal control over financial reporting as of December 31, 2020 and December 31, 2019 remained un-remediated as of December 31,
2021.
In addition, subsequent to
the issuance of MoneyLion’s condensed consolidated financial statements as of September 30, 2021, MoneyLion had to restate its previously
issued financial statements with respect to the accounting for the conversion of subordinated convertible notes and exercise of stock
warrants into equity and the calculation of diluted earnings per share for the three months ended September 30, 2021. For additional information
with respect to the restatement, see Part II, Item 9A “Controls and Procedures.” As a result of the foregoing, MoneyLion identified
additional material weaknesses in its internal control over financial reporting as of September 30, 2021, which remained un-remediated
as of December 31, 2021. MoneyLion did not maintain an effective control environment, resulting in the foregoing restatement of previously
issued financial statements, as there were certain areas in which the accounting function did not operate as expected, due to a lack of
sufficient internal accounting resources and inadequate level of precision embedded in control activities, as well as lack of sufficient
formalization over processes and control evidence, resulting in multiple audit adjustments and restatements in our previously issued financial
statements.
Effective internal controls
are necessary to provide reliable financial reports and prevent fraud. MoneyLion continues to evaluate steps to remediate these material
weaknesses and is in the process of remediating the control deficiencies that relate to the material weaknesses, as described further
in Part II, Item 9A “Controls and Procedures.” We intend to complete the remediation by December 31, 2022, but these remediation
measures may be time consuming and costly, and there is no assurance that we will be able to complete the remediation and put in place
the appropriate controls within this timeframe or that these initiatives will ultimately have the intended effects.
If MoneyLion identifies any
new material weaknesses in the future, any such newly identified material weakness could limit its ability to prevent or detect a misstatement
of its accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case,
we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable
stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result.
We cannot assure you that the measures MoneyLion has taken to date, or any measures it may take in the future, will be sufficient to avoid
potential future material weaknesses.
The material weaknesses in our internal
control over financial reporting and the restatements of certain of our previously issued financial statements subjected us to additional
risks and uncertainties, including increased professional costs and the increased possibility of legal proceedings.
As a result of the material
weaknesses in our internal control over financial reporting and the restatement of certain of our previously issued financial statements
as described further in the foregoing risk factor, we have become subject to additional risks and uncertainties, including, among others,
increased professional fees and expenses and time commitment that may be required to address matters related to the remediation of the
material weaknesses and the restatements and increased scrutiny of the SEC and other regulatory bodies, which could cause investors to
lose confidence in our reported financial information and could subject us to penalties. In addition, we face increased potential for
litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims
or other claims arising from, among other things, the restatements and material weaknesses in our internal control over financial reporting
and the preparation of our financial statements. Any such litigation or dispute, whether successful or not, could have a material
adverse effect on our business, financial condition and results of operations and could cause our stock price to decline.
Our risk management processes and procedures
may not be effective.
Our risk management processes
and procedures seek to appropriately balance risk and return and mitigate risks. We have established processes and procedures intended
to identify, measure, monitor and control the types of risk to which we are subject, including credit risk, deposit risk, market risk,
liquidity risk, strategic risk, operational risk, cybersecurity risk and reputational risk. Credit risk is the risk of loss that arises
when a loan obligor fails to meet the terms of a loan repayment obligation, the loan enters default, and if uncured results in financial
loss of remaining principal and interest to the investor. Our exposure to credit risk mainly arises from our lending activities. Deposit
risk refers to accelerated availability of depositor funds, prior to settlement, risk of ACH returns or merchant settlements and transactional
limits that may be applied to deposit accounts. Market risk is the risk of loss due to changes in external market factors, such as interest
rates, asset prices and foreign exchange rates. Liquidity risk is the risk that financial condition or overall safety and soundness are
adversely affected by an inability, or perceived inability, to meet obligations (e.g., current and future cash flow needs) and support
business growth. We actively monitor our liquidity position. Strategic risk is the risk from changes in the business environment, ineffective
business strategies, improper implementation of decisions or inadequate responsiveness to changes in the business and competitive environment.
Our management is responsible
for defining the priorities, initiatives and resources necessary to execute our strategic plan, the success of which is regularly evaluated
by the board of directors. Operational risk is the risk of loss arising from inadequate or failed internal processes, controls, people
(e.g., human error or misconduct) or systems (e.g. technology problems), business continuity or external events (e.g., natural disasters),
compliance, reputational, regulatory or legal matters and includes those risks as they relate directly to us, fraud losses attributed
to applications, transaction processing or employees, as well as to third parties with whom we contract or otherwise do business. Operational
risk is one of the most prevalent forms of risk in our risk profile. We strive to manage operational risk by establishing policies and
procedures to accomplish timely and efficient processing, obtaining periodic internal control attestations from management, conducting
internal process risk control self-assessments and audit reviews to evaluate the effectiveness of internal controls.
In order to be effective, among
other things, our enterprise risk management capabilities must adapt and align to support any new product or loan features, capability,
strategic development, or external change. Cybersecurity risk is the risk of a malicious technological attack intended to impact the confidentiality,
availability or integrity of our systems and data, including, but not limited to, sensitive client data. Our technology and information
security teams rely on a layered system of preventive and detective technologies, practices and policies to detect, mitigate and neutralize
cybersecurity threats. In addition, our information security team and third-party consultants regularly assess our cybersecurity risks
and mitigation efforts. Cyberattacks can also result in financial and reputational risk.
Reputational risk is the risk
arising from possible negative perceptions of us, whether true or not, among our current and prospective customers, counterparties, employees
and regulators. The potential for either enhancing or damaging our reputation is inherent in almost all aspects of business activity.
We manage this risk through our commitment to a set of core values that emphasize and reward high standards of ethical behavior, maintaining
a culture of compliance and by being responsive to customer and regulatory requirements.
Risk is inherent in our business,
and therefore, despite our efforts to manage risk, there can be no assurance that we will not sustain unexpected losses. We could incur
substantial losses and our business operations could be disrupted to the extent our business model, operational processes, control functions,
technological capabilities, risk analyses and business/product knowledge do not adequately identify and manage potential risks associated
with our strategic initiatives. There also may be risks that exist, or that develop in the future, that we have not appropriately anticipated,
identified or mitigated, including when processes are changed or new products and services are introduced. If our risk management framework
does not effectively identify and control our risks, we could suffer unexpected losses or be adversely affected, which could have a material
adverse effect on our business.
Our ability to use our deferred tax assets
to offset future taxable income may be subject to certain limitations that could subject our business to higher tax liabilities.
We may be limited in the portion
of net operating loss carryforwards (“NOLs”) that we can use in the future to offset taxable income for U.S. federal
and state income tax purposes. The Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017, makes broad and
complex changes to the U.S. tax code. While future interpretative guidance of the Tax Act and how many U.S. states will incorporate
these federal law changes may have an impact on our business, the Tax Act’s reduction of the federal corporate income tax rate from
35% to 21%, effective January 1, 2018, has reduced our deferred tax asset associated with NOLs. A lack of future taxable income would
adversely affect our ability to utilize our NOLs.
In addition, under Section 382
of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs
to offset future taxable income. Future changes in our stock ownership as well as other changes that may be outside of our control, could
result in additional ownership changes under Section 382 of the Code. Our NOLs may also be impaired under similar provisions of state
law.
We assess the available positive
and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. On
the basis of this evaluation, a full valuation allowance has historically been recorded to recognize only deferred tax assets that are
more likely than not to be realized.
Finally, further changes to
the federal or state tax laws or technical guidance relating to the Tax Act that would further reduce the corporate tax rate could operate
to effectively reduce or eliminate the value of any deferred tax asset. Our tax attributes as of December 31, 2021 may expire unutilized
or underutilized, which could prevent us from offsetting future taxable income.
Risks Relating to Ownership of MoneyLion Class
A Common Stock
Our warrants are exercisable for MoneyLion
Class A Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution
to our stockholders.
As of December 31, 2021, there
were 17,499,900 outstanding Public Warrants to purchase 17,499,900 shares of MoneyLion Class A Common Stock at an exercise price
of $11.50 per share, which warrants became exercisable commencing 30 days following the Business Combination. In addition, as of
December 31, 2021, there were 8,100,000 private placement warrants outstanding exercisable for 8,100,000 shares of MoneyLion Class A
Common Stock at an exercise price of $11.50 per share. To the extent such warrants are exercised, additional shares of MoneyLion Class A
Common Stock will be issued, which will result in dilution to the holders of MoneyLion Class A Common Stock and increase the number
of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect
the market price of MoneyLion Class A Common Stock, the impact of which is increased as the value of our stock price increases.
We may redeem your unexpired warrants prior
to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
We have the ability to redeem
outstanding Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant,
provided that the closing price of MoneyLion Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days
within a 30 trading-day period ending on the third trading day prior to the date we give notice of redemption. If and when the
warrants become redeemable by MoneyLion, we may exercise the redemption right even if it is unable to register or qualify the underlying
securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force holders to (i) exercise
the warrants and pay the exercise price therefor at a time when it may be disadvantageous to do so, (ii) sell the warrants at the
then-current market price when the holder might otherwise wish to hold onto such warrants or (iii) accept the nominal redemption
price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value
of the warrants. None of the private placement warrants will be redeemable by us so long as they are held by their initial purchasers
or their permitted transferees.
In addition, we may redeem
your warrants after they become exercisable for a number of shares of MoneyLion Class A Common Stock determined based on the redemption
date and the fair market value of MoneyLion Class A Common Stock. Any such redemption may have similar consequences to a cash redemption
described above. In addition, such redemption may occur at a time when the warrants are “out-of-the-money,” in which case
you would lose any potential embedded value from a subsequent increase in the value of the MoneyLion Class A Common Stock had your warrants
remained outstanding.
Delaware law and provisions in MoneyLion’s
Certificate of Incorporation and Bylaws could make a takeover proposal more difficult.
Our organizational documents
are governed by Delaware law. Certain provisions of Delaware law and of MoneyLion’s Fourth Amended and Restated Certificate of Incorporation
(as amended and restated from time to time, the “Certificate of Incorporation”) and Amended and Restated Bylaws (as amended
and restated from time to time, the “Bylaws”) could discourage, delay, defer or prevent a merger, tender offer, proxy contest
or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares of MoneyLion Class A Common Stock held by MoneyLion’s stockholders. These
provisions include the ability of the board of directors to designate the terms of and issue new series of preference shares, which may
make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing
market prices for our securities.
These anti-takeover provisions
as well as certain provisions of Delaware law could make it more difficult for a third party to acquire MoneyLion, even if the third party’s
offer may be considered beneficial by many of MoneyLion’s stockholders. As a result, MoneyLion’s stockholders may be limited
in their ability to obtain a premium for their shares. If prospective takeovers are not consummated for any reason, MoneyLion may experience
negative reactions from the financial markets, including negative impacts on the price of MoneyLion Class A Common Stock. These provisions
could also discourage proxy contests and make it more difficult for MoneyLion’s stockholders to elect directors of their choosing
and to cause MoneyLion to take other corporate actions that MoneyLion’s stockholders desire.
The market price of our securities may be
volatile.
Fluctuations in the price
of MoneyLion’s securities could contribute to the loss of all or part of your investment. The trading price of MoneyLion securities
may be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors
listed below could have a material adverse effect on your investment in our securities and MoneyLion securities may trade at prices significantly
below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further
decline.
Factors affecting the trading
price of MoneyLion’s securities may include:
| ● | actual or anticipated fluctuations in our quarterly financial
results or the quarterly financial results of companies perceived to be similar to us; |
| ● | changes in the market’s expectations about MoneyLion’s
operating results; |
| ● | operating results failing to meet the expectations of securities
analysts or investors in a particular period; |
| ● | changes in financial estimates and recommendations by securities
analysts concerning MoneyLion or the industry in which MoneyLion operates in general; |
| ● | operating and stock price performance of other companies that
investors deem comparable to MoneyLion; |
| ● | ability to market new and enhanced products and services on
a timely basis; |
| ● | changes in laws and regulations affecting our business; |
| ● | commencement of, or involvement in, litigation involving MoneyLion; |
| ● | changes in MoneyLion’s capital structure, such as future
issuances of securities or the incurrence of additional debt; |
| ● | the volume of shares of MoneyLion Class A Common Stock
available for public sale; |
| ● | any major change in MoneyLion’s board or management; |
| ● | sales of substantial amounts of MoneyLion Class A Common
Stock by MoneyLion’s directors, executive officers or significant stockholders or the perception that such sales could occur; and |
| ● | general economic and political conditions such as recessions,
interest rates, fuel prices, international currency fluctuations and acts of war or terrorism. |
Broad market and industry factors
may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and the
NYSE specifically, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.
As a result of this volatility, you may not be able to sell your securities at or above the price at which it was acquired. A loss of
investor confidence in the market for the stocks of other companies which investors perceive to be similar to MoneyLion could depress
our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of
our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in
the future.
MoneyLion’s failure to meet the continued
listing requirements of the NYSE could result in a delisting of its securities.
If MoneyLion fails to satisfy
the continued listing requirements of the NYSE such as the corporate governance requirements or the minimum closing bid price requirement,
the NYSE may take steps to delist its securities. Such a delisting would likely have a negative effect on the price of the securities
and would impair your ability to sell or purchase the securities when you wish to do so. In the event of a delisting, MoneyLion can provide
no assurance that any action taken by it to restore compliance with listing requirements would allow its securities to become listed again,
stabilize the market price or improve the liquidity of its securities, prevent its securities from dropping below the NYSE minimum bid
price requirement or prevent future non-compliance with the NYSE’s listing requirements. Additionally, if MoneyLion’s
securities are not listed on, or become delisted from, the NYSE for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer
automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of MoneyLion’s
securities may be more limited than if it were quoted or listed on the NYSE or another national securities exchange. You may be unable
to sell your securities unless a market can be established or sustained.
MoneyLion qualifies as an emerging
growth company within the meaning of Section 2(a) of the Securities Act, as modified by the JOBS Act. Because MoneyLion
intends to take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make MoneyLion’s
securities less attractive to investors and may make it more difficult to compare MoneyLion’s performance with other public companies.
In addition, under the JOBS
Act, emerging growth companies can delay adopting new or revised financial accounting standards until such time as those standards apply
to private companies. MoneyLion intends to take advantage of this extended transition period under the JOBS Act for adopting
new or revised financial accounting standards.
For as long as MoneyLion continues
to be an emerging growth company, it may also take advantage of certain exemptions from various reporting requirements that are applicable
to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act. As a result, its stockholders may not have access to certain information that
they may deem important. MoneyLion could be an emerging growth company for up to five years, although circumstances could cause it
to lose that status earlier, including if its total annual gross revenue exceeds $1.07 billion, if it issues more than $1.0 billion
in non-convertible debt securities during any three-year period, or if before that time it is a “large accelerated filer”
under U.S. securities laws.
MoneyLion cannot predict if
investors will find MoneyLion Class A Common Stock less attractive because it may rely on these exemptions. If some investors find
MoneyLion Class A Common Stock less attractive as a result, there may be a less active trading market for MoneyLion Class A
Common Stock and MoneyLion’s share price may be more volatile. If an active, liquid public trading market for MoneyLion Class A
Common Stock does not develop or is not maintained, we may be limited in our ability to raise capital by selling shares of MoneyLion
Class A Common Stock and our ability to acquire other companies or assets by using shares of MoneyLion Class A Common Stock or other MoneyLion
securities as consideration. Further, there is no guarantee that the exemptions available to MoneyLion under the JOBS Act will
result in significant savings. To the extent that MoneyLion chooses not to use exemptions from various reporting requirements under the JOBS
Act, it will incur additional compliance costs, which may impact MoneyLion’s financial condition.
Our Certificate of Incorporation designates
the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be
initiated by MoneyLion’s stockholders, which could limit MoneyLion’s stockholders’ ability to obtain what such stockholders
believe to be a favorable judicial forum for disputes with MoneyLion or MoneyLion’s directors, officers or other employees.
Our Certificate of Incorporation
provides that, unless MoneyLion consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware
(the “Court of Chancery”) shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring
(i) any derivative action or proceeding brought on behalf of MoneyLion, (ii) any action asserting a claim of breach of a fiduciary
duty owed by any director, officer or other employee of MoneyLion to MoneyLion or MoneyLion’s stockholders, (iii) any action
asserting a claim against MoneyLion, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation
Law or MoneyLion’s Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim against MoneyLion, its directors,
officers or employees governed by the internal affairs doctrine and, if brought outside of Delaware, the stockholder bringing the suit
will be deemed to have consented to service of process on such stockholder’s counsel, except for, as to each of (i) through
(iv) above, any claim (A) as to which the Court of Chancery determines that there is an indispensable party not subject to the
jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery
within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than
the Court of Chancery, (C) for which the Court of Chancery does not have subject matter jurisdiction, or (D) arising under the
Securities Act as to which the Court of Chancery and the federal district court for the District of Delaware shall have concurrent jurisdiction.
Notwithstanding the foregoing, these provisions will not apply to suits brought to enforce a duty or liability created by the Exchange Act
or any other claim for which the federal courts have exclusive jurisdiction.
Any person or entity purchasing
or otherwise acquiring any interest in any security of MoneyLion shall be deemed to have notice of and consented to these provisions.
These choice-of-forum provisions
may limit a stockholder’s ability to bring a claim in a judicial forum that he, she or it believes to be favorable for disputes
with MoneyLion or MoneyLion’s directors, officers or other employees, which may discourage such lawsuits. We note that there is
uncertainty as to whether a court would enforce these provisions and that investors cannot waive compliance with the federal securities
laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal
courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Alternatively, if a court were
to find these provisions of our Certificate of Incorporation inapplicable or unenforceable with respect to one or more of the specified
types of actions or proceedings, MoneyLion may incur additional costs associated with resolving such matters in other jurisdictions, which
could materially adversely affect MoneyLion’s business, financial condition and results of operations and result in a diversion
of the time and resources of MoneyLion’s management and board of directors.
We incur significant costs and have become
subject to additional regulations and requirements as a result of becoming a public company, and our management is required to devote
substantial time to new compliance matters, which could lower profits and make it more difficult to run our business.
We completed the Business Combination
with Legacy MoneyLion on September 22, 2021. As a publicly traded company, MoneyLion incurs significant legal, accounting and other expenses
that Legacy MoneyLion was not required to incur in the past as a privately held company, including costs associated with public company
reporting requirements and costs of recruiting and retaining non-employee directors. We also have incurred, and will continue to incur,
costs associated with compliance with the rules and regulations of the SEC, the listing requirements of NYSE and various other costs of
a public company. These expenses will increase once MoneyLion is no longer an “emerging growth company” as defined under the
JOBS Act. These laws and regulations also could make it more difficult and costly for us to obtain certain types of insurance, including
director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult to attract and retain qualified
persons to serve on our board of directors and board committees and to serve as executive officers.
In addition, new and changing
laws, regulations and standards relating to corporate governance and public disclosure for public companies, including the Dodd-Frank
Act, the Sarbanes-Oxley Act, regulations related thereto and the rules and regulations of the SEC and NYSE, have increased the costs and
the time that must be devoted to compliance matters. We expect these rules and regulations will increase our legal and financial costs
and lead to a diversion of management time and attention from revenue-generating activities.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Facilities
Our principal corporate headquarters
are located in New York City, and as of December 31, 2021, we maintained additional offices in Jersey City, New Jersey, Kuala Lumpur,
Malaysia, Santa Monica, California and Sioux Falls, South Dakota. We lease all our facilities and do not own any real property. We believe
our facilities are adequate and suitable for our current needs and that, should it become necessary, suitable additional or alternative
space will be available to accommodate our operations.
Location | |
Approximate Square
Footage | |
New York, New York (Headquarters) | |
| 10,690 | |
Jersey City, New Jersey | |
| 11,028 | |
Kuala Lumpur, Malaysia | |
| 8,925 | |
Santa Monica, California | |
| 3,750 | |
Sioux Falls, South Dakota | |
| 1,095 | |
Item 3. Legal Proceedings
From time to time, we are
subject to various claims and legal proceedings in the ordinary course of business, including arbitrations, class actions and other litigation.
We are also the subject of various actions, inquiries, investigations and proceedings by regulatory and other governmental agencies. The
outcome of any such legal and regulatory matters, including those discussed in this section, is inherently uncertain and some of these
matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and could materially and adversely
impact our business, financial condition, operating results and cash flows. See Part I, Item 1A “Risk Factors — Risks
Relating to Legal and Regulatory Matters — Unfavorable outcomes in legal proceedings may harm our business and results of operations.”
State Regulatory Examinations and Investigations
We hold a number of state licenses
in connection with our business activities and must comply with various licensing, compliance and other requirements in the states in
which we operate. In most states in which we operate, one or more regulatory agencies have authority with respect to regulation and enforcement
under applicable state laws, and we may also be subject to the supervisory and examination authority of state regulators. Examinations
by state regulators have and may continue to result in findings or recommendations that require us, among other potential consequences,
to provide refunds to customers or to modify our internal controls and/or business practices.
With respect to our activities
in California, we received a report of examination in 2020 from the California Department of Financial Protection and Innovation (the
“CA DFPI”) regarding MoneyLion of California, LLC, our subsidiary, and a follow-up request for information in May 2021.
This matter is ongoing, and we intend to continue to fully cooperate with the CA DFPI in this matter. In addition, the CA DFPI is currently
conducting an industry-wide investigation of companies that provide earned wage access products and services, including Instacash. We
intend to continue cooperating fully in this investigation and to that end entered into a memorandum of understanding (“MOU”)
with the CA DFPI on February 23, 2021. The MOU requires us to regularly provide certain information to the CA DFPI and adhere to
certain best practices regarding Instacash while the CA DFPI continues to investigate. Any potential impacts on our financial condition
or operations relating to these CA DFPI matters are unknown at this time.
With respect to our activities
in Minnesota, we received information requests in 2019, 2020 and 2021 from the Minnesota Department of Commerce (“Minnesota DOC”)
regarding an investigation relating to our lending activity in Minnesota and our membership program. The Minnesota DOC previously informed
us that it was no longer pursuing the investigation regarding our membership program but continued the investigation into lending activity.
In December 2021, we signed a settlement order with the Minnesota DOC, which had no material impact on our financial condition or operations.
We are also in the process
of responding to Civil Investigative Demands (“CIDs”) or other investigatory requests relating to our provision of consumer
financial services from the office of the Attorney General of the Commonwealth of Virginia, the New York Attorney General’s Office,
as well as the Colorado Department of Law. We are cooperating with each of these state regulators and intend to take any corrective actions
required to maintain compliance with applicable state laws. We cannot predict the outcome or any potential impact on our financial condition
or operations at this time.
CFPB Civil Investigative Demands
In 2019, 2020 and 2021, we
received CIDs from the CFPB relating to our compliance with the Military Lending Act and our membership model. We will continue to provide
to the CFPB all of the information and documents required by the CIDs and intend to continue to fully cooperate with the CFPB in this
investigation. The investigation is ongoing and any potential impact on our financial condition or operations are unknown at this time.
SEC Investigation
In February and March 2021,
we received investigative subpoenas from the SEC concerning IIA, which primarily held assets from institutional investors, and was our
primary source of funding for originated receivables through the end of the fourth quarter of 2021. We are cooperating with the investigation
and cannot predict its outcome or any potential impact on our financial condition or operations.
Item 4. Mine Safety Disclosures
Not applicable.
