CLEARWATER, Fla. -

Coming off an appeal to remain listed on Nasdaq, the board of directors at Nicholas Financial voted to terminate an agreement to be acquired by Prospect Capital Corp., through a deal that hit snags because of demands by the Securities and Exchange Commission.

During a meeting last week, the company’s board determined certain conditions requisite to consummation of the arrangement “could not be satisfied by the termination deadline,” which was last Thursday.

Nicholas Financial — an indirect special finance company that originates subprime loans with more than 1,600 dealers — chose to continue to retain Janney Montgomery Scott as its independent financial adviser. Janney Montgomery Scott is being kept to assist the board in evaluating strategic alternatives for the company, including but not limited to, the possible sale of the company to Prospect or another third party, potential acquisition and expansion opportunities and/or a possible debt or equity financing.

According to Prospect Capital’s latest quarterly filing with the SEC, agency officials asserted that certain unconsolidated holding company subsidiaries through which Prospect holds an investment in operating subsidiaries should be consolidated. Consequently, Prospect said the requirement is delaying the effectiveness of its registration statement on Form N-14 related to transaction involving Nicholas Financial.

Last December, Prospect entered into a definitive agreement to acquire 100 percent of the common stock of Nicholas Financial for $16 per share, pushing the total transaction figure to $340 million.

But just before Nicholas Financial’s special meeting, Prospect Capital learned that it would not be required to restate its prior period financial statements to consolidate certain wholly-owned or substantially wholly-owned holding company subsidiaries based on its discussions with the staffs of the Division of Investment Management and the Office of the Chief Accountant of the SEC.

Back in May, Prospect indicated that the SEC staff had asserted certain wholly-owned holding companies were investment companies, such companies were required to be consolidated in the historical financial results and financial position of Prospect, and restatement of such financial statements was needed. At that time, Prospect disclosed that it disagreed with the views of the SEC staff and wished to appeal the conclusion through OCA.

Based on those continued discussions with the SEC staff, Prospect concluded the following:

1. Prospect’s historical non-consolidation of certain wholly-owned and substantially wholly-owned holding companies will not require restatement of Prospect's prior period financial statements.

2. Upon the adoption of ASU 2013-08 by Prospect for the 2015 fiscal year, Prospect will begin consolidating on a prospective basis certain of its wholly-owned and substantially wholly-owned holding companies formed by Prospect in order to facilitate its investment strategy.

“We would like to commend the SEC staff for the prompt and professional manner in which they handled the situation,” Prospect Capital chief financial officer Brian Oswald said. “We are pleased that Prospect was able consult with OCA and IM for an acceptable conclusion.”

Nicholas Financial's Nasdaq Appeal

In other company news, Nicholas Financial appealed the determination by Nasdaq to delist the company’s common shares from the Nasdaq Global Select Market.

On May 20, Nasdaq advised the company that the hearing panel handling such an appeal granted the company’s request for continued listing. The decision was subject to the condition that, on or before Aug. 31, the company informs the panel that the company has solicited proxies and held an annual meeting of shareholders.

Nicholas Financial intends to hold an annual general meeting of shareholders on July 30. The record date for such annual general meeting of shareholders is June 24. The company currently anticipates mailing a proxy statement and related materials on or about June 30 to shareholders entitled to vote at the annual general meeting of shareholders.

Latest Financial Results

The new developments regarding a potential acquisition and its standing on Nasdaq all came after Nicholas Financial watched its net earnings soften as it closed its 2014 fiscal year.

For the three months that ended March 31, net earnings decreased 40 percent to $2,860,000 as compared to $4,787,000 for the same span a year earlier.

The company’s fourth-quarter diluted earnings per share decreased 41 percent to $0.23 as compared to $0.39 a year ago. Nicholas Financial’s revenue increased less than 1 percent to $20.443 million for fourth quarter, compared to $20.372 million during the previous year’s quarter.

For the 2014 fiscal year, Nicholas Financial reported that its net earnings decreased 16 percent to $16.703 million as compared to $19.941 million for the 2013 fiscal year.

Diluted earnings per share decreased 17 percent year-over-year to $1.36 from $1.63. Annual revenue increased 1 percent to $82.629 million, up from $82.11 million.

“Our results for the three and 12 months ended March 31 were adversely affected by a reduction in the gross portfolio yield, an increase in the provision for losses and an increase in operating expenses compared to corresponding periods ended March 31, 2013,” Nicholas Financial chairman and chief executive officer Peter Vosotas said.

“Each period was also significantly affected by professional fees associated with the previously announced potential sale of the company. Such fees were principally related to fiscal 2014 and resulted in a higher effective tax rate as the majority were not deductible for income tax purposes,” Vosotas continued.

“The after-tax impact on diluted earnings per share by such professional fees totaling $1,131,000 and $2,312,000 was approximately $0.09 and $0.18 for the three and twelve months ended March 31, respectively,” he went on to say.

Despite the softening of some financial readings, Nicholas Financial originated more contracts in both Q4 and the fiscal year. The company’s number of contracts jumped from 4,240 to 4,661 in the fourth quarter and from 14,789 to 15,949 for the year.

The company presently operates 65 branch locations in Southeastern and Midwestern states.