Unregistered Sales of Equity Securities and
Use of Proceeds
On November 15, 2021 and December 31, 2021, in
connection with MoneyLion’s acquisition of MALKA, MoneyLion issued to Jeffrey Frommer, Lyusen
Krubich, Daniel Fried and Pat Capra, the former shareholders of MALKA, 3,206,167 and 975,274 restricted shares of MoneyLion Class
A Common Stock, respectively, as part of the consideration in exchange for all of the issued and outstanding membership interests of MALKA.
On December 22, 2021, MoneyLion issued 123,199
restricted shares of MoneyLion Class A Common Stock to NFP Venture, LLC (“NFP”) in connection with NFP’s achievement
of certain performance milestones in connection with NFP’s and MoneyLion’s partnership.
Such offers, sales and issuances of the MoneyLion
Class A Common Stock were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities
Act as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired
the securities for investment only and not with a view to or for sale in connection with any distribution thereof. No underwriters were
involved in any of the foregoing transactions.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The following Management’s
Discussion and Analysis of Financial Condition and Results of Operations summarizes the significant factors affecting the consolidated
operating results, financial condition, liquidity and capital resources of MoneyLion and is intended to help the reader understand MoneyLion,
our operations and our present business environment. This discussion should be read in conjunction with MoneyLion’s audited consolidated
financial statements and notes to those financial statements included in Part II, Item 8 “Financial Statements and Supplementary
Data” within this Annual Report on Form 10-K. References to “we,” “us,” “our,” “Company”
or “MoneyLion” refer to MoneyLion Technologies Inc. and, as context requires, its wholly-owned subsidiaries for the periods
prior to the Business Combination Closing Date and to MoneyLion Inc. and, as context requires, its wholly-owned subsidiaries for the period
thereafter. “Fusion” refers to Fusion Acquisition Corp. for the periods prior to the Business Combination Closing Date.
Overview
MoneyLion offers a personalized,
all-in-one, digital financial platform that provides convenient, low-cost access to banking, borrowing and investing solutions tailored
for our customers, rooted in data and delivered through our proprietary technology platform. We use innovative, data-driven approaches
to address our customers’ individual life inflection points and financial circumstances. When our customers enjoy periods of financial
excess, we provide tools for them to easily manage their spending and saving goals through our digital banking and automated investing
solutions. When our customers experience moments of financial need, we provide them immediate access to innovative lending or earned income
advance products and credit improvement programs that can bridge these times of financial stress and improve their financial health. We
provide access to personalized proprietary products as well as financial and non-financial products offered by third-party providers.
Our subsidiary, MALKA, provides digital media and content production services to us and to
its own clients in entertainment, sports, gaming, live streaming and other sectors.
The Company’s key product
offerings include:
RoarMoney Premium Mobile
Banking — RoarMoney is our FDIC-insured digital demand deposit account with zero minimums, premium features and rewards.
Our RoarMoney demand deposit accounts are currently issued by MetaBank. Customers can open a RoarMoney account in minutes through the
MoneyLion mobile application, add funds to their account and begin spending using a RoarMoney virtual debit card. RoarMoney accounts also
include a physical MoneyLion Debit Mastercard that can be used at any of the approximately 55,000 Allpoint ATM network locations to make
no-fee withdrawals. We earn revenue from interchange fees from payment networks based on customer expenditures on the debit card. We also
earn revenue from cardholder fees such as a small monthly administrative fee charged to our customers and a fee charged to customers when
an out-of-network ATM is utilized to withdraw cash. Both interchange fees and cardholder fees are reflected in fee income. We incur direct
costs in connection with the RoarMoney account offering, which include fees paid to the payment networks and our partner bank.
Personalized Investing —
MoneyLion Investing is an online investment account that offers access to separately managed accounts invested based on model portfolios
comprised of ETFs and managed on a discretionary basis. Advisory services related to the MoneyLion investment account are provided by
ML Wealth, an SEC-registered investment adviser and an indirect wholly-owned subsidiary of MoneyLion. Brokerage and custodial services
are provided by DriveWealth, a third-party provider. This fully-managed account model allows customers to set their investment strategy
and let ML Wealth manage investment decisions to implement that strategy on a discretionary basis. An investment account holder simply
identifies their investing comfort zone to receive a personalized portfolio, a mix of stock and bond ETFs. Our managed investment account
is available on a standalone basis. We earn revenue from a small monthly administration fee from our customers who use this product, which
is reflected in fee income.
Crypto — MoneyLion
Crypto is an online cryptocurrency account that enables customers to buy, sell and hold cryptocurrency. The account is provided by Zero
Hash. RoarMoney accountholders can open a MoneyLion Crypto account through the MoneyLion mobile application and fund it via their RoarMoney
account. In addition, customers can also round up purchases made either on their RoarMoney account or an external bank account to the
nearest dollar. The accrued round ups can then be transferred into the customer’s MoneyLion Crypto account and invested in Bitcoin.
As of December 31, 2021, the only cryptocurrencies available through the MoneyLion Crypto account were Bitcoin and Ether. In January 2022,
MoneyLion Crypto expanded to include Bitcoin Cash and Litecoin. We earn revenue from Zero Hash as they pay us a share of the fees that
they earn from our customers in exchange for MoneyLion enabling Zero Hash to effect digital currency-related transactions for our customers.
This revenue is reflected in fee income.
Instacash —
Instacash is our 0% APR advance product that gives customers early access to their recurring income deposits. Customers can access Instacash
advances at any time during a regular deposit period up to their advance limit, providing customers with the flexibility to cover temporary
cash needs and avoid costly overdraft fees. There are no fees associated with regular delivery of funds to either a RoarMoney account
(typically delivered within 12-48 hours) or an external checking account (typically delivered within two to five business
days). However, customers have the option to pay an additional fee in order to receive their funds on an expedited basis (typically within
minutes or less), the amount of which is based on the amount of the disbursement and whether the funds are delivered to a RoarMoney account
or an external checking account. Customers may also choose to leave MoneyLion an optional tip for use of the Instacash service. We earn
revenue from tips and instant transfer fees, both reflected in fee income.
Credit Builder Plus —
Our Credit Builder Plus membership program offers a proven path for our customers to access credit and establish or rebuild history, build
savings, establish financial literacy and track their financial health. For a monthly cost of $19.99, customers receive a suite of services
including banking and investment accounts, credit tracking and financial literacy content, rewards programs and access to loans of up
to $1,000 at competitive rates offered by MoneyLion lending subsidiaries, allowing our customers to establish up to twelve months
of payment history with all three credit bureaus. We offer our Credit Builder Plus members access to the Lion’s Share Loyalty Program,
where members can earn rewards of up to $19.99 per month. We earn revenue from monthly membership fees paid by our customers. These fees
are reflected in membership subscription revenue. As part of the Credit Builder Plus membership program, members may apply for a Credit
Builder Plus secured personal loan. In addition to a free standard disbursement option, we also offered our customers an option to disburse
their funds to their MoneyLion-serviced RoarMoney bank account or external bank account on an expedited basis for an instant transfer
fee. This instant disbursement option for Credit Builder Plus loans was removed in the second quarter of 2021. Prior to our launch of
Credit Builder Plus in 2019, we offered a ML Plus membership through which we originated unsecured personal loans, ML Plus loans. The
ML Plus membership transitioned into the Credit Builder Plus membership in the second quarter of 2020. We earn revenue from interest income,
reflected in net interest income on finance receivables, and, prior to the removal of the instant disbursement option, instant transfer
fees, reflected in fee income.
Financial Tracking
— We offer our customers access to financial tracking tools such as Financial Heartbeat, GamePlan and credit score tracking. Financial
Heartbeat is an intelligent, automated tool that guides customers on their financial journey. Financial Heartbeat evaluates customers’
financial situation across four key dimensions: SAVE (savings and financial preparedness), SPEND (spending and personal
budget), SHIELD (insurance needs and coverage) and SCORE (credit tracking and health). Through our easy-to-use interface,
customers can review the key issues impacting their financial situation, decide what actions to take, evaluate which products to use and
receive guidance on how to stay motivated on their journey towards financial wellness. GamePlan provides our customers with a personalized
action plan, including a checklist with tasks, meant to help them reach their financial goals across different categories such as spending,
saving and more. Financial tracking tools are offered to our customers at no cost and we do not earn revenue from these services.
MoneyLife —
Consistent with our vision of establishing MoneyLion as a lifestyle brand, in 2021 we introduced MoneyLife, an online financial education
content destination. MoneyLife is an influencer-focused, video content-driven educational platform where customers can share and discover
ideas, advice and insights regarding their financial lives. With high usability and sleek design, MoneyLife includes highly personalized
content driven by financial advice and education influencers, tools to achieve financial goals and additional ways of earning rewards
to shop and save. Through MoneyLife, we provide an additional daily destination site for current customers, drive additional prospective
customers to MoneyLion and increase customer engagement and cross-sell opportunities for both MoneyLion and its affiliate partners.
Affiliate marketing program —
We work with various affiliate partners that offer products or services that we may recommend to our customers via display ads, offers
or campaigns through our digital platform. Our customers can access these offers on a standalone basis. We earn revenue from fees from
our affiliate partners in exchange for meeting certain success metrics related to their campaigns such as customers’ clicks, impressions
or completed transactions. This revenue is reflected in affiliates income.
Unsecured personal loans —
We used to offer unsecured personal loans to our customers. We earned revenue from interest income, which was reflected in net interest
income on finance receivables, and fees, which were reflected in fee income. We phased out this offering in the first quarter of 2020
and it is not expected to contribute to revenue going forward.
Credit-related decision
servicing — MoneyLion provided credit-related decision servicing to third parties. We earned revenue from fees generated
from this service. These fees were reflected in fee income. We phased out this offering in the first quarter of 2020 and it is not expected
to contribute to revenue going forward.
Receivables originated on
our platform, including Credit Builder Plus loans and Instacash advances, were primarily financed through IIA until the end of the fourth
quarter of 2021. As of December 31, 2020, IIA had assets of approximately $86 million, primarily from institutional investors, and had
been our primary source of funding for originated receivables since 2018. As of December 31, 2021, IIA had no assets. Beginning in the
fourth quarter of 2021, MoneyLion transitioned its primary source of funding for originated receivables from IIA to special purpose vehicle
financings from third-party institutional lenders. As of December 31, 2021, there was an outstanding principal balance of $78 million
under the ROAR 1 SPV Credit Facility and an outstanding principal balance of $68 million under the ROAR 2 SPV Credit Facility. See Part
II, Item 8 “Financial Statements and Supplementary Data — Description of Business and Basis of Presentation” and “—
Debt” for more information.
Recent Developments
Recent events impacting our
business are as follows:
COVID-19 —
The COVID-19 pandemic has caused substantial changes in consumer behavior, restrictions on business and individual activities and high
unemployment rates, which led to reduced economic activity and may continue to cause economic volatility. There continue to be significant
uncertainties associated with the COVID-19 pandemic, including with respect to the course, duration and severity of the virus and additional
variants, future actions that may be taken by governmental authorities and private businesses to contain the COVID-19 pandemic or to mitigate
its impact and the effectiveness of such actions, the timing and speed of economic recovery and the ultimate effectiveness of vaccinations
for COVID-19.
In response to the economic
uncertainty caused by the pandemic, during 2021, we made certain operational changes and implemented certain consumer support programs
which were immaterial to our performance. For example, we reduced our marketing activities such as advertising through digital platforms,
which have since returned to pre-pandemic levels and also reduced our sponsorship arrangements with third parties. In addition, we implemented
underwriting policy changes on a targeted basis to more closely manage credit risk while we further evaluated market conditions. Our underwriting
models are dynamic relative to real time changes in our customer’s income and credit profiles and our credit performance remained
steady as our underwriting models quickly adapted to these changes. To further support our customers, we expanded our payment deferral
options and reduced certain fees, while providing them with relevant content and resources on topics like unemployment insurance and stimulus
checks. For instance, for our secured personal loan customers with no prior missed payments, we offered payment deferrals based on a customer’s
payment frequency, ranging from one payment deferral for monthly payments and up to three payment deferrals for weekly payments. For our
Instacash customers with an outstanding advance, we allowed them to change the scheduled repayment date by up to 14 days. Once the advance
was repaid, the customer could request another change to the scheduled repayment on another advance. While there is no limit to the number
of changes a customer may be granted, they are limited to one at a time and per advance. Despite the economic uncertainty as a result
of COVID-19, we have increased the number of customers on our platform.
In April 2020, the
Company borrowed $3.2 million from a bank under the U.S. Small Business Administration’s (“SBA”) Paycheck Protection
Program that was introduced as part of the U.S. Government’s COVID-19 relief efforts (the “PPP Loan”). In June 2021,
the SBA approved the Company’s application for forgiveness with respect to the entire outstanding balance of the PPP Loan.
Management will continue
to monitor the nature and extent of potential impact to the business as the pandemic continues.
Business Combinations —
Since January 1, 2020, we have completed the following business combinations:
| ● | WTI Acquisition —
In December 2020, Legacy MoneyLion acquired 100% of the outstanding common stock and Series A redeemable convertible preferred
shares of Wealth Technologies, Inc. in exchange for 539,592 shares of Legacy MoneyLion Series C-1 Redeemable Convertible Preferred Stock,
representing total consideration of approximately $27.9 million, which provided us with WTI’s market-leading wealth management
decisioning and administration technology. The co-founder and equity holder of WTI was a significant stockholder of Series A redeemable
convertible preferred stock of Legacy MoneyLion and was the Chairman of the Legacy MoneyLion board of directors as of the date of the
transaction. The purchase price has been allocated to the assets acquired and liabilities assumed based upon their respective fair market
values. The excess of the aggregate purchase price over the fair values of the net assets acquired was recognized as goodwill of approximately
$21.6 million. |
| ● | Merger with Fusion —
On September 22, 2021, Legacy MoneyLion completed the Business Combination with Fusion and became a publicly traded company. The
Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP, for which Legacy MoneyLion was determined
to be the accounting acquirer. Since the Business Combination was accounted for as a reverse recapitalization, no goodwill or other intangible
assets were recorded, in accordance with U.S. GAAP. Under this method of accounting, Fusion was treated as the “acquired”
company for financial reporting purposes. Operations prior to the Business Combination are those of Legacy MoneyLion. See Part II, Item
8 “Financial Statements and Supplementary Data — Business Combination” for additional information. |
|
● |
MALKA Acquisition – On November 15,
2021, MoneyLion completed its acquisition of MALKA (the “MALKA Acquisition”). MALKA is a creator network and content platform
that provides digital media and content production services to us and to its own clients in entertainment, sports, gaming, live streaming
and other sectors. The MALKA Acquisition accelerates MoneyLion’s ability to engage with consumers across all digital and emerging
channels, allowing MoneyLion to directly connect with communities natively inside and outside of its existing platform. We intend for
MALKA to operate as an indirect, wholly-owned subsidiary of MoneyLion Inc. with MALKA’s pre-acquisition management team leading
day-to-day operations.
Related to the closing of the MALKA Acquisition,
MoneyLion issued 4,181,441 in restricted shares of MoneyLion Class A Common Stock and paid approximately $10.0 million in cash to the
sellers in exchange for all of the issued and outstanding membership interests of MALKA. MoneyLion also paid down approximately $2.2 million
of MALKA debt facilities. The sellers may earn up to an additional $35 million payable in restricted shares of MoneyLion Class A Common
Stock if MALKA’s revenue and EBITDA exceeds certain targets in 2021 and 2022. The total purchase price of the MALKA Acquisition
was approximately $52.7 million.
|
|
● |
Even Acquisition – On February 17,
2022, MoneyLion completed its acquisition of Even Financial (the “Even Acquisition”). Even Financial digitally connects and
matches consumers with real-time personalized financial product recommendations from banks, insurance and fintech companies on mobile
apps, websites and other consumer touchpoints through its marketplace technology. Even Financial’s infrastructure leverages machine
learning and advanced data science to solve a significant pain point in financial services customer acquisition, seamlessly bridging financial
institutions and channel partners via its industry-leading API and embedded finance marketplaces.
The Even Acquisition strengthens MoneyLion’s
platform by improving consumers’ abilities to find and access the right financial products to help them manage their financial lives.
Even Financial’s growing network includes over 400 financial institution partners and 500 channel partners, covering a breadth of
financial services including loans, credit cards, mortgages, savings and insurance products. The Even Acquisition also expands MoneyLion’s
addressable market, extends the reach of MoneyLion’s own products, diversifies its revenue mix and furthers MoneyLion’s ambition
to be the premier financial super app for hardworking Americans.
At the closing of the Even Acquisition, MoneyLion
(i) issued to the equityholders of Even Financial an aggregate of 28,164,811 shares of Series A Convertible Preferred Stock, par value
$0.0001 per share, of MoneyLion (the “Preferred Stock”), with a face value of $10.00 per share (the “Conversion Price”),
(ii) paid to certain Even Financial management equityholders approximately $14.5 million in cash and (iii) exchanged 8,883,228 options
to acquire Even Financial common stock for 5,901,846 options to acquire MoneyLion Class A Common Stock. The equityholders of Even Financial
are also entitled to receive an additional payment from MoneyLion of up to an aggregate of 8 million shares of Preferred Stock, with
a face value per share equal to the Conversion Price, based on the attributed revenue of Even Financial’s business during the 13-month
period commencing January 1, 2022 (the “Earnout”). Based on the Conversion Price of the shares of Preferred Stock issued
at the closing of the Even Acquisition and to be issued pursuant to the Earnout, the value of the options to acquire MoneyLion Class
A Common Stock and the cash paid to the management equityholders, the total purchase price was approximately $440 million, subject to
customary purchase price adjustments for working capital and inclusive of amounts used to repay approximately $5.7 million of existing
indebtedness of Even Financial.
|
Factors Affecting Our Performance
The Company is subject to
a number of risks including, but not limited to, the need for successful development of products, the need for additional capital (or
financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary
technology, dependence on key individuals and risks associated with changes in information technology.
New customer growth and increasing usage
across existing customers
Our ability to effectively
acquire new customers through our acquisition and marketing efforts, and drive usage of our products across our existing customers is
key to our growth. We invested in the platform approach and believe our customers’ experience is enhanced by using our full product
suite as we can better tailor the insights and recommendations. In turn, this generates higher revenue and lifetime value from our customer
base.
Product expansion and innovation
We believe in the platform
approach and providing relevant products to our customers to help them better manage their financial lives, both in times of need and
excess. We will continue to invest in enhancing our existing suite of products and developing new products. Any factors that impair our
ability to do so may negatively impact our efforts towards retaining and attracting customers.
General economic and market conditions
Our performance is impacted
by the relative strength of the overall economy, market volatility, consumer spending behavior and consumer demand for financial products
and services. The willingness of our customers to spend, invest, or borrow may fluctuate with their level of disposable income. Other
factors such as interest rate fluctuations or monetary policies may also impact our customers’ behavior and our own ability to fund
advances and loan volume.
Competition
We compete with several larger
financial institutions and technology platforms that offer similar products and services. We compete with those that offer both single
point solutions similar to any one of our products as well as more integrated, complete solutions. Some of our competitors may have access
to more resources than we do and thus may be able to offer better pricing or benefits to our customers.
Pricing of our products
We derive a substantial portion
of our revenue from fees earned from our products. The fees we earn are subject to a variety of external factors such as competition,
interchange rates and other macroeconomic factors, such as interest rates and inflation, among others. We may provide discounts to customers
who utilize multiple products to expand usage of our platform. We may also lower pricing on our products to acquire new customers. For
example, we offer our customers discounts such as Shake ‘N’ Bank cashback and other cashback rewards opportunities as part
of our RoarMoney bank account product offering and such discounts are provided to customers based on eligible MoneyLion debit card transactions.
On average, approximately 40% of our eligible RoarMoney bank account customers receive this benefit. We also offer our Credit Builder
Plus members access to our Lion’s Share Loyalty Program where members can earn up to $19.99 per month. The size of the Lion’s
Share reward depends on a customer’s number of logins into the MoneyLion app and purchases using their RoarMoney account in that
month. On average, approximately 25% of our Credit Builder Plus members who met the minimum eligibility criteria received a Lion’s
Share reward.
Product mix
We provide various products
and services on our platform, including a membership program, loans, earned income advances and cryptocurrency, investment and bank accounts.
Each product has a different profitability profile. The relative usage of products with high or low profitability and their lifetime value
could have an impact on our performance.
Access and cost of financing
Our credit products and other
receivables were primarily financed through IIA until the end of the fourth quarter of 2021. Beginning in the fourth quarter of 2021,
we transitioned our primary source of funding for originated receivables from IIA to special purpose vehicle financings from third-party
institutional lenders. Loss of one or more of the financing sources we have for our credit products and other receivables could have an
adverse impact on our performance, and it could be costly to obtain new financing.
Key Performance Metrics
We regularly review several
metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business,
formulate financial projections and make strategic decisions.
Total Originations
We define Total Originations
as the dollar volume of the secured personal loans originated and Instacash advances funded within the stated period. We consider Total
Originations to be a key performance metric as it can be used to measure the usage and engagement of the customers across our secured
personal lending and Instacash products and is a significant driver of net interest income on finance receivables and fee income. Total
Originations were $1.1 billion and $410 million for the twelve months ended December 31, 2021 and 2020, respectively, and were originated
directly by MoneyLion.
Total Customers
We define Total Customers
as those customers that have opened at least one account, including banking, membership subscription, secured personal loan, Instacash
advance, managed investment account, cryptocurrency account or affiliate product. We consider Total Customers to be a key performance
metric as it can be used to understand lifecycle efforts of our customers, as we look to cross-sell products to our customer base and
grow our platform. Total Customers were 3.3 million and 1.4 million as of December 31, 2021 and 2020, respectively. For the years ended
December 31, 2021 and 2020, approximately 27% and 33%, respectively, of our Total Customers that have opened a banking or managed investment
account have funded accounts. For the years ended December 31, 2021 and 2020, approximately 64% and 53%, respectively, of our Total Customers
have engaged in any activity on our platform.
Total Products
We define Total Products as
the total number of products that our Total Customers have opened including banking, membership subscription, secured personal loan, Instacash
advance, managed investment account, cryptocurrency account, affiliate product, or signed up for our financial tracking services (with
either credit tracking enabled or external linked accounts), whether or not the customer is still registered for the product. If a customer
has funded multiple secured personal loans or Instacash advances, it is only counted once for each product type. We consider Total Products
to be a key performance metric as it can be used to understand the usage of our products across our customer base. Total Products were
8.0 million and 4.5 million as of December 31, 2021 and 2020, respectively.
Adjusted Revenue
Adjusted Revenue is defined
as total revenues, net, plus amortization of loan origination costs less provision for loss on membership receivables and provision for
loss on fees receivables, revenue derived from phased out products and non-operating income. We believe that Adjusted Revenue provides
a meaningful understanding of revenue from ongoing products and recurring revenue for comparability purposes. Adjusted Revenue is a non-GAAP
measure and should not be viewed as a substitute for total revenues, net. Refer to the “Non-GAAP Measures” section
below for further discussion.
Our Adjusted Revenue is further
broken into the following categories:
| |
Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Fees | |
$ | 125,081 | | |
$ | 60,955 | |
Payments | |
| 13,602 | | |
| 6,556 | |
Advice | |
| 16,622 | | |
| 3,388 | |
Interest | |
| 9,628 | | |
| 5,154 | |
Adjusted Revenue | |
$ | 164,934 | | |
$ | 76,053 | |
This breakdown of Adjusted
Revenue across the categories of fees, payments, advice and interest helps provide our management with a better understanding of Adjusted
Revenue by type and may help to inform strategic pricing and resource allocations across our products.
Adjusted Gross Profit, Adjusted EBITDA and
Adjusted Net Income (Loss)
We believe Adjusted Gross
Profit, Adjusted EBITDA and Adjusted Net Income (Loss) provide a meaningful understanding of an aspect of profitability based on our current
product portfolio. These are non-GAAP measures and should not be viewed as a substitute for gross profit nor net income (loss). Refer
to the “Non-GAAP Measures” section below for further discussion.
Results of Operations for the Twelve
Months Ended December 31, 2021 and 2020
The following table is reference
for the discussion that follows.
| |
Twelve Months Ended December 31, | | |
Change | |
| |
2021 | | |
2020 | | |
$ | | |
% | |
| |
(In thousands, except for percentages) | |
Revenue | |
| | |
| | |
| | |
| |
Net interest income on finance receivables | |
$ | 7,002 | | |
$ | 4,347 | | |
$ | 2,655 | | |
| 61.1 | % |
Membership subscription revenue | |
| 32,357 | | |
| 25,994 | | |
| 6,363 | | |
| 24.5 | % |
Affiliates income | |
| 10,900 | | |
| 2,234 | | |
| 8,666 | | |
| 387.9 | % |
Fee income | |
| 116,131 | | |
| 46,639 | | |
| 69,492 | | |
| 149.0 | % |
Other income | |
| 4,721 | | |
| 197 | | |
| 4,524 | | |
| 2,296.4 | % |
Total Revenues, net | |
| 171,111 | | |
| 79,411 | | |
| 91,700 | | |
| 115.5 | % |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Marketing | |
| 43,170 | | |
| 11,060 | | |
| 32,110 | | |
| 290.3 | % |
Provision for loss on receivables | |
| 60,749 | | |
| 21,294 | | |
| 39,455 | | |
| 185.3 | % |
Other direct costs | |
| 8,864 | | |
| 4,336 | | |
| 4,528 | | |
| 104.4 | % |
Interest expense | |
| 7,251 | | |
| 2,950 | | |
| 4,301 | | |
| 145.8 | % |
Personnel expenses | |
| 45,878 | | |
| 24,200 | | |
| 21,678 | | |
| 89.6 | % |
Underwriting expenses | |
| 8,253 | | |
| 6,242 | | |
| 2,011 | | |
| 32.2 | % |
Information technology expenses | |
| 7,488 | | |
| 7,041 | | |
| 447 | | |
| 6.3 | % |
Bank and payment processor fees | |
| 24,565 | | |
| 13,737 | | |
| 10,828 | | |
| 78.8 | % |
Change in fair value of warrant liability | |
| 39,629 | | |
| 14,419 | | |
| 25,210 | | |
| 174.8 | % |
Change in fair value of subordinated convertible notes | |
| 41,877 | | |
| 4,000 | | |
| 37,877 | | |
| 946.9 | % |
Change in fair value of contingent consideration from mergers and acquisitions | |
| 6,229 | | |
| - | | |
| 6,229 | | |
| nm | |
Professional fees | |
| 19,847 | | |
| 8,396 | | |
| 11,451 | | |
| 136.4 | % |
Depreciation and amortization expense | |
| 2,392 | | |
| 1,108 | | |
| 1,284 | | |
| 115.9 | % |
Occupancy expense | |
| 997 | | |
| 1,233 | | |
| (236 | ) | |
| (19.1 | )% |
Gain on foreign currency translation | |
| (431 | ) | |
| (179 | ) | |
| (252 | ) | |
| 140.8 | % |
Other operating expenses | |
| 19,172 | | |
| 1,155 | | |
| 18,017 | | |
| 1,559.9 | % |
Total operating expenses | |
| 335,930 | | |
| 120,992 | | |
| 214,938 | | |
| 177.6 | % |
Net loss before income taxes | |
| (164,819 | ) | |
| (41,581 | ) | |
| (123,238 | ) | |
| 296.4 | % |
Income tax expense | |
| 56 | | |
| 6 | | |
| 50 | | |
| 833.3 | % |
Net loss | |
$ | (164,875 | ) | |
$ | (41,587 | ) | |
$ | (123,288 | ) | |
| 296.5 | % |
Revenues
We generate revenues primarily
from originating loans, providing membership subscriptions, various product related fees and promoting affiliate services.
Total revenues increased
by $91.7 million, or 115.5%, to $171.1 million for the twelve months ended December 31, 2021, as compared to $79.4 million for the same
period in 2020.
Net interest income on finance receivables
Net interest income on finance
receivables is generated by interest earned on unsecured personal loans, ML Plus loans, and Credit Builder Plus loans, which is offset
by the amortization of loan origination costs.
Net interest income on finance
receivables increased by $2.7 million, or 61.1%, to $7.0 million for the twelve months ended December 31, 2021, as compared to $4.3 million
for the same period in 2020. Net interest income on finance receivables comprises the following:
Credit Builder Plus loans
Net interest income related
to Credit Builder Plus loans increased by $5.4 million, or 128.1%, to $9.6 million for the twelve months ended December 31, 2021 as compared
to $4.2 million for the same period in 2020. We launched Credit Builder Plus in 2019 and it became our only secured personal loan product
in the second quarter of 2020 as we transitioned from ML Plus loans, which contributed to the increase in net interest income as Credit
Builder Plus loans increased across both existing and new customers.
ML Plus loans
Net interest income related
to ML Plus loans decreased by $0.9 million to $0.0 million for the twelve months ended December 31, 2021, as compared to $0.9 million
for the same period in 2020. We transitioned from originating ML Plus loans in the second quarter of 2020 as we offered our new and existing
customers our Credit Builder Plus loans. Therefore, these loans are immaterial to our ongoing performance as they represent less than
1% of receivables on our consolidated balance sheets.
Unsecured personal loans
Net interest income related
to unsecured personal loans decreased by $1.3 million to $(0.1) million for the twelve months ended December 31, 2021, as compared to
$1.2 million for the same period in 2020. During the first quarter of 2020, we phased out originating unsecured personal loans. Therefore,
these loans are immaterial to our ongoing performance as they represent less than 1% of receivables on our consolidated balance sheets.
Amortization of loan origination
costs
The amortization of loan
origination costs increased by $0.6 million, to $2.5 million for the twelve months ended December 31, 2021, as compared to $1.9 million
for the same period in 2020.
Membership subscription revenue
Membership subscription revenue
increased by $6.4 million, or 24.5%, to $32.4 million for the twelve months ended December 31, 2021, as compared to $26.0 million for
the same period in 2020 due to an increasing number of customers using the Credit Builder Plus membership program. This was slightly offset
by a lower monthly Credit Builder Plus membership fee charged to customers compared to the higher priced ML Plus membership offered in
the first half of 2020. There was a non-recurring adjustment of $3.6 million in 2020 that reduced membership revenue during that period.
Membership subscription revenue would have increased $2.8 million during this period excluding this adjustment.
Affiliates income
Affiliates income increased
by $8.7 million, or 387.9%, to $10.9 million for the twelve months ended December 31, 2021, as compared to $2.2 million for the same period
in 2020. This increase was primarily attributable to an increase in income generated from running campaigns promoting various affiliate
partners through our digital platform, driven by the expansion of our partner network and growth in Total Customers.
Fee income
Fee income increased by $69.5
million, or 149.0%, to $116.1 million for the twelve months ended December 31, 2021, as compared to $46.6 million for the same period
in 2020.
Fee income is primarily comprised
of the following:
Instant transfer fees
Fee income related to instant
transfer fees on Instacash, Credit Builder Plus loans and ML Plus loans increased by $51.6 million to $78.0 million for the twelve months
ended December 31, 2021, as compared to $26.4 million for the same period in 2020. The increase is largely attributable to the growth
of Instacash advances, across both existing and new customers. We launched the instant transfer disbursement option for Instacash customers
in 2019 and have since seen a consistent percentage of our Instacash customers elect this disbursement option. In November 2021, our pricing
structure was changed from a fixed to a variable structure based on the size of the advance. Additionally, there was a decrease in instant
transfer fees on Credit Builder Plus loans as beginning in the second quarter of 2021, the instant transfer disbursement option was removed
for Credit Builder Plus loans.
Tips
Fee income related to tips
from Instacash increased by $11.7 million to $23.5 million for the twelve months ended December 31, 2021, as compared to $11.8 million
for the same period in 2020. This increase was driven by the growth of Instacash advances, across both existing and new customers.
Interchange fees
Fee income related to interchange
fees from our bank account increased by $5.8 million to $11.1 million for the twelve months ended December 31, 2021, as compared to $5.3
million for the same period in 2020. This increase was driven by an increase in bank account customers and transaction volume on the platform.
Cardholder fees
Fee income related to cardholder
fees from our bank account increased by $1.2 million to $2.5 million for the twelve months ended December 31, 2021, as compared to $1.3
million for the same period in 2020. This increase was primarily driven by a small monthly administration fee that we began charging our
bank account customers in the third quarter of 2020 as well as an increase in bank account customers and usage of ATM-related services.
Administration fees
Fee income related to administration
fees from our managed investment account decreased by $0.1 million to $1.0 million for the twelve months ended December 31, 2021, as compared
to $1.1 million for the same period in 2020. We charge our investment account customers a small administration fee. We transitioned from
a quarterly to monthly frequency, while holding the fee amount the same, in the fourth quarter of 2020, while also instituting a waiver
of the fee for Credit Builder Plus members.
Credit-related decision
services fees
Fee income related to credit-related
decision services decreased to zero for the twelve months ended December 31, 2021, as compared to $0.7 million for same period in 2020.
These decreases in revenue were due to the phasing out of this offering in the first quarter of 2020. We do not expect this to contribute
to revenue going forward.
Other income
Other income increased by
$4.5 million to $4.7 million, for the twelve months ended December 31, 2021, as compared to $0.2 million for the same period in 2020.
This increase was primarily driven by revenue generated by digital media and content production services.
Operating Expenses
Our operating expenses consist
of the following:
Marketing
Marketing increased by $32.1
million, or 290.3%, to $43.2 million for the twelve months ended December 31, 2021, as compared to $11.1 million for the same period in
2020. This increase resulted primarily from an increase in costs related to advertising through digital platforms of $26.8 million and
other marketing-related activities of $5.6 million, partially offset by a decrease in costs related to sponsor agreements with third parties
of $0.3 million. Marketing expenses also included $1.1 million in the twelve months ended December 31, 2021 related to the Business Combination.
Provision for loss on receivables
Provision for loss on receivables
consists of amounts charged during the period to maintain an allowance for credit and advance losses. The allowance represents management’s
estimate of the credit losses in our loan and advance portfolio and is based on management’s assessment of many factors, including
changes in the nature, volume and risk characteristics of the finance receivables portfolio, including trends in delinquency and charge-offs
and current economic conditions that may affect the customer’s ability to pay.
Provision for loss on receivables
increased by $39.5 million, or 185.3%, to $60.7 million for the twelve months ended December 31, 2021, as compared to $21.3 million for
the same period in 2020. This increase resulted primarily from an increase to provision related to Instacash advance receivables of $30.4
million, Instacash instant transfer fees and tips of $4.2 million and Credit Builder Plus loan receivables of $1.0 million, evidenced
by the increase in Total Originations from approximately $410 million for the twelve months ended December 31, 2020 compared to approximately
$1.1 billion for the same period in 2021. Provision related to membership fees increased by $1.3 million. Related to the ML Plus loans,
a legacy product we transitioned from in the second quarter of 2020, the provision increased by $2.3 million, from $(3.3) million in the
twelve months ended December 31, 2020 compared to $(1.0) million for the same period in 2021.
Other direct costs
Other direct costs increased
by $4.5 million, or 104.4%, to $8.9 million for the twelve months ended December 31, 2021, as compared to $4.3 million for the same period
in 2020. This increase resulted from an increase in costs related to our bank account offering, paid to our partner bank, card associations
and third-party service providers, which was largely driven by the increase in bank account customers and transaction volume on the platform.
Interest expense
Interest expense increased
by $4.3 million, or 145.8%, to $7.3 million for the twelve months ended December 31, 2021, as compared to $3.0 million for the same period
in 2020. This increase resulted from an increase in debt from December 31, 2020 to December 31, 2021. See Part II, Item 8 “Financial
Statements and Supplementary Data — Debt” for more information.
Personnel expenses
Personnel expenses increased
by $21.7 million, or 89.6%, to $45.9 million for the twelve months ended December 31, 2021, as compared to $24.2 million for the same
period in 2020. This increase resulted from an increase in personnel-related costs, such as compensation and benefits, including $6.3
million in non-recurring, discretionary incentive bonus expense related to the Business Combination. Stock-based compensation also increased
by $3.4 million. Total employees across all locations increased from 234 as of December 31, 2020 to 556 as of December 31, 2021.
Underwriting expenses
Underwriting expenses increased
by $2.0 million, or 32.2%, to $8.3 million for the twelve months ended December 31, 2021, as compared to $6.2 million for the same period
in 2020. This increase resulted primarily from an increase in data costs for Total Originations and Total Customers.
Information technology expenses
Information technology expenses
increased by $0.4 million, or 6.3%, to $7.5 million for the twelve months ended December 31, 2021, as compared to $7.0 million for the
same period in 2020. This increase resulted primarily from an increase in internet hosting expenses of $0.9 million, offset by a decrease
in software licenses and subscriptions of $0.4 million.
Bank and payment processor fees
Bank and payment processor
fees increased by $10.8 million, or 78.8%, to $24.6 million for the twelve months ended December 31, 2021, as compared to $13.7 million
for the same period in 2020. This increase resulted primarily from an increase in payment processing fees driven by the growth in Total
Originations and Total Customers.
Change in fair value of warrant liability
Change in fair value of warrant
liability was an expense of $39.6 million for the twelve months ended December 31, 2021, as compared to an expense of $14.4 million for
the same period in 2020. The change in fair value of warrant liability is due to changes in inputs that drive the fair value calculations.
Change in fair value of subordinated convertible
notes
Change in fair value of subordinated
convertible notes was an expense of $41.9 million for the twelve months ended December 31, 2021, as compared to $4.0 million for the same
period in 2020. The increase in expense resulted from the issuance of the convertible subordinated notes in December 2020 and January 2021,
which were converted into common stock immediately prior to the Business Combination Closing; the noteholders subsequently received shares
of MoneyLion Class A Common Stock upon the Business Combination Closing.
Change in fair value of contingent consideration
from mergers and acquisitions
Change in fair value of contingent
consideration from mergers and acquisitions was an expense of $6.2 million for the twelve months ended December 31, 2021, as compared
to zero for the same period in 2020. The change in fair value and related increase in expense resulted from MALKA’s operating performance
exceeding initial estimates available at the time of the MALKA Acquisition.
Professional fees
Professional fees increased
by $11.5 million, or 136.4%, to $19.8 million for the twelve months ended December 31, 2021, as compared to $8.4 million for the same
period in 2020. This increase resulted primarily from an increase in fees related to accounting and consulting services of $5.5 million
and legal services of $5.9 million, resulting in part from supplemental accounting and legal support related to the Business Combination
and other transaction-related activity such as the MALKA Acquisition and Even Acquisition.
Other operating expenses
Other operating expenses
increased by $18.0 million to $19.2 million for the twelve months ended December 31, 2021, as compared to $1.2 million for the same
period in 2020. The increase was driven by an increase of $10.3 million in losses for unrecovered customer purchase transactions
related to our banking product, $3.5 million insurance-related expenses, digital media and content production services costs of $2.6
million, $1.9 million related to a reserve for costs related to ongoing legal matters and other general operating expenses. This was
offset by the gain related to the forgiveness of loans of $3.2 million as the SBA approved the Company’s application for
forgiveness with respect to the entire outstanding balance of the PPP loan in the second quarter of 2021.
Non-GAAP Measures
In addition to total revenues,
net, net income (loss) and gross profit, which are measures presented in accordance with U.S. GAAP, management believes that Adjusted
Revenue, Adjusted Gross Profit, Adjusted Net Income (Loss) and Adjusted EBITDA provide relevant and useful information which is widely
used by analysts, investors and competitors in our industry in assessing performance. Adjusted Revenue, Adjusted Gross Profit, Adjusted
Net Income (Loss) and Adjusted EBITDA are supplemental measures of MoneyLion’s performance that are neither required by nor presented
in accordance with U.S. GAAP. Adjusted Revenue, Adjusted Gross Profit, Adjusted Net Income (Loss) and Adjusted EBITDA should not be considered
as substitutes for U.S. GAAP metrics such as total revenues, net, net income (loss), gross profit or any other performance measures derived
in accordance with U.S. GAAP and may not be comparable to similar measures used by other companies.
We define Adjusted Revenue
as total revenues, net plus amortization of loan origination costs less provision for loss on membership receivables and provision for
loss on fees receivables, revenue derived from phased out products and non-operating income. We believe that Adjusted Revenue provides
a meaningful understanding of revenue from ongoing products and recurring revenue for comparability purposes.
We define Adjusted Gross Profit
as gross profit less revenue derived from phased out products and non-operating income. We define Adjusted Net Income (Loss) as net income
(loss) plus change in fair value of warrants, change in fair value of subordinated convertible notes, change in fair value of contingent
consideration from mergers and acquisitions, stock-based compensation, one-time transaction related expenses and other one-time expenses
less origination financing cost of capital. We define Adjusted EBITDA as Adjusted Net Income (Loss) plus depreciation and amortization
expense and interest expense related to corporate debt. We believe that these measures provide a meaningful understanding of an aspect
of profitability based on our current product portfolio.
Adjusted Revenue, Adjusted
Gross Profit, Adjusted Net Income (Loss) and Adjusted EBITDA are useful to an investor in evaluating our performance because these measures:
|
● |
are widely used by investors to measure a company’s operating performance; |
|
● |
are metrics used by rating agencies, lenders and other parties to evaluate our credit worthiness; and |
|
● |
are used by our management for various purposes, including as measures of performance and as a basis for strategic planning and forecasting. |
The reconciliation of total
revenues, net to Adjusted Revenue for the twelve months ended December 31, 2021 and 2020 is as follows:
| |
Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Total revenues, net | |
$ | 171,111 | | |
$ | 79,411 | |
Add back: | |
| | | |
| | |
Amortization of loan origination costs(1) | |
| 2,500 | | |
| 1,894 | |
Less: | |
| | | |
| | |
Provision for loss on receivables – membership receivables (2) | |
| (3,170 | ) | |
| (1,856 | ) |
Provision for loss on receivables – fees receivables (3) | |
| (5,604 | ) | |
| (1,356 | ) |
Revenue, net derived from products that have been phased out(4) | |
| 114 | | |
| (1,926 | ) |
Non-operating income(5) | |
| (17 | ) | |
| (113 | ) |
Adjusted Revenue | |
$ | 164,934 | | |
$ | 76,053 | |
| (1) | Amortization of loan origination
costs are included within net interest income from finance receivables. |
| (2) | We deduct provision for loss on
receivables related to membership receivables from total revenues, net as it is related to revenue-based receivables. For U.S. GAAP reporting
purposes, provision for loss on receivables related to membership receivables is included within provision for loss on receivables on
the statement of operations. Refer to Part II, Item 8 “Financial Statements and Supplementary Data — Summary of Significant
Accounting Policies” for further discussion. |
| (3) | We deduct provision for loss on
receivables related to fees receivables from total revenues, net as it is related to revenue-based receivables. For U.S. GAAP reporting
purposes, provision for loss on receivables related to fees receivables is included within provision for loss on receivables on the statement
of operations. Refer to Part II, Item 8 “Financial Statements and Supplementary Data — Summary of Significant Accounting
Policies” for further discussion. |
| (4) | Revenue, net derived from products
that have been phased out includes net interest income and fees related to unsecured personal loans, which are included within net interest
income from finance receivables and fee income, respectively, and credit-related decision servicing fees, which is included within fee
income. Revenue from unsecured personal loans was $(0.1) million and $1.2 million for the twelve months ended December 31, 2021 and 2020,
respectively. Revenue from credit-related decision servicing was zero and $0.7 million for the twelve months ended December 31, 2021
and 2020, respectively. |
| (5) | Non-operating income is included
within other income and consists of interest income earned on cash balances and is considered non-operating. |
The reconciliation of gross
profit, which is prepared in accordance with U.S. GAAP, to Adjusted Gross Profit for the twelve months ended December 31, 2021 and 2020
is as follows:
| |
Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Total revenues, net | |
$ | 171,111 | | |
$ | 79,411 | |
Less: | |
| | | |
| | |
Cost of sales | |
| | | |
| | |
Bank and payment processor fees | |
| (24,565 | ) | |
| (13,737 | ) |
Underwriting expenses | |
| (8,253 | ) | |
| (6,242 | ) |
Provision for loss on receivables – membership receivables (1) | |
| (3,170 | ) | |
| (1,856 | ) |
Provision for loss on receivables – fees receivables (2) | |
| (5,604 | ) | |
| (1,356 | ) |
Information technology expenses | |
| (6,352 | ) | |
| (5,280 | ) |
Professional fees | |
| (3,574 | ) | |
| (2,753 | ) |
Personnel expenses | |
| (3,836 | ) | |
| (3,513 | ) |
Other direct costs | |
| (8,864 | ) | |
| (4,336 | ) |
Other operating (income) expenses | |
| (2,708 | ) | |
| 282 | |
Gross profit | |
| 104,185 | | |
| 40,620 | |
Less: | |
| | | |
| | |
Revenue, net derived from products that have been phased out(3) | |
| 114 | | |
| (1,926 | ) |
Non-operating income(4) | |
| (17 | ) | |
| (113 | ) |
Adjusted Gross Profit | |
$ | 104,283 | | |
$ | 38,580 | |
| (1) | We deduct provision for loss on
receivables related to membership receivables from total revenues, net as it is related to revenue-based receivables. For U.S. GAAP reporting
purposes, provision for loss on receivables related to membership receivables is included within provision for loss on receivables on
the statement of operations. Refer to Part II, Item 8 “Financial Statements and Supplementary Data — Summary of Significant
Accounting Policies” for further discussion. |
| (2) | We deduct provision for loss on
receivables related to fees receivables from total revenues, net as it is related to revenue-based receivables. For U.S. GAAP reporting
purposes, provision for loss on receivables related to fees receivables is included within provision for loss on receivables on the statement
of operations. Refer to the Part II, Item 8 “Financial Statements and Supplementary Data — Summary of Significant Accounting
Policies” for further discussion. |
| (3) | Revenue, net derived from products
that have been phased out includes net interest income and fees related to unsecured personal loans, which are included within net interest
income from finance receivables and fee income, respectively, and credit-related decision servicing fees, which is included within fee
income. Revenue from unsecured personal loans was $(0.1) million and $1.2 million for the twelve months ended December 31, 2021 and 2020,
respectively. Revenue from credit-related decision servicing was zero and $0.7 million for the twelve months ended December 31, 2021
and 2020, respectively. |
| (4) | Non-operating income is included
within other income and consists of interest income earned on cash balances and is considered non-operating. |
The reconciliation of net
loss, which is prepared in accordance with U.S. GAAP, to Adjusted Net Loss and to Adjusted EBITDA for the twelve months ended December
31, 2021 and 2020 is as follows:
| |
Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Net loss | |
$ | (164,875 | ) | |
$ | (41,587 | ) |
Add back: | |
| | | |
| | |
Change in fair value of warrant liability | |
| 39,629 | | |
| 14,419 | |
Change in fair value of subordinated convertible notes | |
| 41,877 | | |
| 4,000 | |
Change in fair value of contingent consideration from mergers and acquisitions | |
| 6,229 | | |
| - | |
Stock compensation expense | |
| 5,039 | | |
| 1,650 | |
One-time transaction related expenses (1) | |
| 10,409 | | |
| 50 | |
Other one-time (gains) expenses (2) | |
| (1,358 | ) | |
| 775 | |
Less: | |
| | | |
| | |
Origination financing cost of capital (3) | |
| (12,718 | ) | |
| (8,409 | ) |
Adjusted net loss | |
| (75,768 | ) | |
| (29,102 | ) |
Add back: | |
| | | |
| | |
Depreciation and amortization expense | |
| 2,392 | | |
| 1,108 | |
Interest expense related to corporate debt (4) | |
| 6,179 | | |
| 2,950 | |
Adjusted EBITDA | |
$ | (67,197 | ) | |
$ | (25,044 | ) |
| |
| | | |
| | |
(1) |
We add back one-time expenses that are related to transactions, including mergers and acquisitions and financings, that occurred. Generally these expenses are included within professional fees in the statement of operations. |
(2) |
We add back other one-time expenses, not related to transactions, such as litigation-related expenses and non-recurring costs or gains. Generally these expenses are included within other expenses or professional fees in the statement of operations. |
(3) |
Origination financing cost of capital represents the preferred return
attributable to IIA investors. This is included within temporary equity on the consolidated balance sheet. As we transitioned away from
IIA in December 2021, this will have no impact on our Adjusted EBITDA and Adjusted Net Income (Loss) going forward. |
(4) |
We add back the interest expense related to all outstanding corporate debt, excluding outstanding principal balances related to the Roar 1 SPV Credit Facility and the Roar 2 SPV Credit Facility. For U.S. GAAP reporting purposes, interest expense related to corporate debt is included within interest expense in the statement of operations. |
Changes in Financial Condition to December 31, 2021 from December
31, 2020
|
|
December 31, |
|
|
December 31, |
|
|
Change |
|
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
|
|
(In thousands, except for percentages) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash |
|
$ |
246,224 |
|
|
$ |
20,927 |
|
|
$ |
225,297 |
|
|
|
1,076.6 |
% |
Receivables |
|
|
153,741 |
|
|
|
68,794 |
|
|
|
84,947 |
|
|
|
123.5 |
% |
Allowance for losses on receivables |
|
|
(22,323 |
) |
|
|
(9,127 |
) |
|
|
(13,196 |
) |
|
|
144.6 |
% |
Receivables, net |
|
|
131,418 |
|
|
|
59,667 |
|
|
|
71,751 |
|
|
|
120.3 |
% |
Property and equipment, net |
|
|
1,801 |
|
|
|
502 |
|
|
|
1,299 |
|
|
|
258.8 |
% |
Goodwill and intangible assets, net |
|
|
77,665 |
|
|
|
30,840 |
|
|
|
46,825 |
|
|
|
151.8 |
% |
Other assets |
|
|
34,430 |
|
|
|
11,707 |
|
|
|
22,723 |
|
|
|
194.1 |
% |
Total assets |
|
$ |
491,538 |
|
|
$ |
123,643 |
|
|
$ |
367,895 |
|
|
|
297.5 |
% |
Liabilities, Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interests and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt agreements |
|
|
186,591 |
|
|
|
46,602 |
|
|
|
139,989 |
|
|
|
300.4 |
% |
Accounts payable and accrued liabilities |
|
|
63,453 |
|
|
|
20,968 |
|
|
|
42,485 |
|
|
|
202.6 |
% |
Warrant liability |
|
|
8,260 |
|
|
|
24,667 |
|
|
|
(16,407 |
) |
|
|
(66.5 |
)% |
Total liabilities |
|
|
258,304 |
|
|
|
92,237 |
|
|
|
166,067 |
|
|
|
180.0 |
% |
Redeemable convertible preferred stock (Series A-1, A-2, A-3, B, B-2, C, C-1) |
|
|
- |
|
|
|
288,183 |
|
|
|
(288,183 |
) |
|
|
(100.0 |
)% |
Redeemable noncontrolling interests |
|
|
- |
|
|
|
71,852 |
|
|
|
(71,852 |
) |
|
|
(100.0 |
)% |
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
23 |
|
|
|
- |
|
|
|
23 |
|
|
|
0.0 |
% |
Additional paid-in capital |
|
|
708,175 |
|
|
|
- |
|
|
|
708,175 |
|
|
|
0.0 |
% |
Accumulated deficit |
|
|
(465,264 |
) |
|
|
(327,629 |
) |
|
|
(137,635 |
) |
|
|
42.0 |
% |
Treasury stock |
|
|
(9,700 |
) |
|
|
(1,000 |
) |
|
|
(8,700 |
) |
|
|
870.0 |
% |
Total stockholders’ equity (deficit) |
|
|
233,234 |
|
|
|
(328,629 |
) |
|
|
561,863 |
|
|
|
(171.0 |
)% |
Total liabilities, redeemable convertible preferred stock, redeemable noncontrolling interests and stockholders’ equity (deficit) |
|
$ |
491,538 |
|
|
$ |
123,643 |
|
|
$ |
367,895 |
|
|
|
297.5 |
% |
Assets
Cash and restricted cash
Cash and restricted cash
increased by $225.3 million, or 1,076.6%, to $246.2 million as of December 31, 2021, as compared to $20.9 million as of December
31, 2020. Refer to the “Cash Flows” section below for further discussion on the net cash provided by (used in) operating
activities, investing activities and financing activities during the period.
Receivables, net
Receivables, net increased
by $71.8 million, or 120.3%, to $131.4 million as of December 31, 2021, as compared to $59.7 million as of December 31, 2020. This increase
was primarily driven by the increase in Total Originations, including Credit Builder Plus loans and Instacash advances, membership fees
and Instacash tips and instant transfer fees as Instacash continued to see strong growth. This was partially offset by the decrease in
ML Plus loans as we completed our transition to Credit Builder Plus loans in 2020 as well as unsecured personal loans as we phased out
this offering in 2020. Refer to the “Results of Operations for the twelve months ended December 31, 2021 and 2020”
section above for further discussion on the changes in revenues and provisions for loss on receivables.
Goodwill and intangible assets, net
Goodwill and intangible assets,
net increased by $46.8 million, or 151.8%, to $77.7 million as of December 31, 2021, as compared to $30.8 million as of December 31, 2020.
This increase was attributable to the MALKA Acquisition, which closed in the fourth quarter of 2021.
Other assets
Other assets increased by
$22.7 million, or 194.1%, to $34.4 million as of December 31, 2021, as compared to $11.7 million as of December 31, 2020. This was primarily
attributable to an increase in prepaid expenses of $7.2 million, including $5.4 million in insurance premiums, receivable from payment
processor – debit card collections and others of $12.3 million and other assets of $3.2 million.
Liabilities
Debt agreements
Debt agreements increased
by $140.0 million, or 300.4%, to $186.6 million as of December 31, 2021, as compared to $46.6 million as of December 31, 2020. This increase
was primarily attributable to $146.0 million of aggregate new debt related to the ROAR 1 SPV Credit Facility and the ROAR 2 SPV Credit
Facility and the additional $20.0 million borrowings on the Second Lien Loan (as defined herein), partially offset by the conversion of
the fair value Subordinated Convertible Notes (as defined herein) of $14.0 million, repayment of $5.0 million of the Second Lien Loan
and forgiveness of the PPP Loan of $3.2 million. Refer to the Part II, Item 8 “Financial Statements and Supplementary Data —
Debt” for further discussion on financing transactions during the period.
Accounts payable and accrued expenses
Accounts payable and accrued
expenses increased by $42.5 million, or 202.6%, to $63.5 million as of December 31, 2021, as compared to $21.0 million as of December
31, 2020, which was attributable to an increase in operating expenses during the period, $5.4 million of accrued liability related to
insurance premiums, $3.7 million of transaction costs related to the Business Combination that remain unpaid as of December 31, 2021 and
$18.0 million of contingent consideration related to the MALKA Acquisition. Refer to the “Results of Operations for the Twelve
Months Ended December 31, 2021 and 2020” section above for further discussion on operating expense activity during the period.
Warrant liability
Warrant liability decreased
by $16.4 million, or 66.5%, to $8.3 million as of December 31, 2021, as compared to $24.7 million as of December 31, 2020. Part of the
change is due to the conversion of older warrants and acquisition of new warrants as part of the Business Combination described in Note
3, “Business Combination.” Also refer to the “Results of Operations for the Twelve Months Ended December 31, 2021
and 2020” section above for further discussion on the change in fair value of warrant liability.
Liquidity and Capital Resources
As a result of the Business
Combination, we raised net proceeds of $293.2 million, including the contribution of cash held in Fusion’s trust account from its
initial public offering of $91.1 million, post redemption of Fusion’s common stock held by Fusion’s public stockholders prior
to the Business Combination, and $250.0 million of private investment in public equity (“PIPE”) at $10.00 per share of MoneyLion
Class A Common Stock, net of transaction expenses. Prior to the Business Combination, the funds received from previous common stock and
redeemable convertible preferred stock equity financings, as well as the Company’s ability to obtain lending commitments, provided
the liquidity necessary for the Company to fund its operations. We believe our existing cash and cash equivalents and cash flows from
operating activities will be sufficient to meet our operating working capital needs for at least the next twelve months. Our future financing
requirements will depend on several factors including our growth, the timing and level of spending to support continued development of
our platform, the expansion of marketing activities and merger and acquisition activity. In addition, growth of our finance receivables
increases our liquidity needs, and any failure to meet those liquidity needs could adversely affect our business. Additional funds may
not be available on terms favorable to us or at all. If the Company is unable to generate positive operating cash flows, additional debt
and equity financings or refinancing of existing debt financings may be necessary to sustain future operations. As part of the Even Acquisition,
which closed on February 17, 2022, we agreed to pay approximately $14.5 million in cash to certain Even Financial management equityholders.
The following table presents
the Company’s cash, restricted cash and receivable from payment processor, as of December 31, 2021 and 2020:
| |
December 31, | |
| |
2021 | | |
2020 | |
| |
(In thousands) | |
Cash | |
$ | 201,763 | | |
$ | 19,406 | |
Restricted cash | |
| 44,461 | | |
| 1,521 | |
Receivable from payment processor - Debit card collections | |
| 16,681 | | |
| 5,600 | |
Receivable from payment processor - Other | |
| 3,156 | | |
| 1,936 | |
Cash Flows
The following table presents
cash provided by (used in) operating, investing and financing activities during the twelve months ended December 31, 2021 and 2020:
|
|
Twelve Months Ended
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
(In thousands) |
|
Net cash (used in) provided by operating activities |
|
$ |
(8,569 |
) |
|
$ |
3,028 |
|
Net cash used in investing activities |
|
|
(144,361 |
) |
|
|
(42,747 |
) |
Net cash provided by financing activities |
|
|
378,227 |
|
|
|
14,833 |
|
Net change in cash and restricted cash |
|
$ |
225,297 |
|
|
$ |
(24,886 |
) |
Operating Activities
Net cash used in operating
activities was $8.6 million for the twelve months ended December 31, 2021 compared to net cash provided by operating activities of $3.0
million for the twelve months ended December 31, 2020. The primary driver was a decrease in profitability of approximately $12.6 million
during the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020, primarily as the result of increases
in marketing expenses, other direct costs, personnel expenses, bank and payment processor fees, professional fees and other expenses,
which were partially offset by increases in net revenues.
Investing Activities
Net cash used in investing
activities was $144.4 million and $42.7 million for the twelve months ended December 31, 2021 and 2020, respectively. The increase in
cash used in investing activities was primarily related to an increase in net originations and collections of finance receivables of $90.2
million and $12.1 million spent on the MALKA Acquisition during the twelve months ended December 31, 2021.
Financing Activities
Net cash provided by financing
activities was $378.2 million and $14.8 million for the twelve months ended December 31, 2021 and 2020, respectively. The increase in
cash provided by financing activities was primarily attributable to net proceeds from the Business Combination of $293.2 million, proceeds
of $146.0 million from aggregate new debt related to the ROAR 1 SPV Credit Facility and the ROAR 2 SPV Credit Facility and an increase
in proceeds from the issuance of convertible notes of $26.8 million, partially offset by an increase in outflows to noncontrolling interests
of $73.9 million and payments for redeemed common stock and stock options of $22.4 million.
Financing Arrangements
Refer to the Part II, Item
8 “Financial Statements and Supplementary Data — Debt” for further discussion on financing transactions during the period.
Contractual Obligations
The table below summarizes
debt, lease and other minimum cash obligations outstanding as of December 31, 2021:
| |
Twelve Months Ended
December 31, | |
| |
Total | | |
2022 | | |
2023
– 2024 | | |
2025 – 2026 | | |
Thereafter | |
| |
(In thousands) | |
First Lien Loan | |
$ | 24,028 | | |
$ | 21,667 | | |
$ | 2,361 | | |
$ | - | | |
$ | - | |
Second Lien Loan | |
| 20,000 | | |
| 13,333 | | |
| 6,667 | | |
| - | | |
| - | |
ROAR 1 SPV Credit Facility | |
| 78,000 | | |
| - | | |
| - | | |
| 78,000 | | |
| - | |
ROAR 2 SPV Credit Facility | |
| 68,000 | | |
| - | | |
| - | | |
| 68,000 | | |
| - | |
Operating lease obligations | |
| 4,554 | | |
| 1,242 | | |
| 2,312 | | |
| 1,000 | | |
| - | |
Total | |
$ | 194,582 | | |
$ | 36,242 | | |
$ | 11,340 | | |
$ | 147,000 | | |
$ | - | |
Secured Loans and Other Debt
For more information regarding
our secured loans and other debt, see Part II, Item 8 “Financial Statements and Supplementary Data — Debt”
in this Annual Report on Form 10-K.
Equity
MoneyLion Class A Common Stock
After the Business Combination
Closing, MoneyLion’s Certificate of Incorporation authorized the issuance of an aggregate of 2,200 million shares of capital stock,
consisting of 2,000,000,000 shares of MoneyLion Class A Common Stock, $0.0001 par value per share and 200,000,000 shares of preferred
stock, $0.0001 par value per share. Immediately following the Business Combination, 970,000 shares of MoneyLion Class A Common Stock were
redeemed for $9.7 million.
Redeemable Convertible Preferred Stock
For more information regarding
our redeemable convertible preferred stock, see Part II, Item 8 “Financial Statements and Supplementary Data — Redeemable
Convertible Preferred Stock” in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
At December 31, 2021, the
Company did not have any material off-balance sheet arrangements.
Critical Accounting Policies and Estimates
See Part II, Item 8 “Financial
Statements and Supplementary Data — Summary of Significant Accounting Policies” included elsewhere in this Annual Report on
Form 10-K for a description of critical accounting policies and estimates.
Recently Issued and Adopted Accounting Pronouncements
See Part II, Item 8 “Financial Statements
and Supplementary Data — Summary of Significant Accounting Policies” included elsewhere in this Annual Report on Form 10-K
for a description of recently issued accounting pronouncements that may potentially impact our results of operations, financial condition
or cash flows.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
We are exposed to market risks in the ordinary
course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial
market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates.
Interest Rates Risk
Interest rates may adversely
impact our customers’ level of engagement on our platform and ability and willingness to pay outstanding amounts owed to us. While
we do not charge interest on a lot of our products, higher interest rates could deter customers from utilizing our credit products and
other loans. Moreover, higher interest rates may lead to increased delinquencies, charge-offs and allowances for loans and interest receivable,
which could have an adverse effect on our operating results.
Certain of our funding arrangements,
and future funding arrangements may, bear a variable interest rate. Given the fixed interest rates charged on many of our loans, a rising
variable interest rate would reduce our interest margin earned in these funding arrangements. Dramatic increases in interest rates may
make these forms of funding nonviable. A one percent change in the interest rate on our variable interest rate debt, based on principal
balances as of December 31, 2021, would result in an approximately $0.4 million impact to annual interest expense.
Item 8. Financial Statements and Supplementary
Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting
Firm
To the Stockholders and the Board of Directors of MoneyLion Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MoneyLion
Inc. and its subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, redeemable
convertible preferred stock, redeemable noncontrolling interests and stockholders’ equity (deficit) and cash flows for the years
then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020,
and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2016.
Austin, Texas
March 17, 2022
MONEYLION INC.
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except per share
amounts)
|
|
December 31, |
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Cash, including amounts held by variable interest entities (VIEs) of $0 and $390 |
|
$ |
201,763 |
|
|
$ |
19,406 |
|
Restricted cash, including amounts held by VIEs of $39,396 and $0 |
|
|
44,461 |
|
|
|
1,521 |
|
Receivables |
|
|
153,741 |
|
|
|
68,794 |
|
Allowance for losses on receivables |
|
|
(22,323 |
) |
|
|
(9,127 |
) |
Receivables, net, including amounts held by VIEs of $92,796 and $52,264 |
|
|
131,418 |
|
|
|
59,667 |
|
Property and equipment, net |
|
|
1,801 |
|
|
|
502 |
|
Intangible assets, net |
|
|
25,124 |
|
|
|
9,275 |
|
Goodwill |
|
|
52,541 |
|
|
|
21,565 |
|
Other assets |
|
|
34,430 |
|
|
|
11,707 |
|
Total assets |
|
$ |
491,538 |
|
|
$ |
123,643 |
|
Liabilities, Redeemable Convertible Preferred Stock, Redeemable
Noncontrolling Interests and Stockholders’ Deficit |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Secured loans |
|
|
43,591 |
|
|
|
24,395 |
|
Accounts payable and accrued liabilities |
|
|
63,453 |
|
|
|
20,968 |
|
Subordinated convertible notes, at fair value |
|
|
- |
|
|
|
14,000 |
|
Related party loan |
|
|
- |
|
|
|
5,000 |
|
Warrant liability |
|
|
8,260 |
|
|
|
24,667 |
|
Other debt, including amounts held by VIEs of $143,000 and $0 |
|
|
143,000 |
|
|
|
3,207 |
|
Total liabilities |
|
|
258,304 |
|
|
|
92,237 |
|
Commitments and contingencies (Note 17) |
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock (Series A-1, A-2, A-3, B, B-2, C, C-1), $0.0001 par value; 0 and 7,471,198 shares authorized, 0 and 7,085,923 issued and outstanding at December 31, 2021 and December 31, 2020; aggregate liquidation preference of $0 and $288,183 at December 31, 2021 and December 31, 2020(1) |
|
|
- |
|
|
|
288,183 |
|
Redeemable noncontrolling interests |
|
|
- |
|
|
|
71,852 |
|
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
|
Class A Common Stock, $0.0001 par value; 2,000,000,000 and 0 shares authorized as of December 31, 2021 and December 31, 2020, respectively, 231,452,448 and 230,482,448 issued and outstanding, respectively, as of December 31, 2021 and 0 issued and outstanding as of December 31, 2020 |
|
|
23 |
|
|
|
- |
|
Additional paid-in capital |
|
|
708,175 |
|
|
|
- |
|
Accumulated deficit |
|
|
(465,264 |
) |
|
|
(327,629 |
) |
Treasury stock at cost, 970,000 and 44,924 shares at December 31, 2021 and December 31, 2020, respectively |
|
|
(9,700 |
) |
|
|
(1,000 |
) |
Total stockholders’ equity (deficit) |
|
|
233,234 |
|
|
|
(328,629 |
) |
Total liabilities, redeemable convertible preferred stock, redeemable noncontrolling interests and stockholders’ equity (deficit) |
|
$ |
491,538 |
|
|
$ |
123,643 |
|
| (1) | Prior period results have been
adjusted to reflect the exchange of Legacy MoneyLion Common Stock for MoneyLion Class A Common Stock at an exchange ratio of approximately
16.4078 in September 2021 as a result of the Business Combination. See Note 3, “Business Combination,” for details. |
The accompanying notes are an integral part of
these consolidated financial statements.
MONEYLION INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share
amounts)
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
Net interest income on finance receivables |
|
$ |
7,002 |
|
|
$ |
4,347 |
|
Membership subscription revenue |
|
|
32,357 |
|
|
|
25,994 |
|
Affiliates income |
|
|
10,900 |
|
|
|
2,234 |
|
Fee income |
|
|
116,131 |
|
|
|
46,639 |
|
Other income |
|
|
4,721 |
|
|
|
197 |
|
Total Revenues, net |
|
|
171,111 |
|
|
|
79,411 |
|
Operating expenses |
|
|
|
|
|
|
|
|
Marketing |
|
|
43,170 |
|
|
|
11,060 |
|
Provision for loss on receivables |
|
|
60,749 |
|
|
|
21,294 |
|
Other direct costs |
|
|
8,864 |
|
|
|
4,336 |
|
Interest expense |
|
|
7,251 |
|
|
|
2,950 |
|
Personnel expenses |
|
|
45,878 |
|
|
|
24,200 |
|
Underwriting expenses |
|
|
8,253 |
|
|
|
6,242 |
|
Information technology expenses |
|
|
7,488 |
|
|
|
7,041 |
|
Bank and payment processor fees |
|
|
24,565 |
|
|
|
13,737 |
|
Change in fair value of warrant liability |
|
|
39,629 |
|
|
|
14,419 |
|
Change in fair value of subordinated convertible notes |
|
|
41,877 |
|
|
|
4,000 |
|
Change in fair value of contingent consideration from mergers and acquisitions |
|
|
6,229 |
|
|
|
- |
|
Professional fees |
|
|
19,847 |
|
|
|
8,396 |
|
Depreciation and amortization expense |
|
|
2,392 |
|
|
|
1,108 |
|
Occupancy expense |
|
|
997 |
|
|
|
1,233 |
|
Gain on foreign currency translation |
|
|
(431 |
) |
|
|
(179 |
) |
Other operating expenses |
|
|
19,172 |
|
|
|
1,155 |
|
Total operating expenses |
|
|
335,930 |
|
|
|
120,992 |
|
Net loss before income taxes |
|
|
(164,819 |
) |
|
|
(41,581 |
) |
Income tax expense |
|
|
56 |
|
|
|
6 |
|
Net loss |
|
$ |
(164,875 |
) |
|
$ |
(41,587 |
) |
Net income attributable to redeemable noncontrolling interests |
|
|
(12,776 |
) |
|
|
(8,409 |
) |
Reversal of previously accrued (accrual of) dividends on redeemable convertible preferred stock |
|
|
42,728 |
|
|
|
(17,209 |
) |
Net loss attributable to common shareholders |
|
$ |
(134,923 |
) |
|
$ |
(67,205 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted(1) |
|
$ |
(1.39 |
) |
|
$ |
(1.49 |
) |
Weighted average shares used in computing net loss per share, basic and diluted(1) |
|
|
97,158,738 |
|
|
|
45,177,217 |
|
| (1) | Prior period results have been adjusted
to reflect the exchange of Legacy MoneyLion Common Stock for MoneyLion Class A Common Stock at an exchange ratio of approximately 16.4078 in
September 2021 as a result of the Business Combination. See Note 3, “Business Combination,” for details. Because the
Company had a net loss in the twelve months ended December 31, 2021 and 2020, the Company’s potentially dilutive securities, which
include stock options, restricted stock units, preferred stock and warrants to purchase shares of common stock and preferred stock, have
been excluded from the computation of diluted net loss per share, as the effect would be anti-dilutive. Therefore, the weighted-average
number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders for
these periods is the same. |
The accompanying notes are an integral part of
these consolidated financial statements.
MONEYLION
INC.
CONSOLIDATED
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY (DEFICIT)
(amounts
in thousands, except share amounts)
|
|
Redeemable
Convertible
Preferred Stock
(All Series) |
|
|
Redeemable
Noncontrolling |
|
|
Common
Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Treasury |
|
|
Total
Stockholders’
Equity |
|
|
|
Shares
(1) |
|
|
Amount |
|
|
Interests |
|
|
Shares
(1) |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
(Deficit) |
|
Balances
at January 1, 2021 |
|
|
116,264,374 |
|
|
$ |
288,183 |
|
|
$ |
71,852 |
|
|
|
47,870,720 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(327,629 |
) |
|
$ |
(1,000 |
) |
|
$ |
(328,629 |
) |
Stock-based
compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,039 |
|
|
|
- |
|
|
|
- |
|
|
|
5,039 |
|
Exercise
of stock options and warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
788,774 |
|
|
|
- |
|
|
|
252 |
|
|
|
- |
|
|
|
- |
|
|
|
252 |
|
Accrued
dividends on redeemable convertible preferred stock |
|
|
- |
|
|
|
14,292 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,606 |
) |
|
|
(11,686 |
) |
|
|
- |
|
|
|
(14,292 |
) |
Preferred
stock conversion |
|
|
(116,264,374 |
) |
|
|
(302,475 |
) |
|
|
- |
|
|
|
116,264,374 |
|
|
|
12 |
|
|
|
250,761 |
|
|
|
51,702 |
|
|
|
- |
|
|
|
302,475 |
|
Reverse
capitalization on September 22, 2021 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
62,223,940 |
|
|
|
11 |
|
|
|
437,948 |
|
|
|
- |
|
|
|
1,000 |
|
|
|
438,959 |
|
Redemption
of common stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(970,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,700 |
) |
|
|
(9,700 |
) |
Redemption
of stock options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,741 |
) |
|
|
- |
|
|
|
- |
|
|
|
(12,741 |
) |
Issuance
of common stock in connection with the acquisition of Malka Media Group LLC |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,181,441 |
|
|
|
- |
|
|
|
28,707 |
|
|
|
- |
|
|
|
- |
|
|
|
28,707 |
|
Issuance
of common stock in connection with business contracts |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
123,199 |
|
|
|
- |
|
|
|
815 |
|
|
|
- |
|
|
|
|
|
|
- |
815 |
|
Contributions
from redeemable noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
53,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Redemptions
by redeemable noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
(127,391 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Distributions
to redeemable noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
(10,237 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
income (loss) |
|
|
- |
|
|
|
- |
|
|
|
12,776 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(177,651 |
) |
|
|
- |
|
|
|
(177,651 |
) |
Balances
at December 31, 2021 |
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
230,482,448 |
|
|
$ |
23 |
|
|
$ |
708,175 |
|
|
$ |
(465,264 |
) |
|
$ |
(9,700 |
) |
|
$ |
233,234 |
|
|
|
Redeemable
Convertible
Preferred Stock
(All Series) |
|
|
Redeemable
Noncontrolling |
|
|
Class
A
Common Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Treasury |
|
|
Total
Stockholders’ |
|
|
|
Shares
(1) |
|
|
Amount |
|
|
Interests |
|
|
Shares
(1) |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Deficit |
|
Balances
at January 1, 2020 |
|
|
103,598,936 |
|
|
$ |
231,020 |
|
|
$ |
73,977 |
|
|
|
44,198,935 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(262,208 |
) |
|
$ |
(1,000 |
) |
|
$ |
(263,208 |
) |
Stock-based
compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,650 |
|
|
|
- |
|
|
|
- |
|
|
|
1,650 |
|
Exercise
of stock options and warrants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,671,785 |
|
|
|
- |
|
|
|
134 |
|
|
|
- |
|
|
|
- |
|
|
|
134 |
|
Issuance
of Series C-1 in connection with the acquisition of WTI |
|
|
8,853,530 |
|
|
|
27,929 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance
of Series C-1 redeemable convertible preferred stock |
|
|
3,811,908 |
|
|
|
12,025 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Accrued
dividends on redeemable convertible preferred stock |
|
|
- |
|
|
|
17,209 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,784 |
) |
|
|
(15,425 |
) |
|
|
- |
|
|
|
(17,209 |
) |
Redemption
of common stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Redemption
of stock options |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Contributions
from redeemable noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
10,750 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Redemptions
by redeemable noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
(17,489 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Distributions
to redeemable noncontrolling interests |
|
|
- |
|
|
|
- |
|
|
|
(3,795 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
income (loss) |
|
|
- |
|
|
|
- |
|
|
|
8,409 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(49,996 |
) |
|
|
- |
|
|
|
(49,996 |
) |
Balances
at December 31, 2020 |
|
|
116,264,374 |
|
|
$ |
288,183 |
|
|
$ |
71,852 |
|
|
|
47,870,720 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(327,629 |
) |
|
$ |
(1,000 |
) |
|
$ |
(328,629 |
) |
(1) |
Prior
period results have been adjusted to reflect the exchange of Legacy MoneyLion Common Stock for MoneyLion Class A Common Stock at
an exchange ratio of approximately 16.4078 in September 2021 as a result of the Business Combination. See Note 3, “Business
Combination,” for details. |
The
accompanying notes are an integral part of these consolidated financial statements.
MONEYLION
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(amounts
in thousands)
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
|
$ |
(164,875 |
) |
|
$ |
(41,587 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for losses on receivables |
|
|
60,749 |
|
|
|
21,294 |
|
Depreciation and amortization expense |
|
|
2,392 |
|
|
|
1,108 |
|
Change in deferred fees and costs, net |
|
|
1,827 |
|
|
|
1,103 |
|
Change in fair value of warrants |
|
|
39,629 |
|
|
|
14,419 |
|
Change in fair value of subordinated convertible notes |
|
|
41,877 |
|
|
|
4,000 |
|
Change in fair value of contingent consideration from mergers and acquisitions |
|
|
6,229 |
|
|
|
- |
|
Gain on PPP Loan forgiveness |
|
|
(3,207 |
) |
|
|
- |
|
Gains on foreign currency translation |
|
|
(431 |
) |
|
|
(179 |
) |
Stock compensation expense |
|
|
5,039 |
|
|
|
1,650 |
|
Changes in assets and liabilities, net of effects of business combination: |
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
(449 |
) |
|
|
231 |
|
Other assets |
|
|
(17,050 |
) |
|
|
(4,199 |
) |
Accounts payable and accrued liabilities |
|
|
19,701 |
|
|
|
5,188 |
|
Net cash (used in) provided by operating activities |
|
|
(8,569 |
) |
|
|
3,028 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net originations and collections of finance receivables |
|
|
(131,737 |
) |
|
|
(41,562 |
) |
Purchase of property, equipment and software |
|
|
(479 |
) |
|
|
(1,185 |
) |
Acquisition of Malka Media Group LLC, net of cash acquired |
|
|
(12,145 |
) |
|
|
- |
|
Net cash used in investing activities |
|
|
(144,361 |
) |
|
|
(42,747 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayments to secured/senior lenders |
|
|
(798 |
) |
|
|
(18,333 |
) |
Repayment of related party loan |
|
|
(5,000 |
) |
|
|
- |
|
Proceeds from issuance of related party loan |
|
|
- |
|
|
|
5,000 |
|
Proceeds from issuance of special purpose vehicle credit facilities |
|
|
146,000 |
|
|
|
- |
|
Proceeds from issuance of subordinated convertible notes |
|
|
36,750 |
|
|
|
10,000 |
|
Borrowings from secured lenders |
|
|
20,000 |
|
|
|
16,697 |
|
Payment of deferred financing costs |
|
|
(5,147 |
) |
|
|
- |
|
Redemption of founders common stock |
|
|
(9,700 |
) |
|
|
- |
|
Payment of redeemed stock options |
|
|
(12,741 |
) |
|
|
- |
|
Proceeds from issuance of common stock related to exercise of stock options and warrants |
|
|
252 |
|
|
|
134 |
|
Proceeds from reverse capitalization, net of transaction costs |
|
|
293,239 |
|
|
|
- |
|
Issuance of Series C-1 preferred stock |
|
|
- |
|
|
|
12,025 |
|
Contributions from redeemable noncontrolling interests |
|
|
53,000 |
|
|
|
10,750 |
|
Redemptions by redeemable noncontrolling interests |
|
|
(127,391 |
) |
|
|
(17,645 |
) |
Distributions to noncontrolling interests |
|
|
(10,237 |
) |
|
|
(3,795 |
) |
Net cash provided by financing activities |
|
|
378,227 |
|
|
|
14,833 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and restricted cash |
|
|
225,297 |
|
|
|
(24,886 |
) |
Cash and restricted cash, beginning of year |
|
|
20,927 |
|
|
|
45,813 |
|
Cash and restricted cash, end of year |
|
$ |
246,224 |
|
|
$ |
20,927 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
4,378 |
|
|
$ |
3,090 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Accrued dividends on redeemable convertible preferred stock |
|
$ |
(14,292 |
) |
|
$ |
(17,209 |
) |
Series C-1 redeemable convertible preferred stock issued to acquire WTI |
|
$ |
- |
|
|
$ |
27,929 |
|
Conversion of preferred stock to common stock |
|
$ |
302,475 |
|
|
$ |
- |
|
Issuance of common stock related to convertible debt |
|
$ |
92,627 |
|
|
$ |
- |
|
Issuance of common stock related to warrants exercised |
|
$ |
85,502 |
|
|
$ |
- |
|
Acquisition of private warrants |
|
$ |
29,466 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
MONEYLION
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands, except share and per share amounts or as otherwise indicated)
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On
September 22, 2021 (the “Business Combination Closing Date”), MoneyLion Inc., formerly known as Fusion Acquisition Corp.
(prior to the Business Combination Closing Date, “Fusion” and after the Business Combination Closing Date, “MoneyLion”
or the “Company”), consummated the previously announced business combination (the “Business Combination”) pursuant
to the terms of the Agreement and Plan of Merger, dated as of February 11, 2021 and amended on June 28, 2021 and September 4, 2021 (the
“Merger Agreement”), by and among Fusion, ML Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Fusion
(“Merger Sub”), and MoneyLion Technologies Inc., formerly known as MoneyLion Inc. (prior to the Business Combination Closing
Date, “MoneyLion” or the “Company”, and after the Business Combination Closing Date, “Legacy MoneyLion”),
a Delaware corporation.
Pursuant
to the terms of the Merger Agreement, immediately upon the completion of the Business Combination and the other transactions contemplated
by the Merger Agreement (the “Business Combination Closing”), each of the following transactions occurred in the following
order: (i) Merger Sub merged with and into Legacy MoneyLion, with Legacy MoneyLion surviving the merger as a wholly owned subsidiary
of Fusion (the “Merger”); (ii) Legacy MoneyLion changed its name to “MoneyLion Technologies Inc.”; and (iii)
Fusion changed its name to “MoneyLion Inc.” Following the Business Combination, MoneyLion Inc. became a publicly traded company,
with Legacy MoneyLion, a subsidiary of MoneyLion, continuing the existing business operations. MoneyLion’s Class A common stock,
par value $0.0001 per share (the “MoneyLion Class A Common Stock”), is listed on the New York Stock Exchange under the ticker
symbol “ML.”
As
previously announced, on February 11, 2021, concurrently with the execution of the Merger Agreement, Fusion entered into subscription
agreements (the “Subscription Agreements”) with certain investors (collectively, the “PIPE Investors”) pursuant
to which, among other things, Fusion agreed to issue and sell in private placements an aggregate of 25,000,000 shares (“PIPE Shares”)
of MoneyLion Class A Common Stock to the PIPE Investors for $10.00 per share, for an aggregate commitment amount of $250,000 (the “PIPE
Financing”). Pursuant to the Subscription Agreements, Fusion gave certain re-sale registration rights to the PIPE Investors with
respect to the PIPE Shares. The PIPE Financing was consummated substantially concurrently with the Business Combination Closing.
MoneyLion
was founded in 2013, and the Company’s headquarters is located in New York, New York. The Company operates a personal finance platform
(the “Platform”) that provides a mobile app that is designed to help users simplify their personal financial management and
improve their financial health, giving users access to credit, investment, banking and other financial services and provide them with
a single place to track spending, savings and credit. The Platform is based upon analytical models that power recommendations which are
designed to help users achieve their financial goals ranging from building savings, improving credit health and managing unexpected expenses.
Investment management services are provided by ML Wealth LLC, a wholly owned subsidiary of the Company, which is a Securities and Exchange
Commission (“SEC”) registered investment advisor.
On
November 15, 2021, MoneyLion acquired MALKA Media Group LLC (“MALKA”). MALKA is a creator network and content platform
that produces digital media and content across entertainment, sports, games, live streaming and other sectors. MALKA’s content
capabilities can drive industry-leading customer acquisition and retention at scale to help accelerate MoneyLion’s customer growth.
By combining MALKA’s capabilities with MoneyLion’s financial products and extensive first-party data, MoneyLion hopes to
turn the MoneyLion mobile application into a daily destination for its customers with personalized content that educates, informs and
supports customers’ financial decisions.
Basis
of Presentation—The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the SEC. The consolidated financial
statements include the accounts of MoneyLion Inc. and its wholly owned subsidiaries and consolidated variable interest entities (“VIEs”)
for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. The
Company does not have any items of other comprehensive income (loss); therefore, there is no difference between net loss and comprehensive
loss for the twelve months ended December 31, 2021 and 2020. Certain reclassifications have been made to the prior period financial statements
to conform to the classification adopted in the current period.
Receivables originated on the Company’s
platform, including Credit Builder Plus loans and Instacash advances, were primarily financed through Invest in America Credit Fund 1
LLC (“IIA”) until the end of the fourth quarter of 2021. IIA is organized as a Delaware limited liability company and is treated
as a partnership for United States income tax purposes. IIA’s membership interests were issued in separately designated series,
with each series consisting of Class A Units and Class B Units. IIA investors owned all non-voting Class B Units of the applicable series
they invested in, which entitled them to a targeted, non-guaranteed, preferred return of typically 12% per year. ML Capital III LLC (“ML
Capital III”), an indirect wholly owned MoneyLion subsidiary, is the managing member of IIA and owned the Class A Units of each
series, which entitled ML Capital III to returns that exceeded the targeted preferred return on the Class B Units (if any). IIA used proceeds
from the sale of Class B Units to investors to purchase borrower payment dependent promissory notes from Invest in America Notes I SPV
LLC (“IIA Notes SPV I”) and Invest in America Notes SPV IV LLC (“IIA Notes SPV IV”) (collectively “IIA Notes
SPVs”). The collateral consisted of a portfolio of underlying MoneyLion loans and advance receivables. Investors in Class B Units
funded their investment into IIA at the time of subscription, which proceeds were used to finance receivables originated on MoneyLion’s
platform. Generally, an IIA investor was able to request redemption of all or a portion of their capital account, after a 120-day notice
period, and in increments of $100,000, five days after the expiration of the applicable lock-up period, unless otherwise agreed between
investors in a particular series and the Company. Unless a redemption request was made, both the IIA investor’s capital contribution
and their related Class B returns were automatically reinvested in new notes. ML Capital III, as the managing member of IIA, had the contractual
right to suspend redemptions in certain circumstances and without prior notice to the IIA investors. However, the IIA investors’
right to redemption may not have been entirely within the control of the Company and therefore the IIA investors’ share of the IIA
is presented on the Company’s consolidated balance sheet as temporary equity at the redemption value. Redemptions were $127,391
and $17,489 for the twelve months ended December 31, 2021 and 2020, respectively, of which $1,500 was unpaid as of December 31, 2020.
Distributions, if any, to IIA investors were made at the discretion of the Company or, if agreed between the Company and a particular
IIA investor or series, in accordance with the applicable subscription agreements. The Company had identified IIA, IIA Notes SPV I and
IIA Notes SPV IV as variable interest entities (“VIEs”) due to the fact that the Class A Units are entitled to residual income/loss
in IIA. The Company had identified itself as the primary beneficiary of these VIEs because it directed the activities of the VIEs that
most significantly impacted the VIEs’ economic performance. As the primary beneficiary of the VIEs, the Company had consolidated
the balances of the VIEs into the financial statements. The IIA Class B Units are reflected in the Company’s consolidated financial
statements as redeemable noncontrolling interests totaling $71,852 as of December 31, 2020. Net income in consolidated VIEs were attributed
to redeemable noncontrolling interests based on the investors’ respective interests in the net assets of the consolidated VIE. Net
income attributable to the noncontrolling interests in IIA, IIA Notes SPV I and IIA Notes SPV IV represented interest income.
Beginning
in the fourth quarter of 2021, MoneyLion transitioned its primary source of funding for originated receivables from IIA to special purpose
vehicle financings from third-party institutional lenders. By December 2021, investor balances were returned to all IIA Class B Unit
holders and as of December 31, 2021, IIA had no assets. As a result, only Class A units remain which are wholly owned by ML Capital III
making IIA and the IIA Notes SPVs indirect wholly owned MoneyLion subsidiaries, and therefore as of December 31, 2021 there was no longer
a noncontrolling interest related to IIA and the IIA Notes SPVs. For more information on the alternative financing sources, see Note
9. “Debt” for discussion of the ROAR 1 SPV Credit Facility and the ROAR 2 SPV Credit Facility.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In
the opinion of the Company, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring
adjustments and adjustments to eliminate intercompany transactions and balances, necessary for a fair presentation of its financial position
and its results of operations, changes in redeemable convertible preferred stock, redeemable noncontrolling interests and stockholders’
equity (deficit) and cash flows.
Use
of Estimates—The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions
reflected in these consolidated financial statements included, but are not limited to, revenue recognition, provision for transaction
losses, accounting for business combinations, determination of useful lives of property and equipment, valuation and useful lives of
intangible assets, impairment assessment of goodwill, internal-use software, valuation of common stock, valuation of stock warrants,
valuation of convertible notes, stock option valuations, income taxes, and the recognition and disclosure of contingent liabilities.
The Company evaluates its estimates and assumptions on an ongoing basis. Actual results could differ from those estimates and such differences
may be material to the consolidated financial statements.
Revenue Recognition
and Related Receivables—The ML Plus membership was developed to allow customers to access affordable credit through asset collateralization,
build savings, improve financial literacy and track their financial health. In 2019 the Company began offering the Credit Builder Plus
membership, which is intended to emphasize the program’s ability to help customers build credit while also saving. These programs
are offered directly to MoneyLion customers. Members also receive access to the Company’s banking account, managed investment services,
credit tracking services and Instacash advances. Revenue is recognized as the Company transfers control of promised goods or services
to members, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company evaluates whether it is appropriate to recognize revenue on a gross or net basis based upon its evaluation of whether the
Company obtains control of the specified goods or services by considering if it is primarily responsible for fulfilment of the promise,
and has the latitude in establishing pricing, among other factors. Based on the Company’s evaluation of these factors, revenue is
recorded either gross or net of costs associated with the transaction.
Membership
subscription revenue is recognized on a daily basis throughout the term of the individual subscription agreements, as the control of
the membership services is delivered to the customer evenly throughout that term. Membership receivables are recorded at the amount billed
to the customer. The Company policy is to suspend recognition of subscription revenue when the last scheduled subscription payment is
30 days past due, or when, in the Company’s estimation, the collectability of the account is uncertain. Membership subscription
revenue is recognized gross over time.
Members
of the Credit Builder Plus membership program typically receive the cash related to loans and interest-free Instacash advances in
1-3 business days. Members may elect to receive cash immediately through the Company’s instant transfer option. The Company
charges a fee when the instant transfer option is elected by a member. Instant transfer fees are recognized gross over the term of the
loan or Instacash advance, as the services related to these fees are not distinct from the services of the loan or Instacash advance.
The receivable related to the instant transfer option fee is recorded at the amount billed to the customer.
With
respect to the Company’s Instacash advance service, the Company provides customers with the option to provide a tip for the offering.
Fees earned on tips are recognized gross over the term of the Instacash advance, as the services related to these fees are not distinct
from the services of the Instacash advance. Advances typically include a term of 30 days or less, depending on the individual’s
pay cycle. The Company’s policy is to suspend the account when an advance is 60 days or more past the scheduled payment date on
a contractual basis or when, in the Company’s estimation, the collectability of the account is uncertain. The receivable related
to the tip is recorded at the amount billed to the customer.
Affiliate revenue is
generated by displaying ads on the Company’s mobile application and by sending emails or other messages to customers promoting affiliate
services. For affiliate services, the Company enters into agreements with the affiliates in the form of a signed contract, which specify
the terms of the services and fees, prior to running advertising and promotional campaigns. The Company recognizes revenue from the display
of impression-based ads and distribution of impression-based emails in the period in which the impressions are delivered in
accordance with the contractual terms of the customer arrangements. Impressions are considered delivered when a member clicks on the advertisement
or promotion.
Interest income and the
related accrued interest receivables on loan-related finance receivables is accrued based upon the daily principal amount outstanding
except for when these loans are on nonaccrual status. The Company recognizes interest income using the interest method. The Company’s
policy is to suspend recognition of interest income on finance receivables and place the loan on nonaccrual status when the account is
60 days or more past due on a contractual basis or when, in the Company’s estimation, the collectability of the account is uncertain,
and the account is less than 90 days contractually past due.
Digital media and content production services
provided to third parties are generally earned and recognized over time as the performance obligations within the contracts are satisfied.
The revenue is recorded in other income in the statement of operations. Contracts for digital media and content production services are
typically short-term.
Allowance
for Losses on Receivables—An allowance for losses on finance receivables and related accrued interest and fee receivables is
established to provide for probable losses incurred in the Company’s finance receivables at the balance sheet date and is established
through a provision for losses on receivables. Charge-offs, net of recoveries, are charged directly to the allowance. The allowance is
based on management’s assessment of many factors, including changes in the nature, volume, and risk characteristics of the finance
receivables portfolio, including trends in delinquency and charge-offs and current economic conditions that may affect the borrower’s
ability to pay. The allowance is developed on a general basis and each period management assesses each product type by origination cohort
in order to determine the forecasted performance of those cohorts and arrive at an appropriate allowance rate for that period. While
management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there
are significant changes in any of the factors.
The
Company’s charge-off policy is to charge-off finance receivables for loans and related accrued interest receivables, net of expected
recoveries, in the month in which the account becomes 90 days contractually past due and charge-off finance receivables for advances
and related fee receivables in the month in which the account becomes 60 days past due. If an account is deemed to be uncollectable prior
to this date, the Company will charge-off the receivable in the month it is deemed uncollectable.
The
Company determines the past due status using the contractual terms of the finance receivables. This is the credit quality indicator used
to evaluate the required allowance for losses on finance receivables for each portfolio of products.
An
allowance for losses on membership and fees receivables is established to provide probable losses incurred in the Company’s membership
and fee receivables at the balance sheet date and is established through a provision for losses on receivables. Charge-offs, net of recoveries,
are charged directly to the allowance. The allowance is based on management’s assessment of historical charge-offs and recoveries
on these receivables, as well as certain qualitative factors including current economic conditions that may affect the customers’
ability to pay. Prior to the period ended June 30, 2021, the allowance related to these receivables had not been material to the consolidated
financial statements.
Segment
Information—Operating segments are defined as components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company’s chief operating decision maker is the chief executive officer. The Company has one business activity and there are
no segment managers who are held accountable for material operations, operating results and plans for levels or components below the
consolidated unit level. Accordingly, the Company has one operating segment, and therefore, one reportable segment.
Governmental
Regulation—The Company is subject to various state and federal laws and regulations in each of the states in which it operates,
which are subject to change and may impose significant costs or limitations on the way the Company conducts or expands its business.
The Company’s loans are originated under individual state laws, which may carry different rates and rate limits, and have varying
terms and conditions depending upon the state in which they are offered. The Company is licensed or exempt from licensing to make loans
in substantially all states in the United States of America. Other governmental regulations include, but are not limited to, imposed
limits on certain charges, insurance products and required licensing and qualification.
Fair
Value Measurements—Assets and liabilities recorded at fair value on a recurring basis in the balance sheet are categorized
based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange
price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative
guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
|
Level 1: |
Valuations
for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily
available pricing sources for market transactions involving identical assets or liabilities. |
|
Level 2: |
Valuations
for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing
services for identical or similar assets or liabilities. |
|
|
|
|
Level 3: |
Valuations
for assets and liabilities that are derived from other valuation methodologies including option pricing models, discounted cash flow
models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate
certain assumptions and projections determined by management in estimating the fair value assigned to such assets or liabilities. |
The
Company evaluates the significance of transfers between levels based upon the nature of the financial instruments and size of the transfer
relative to total net assets available for benefits. For the years ended December 31, 2021 and 2020, there were no transfers in
or out of levels 1, 2 or 3.
Net
Loss Per Share—The Company calculated basic and diluted net loss per share attributable to common stockholders in conformity
with the two-class method required for companies with participating securities. The Company considered the redeemable convertible
preferred stock to be a participating security as the holders are entitled to receive aggregated accrued and not paid dividends if/when
declared by the board of directors at a dividend rate payable in preference and priority to the holders of common stock.
Under the two-class method,
basic net loss per share attributable to common stockholders was calculated by dividing the net loss by the weighted-average number
of shares of common stock outstanding during the period. The net loss attributable to common stockholders was not allocated to the redeemable
convertible preferred stock as the holders of redeemable convertible preferred stock do not have a contractual obligation to share in
losses, which is consistent with the if converted method of calculation. Diluted net loss per share attributable to common stockholders
was computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation,
redeemable convertible preferred stock, stock options, restricted stock units, right to receive Earnout Shares, as defined in Note 3, “Business
Combination,” and warrants to purchase redeemable convertible preferred stock and common stock were considered common shares equivalents
but had been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect was anti-dilutive.
In periods in which the Company reports a net loss attributable to all classes of common stockholders, diluted net loss per share attributable
to all classes of common stockholders is the same as basic net loss per share attributable to all classes of common stockholders, since
dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported net losses attributable
to common stockholders for the fiscal years ended December 31, 2021 and 2020.
Cash—Cash
includes cash and cash equivalents held at financial institutions. For purposes of the consolidated financial statements, the
Company considers all highly liquid investments purchased with a maturity date of three months or less to be cash equivalents. At
times, the Company may maintain deposits with financial institutions in excess of the Federal Deposit Insurance Corporation
insurance limits, but management believes any such amounts do not represent a significant credit risk.
Restricted
Cash—Restricted cash consists of cash required to be held on reserve by the Company’s vendors for purposes of loan or
advance processing or funding and cash on hand in the VIEs. All cash accounts are held in federally insured institutions, which may at
times exceed federally insured limits. The Company has not experienced losses in such accounts. Management believes the Company’s
exposure to credit risk is minimal for these accounts.
Goodwill—The
Company performs goodwill impairment testing annually, on the last day of the fiscal year or more frequently if indicators of potential
impairment exist. The goodwill impairment test is performed at the reporting unit level. The Company first evaluates whether it is more
likely than not that the fair value of the reporting unit has fallen below its carrying amount. No indicators of fair value falling below
the reporting unit carrying amount were noted on a quantitative or qualitative basis during the fiscal year 2021 assessment.
Intangible
Assets— The Company’s intangible assets are made up of internal use software and acquired proprietary technology,
customer relationships and trade names. The Company capitalizes qualifying internal use software development costs that are incurred
during the application development stage, provided that management with the relevant authority authorizes the project, it is probable
the project will be completed, and the software will be used to perform the function intended. Costs incurred during the application
development stage internally or externally are capitalized and amortized on a straight-line basis over the expected useful life
of three years. Costs related to preliminary project activities and post-implementation operation activities, including training
and maintenance, are expensed as incurred.
Impairment of Long-Lived Assets—
Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is
not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of
the asset. The amount of impairment loss, if any, is measured as the difference between the carrying value of the asset and its estimated
fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values
and third-party independent appraisals, as considered necessary. No impairment charges were recognized during the years ended December 31,
2021 and 2020.
Income
Taxes— Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences
between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effects of future tax rate changes are recognized in the period when the enactment
of new rates occurs.
When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the positions taken or the amount of the positions that would be ultimately
sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on
all available evidence, it is more likely than not that the position will be sustained upon examination, including the resolution of
appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet
the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being
realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds
the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance
sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and
penalties associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of operations.
Stock-Based Compensation—
The Company accounts for its stock options granted to employees or directors as stock-based compensation expense based on their
grant date fair value. The Company uses an option valuation model to measure the fair value of options at the date of grant.
The
Company accounts for the restricted stock units granted to employees or directors as stock-based compensation expense based on their
grant date fair value. The grant date fair value is based on the price of MoneyLion Class A Common Stock on the day of the grant.
The
fair value of the awards is recognized as an expense over the requisite service period in the Company’s consolidated statement
of operations. Forfeitures are accounted for as they are incurred.
Warrant
Liability— The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
The Company evaluates all financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to Accounting Standards Codification (“ASC”) 480 and ASC
815. The Company accounts for its outstanding Public Warrants and Private Placement Warrants (as defined in Note 14. “Stock Warrants”)
in accordance with the guidance contained in Accounting Standards Codification 815-40, “Derivatives and Hedging — Contracts
on an Entity’s Own Equity” (“ASC 815-40”).
The Company determined that the Private Placement
Warrants do not meet the criteria for equity treatment thereunder. For issued or modified warrants that do not meet all the criteria for
equity treatment, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet
date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
As such, each Private Placement Warrant is recorded as a liability and any change in fair value is recognized in the Company’s statements
of operations. The fair value of the Private Placement Warrants was estimated using a Black-Scholes Option Pricing Model.
The
Public Warrants meet the conditions for equity classification in accordance with ASC 815-40. For issued or modified warrants that meet
all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital
at the time of issuance.
Subordinated
Convertible Notes— As permitted under ASC 825, Financial Instruments (“ASC 825”), the Company has elected
the fair value option to account for its Subordinated Convertible Notes (as defined below). In accordance with ASC 825, the Company records
these Subordinated Convertible Notes at fair value with changes in fair value recorded as a component of other income (expense), net
in the consolidated statement of operations. As a result of applying the fair value option, direct costs and fees related to the Subordinated
Convertible Notes were expensed as incurred and were not deferred. The Company concluded that it was appropriate to apply the fair value
option to the Subordinated Convertible Notes because there are no non-contingent beneficial conversion options related to the Subordinated
Convertible Notes.
The Subordinated Convertible
Notes were valued using a scenario-based discounted cash flow analysis. The Company estimated the probability and timing of the scenarios
based on management’s assumptions and knowledge of specified events at issuance and as of each reporting date. The Subordinated
Convertible Notes are classified as Level 3 because of the Company’s reliance on unobservable assumptions.
Contingent consideration
from mergers and acquisitions— The Company determined that the contingent consideration related to the MALKA earnout provisions
do not meet the criteria for equity treatment. For provisions that do not meet all the criteria for equity treatment, the contingent consideration
is required to be recorded at fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of the contingent consideration are recognized as a non-cash gain or loss on the statements of operations. As such, the MALKA earnout
provision is recorded as a liability and any change in fair value is recognized in the Company’s statements of operations. The fair
value of the MALKA earnout was estimated using a Monte Carlo Simulation Model.
Property
and Equipment— Property and equipment is carried at cost. Depreciation is determined principally under the straight-line method
over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to expense as incurred.
The
estimated useful lives of property and equipment are described below:
Property and Equipment | |
Useful Life |
Leasehold improvements | |
5 - 15 years |
Furniture and fixtures | |
5 - 7 years |
Computers and equipment | |
2 - 5 years |
Debt
Issuance Costs— Costs incurred to obtain debt financing are capitalized and amortized into interest expense over the life
of the related debt using a method that approximates the effective interest method. Debt issuance costs are recorded as a contra debt
balance in the accompanying consolidated financial statements.
Marketing
Costs— Costs related to marketing activities
are expensed as incurred.
Recently
Adopted Accounting Pronouncements—
In
August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles – Goodwill and Other –
Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That is a Service Contract. The new guidance provides for the deferral of implementation costs for cloud computing arrangements and
expensing those costs over the term of the cloud services arrangement. The new guidance is effective for fiscal years beginning after
December 15, 2020 and interim periods in 2021. The adoption of the ASU did not have an impact on the Company’s consolidated financial
statements.
In
June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring
goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific
guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment
awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based
payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide: (1) financing
to the issuer, or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under
Topic 606, Revenue from Contracts with Customers. The amendments in this update are effective for public business entities for fiscal
years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are
effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.
Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The adoption of the ASU did not have a
material impact on the Company’s consolidated financial statements.
Recently
Issued Accounting Pronouncements Not Yet Adopted—
The
Company currently qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”). Accordingly, the Company has the option to adopt new or revised accounting guidance either (i) within the same periods
as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods applicable to private companies.
The Company has elected to adopt new or revised accounting guidance within the same time period as private companies, unless, as indicated
below, management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance.
In
February 2016, the FASB Issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic
840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet
for all leases with terms longer than 12 months. Leases will be classified as either finance or operating with classification affecting
the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for
capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements, with certain practical expedients available. The new standard is effective for the Company on January 1, 2022. The Company
is in the process of evaluating the impact that the pending adoption of this new guidance will have on its consolidated financial statements
and related disclosures.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale
debt securities. The ASU requires financial assets measured at amortized cost (including loans, trade receivables and held-to-maturity
debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected
to occur over the remaining life of the asset, rather than incurred losses. The ASU requires that credit losses on available-for-sale
debt securities be presented as an allowance rather than as a direct write-down. The measurement of credit losses for newly recognized
financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the
statement of income as the amounts expected to be collected change. The ASU is effective for nonpublic entities for fiscal years beginning
after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. The Company is in process of evaluating the impact that adoption
of this new guidance will have on its consolidated financial statements and related disclosures.
In
December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The amendments
in the updated guidance simplify the accounting for income taxes by removing certain exceptions and improving consistent application
of other areas of the topic by clarifying the guidance. The new guidance is effective for fiscal years beginning after December 15,
2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently
in the process of evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements and
related disclosures.
In
March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitating of the Effects of Reference Rate Reform
on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships
and other transactions in which the reference LIBOR or another reference rate is expected to be discontinued as a result of the Reference
Rate Reform. This ASU is intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform
on financial reporting. The new guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within
fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company has no significant contracts based on LIBOR
as of December 31, 2021. As such, the Company currently does not intend to elect the optional expedients and exceptions.
In
August 2020, the FASB issued ASU 2020-06, Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including
convertible instruments and contracts on an entity’s own equity. The updated standard will be effective for the Company on January
1, 2024; however, early adoption of the ASU is permitted on January 1, 2021. The Company is in process of evaluating the impact that
the updated standard will have on its consolidated financial statements and related disclosures.
3.
BUSINESS COMBINATION
On September 21, 2021, Fusion held a Special Meeting
(the “Special Meeting”) at which the Fusion stockholders considered and adopted, among other matters, the Merger Agreement
and the transactions contemplated therein (the “Business Combination Transactions”). On September 22, 2021, the parties to
the Merger Agreement consummated the Business Combination Transactions.
Immediately
prior to the time of filing of a certificate of merger with the Secretary of State of the State of Delaware upon consummation of the
Merger, all issued and outstanding shares of Legacy MoneyLion preferred stock converted into shares of Legacy MoneyLion common stock
(the “Legacy MoneyLion Common Stock”), par value $0.0001 per share (the “Conversion”), in accordance with Legacy
MoneyLion’s amended and restated certificate of incorporation. At the Business Combination Closing Date:
|
● |
all
outstanding warrants to purchase shares of Legacy MoneyLion preferred stock or Legacy MoneyLion Common Stock (“Legacy MoneyLion
Warrants”) were either exercised and ultimately converted into shares of Legacy MoneyLion Common Stock or terminated; |
|
● |
11,231,595
outstanding shares of Legacy MoneyLion Common Stock (which includes the shares of Legacy MoneyLion Common Stock issued to former
holders of Legacy MoneyLion Warrants) were cancelled in exchange for the right to receive 184,285,695 shares of MoneyLion Class A
Common Stock; |
|
● |
2,360,627
outstanding and unexercised options to purchase shares of Legacy MoneyLion Common Stock (“Legacy MoneyLion Options”)
converted into options to acquire 38,732,676 shares of MoneyLion Class A Common Stock, of which 18,861,298 options are vested and
19,871,378 options are unvested; and |
|
● |
each holder of an outstanding share of Legacy MoneyLion Common Stock
(following the Conversion) and/or Legacy MoneyLion Options (each such holder, an “Earnout Participant”) also received the
right to receive the applicable pro rata portion of MoneyLion Class A Common Stock (the “Earnout Shares”) with respect to
each share of MoneyLion Class A Common Stock or option exercisable for shares of MoneyLion Class A Common Stock, contingent upon MoneyLion
Class A Common Stock reaching certain price milestones. 7.5 million and 10.0 million shares of MoneyLion Class A Common Stock
will be issued if the MoneyLion Class A Common Stock share price equals or is greater than $12.50 and $16.50, respectively, for twenty
out of any thirty consecutive trading days within five years of the Business Combination Closing Date. The Earnout Shares meet the conditions
for equity classification in accordance with ASC 815-40. |
In connection with the Business Combination Closing,
holders of 25,887,987 shares of Fusion’s Class A common stock sold in its initial public offering (the “public shares”)
exercised their right to have such shares redeemed for a pro rata portion of the proceeds from Fusion’s initial public offering
held in Fusion’s trust account plus interest, calculated as of two business days prior to the consummation of the Business Combination,
or approximately $10.00 per share and approximately $258,896 in the aggregate (the “Redemptions”). The consummation of the
Business Combination Transactions resulted in approximately $293,239 in cash proceeds to MoneyLion, net of transaction expenses. Following
the Redemptions and the issuance of PIPE Shares in connection with the PIPE Financing, 42,862,013 public shares remained outstanding (consisting
of 25,000,000 shares held by PIPE Investors, 8,750,000 shares held by Fusion Sponsor LLC and 9,112,013 shares held by Fusion public stockholders).
Upon consummation of the Business Combination
Transactions:
|
● |
each
outstanding share of Fusion Class B common stock automatically converted into one share of MoneyLion Class A Common Stock; and |
|
● |
outstanding
warrants to purchase the common stock of Fusion automatically converted into warrants to purchase shares of MoneyLion Class A Common
Stock. |
As
of the Business Combination Closing Date and following the completion of the sale of 25,000,000 shares of MoneyLion Class A Common Stock
in the PIPE Financing, MoneyLion had the following outstanding securities:
|
● |
227,147,708
shares of MoneyLion Class A Common Stock; |
|
● |
38,732,676
MoneyLion options, of which options to purchase 18,861,298 shares of MoneyLion Class A Common Stock were vested and options to purchase
19,871,378 shares of MoneyLion Class A Common stock were unvested; and |
|
● |
17,500,000
public warrants, each exercisable for one share of MoneyLion Class A Common Stock at a price of $11.50 per share and 8,100,000 private
placement warrants, each exercisable for one share of MoneyLion Class A Common Stock at a price of $11.50 per share (assumed from
Fusion). |
Conversion
of Legacy MoneyLion shares was calculated utilizing the exchange ratio of approximately 16.4078 per share of MoneyLion Class A Common
Stock (the “Exchange Ratio”).
The Business Combination was accounted for as
a reverse recapitalization in accordance with GAAP. Under the guidance in ASC 805, Legacy MoneyLion is treated as the “acquirer”
for financial reporting purposes. As such, Legacy MoneyLion is deemed the accounting predecessor of the combined business, and MoneyLion,
as the parent company of the combined business, is the successor SEC registrant, meaning that Legacy MoneyLion’s financial statements
for previous periods are disclosed in the registrant’s periodic reports filed with the SEC following the Business Combination. The
Business Combination had a significant impact on the MoneyLion’s reported financial position and results as a consequence of the
reverse recapitalization. The most significant change in MoneyLion’s reported financial position and results was an estimated net
increase in cash (as compared to the MoneyLion’s consolidated balance sheet at December 31, 2020) of approximately $293,239.
This included approximately $250,000 in proceeds from the PIPE Financing that was consummated substantially simultaneously with the Business
Combination, offset by additional transaction costs incurred in connection with the Business Combination. The transaction costs for the
Business Combination were approximately $56,638, of which $13,150 represents deferred underwriter fees related to Fusion’s initial
public offering. As of December 31, 2021, $3,673 in transaction costs remained unpaid.
The
transaction closed on September 22, 2021, and on the following day the MoneyLion Class A Common Stock and Public Warrants began
trading on the New York Stock Exchange under the symbols “ML” and “ML WS”, respectively, for trading in the public
market.
4.
RECEIVABLES
The
Company’s finance receivables consist of secured personal loans, unsecured personal loans and principal amounts of Instacash advances.
Accrued interest receivables represent the interest accrued on the loan receivables based upon the daily principal amount outstanding.
Fees receivables represent the amounts due to the Company for tips and instant transfer fees related to the Instacash advance product.
Membership receivables represent the amounts billed to customers for membership subscription services. The credit quality and future
repayment of finance receivables are dependent upon the customer’s ability to perform under the terms of the agreement. Factors
such as unemployment rates and housing values, among others, may impact the customer’s ability to perform under the loan or advance
terms. When assessing provision for losses on finance receivables, the Company takes into account the composition of the outstanding
finance receivables, charge-off rates to date and the forecasted principal loss rates. Please see the tables below for the finance receivable
activity, charge-off rates and aging by product for the twelve months ended December 31, 2021 and 2020. The Company has experienced significant
growth in Instacash, a shorter-term advance product with lower charge-off rates than loans. As Instacash has become a larger component
of finance receivable activity, the overall charge-off rate has decreased significantly.
Receivables
consisted of the following:
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Unsecured personal loan receivables | |
$ | 1 | | |
$ | 66 | |
Secured personal loan receivables | |
| 77,491 | | |
| 43,804 | |
Loan receivables | |
| 77,492 | | |
| 43,870 | |
Instacash receivables | |
| 62,783 | | |
| 18,888 | |
Finance receivables | |
| 140,275 | | |
| 62,758 | |
Fees receivable | |
| 8,366 | | |
| 2,913 | |
Membership receivables | |
| 3,099 | | |
| 1,885 | |
Deferred loan origination costs | |
| 929 | | |
| 615 | |
Accrued interest receivable | |
| 1,072 | | |
| 623 | |
Receivables, before allowance for loan losses | |
$ | 153,741 | | |
$ | 68,794 | |
Changes
in the allowance for losses on receivables were as follows:
| |
Twelve Months Ended
December 31, | |
| |
2021 | | |
2020 | |
Beginning balance | |
$ | 9,127 | | |
$ | 6,613 | |
Provision for loss on receivables | |
| 60,749 | | |
| 21,294 | |
Receivables charged off | |
| (75,557 | ) | |
| (39,004 | ) |
Recoveries | |
| 28,004 | | |
| 20,224 | |
Ending balance | |
$ | 22,323 | | |
$ | 9,127 | |
Changes
in allowance for losses on finance receivables were as follows:
| |
Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | |
Beginning balance | |
$ | 9,127 | | |
$ | 6,613 | |
Provision for loss on receivables | |
| 51,975 | | |
| 18,082 | |
Finance receivables charged off | |
| (65,711 | ) | |
| (33,719 | ) |
Recoveries | |
| 26,234 | | |
| 18,151 | |
Ending balance | |
$ | 21,625 | | |
$ | 9,127 | |
Changes
in allowance for losses on membership receivables were as follows:
| |
Twelve Months Ended
December 31, | |
| |
2021 | | |
2020 | |
Beginning balance | |
$ | - | | |
$ | - | |
Provision for loss on receivables | |
| 3,170 | | |
| 1,856 | |
Membership receivables charged off | |
| (3,446 | ) | |
| (3,620 | ) |
Recoveries | |
| 554 | | |
| 1,764 | |
Ending balance | |
$ | 278 | | |
$ | - | |
Changes
in allowance for losses on fees receivable were as follows:
| |
Twelve Months Ended
December 31, | |
| |
2021 | | |
2020 | |
Beginning balance | |
$ | - | | |
$ | - | |
Provision for loss on receivables | |
| 5,604 | | |
| 1,356 | |
Fees receivable charged off | |
| (6,400 | ) | |
| (1,665 | ) |
Recoveries | |
| 1,216 | | |
| 309 | |
Ending balance | |
$ | 420 | | |
$ | - | |
The
following is an assessment of the credit quality of finance receivables as of December 31, 2021 and 2020 and presents the contractual
delinquency of the finance receivable portfolio:
| |
December 31,
2021 | | |
December 31,
2020 | |
| |
Amount | | |
Percent | | |
Amount | | |
Percent | |
Current | |
$ | 122,477 | | |
| 87.3 | % | |
$ | 54,247 | | |
| 86.4 | % |
| |
| | | |
| | | |
| | | |
| | |
Delinquency: | |
| | | |
| | | |
| | | |
| | |
31 to 60 days | |
| 13,397 | | |
| 9.6 | % | |
| 6,148 | | |
| 9.8 | % |
61 to 90 days | |
| 4,401 | | |
| 3.1 | % | |
| 2,363 | | |
| 3.8 | % |
Total delinquency | |
| 17,798 | | |
| 12.7 | % | |
| 8,511 | | |
| 13.6 | % |
Finance receivables before allowance for loan losses | |
$ | 140,275 | | |
| 100.0 | % | |
$ | 62,758 | | |
| 100.0 | % |
The
following is an assessment of the credit quality of loans as of December 31, 2021 and 2020 and presents the contractual delinquency of
the finance receivable loans portfolio:
| |
December 31,
2021 | | |
December 31,
2020 | |
| |
Amount | | |
Percent | | |
Amount | | |
Percent | |
Current | |
$ | 66,514 | | |
| 85.8 | % | |
$ | 38,133 | | |
| 86.9 | % |
| |
| | | |
| | | |
| | | |
| | |
Delinquency: | |
| | | |
| | | |
| | | |
| | |
31 to 60 days | |
| 6,577 | | |
| 8.5 | % | |
| 3,374 | | |
| 7.7 | % |
61 to 90 days | |
| 4,401 | | |
| 5.7 | % | |
| 2,363 | | |
| 5.4 | % |
Total delinquency | |
| 10,978 | | |
| 14.2 | % | |
| 5,737 | | |
| 13.1 | % |
Loan receivables before allowance for loan losses | |
$ | 77,492 | | |
| 100.0 | % | |
$ | 43,870 | | |
| 100.0 | % |
The
following is an assessment of the credit quality of Instacash as of December 31, 2021 and 2020 and presents the contractual delinquency
of the finance receivable Instacash portfolio:
|
|
December
31,
2021 |
|
|
December
31,
2020 |
|
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Current
|
|
$ |
55,963 |
|
|
|
89.1 |
% |
|
$ |
16,114 |
|
|
|
85.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
to 60 days |
|
|
6,820 |
|
|
|
10.9 |
% |
|
|
2,774 |
|
|
|
14.7 |
% |
61
to 90 days |
|
|
- |
|
|
|
0.0 |
% |
|
|
- |
|
|
|
0.0 |
% |
Total
delinquency |
|
|
6,820 |
|
|
|
10.9 |
% |
|
|
2,774 |
|
|
|
14.7 |
% |
Instacash
receivables before allowance for loan losses |
|
$ |
62,783 |
|
|
|
100.0 |
% |
|
$ |
18,888 |
|
|
|
100.0 |
% |
The
following is an assessment of the credit quality of membership receivables as of December 31, 2021 and 2020 and presents the contractual
delinquency of the membership receivable portfolio:
| |
December 31,
2021 | | |
December 31,
2020 | |
| |
Amount | | |
Percent | | |
Amount | | |
Percent | |
Current | |
$ | 2,227 | | |
| 71.8 | % | |
$ | 1,586 | | |
| 84.1 | % |
| |
| | | |
| | | |
| | | |
| | |
Delinquency: | |
| | | |
| | | |
| | | |
| | |
31 to 60 days | |
| 514 | | |
| 16.6 | % | |
| 168 | | |
| 9.0 | % |
61 to 90 days | |
| 358 | | |
| 11.6 | % | |
| 131 | | |
| 6.9 | % |
Total delinquency | |
| 872 | | |
| 28.2 | % | |
| 299 | | |
| 15.9 | % |
Membership receivables before allowance for loan losses | |
$ | 3,099 | | |
| 100.0 | % | |
$ | 1,885 | | |
| 100.0 | % |
The
following is an assessment of the credit quality of fees receivable as of December 31, 2021 and 2020 and presents the contractual delinquency
of the fees receivable portfolio:
| |
December 31,
2021 | | |
December 31,
2020 | |
| |
Amount | | |
Percent | | |
Amount | | |
Percent | |
Current | |
$ | 6,682 | | |
| 79.9 | % | |
$ | 2,435 | | |
| 83.6 | % |
| |
| | | |
| | | |
| | | |
| | |
Delinquency: | |
| | | |
| | | |
| | | |
| | |
31 to 60 days | |
| 1,684 | | |
| 20.1 | % | |
| 478 | | |
| 16.4 | % |
61 to 90 days | |
| - | | |
| 0.0 | % | |
| - | | |
| 0.0 | % |
Total delinquency | |
| 1,684 | | |
| 20.1 | % | |
| 478 | | |
| 16.4 | % |
Fees receivable before allowance for loan losses | |
$ | 8,366 | | |
| 100.0 | % | |
$ | 2,913 | | |
| 100.0 | % |
5.
PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Leasehold improvements | |
$ | 545 | | |
$ | 464 | |
Furniture and fixtures | |
| 573 | | |
| 448 | |
Computers and equipment | |
| 2,209 | | |
| 796 | |
| |
| 3,327 | | |
| 1,708 | |
Less: accumulated depreciation | |
| (1,526 | ) | |
| (1,206 | ) |
Furniture and equipment, net | |
$ | 1,801 | | |
$ | 502 | |
Total
depreciation expense related to property and equipment was $343 and $317 for the twelve months ended December 31, 2021 and 2020, respectively.
6.
INTANGIBLE ASSETS
Goodwill as of December 31, 2021 and 2020 was
$52,541 and $21,565, respectively. The increase relates to goodwill acquired from the acquisition of MALKA. See Note 17, “Mergers
and Acquisitions,” for more information regarding goodwill and other intangible assets acquired from MALKA.
Intangible
assets consisted of the following:
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
Useful Life |
|
2021 |
|
|
2020 |
|
Capitalized internal-use software |
|
3 years |
|
$ |
5,493 |
|
|
$ |
5,374 |
|
Work in process |
|
|
|
|
1,481 |
|
|
|
1,481 |
|
Proprietary technology |
|
7 years |
|
|
6,130 |
|
|
|
6,130 |
|
Customer relationships |
|
15 years |
|
|
5,960 |
|
|
|
- |
|
Trade names |
|
15 years |
|
|
11,820 |
|
|
|
- |
|
Less: accumulated amortization |
|
|
|
|
(5,760 |
) |
|
|
(3,710 |
) |
Intangible assets, net |
|
|
|
$ |
25,124 |
|
|
$ |
9,275 |
|
For the twelve months ended December 31, 2021
and 2020, total amortization expense was $2,049 and $791, respectively.
The
following table summarizes estimated future amortization expense of intangible assets placed in service at December 31, 2021 for the
years ending:
2022 |
|
$ |
2,648 |
|
2023 |
|
|
2,221 |
|
2024 |
|
|
2,072 |
|
2025 |
|
|
2,061 |
|
2026 |
|
|
2,061 |
|
Thereafter |
|
|
12,580 |
|
|
|
$ |
23,643 |
|
7.
OTHER ASSETS
Other
assets consisted of the following:
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Receivable from payment processor - Debit card collections | |
$ | 16,681 | | |
$ | 5,600 | |
Receivable from payment processor - Other | |
| 3,156 | | |
| 1,936 | |
Prepaid expenses | |
| 8,836 | | |
| 1,591 | |
Other | |
| 5,757 | | |
| 2,580 | |
Total other assets | |
$ | 34,430 | | |
$ | 11,707 | |
8.
VARIABLE INTEREST ENTITIES
The following table summarizes the VIEs’
assets and liabilities included in the Company’s consolidated financial statements, after intercompany eliminations, as of December
31, 2021 and 2020:
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Assets: | |
| | |
| |
Cash | |
$ | - | | |
$ | 390 | |
Restricted cash | |
| 39,396 | | |
| - | |
Finance receivables | |
| 109,877 | | |
| 60,845 | |
Allowance for losses on finance receivables | |
| (17,081 | ) | |
| (8,581 | ) |
Finance receivables, net | |
| 92,796 | | |
| 52,264 | |
Total assets | |
$ | 132,192 | | |
$ | 52,654 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Other debt | |
$ | 143,000 | | |
| - | |
Total liabilities | |
$ | 143,000 | | |
$ | - | |
By December 2021, IIA and the IIA Notes SPVs became
indirect wholly owned MoneyLion subsidiaries, removing the variable interest in those entities. See Note 1. “Description of Business
and Basis of Presentation” for more information.
Beginning in the fourth quarter of 2021, MoneyLion
transitioned its primary source of funding for originated receivables from IIA to special purpose vehicle financings from third-party
lenders (the “SPV Credit Facilities”). The Company may sell certain loan and Instacash receivables to wholly owned, bankruptcy-remote
special purpose subsidiaries (the “SPV Borrowers”), which pledge such receivables as collateral to support the financing of
additional receivables. The underlying loan and Instacash receivables are originated and serviced by other wholly owned subsidiaries of
the Company. The SPV Borrowers are required to maintain pledged collateral consisting of loan and Instacash receivables with a net asset
balance that equals or exceeds 90% of the aggregate principal amounts of the loans financed through the SPV Credit Facilities. Proceeds
received from the SPV Credit Facilities can only be used to purchase loans and Instacash receivables. The payments and interest, as applicable,
received from the loans and Instacash receivables held by the SPV Borrowers are used to repay obligations under the SPV Credit Facilities.
While the SPV Credit Facilities and related agreements provide assurances to the third-party lenders regarding the quality of loan and
Instacash receivables and certain origination and servicing functions to be performed by other wholly owned subsidiaries of the Company,
the third-party lender may absorb losses in the event that the payments and interest, as applicable, received in connection with the loan
and Instacash receivables are not sufficient to repay the loans made through the SPV Credit Facilities.
The Company is required to evaluate the SPV Borrowers
for consolidation, which the Company has concluded are VIEs. The Company has the ability to direct the activities of the SPV Borrowers
that most significantly impact the economic performance of the wholly owned subsidiaries that act as the originators and servicer of the
loan and Instacash receivables held by the SPV Borrowers. Additionally, the Company has the obligation to absorb losses related to the
pledged collateral in excess of the aggregate principal amount of the receivables and the right to proceeds related to the excess loan
and Instacash receivables securing the SPV Credit Facilities once all loans and interest under such SPV Credit Facilities are repaid,
which exposes the Company to losses and returns that could potentially be significant to the SPV Borrowers. Accordingly, the Company determined
it is the primary beneficiary of the SPV Borrowers and is required to consolidate them as indirect wholly owned VIEs. For more information,
see Note 9. “Debt” for discussion of the ROAR 1 SPV Credit Facility and the ROAR 2 SPV Credit Facility.
9. DEBT
SPV Debt Agreements — In March 2018,
and then in April 2018, IIA Notes SPV II LLC and IIA Notes SPV III LLC, indirect wholly owned subsidiaries of the Company, entered
into Loan and Security Agreements (the “SPV Debt Agreements”) with separate lenders establishing a total credit facility
of a minimum of $20.0 million, which could have been increased to $27.0 million upon mutual agreement between the lenders and the Company.
The SPV Debt Agreements matured at various dates through 2020 and carried a total interest rate of 14%. The Company borrowed a total
of $22.0 million under these credit facilities. In January 2019, the Company repaid $11.0 million of the secured debt outstanding
under the SPV Debt Agreements. In August 2020, IIA Notes SPV III LLC repaid in full the approximately $11.5 million that remained
outstanding under the SPV Debt Agreements and terminated the facility.
6.75% Bank Loan — In
September 2018, the Company entered into a Loan and Security Agreement (the “6.75% Bank Loan”) with a bank for a 6.75%
$20 million loan. Interest only was payable monthly through September 27, 2019. According to the terms of the 6.75% Bank Loan, the outstanding
principal on that date was converted to a term loan payable with principal and interest payable in 36 monthly installments, maturing
on September 27, 2022. The 6.75% Bank Loan was paid off in 2020.
Second Lien Loan — In April 2020,
the Company entered into a Loan and Security Agreement (“Second Lien Loan”) with a lender for a second-lien loan facility
with an initial principal balance of $5,000. The Second Lien Loan bears interest at the greater of (a) 12%, and (b) a fluctuating
rate of interest per annum equal to the Wall Street Journal Prime Rate plus 5.75%, not to exceed 15%. As of December 31, 2021, the interest
rate was 12%. Interest only is payable until April 30, 2022, and thereafter outstanding principal will be repaid in twelve equal installments
through the facility maturity date of May 1, 2023. The Second Lien Loan is secured by substantially all assets of the Company, including
capital stock of all subsidiaries, except for capital stock and assets in certain excluded subsidiaries, as defined, including IIA and
all of the related SPVs, ROAR 1 SPV Finance LLC and ROAR 2 SPV Finance LLC. Under the terms of the Second Lien Loan the Company is subject
to certain covenants, as defined. The Company used the Second Lien Loan proceeds for general corporate purposes. On August 27, 2021,
the Company entered into a Second Amendment to the Loan and Security Agreement that refinanced the Second Lien Loan and increased principal
borrowings up to an aggregate principal amount of $25,000, and with Monroe Capital Management Advisors, LLC replacing MLi Subdebt Facility
1 LLC as collateral agent and administrative agent for the lenders. The other material terms of the loan remained the same. Upon the consummation
of the Business Combination, the Company repaid the original $5,000 principal balance owed to MLi Subdebt Facility 1 LLC, together with
accrued interest and fees. As of December 31, 2021, the $20,000 principal balance owed to affiliates of Monroe Capital Management Advisors,
LLC remained outstanding.
First Lien Loan — In
July 2020, the Company entered into a Loan and Security Agreement (“First Lien Loan”) with a bank for a $25.0 million
first-lien loan facility consisting of a $20.0 million revolving credit line and $5.0 million term loan. The revolving line bears interest
at the greater of (i) Wall Street Journal Prime Rate plus 2.25% and (ii) 6.50%. As of December 31, 2021, the revolving line
interest rate was 6.5%. The revolving line matures on May 1, 2022. The term loan bears interest at the greater of (i) Wall Street
Journal Prime Rate plus 3.25% and (ii) 7.50%. As of December 31, 2021, the term loan interest rate was 7.5%. Interest only on the term
loan was payable until September 1, 2021, and thereafter outstanding principal is payable in thirty-nine equal instalments through the
facility maturity date of May 1, 2024. The First Lien Loan is secured on a first-priority basis by all assets of the Company, including
capital stock of all subsidiaries, except for capital stock and assets in certain excluded subsidiaries, as defined, including IIA and
all of the related SPVs, ROAR 1 SPV Finance LLC and ROAR 2 SPV Finance LLC. Under the terms of the First Lien Loan, the Company is subject
to certain covenants, as defined. Additionally, the Company granted the bank lender warrants to receive 12,792 shares of Legacy MoneyLion
Common Stock, at an exercise price as defined in the First Lien Loan, which were exercised as part of the Business Combination. The Company
used the First Lien Loan proceeds to repay in full the 6.75% Bank Loan and for general corporate purposes. As of December 31, 2021, $24,028
of principal remained outstanding.
Subordinated Convertible Notes—
In December 2020, the Company sold to a third-party lender $10,000 of 3% subordinated convertible notes maturing on July 31, 2021, the
proceeds of which were used to conduct its business.
In January 2021, the Company sold to third-party
lenders $36,750 of 3% subordinated convertible notes as part of the same series of notes issued in December 2020 maturing on July 31,
2021 (collectively, the “Subordinated Convertible Notes”), the proceeds of which were used to conduct its business. Upon maturity
or certain events, the Subordinated Convertible Notes could have been converted into preferred shares at conversion prices as defined
in the Subordinated Convertible Notes. In July 2021, the Subordinated Convertible Note agreements were amended to extend the maturity
date to September 30, 2021. The Company elected the fair value option to account for the Subordinated Convertible Notes. The Company recorded
the Subordinated Convertible Notes at fair value and subsequently remeasured it to fair value at the reporting date. Changes in fair value
were recognized as a component of operating expenses in the consolidated statements of operations under Change in fair value of subordinated
convertible notes. On September 22, 2021, the Business Combination was completed and the Subordinated Convertible Notes were converted
into a total of 10,068,133 shares of MoneyLion Class A Common Stock. Prior to the conversion, the carrying value of the Subordinated
Convertible Notes was $92,627.
Other Debt—
In August 2016, the Company entered into
a $50,000 credit and security agreement (the “2016 Credit Agreement”) with a lender for the funding of finance receivables.
The 2016 Credit Agreement allowed for increases in the maximum borrowings under the agreement up to $500,000, bore interest at a rate
as defined in the 2016 Credit Agreement and matured in February 2023. The 2016 Credit Agreement also required the Company to adhere to
certain financial covenants along with certain other financial reporting requirements. The Company did not meet certain of these covenant
requirements as of December 31, 2019, for which it received a waiver from the lender. The 2016 Credit Agreement was terminated upon the
Business Combination Closing by mutual agreement of the Company and the lender; there was no outstanding balance under the 2016 Credit
Agreement at the time of termination.
In connection with the 2016 Credit Agreement,
the Company granted warrants allowing the lender to purchase up to 2.5% of Legacy MoneyLion’s outstanding common stock, or 255,402
warrants. All tranches were exercised and converted into MoneyLion Class A Common Stock in connection with the Business Combination.
In April 2020, the Company borrowed $3,207
from a bank under the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program introduced as part of
the U.S. Government’s COVID-19 relief efforts (the “PPP Loan”). In June 2021, the SBA approved the Company’s
application for forgiveness with respect to the entire outstanding balance of the PPP Loan of $3,207 which resulted in a gain which is
included as a component of other operating (income) expenses in the consolidated statements of operations during the twelve months ended
December 31, 2021.
In September 2021, ROAR 1 SPV Finance LLC, an
indirect wholly owned subsidiary of the Company (the “ROAR 1 SPV Borrower”), entered into a $100,000 credit agreement (the
“ROAR 1 SPV Credit Facility”) with a lender for the funding of finance receivables, which secure the ROAR 1 SPV Credit Facility.
The ROAR 1 SPV Credit Facility allows for increases in maximum borrowings under the agreement of up to $200,000, bears interest at a rate
of 12.5% and matures in March 2025, unless it is extended to March 2026. Under the terms of the ROAR 1 SPV Credit Facility, the ROAR 1
SPV Borrower is subject to certain covenants. As of December 31, 2021, there was a $78,000 outstanding principal balance under the ROAR
1 SPV Credit Facility. The principal balance is secured by $61,732 of finance receivables.
In December 2021, ROAR 2 SPV Finance LLC, an
indirect wholly owned subsidiary of the Company (the “ROAR 2 SPV Borrower”), entered into a $125,000 credit agreement (the
“ROAR 2 SPV Credit Facility”) with a lender for the funding of finance receivables, which secure the ROAR 2 SPV Credit Facility.
The ROAR 2 SPV Credit Facility allows for increases in maximum borrowings under the agreement of up to $300,000, bears interest at a
rate of 12.5% and matures in December 2025, unless it is extended to December 2026. Under the terms of the ROAR 2 SPV Credit Facility,
the ROAR 2 SPV Borrower is subject to certain covenants. As of December 31, 2021, there was a $68,000 outstanding principal balance under
the ROAR 2 SPV Credit Facility. The principal balance is secured by $48,145 of finance receivables.
Debt Maturities— Of the principal
related to the Company’s debt agreements, $35,000, $8,333, $695 and $146,000 will be repaid during the years ended December 31,
2022, 2023, 2024 and 2025, respectively.
10. INCOME TAXES
For the years ended
December 31, 2021 and 2020, income tax expense computed at the federal statutory income tax rate of 21% differed from the recorded
amount of income tax expense due primarily to state income taxes and permanent differences.
A reconciliation of
the federal statutory income tax rate to the effective tax rate is as follows:
|
|
Years Ended
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Federal statutory rate |
|
$ |
(37,290 |
) |
|
|
21.00 |
% |
|
$ |
(14,112 |
) |
|
|
21.00 |
% |
Effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal tax benefit |
|
|
(6,324 |
) |
|
|
3.56 |
% |
|
|
(1,377 |
) |
|
|
2.05 |
% |
Deferred rate change |
|
|
(367 |
) |
|
|
0.21 |
% |
|
|
(89 |
) |
|
|
0.13 |
% |
Change in fair value of subordinated convertible notes |
|
|
8,794 |
|
|
|
(4.95 |
)% |
|
|
— |
|
|
|
— |
% |
Change in fair value of warrant liability |
|
|
8,322 |
|
|
|
(4.69 |
)% |
|
|
— |
|
|
|
— |
% |
Accrued dividends on redeemable convertible preferred stock |
|
|
— |
|
|
|
— |
% |
|
|
3,614 |
|
|
|
(5.38 |
)% |
Return to provision |
|
|
3,453 |
|
|
|
(1.94 |
)% |
|
|
|
|
|
|
|
|
Other permanent differences |
|
|
(473 |
) |
|
|
0.27 |
% |
|
|
3,320 |
|
|
|
(4.94 |
)% |
Other |
|
|
1,180 |
|
|
|
(0.66 |
)% |
|
|
1,084 |
|
|
|
(1.61 |
)% |
Change in valuation allowance |
|
|
22,761 |
|
|
|
(12.83 |
)% |
|
|
7,566 |
|
|
|
(11.26 |
)% |
Total |
|
$ |
56 |
|
|
|
(0.03 |
)% |
|
$ |
6 |
|
|
|
(0.01 |
)% |
The income tax (benefit) expense is as follows:
| |
Years Ended
December 31, | |
| |
2021 | | |
2020 | |
Current: | |
| | |
| |
Federal | |
$ | — | | |
$ | — | |
State | |
| 56 | | |
| 6 | |
| |
| 56 | | |
| 6 | |
| |
| | | |
| | |
Deferred taxes | |
| — | | |
| — | |
Income tax benefit | |
$ | 56 | | |
$ | 6 | |
The tax effects of the
primary temporary differences included in net deferred tax assets and liabilities are shown in the following table:
| |
December 31, | |
| |
2021 | | |
2020 | |
Net operating loss carryforwards | |
$ | 72,867 | | |
$ | 57,092 | |
Allowance for losses on finance receivables | |
| 6,318 | | |
| 2,283 | |
Research and development credit | |
| 1,173 | | |
| 1,173 | |
Stock compensation | |
| 326 | | |
| 206 | |
Legal reserve | |
| 465 | | |
| — | |
Other | |
| 2,317 | | |
| 387 | |
Total deferred tax assets, gross | |
| 83,466 | | |
| 61,141 | |
Less: valuation allowance | |
| (81,860 | ) | |
| (59,099 | ) |
Total deferred tax assets, net | |
| 1,606 | | |
| 2,042 | |
| |
| | | |
| | |
Deferred finance receivable fees and costs, net | |
| (261 | ) | |
| (154 | ) |
Depreciation of furniture and equipment | |
| (1,312 | ) | |
| (1,888 | ) |
Other | |
| (33 | ) | |
| — | |
Total deferred tax liabilities | |
| (1,606 | ) | |
| (2,042 | ) |
Total deferred tax assets (liabilities), net | |
$ | — | | |
$ | — | |
As of December 31, 2021 and 2020, the Company
maintained a valuation allowance of $81,860 and $59,099, respectively. The valuation allowance was recorded due to the fact that the Company
has incurred operating losses to date and is unable to forecast when such deferred tax assets will be utilized. There was no other activity
in the valuation allowance accounting during 2021 and 2020.
Realization of deferred tax assets is dependent
upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset
by a valuation allowance. The valuation allowance increased by $22,761 and $7,566 during the twelve months ended December 31, 2021 and
2020, respectively.
Total U.S. federal and state operating loss carryforwards
as of December 31, 2021 and 2020 were approximately $517,700 and $377,300, respectively. U.S. federal net operating loss carryforwards
begin to expire in 2033, and state operating loss carryforwards begin to expire in 2027. U.S. Federal net operating losses of approximately
$248,600 carry forward indefinitely.
As of December 31, 2021, the Company’s
federal research and development credit carryforwards for income tax purposes were approximately $1,200. If not used, the current carryforwards
will expire beginning in 2034.
The Company primarily files income tax returns
in the United States federal jurisdiction and various states. The Company’s U.S. federal returns and state returns are no longer
subject to income tax examinations for taxable years before 2018.
The Company has performed a review to determine whether the future
utilization of net operating loss and credit carryforwards will be restricted due to ownership changes that have occurred. The study determined
that there will be no utilization limit after December 31, 2025. The review did not consider whether the future utilization of net operating
loss and credit carryforwards will be restricted under IRC sections 382 and 383 due to ownership changes that occurred in the MALKA acquisition.
However, based on the value of the Company at the date of change, the Company believes that there would not be a limitation triggered
by the ownership change and therefore would not result in any adjustment to the deferred tax assets. Due to the net operating loss carryforwards,
the statute of limitations remains open for federal and state returns.
11. COMMON STOCK
Following the Business
Combination Closing on September 22, 2021, 970,000 shares of MoneyLion Class A Common Stock were redeemed for $9,700.
12. REDEEMABLE CONVERTIBLE PREFERRED
STOCK
Each share of Legacy
MoneyLion’s redeemable convertible preferred stock was convertible at the option of the holder, at any time and from time to time,
and without the payment of additional consideration by the holder thereof, into a number of fully paid and non-assessable shares of Legacy
MoneyLion Common Stock as could be determined by dividing the applicable original issue price by the applicable conversion price in effect
at the time of conversion.
Pursuant to the Merger
Agreement, all outstanding shares of Legacy MoneyLion’s redeemable convertible preferred stock automatically converted into 116,264,374 shares
of MoneyLion Class A Common Stock after giving effect to the Exchange Ratio upon the Business Combination Closing. See Note 3, “Business
Combination” for additional information on the Business Combination.
13. STOCK-BASED COMPENSATION
2014 Stock Option Plan
Prior to the Business
Combination, MoneyLion’s Amended and Restated 2014 Stock Option Plan (the “2014 Plan”) allowed the Company to provide
benefits in the form of stock options. The Company had designated a total of 2,492,060 shares of common stock to the 2014 Plan. Upon
the Business Combination Closing, the remaining unallocated share reserve under the 2014 Plan was cancelled and no new awards will be
granted under such plan.
2021 Stock Incentive Plan
At the Special Meeting,
Fusion stockholders approved the Omnibus Incentive Plan (the “2021 Plan”). As of the Business Combination Closing, each Legacy
MoneyLion Option that was outstanding and unexercised as of immediately prior to the Business Combination Closing Date automatically
converted into the right to receive an option to acquire a number of shares of MoneyLion Class A Common Stock equal to the number of
shares of Legacy MoneyLion Common Stock subject to such MoneyLion Option as of immediately prior to the Business Combination Closing
Date, multiplied by the Exchange Ratio (rounded down to the nearest whole share), at an exercise price per share equal to the exercise
price per share of such Legacy MoneyLion Option in effect immediately prior to the Business Combination Closing Date, divided by the
Exchange Ratio (rounded up to the nearest whole cent). The intent behind the terms in the Merger Agreement related to the exchange of
the Legacy MoneyLion Options was to provide the holders with awards of equal value to the original awards. Accordingly, the impact of
the conversion was such that the number of shares issuable under the modified awards and the related exercise prices were adjusted using
the Exchange Ratio with all other terms remaining unchanged. The conversion ratio adjustment was without substance (akin to a stock split),
and therefore, the effect of the change in the number of shares and the exercise price and share value were equal and offsetting to one
another. As a result, the fair value of the modified awards was equal to the fair value of the awards immediately before the modification
and, therefore, there was no incremental compensation expense that should be recognized. There were no changes to the vesting period
within the plan.
The 2021 Plan permits
the Company to deliver up to 56,697,934 shares of MoneyLion Class A Common Stock pursuant to awards issued under the 2021 Plan, including
17,712,158 shares of MoneyLion Class A Common Stock and up to 38,985,776 shares of MoneyLion Class A Common Stock subject to outstanding
prior awards. The number of shares of MoneyLion Class A Common Stock reserved for issuance under the 2021 Plan will automatically increase
on each of January 1, 2022 and January 1, 2023 by an amount equal to the lesser of (i) 2% of the total number of outstanding shares of
MoneyLion Class A Common Stock on December 31st of the immediately preceding calendar year and (ii) such smaller number of
shares of MoneyLion Class A Common Stock as determined by the MoneyLion Board.
Stock-based compensation
of $5,039 and $1,650 was recognized during the twelve months ended December 31, 2021 and 2020, respectively.
During 2021, the Company
issued 627,228 restricted stock units (“RSUs”) at a weighted average grant date fair value per share of $5.97. All of RSUs
remain unvested and outstanding as of December 31, 2021 and have unamortized expense of $3,344 which will be recognized over a weighted
average of 2.15 years.
The weighted average
grant date fair value of options granted during the twelve months ended December 31, 2021 and 2020 was $1.50 and $0.38, respectively.
These prices were determined using the Black-Scholes Merton option pricing model, which analyzes volatility, lack of marketability, and
comparable companies, among other factors in determining the fair value of each share granted. Options granted generally vest over four
years and expire ten years from the grant date. Assumptions used for the options granted during the twelve months ended December 31,
2021 and 2020 are as follows:
| |
Twelve Months Ended December 31, | |
| |
2021 | | |
2020 | |
|
Expected Volatility | |
| 65 | % | |
| 65 | % |
|
Expected Dividend | |
| - | | |
| - | |
|
Expected Term in Years | |
| 6.08 | | |
| 6.08 | |
|
Expected Forfeitures | |
| - | % | |
| - | % |
|
Risk Free Interest Rate | |
| 0.59%-0.67 | % | |
| 0.34%-1.47 | % |
|
The following table represents activity within
the 2021 Plan since December 31, 2020:
| |
Number of Shares | | |
Weighted
Average Exercise
Price Per Share | | |
Weighted
Average Remaining
Contractual Term | |
Aggregate
Intrinsic Value | |
Options outstanding at December 31, 2020 | |
| 35,453,516 | | |
$ | 0.38 | | |
8.1 Years | |
$ | 266,548 | |
Options granted | |
| 6,524,723 | | |
| 2.57 | | |
| |
| | |
Options exercised | |
| (2,062,803 | ) | |
| 0.34 | | |
| |
$ | (13,268 | ) |
Options forfeited | |
| (539,915 | ) | |
| 0.93 | | |
| |
| | |
Options expired | |
| (1,916,974 | ) | |
| 0.20 | | |
| |
| | |
Options outstanding at December 31, 2021 | |
| 37,458,547 | | |
$ | 0.80 | | |
7.6 Years | |
$ | 121,108 | |
Exercisable at December 31, 2021 | |
| 17,764,012 | | |
| 0.36 | | |
6.8 Years | |
$ | 65,265 | |
Unvested at December 31, 2021 | |
| 19,694,535 | | |
$ | 1.19 | | |
| |
| | |
6,977,038 options vested during the twelve months
ended December 31, 2021 with an aggregate intrinsic value of $24,982. Total compensation cost related to unvested options not yet recognized
as of December 31, 2021 was $11,911 and will be recognized over a weighted average of 2.8 years.
14. STOCK WARRANTS
Public Warrants and Private Placement Warrants
As a result of the Business Combination, MoneyLion
acquired from Fusion, as of September 22, 2021, public warrants outstanding to purchase an aggregate of 17,500,000 shares of
the MoneyLion Class A Common Stock (the “Public Warrants”) and private placement warrants outstanding to purchase an aggregate
of 8,100,000 shares of the MoneyLion Class A Common Stock (the “Private Placement Warrants” and together with the
Public Warrants, the “warrants”). Each whole warrant entitles the registered holder to purchase one whole share of MoneyLion
Class A Common Stock at a price of $11.50 per share, at any time commencing on 12 months from closing of Fusion’s initial
public offering.
Redemption of Warrants for Cash
The Company may call the warrants for redemption:
|
● |
in whole and not in part; |
|
● |
at a price of $0.01 per warrant; |
|
● |
upon not less than 30 days’ prior written notice of
redemption to each warrant holder; and |
|
● |
if, and only if, the closing price of the MoneyLion Class A Common
Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and
the like and for certain issuances of MoneyLion Class A Common Stock and equity-linked securities for capital raising purposes in
connection with the Business Combination Closing for any 20 trading days within a 30-trading day period ending three business days before
we send to the notice of redemption to the warrant holders). |
If and when the warrants become redeemable, the
Company may exercise the redemption right even if the Company is unable to register or qualify the underlying securities for sale under
all applicable state securities laws.
The Private Placement Warrants are identical
to the Public Warrants except that the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable so long
as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other
than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable
by such holders on the same basis as the Public Warrants. Except as described above, if holders of the Private Placement Warrants
elect to exercise them on a cashless basis, they would pay the exercise price by surrendering the warrants for that number of shares
of MoneyLion Class A Common Stock equal to the quotient obtained by dividing the product of the number of shares of Money Lion Class
A Common Stock underlying the warrants multiplied by the excess of the “historical fair market value” (defined below) less
the exercise price of the warrants, by the historical fair market value. For these purposes, the “historical fair market value”
shall mean the average last reported sale price of the MoneyLion Class A Common Stock. Stock for the 10 trading days ending on the
third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent.
The Public Warrants meet the conditions for equity
classification in accordance with ASC 815-40. At the time of the Merger, the Public Warrants assumed by the Company were recorded at
fair value within additional paid-in capital in the amount of $23,275.
As of December 31, 2021, the aggregate value
of the Private Placement Warrants was $8,260, representing Private Placement Warrants outstanding to purchase 8,100,000 shares of
MoneyLion Class A Common Stock. The Private Placement Warrants are accounted for as liabilities in accordance with ASC 815-40 and are
presented within warrants payable on the consolidated balance sheet. The warrant liabilities are measured at fair value at inception
and on a recurring basis, with changes in fair value presented within change in fair value of warrants payable in the consolidated statement
of operations.
The Private Placement Warrants are measured at
fair value on a recurring basis. The Private Placement Warrants were valued using a Black-Scholes Option Pricing Model, which is calculated
using Level 3 inputs. The primary unobservable inputs utilized in determining fair value of the Private Placement Warrants is the
expected volatility of the MoneyLion Class A Common Stock.
The following table presents the quantitative
information regarding Level 3 fair value measurement of warrants:
| |
December 31, | |
| |
2021 | |
Strike price | |
$ | 11.50 | |
Expected Volatility | |
| 61 | % |
Expected Dividend | |
| - | |
Expected Term in Years | |
| 4.73 | |
Risk Free Interest Rate | |
| 1.22 | % |
Warrant Value Per Share | |
| 1.02 | |
The following table presents the changes in the
fair value of the warrants:
| |
December 31,
2021 | |
| |
Private Placement | |
| |
Warrants | |
Initial Measurement, September 22, 2021 | |
$ | 29,466 | |
Mark-to-market adjustment | |
$ | (21,206 | ) |
Warrants payable balance, December 31, 2021 | |
$ | 8,260 | |
Legacy MoneyLion Warrants
See Note 3, “Business Combination”
for details on the Legacy MoneyLion Warrants.
15. NET LOSS PER SHARE
The following table sets forth the computation
of net loss per common share for the twelve months ended December 31, 2021 and 2020:
| |
Twelve Months Ended
December 31, | |
| |
2021 | | |
2020 | |
|
| |
| | |
| |
|
Numerator: | |
| | |
| |
|
Net loss | |
$ | (164,875 | ) | |
$ | (41,587 | ) |
|
Net income attributable to redeemable noncontrolling interests | |
| (12,776 | ) | |
| (8,409 | ) |
|
Accretion of issuance costs on redeemable convertible preferred
stock | |
| - | | |
| - | |
|
Reversal of previously accrued (accrual
of) dividends on redeemable convertible preferred stock | |
| 42,728 | | |
| (17,209 | ) |
|
Net loss attributable to common shareholders | |
$ | (134,923 | ) | |
$ | (67,205 | ) |
|
Denominator: | |
| | | |
| | |
|
Weighted-average
common shares outstanding - basic and diluted (1) | |
| 97,158,738 | | |
| 45,177,217 | |
|
Net loss per share attributable to common
stockholders - basic and diluted | |
$ | (1.39 | ) | |
$ | (1.49 | ) |
|
|
(1) |
Prior period results have been adjusted to reflect the exchange of
Legacy MoneyLion’s Common Stock for MoneyLion Class A Common Stock at an exchange ratio of approximately 16.4078 in
September 2021 as a result of the Business Combination. See Note 3, “Business Combination,” for details. Additionally,
included within net income attributable to common stockholders for the twelve months ended December 31, 2021 is an adjustment to
reflect the reversal of previously accrued dividends on redeemable convertible preferred stock in the amount of $56,931 which were
forfeited by the preferred stockholders in conjunction with the Business Combination. |
The Company’s potentially dilutive securities,
which include stock options, RSUs, preferred stock and warrants to purchase shares of common stock and preferred stock, have been excluded
from the computation of diluted net loss per share as the effect would be antidilutive. Therefore, the weighted-average number of common
shares outstanding used to calculate both basic and diluted net loss per share is the same.
The Company excluded the following potential
common shares from the computation of diluted net loss per share because including them would have an anti-dilutive effect for the twelve
months ended December 31, 2021 and 2020:
| |
December 31, | |
| |
2021 | | |
2020 | |
Conversion of redeemable convertible preferred stock (1) | |
| - | | |
| 116,264,358 | |
Warrants to purchase common stock and redeemable convertible preferred stock (1) | |
| 25,599,889 | | |
| 14,738,710 | |
RSUs and options to purchase common stock (1) | |
| 38,085,775 | | |
| 35,453,516 | |
Right to receive Earnout Shares | |
| 17,500,000 | | |
| - | |
Total common stock equivalents | |
| 81,185,664 | | |
| 166,456,584 | |
|
(1) |
Prior period results have been adjusted to reflect the exchange of
Legacy MoneyLion Common Stock for MoneyLion Class A Common Stock at an exchange ratio of approximately 16.4078 in September
2021 as a result of the Business Combination. See Note 3, “Business Combination” for details. |
16. COMMITMENTS AND CONTINGENCIES
Lease Commitments— The Company leases
various office space, including the corporate office location, from third parties under non-cancellable agreements which require various
minimum annual rentals. Certain of the leases also require the payment of normal maintenance, utilities and related real estate taxes
on the properties.
The total minimum lease payments as of December 31,
2021 are as follows:
2022 |
|
$ |
776 |
|
2023 |
|
|
788 |
|
2024 |
|
|
811 |
|
2025 |
|
|
590 |
|
2026 |
|
|
140 |
|
Thereafter |
|
|
- |
|
|
|
$ |
3,105 |
|
Rent
expense totaled $997 and $1,233 for the years ended December 31, 2021 and 2020, respectively.
Legal Matters— The Company is subject
to regulatory examination by the California Department of Financial Protection and Innovation (the “CA DFPI”). With respect
to its activities in California, the Company received a report of examination in 2020 from the CA DFPI regarding MoneyLion of California,
LLC, MoneyLion’s subsidiary, and a follow-up request for information in May 2021. This matter is ongoing, and the Company intends
to continue to fully cooperate with the CA DFPI in this matter. In addition, the CA DFPI is currently conducting an industry-wide investigation
of companies that provide earned wage access products and services, including Instacash. The Company intends to continue cooperating fully
in this investigation and to that end entered into a memorandum of understanding (“MOU”) with the CA DFPI on February 23,
2021. The MOU requires the Company to regularly provide certain information to the CA DFPI and adhere to certain best practices regarding
Instacash while the CA DFPI continues to investigate. Any potential impacts on the Company’s financial condition or operations relating
to these CA DFPI matters are unknown at this time.
With respect to the Company’s activities
in Minnesota, the Company received information requests in 2019, 2020 and 2021 from the Minnesota Department of Commerce (“Minnesota
DOC”) regarding an investigation relating to the Company’s lending activity in Minnesota and its membership program. The
Minnesota DOC previously informed the Company that it was no longer pursuing the investigation regarding the Company’s membership
program but continued the investigation into lending activity. In December 2021, the Company signed a settlement order with the Minnesota
DOC, which had no material impact on the Company’s financial condition or operations.
The Company is also in the process of responding
to Civil Investigative Demands (“CIDs”) or other investigatory requests relating to its provision of consumer financial services
from the office of the Attorney General of the Commonwealth of Virginia, the New York Attorney General’s Office, as well as the
Colorado Department of Law. The Company is cooperating with each of these state regulators and intends to take any corrective actions
required to maintain compliance with applicable state laws. The Company cannot predict the outcome or any potential impact on its financial
condition or operations at this time.
In 2019, 2020 and 2021, the Company received
CIDs from the Consumer Financial Protection Bureau (the “CFPB”) relating to the Company’s compliance with the Military
Lending Act and its membership model. The Company will continue to provide to the CFPB all of the information and documents required
by the CIDs and intends to continue to fully cooperate with the CFPB in this investigation. The investigation is ongoing and any potential
impact on the Company’s financial condition or operations are unknown at this time.
In February and March 2021, the Company received
investigative subpoenas from the Securities and Exchange Commission concerning IIA, which primarily held assets from institutional investors
and was the Company’s primary source of funding for originated receivables through the end of the fourth quarter of 2021. The Company
is cooperating with the investigation and cannot predict its outcome or any potential impact on the Company’s financial condition
or operations.
17. MERGERS AND ACQUISITIONS
MALKA— On
November 15, 2021, MoneyLion completed its acquisition (the “MALKA Acquisition”) of MALKA. MALKA is a creator network and
content platform that provides digital media and content production services to us and to its own clients in entertainment, sports, gaming,
live streaming and other sectors. The MALKA Acquisition accelerates MoneyLion’s ability to engage with consumers across all digital
and emerging channels, allowing MoneyLion to directly connect with communities natively inside and outside of its existing platform. MoneyLion
intends for MALKA to operate as an indirect, wholly-owned subsidiary of MoneyLion Inc. with MALKA’s pre-acquisition management team
leading day-to-day operations.
The total purchase price
of the MALKA Acquisition was approximately $52,685. MoneyLion issued 4,181,441 restricted shares of MoneyLion Class A Common Stock and
paid $10,000 in cash to the sellers in exchange for all of the issued and outstanding membership interests of MALKA. MoneyLion also paid
down $2,196 of MALKA debt facilities. The sellers may earn up to an additional $35 million payable in restricted shares of MoneyLion Class
A Common Stock if MALKA’s revenue and EBITDA exceeds certain targets in 2021 and 2022. The $35 million payable in restricted shares
based on 2021 and 2022 operating performance was valued at $11,782 as of the acquisition.
As of December 31, 2021,
the payable in restricted shares based on 2021 and 2022 operating performance was valued at $18,011 and was included in accounts payable
and accrued liabilities on the consolidated balance sheet as of December 31, 2021. The $6,229 change in fair value since the MALKA Acquisition
was included on the consolidated statement of operations as the change in fair value of contingent consideration from mergers and acquisitions.
The fair value of MALKA’s
acquired assets and liabilities were as follows:
|
|
November 15, |
|
|
|
2021 |
|
|
|
|
|
Assets |
|
|
|
Cash and cash equivalents |
|
$ |
51 |
|
Property and equipment |
|
|
1,281 |
|
Intangible assets |
|
|
17,780 |
|
Goodwill |
|
|
30,976 |
|
Other assets |
|
|
4,858 |
|
Total assets |
|
|
54,946 |
|
Liabilities and Equity |
|
|
|
|
Liabilities: |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
2,261 |
|
Total liabilities |
|
|
2,261 |
|
Net assets and liabilities acquired |
|
$ |
52,685 |
|
Wealth Technologies Inc. — In
December 2020, the Company acquired 100% of the outstanding common stock and Series A redeemable convertible preferred shares of
Wealth Technologies, Inc. in exchange for 539,592 shares of the MoneyLion Series C-1 Redeemable Convertible Preferred
Stock, representing total consideration of approximately $27,929, which provided the Company with WTI’s
market-leading wealth management decisioning and administration technology. The co-founder and equity holder of WTI was a
significant stockholder of Series A redeemable convertible preferred stock of Legacy MoneyLion and was the Chairman of the Legacy
MoneyLion board of directors as of the date of the transaction. $6,130 of the total consideration was allocated to proprietary
technology and $21,565 was allocated to goodwill.
18. RELATED PARTIES
In the ordinary course of business, we may enter
into transactions with directors, principal officers, their immediate families, and affiliated companies in which they are principal
stockholders (commonly referred to as “related parties”).
During the year ended December 31, 2020, the Company
earned affiliate revenue through an arrangement with an affiliated company in which the Company’s Chief Financial Officer holds
a minority financial interest. The revenues related to this agreement included within the consolidated statement of operations were immaterial
during the year ended December 31, 2020. The amounts due from the related party were not material as of December 31, 2020. There was no
such activity during the year ended December 31, 2021.
In April 2020, the Company entered into a $5,000
secured loan facility with a lender that is controlled by a significant holder of Legacy MoneyLion’s redeemable convertible preferred
stock. On August 27, 2021, the Company entered into an amendment that refinanced the secured loan facility with a non-related party lender.
Interest expense included within the consolidated statement of operations was $421 during the year ended December 31, 2020.
In December 2020, the Company acquired 100% of
the outstanding common stock and Series A redeemable convertible preferred shares of WTI. The co-founder and equity holder of WTI was
also a significant stockholder of Legacy MoneyLion’s redeemable convertible preferred stock and was the Legacy MoneyLion Chairman
as of the date of the transaction. For more information about the transaction, see Note 17, “Mergers and Acquisitions.”
Additionally, some of our directors hold financial
interests in separate entities, which the Company utilized in the ordinary course of business during the years ended December 31, 2021
and 2020. The activity during the year ended December 31, 2020 was not material. The Company is party to an Amended and Restated Marketing
Consulting Agreement, dated as of May 11, 2021 and as amended from time to time (the “Marketing Consulting Agreement”), with
LeadGen Data Services LLC (“LeadGen”), pursuant to which LeadGen provides the Company with certain marketing, consumer acquisition,
lead generation and other consulting services. For the year ended December 31, 2021, MoneyLion paid $6,624 to LeadGen and earned $7,083
of revenue under the Marketing Consulting Agreement.
19. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through
March 17, 2022, the date on which these consolidated financial statements were available to be issued, and concluded that the following
subsequent events were required to be disclosed:
Even Financial, Inc. Acquisition—
On February 17, 2022, the Company completed its previously announced acquisition (the “Even Acquisition”) of Even Financial
Inc., a Delaware corporation (“Even Financial”) pursuant to the Amended and Restated Agreement and Plan of Merger (the “Amended
and Restated Merger Agreement”), by and among the Company, Epsilon Merger Sub Inc., a Delaware corporation and wholly owned subsidiary
of the Company (“Epsilon”), Even Financial and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity
as representative of the equityholders of Even Financial (the “Equityholders’ Representative”).
Founded in 2014, Even Financial digitally connects
and matches consumers with real-time personalized financial product recommendations from banks, insurance and fintech companies on mobile
apps, websites and other consumer touchpoints through its marketplace technology. Even Financial’s infrastructure leverages machine
learning and advanced data science to solve a significant pain point in financial services customer acquisition, seamlessly bridging
financial institutions and channel partners via its industry-leading API and embedded finance marketplaces.
The Even Acquisition strengthens MoneyLion’s
platform by improving consumers’ abilities to find and access the right financial products to help them manage their financial lives.
Even Financial’s growing network includes over 400 financial institution partners and 500 channel partners, covering a breadth of
financial services including loans, credit cards, mortgages, savings and insurance products. The Even Acquisition also expands MoneyLion’s
addressable market, extends the reach of MoneyLion’s own products, diversifies its revenue mix and furthers MoneyLion’s ambition
to be the premier financial super app for hardworking Americans.
At the closing of the Even Acquisition, the Company
(i) issued to the equityholders of Even Financial an aggregate of 28,164,811 shares of the Series A Convertible Preferred Stock, par
value $0.0001 per share, of the Company (the “Preferred Stock”), with a face value of $10.00 per share (the “Conversion
Price”), (ii) paid to certain Even Financial management equityholders approximately $14.5 million in cash and (iii) exchanged 8,883,228
options to acquire Even Financial common stock for 5,901,846 options to acquire MoneyLion Class A Common Stock. The equityholders of
Even Financial are also entitled to receive an additional payment from the Company of up to an aggregate of 8,000,000 shares of Preferred
Stock, with a face value per share equal to the Conversion Price, based on the attributed revenue of Even Financial’s business
during the 13-month period commencing January 1, 2022 (the “Earnout”). Based on the Conversion Price of the shares of Preferred
Stock issued at the closing of the Even Acquisition and to be issued pursuant to the Earnout, the value of the options to acquire MoneyLion
Class A Common Stock and the cash paid to the management equityholders, the total purchase price was approximately $440 million, subject
to customary purchase price adjustments for working capital and inclusive of amounts used to repay approximately $5.7 million of existing
indebtedness of Even Financial.
Due to the closing of the Even Acquisition occurring
on February 17, 2022, there has not been sufficient time to apply business combination accounting to the opening balance sheet or create
the financial disclosures required by U.S. GAAP.