SHF Holdings Inc
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
SHFS$0.03-1.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001493152-24-032185
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001493152-24-044750
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 98 previous paragraphs and 110 current paragraphs.
53 unchanged; 38 reworded; 19 added; 7 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 18 previous and 22 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (19)
Current report
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed Consolidated Financial Statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Current report
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results, results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance; they reflect our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
Current report
We discuss many of these risks in other filings we make from time to time with the SEC. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve risks and uncertainties. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made. Given these uncertainties, investors should not place undue reliance on these forward-looking statements.
Current report
Investors should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including our Annual Report on Form 10-K, filed with the SEC on April 1, 2024, with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Current report
(Benefit)/ Provision for credit losses increased in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to increase in loan portfolio amount .
Current report
Other income /(expenses)
Current report
For the nine months ended September 30, 2024, the fair value of deferred consideration decreased by $908,574. This reduction was due to a decline in the fair value adjustment on the stock and cash consideration payable to the Abaca shareholders, as a result of payments made before the end of 2023, and a decrease in the share price as of September 30,2024, which affected the fair value of the third anniversary payment.
Current report
The interest expenses decreased by $551,135, primarily due to the elimination of the interest component on the deferred cash consideration payable to the PCCU related to the business combination, which was settled and restructured at the end of the first quarter of 2023.
Current report
The change in the fair value of warrant liabilities by $3,173,843 was attributable to the decrease in the share price.
Current report
Provision for income taxes
Current report
Our provision for income taxes in the nine months ended September 30, 2024 increased $1,255,062, compared to the same period in 2023, due to an increase in income before provision for income taxes.
Current report
(Benefit)/ Provision for credit losses increased in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to increase in loan portfolio amount.
Current report
Other income /(expenses)
Current report
For the three months ended September 30, 2024, the fair value of deferred consideration decreased by $128,496. This reduction was due to a decline in the fair value adjustment on the stock and cash consideration payable to the Abaca shareholders, as a result of payments made before the end of 2023, which affected the fair value of the third anniversary payment.
Current report
The change in the fair value of warrant liabilities by $1,275,007 was attributable to the decrease in the share price.
Current report
Provision for income taxes
Current report
Our provision for income taxes in the three months ended September 30, 2024 decreased by $55,104, compared to the same period in 2023, due to an increase in income before provision for income taxes.
Current report
Litigation
Current report
As reported on its Current Report on Form 8-K, on October 17, 2024 the Company caused a declaratory judgment complaint to be filed in the District Court for the City and County of Denver, Colorado, captioned SHF Holdings, Inc. v. Daniel Roda, Gregory W. Ellis, and James R. Carroll, Case No. 2024CV33187, Denver County District Court (“Declaratory Judgement Complaint”). The Declaratory Judgement Complaint was filed related to the Amended Abaca Merger Agreement, dated October 26, 2023. On November 4, 2024, in connection with the Declaratory Judgment Complaint, the Company filed a motion with the court requesting that the court authorize the Company to deposit the $3,000,000 payment owed pursuant to the Amended Abaca Merger Agreement into the court’s registry so that it can be distributed in accordance with the terms of the Amended Abaca Merger Agreement. The payment obligation of $3,000,000 has already been accounted for in the working capital deficit disclosed in the Liquidity and Going Concern section*.*
Removed paragraphs (7)
Previous report
All statements other than statements of historical facts contained in this report, including statements regarding future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “expect,” “objective,” “plan,” “potential,” “seek,” “grow,” “target,” “if,” and similar expressions intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, objectives, and financial needs.
Previous report
Stringent collateral package requirements with substantial loan-to-value coverage;
Previous report
Rigorous underwriting of collateral and borrower creditworthiness;
Previous report
In-depth knowledge of the industry, borrowers’ operations, and the cannabis industry business cycle.
Previous report
We believe our creative and methodical approach in building the Company’s platform has enabled national business scaling. The platform’s policies, training, monitoring, and processes are well established and supported by expert talent. We anticipate this combination of intellectual property plus human capital talent will provide a competitive advantage as we focus on continued growth.
Previous report
(Benefit)/ Provision for credit losses decreased in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to a decrease in the estimated loss rate.
Previous report
(Benefit)/ Provision for credit losses decreased in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to a decrease in the loss rate.
Reworded paragraphs (38)
Previous wording
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Current wording
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Previous wording
References in this section to “we,” “us,” or “our” refer to SHF Holdings, Inc and subsidiaries (herein referred to as the “Company”). References to “management” refer to our officers and board of managers. The following discussion and analysis of our financial performance and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements.
Current wording
Unless the context otherwise requires, references in this section to “we,” “us,” or “our” refer to SHF Holdings, Inc and its subsidiaries (herein referred to as the “Company”). References to “management” refer to our officers and Board of Directors. The following discussion and analysis of our financial performance and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements.
Previous wording
The Company has developed and commercialized a software based services platform for financial institutions providing banking services to cannabis-related businesses (“CRBs”). Our software enabled services access and maintain reliable financial information to enable both our financial institution clients and our the CRB clients to meet regulatory requirements. Our platform has been streamlined and fine-tuned for the past nine years which enables the Company’s staff to efficiently guide financial institution clients and the CRBs desiring banking services through the onboarding, validation and monitoring process. Our automated platform provides for an efficient and effective management tool allowing our employees to provide continuity of service while enabling compliance staff to monitor BSA activities.
Current wording
The Company has developed and commercialized a software-based services platform for financial institutions providing banking services to cannabis-related businesses (“CRBs”). Our software enabled services access and maintain reliable financial information to enable both our financial institution clients and our CRB clients to meet regulatory requirements. Our platform has been streamlined and fine-tuned since 2014. Our software platform enables the Company’s staff to efficiently guide financial institution clients and CRBs desiring banking services through the onboarding, validation and monitoring process. Our automated platform provides for an efficient and effective management tool allowing our employees to provide continuity of service while enabling compliance staff to monitor BSA activities.
Previous wording
Through the Company’s financial services platform, our financial institution clients have the ability to provide CRBs with access to traditional financial services including wires, debit, ACH, remote deposit capture, business checking and savings accounts, courier and vaulting services, cash management accounts and commercial lending. We believe our services have been implemented consistent with applicable law and regulations, ensuring our financial institution clients will be able to provide CRBs with reliable access to these services. We feel our history of developing processes that satisfy regulatory standards has resulted in a solid reputation with related authorities and solidifies our ability to continue to grow existing services and reduces barriers in expanding into new service offerings.
Current wording
Through the Company’s financial services platform, our financial institution clients have the ability to provide CRBs with access to traditional financial services including wires, debit, ACH, remote deposit capture, business checking and savings accounts, courier and vaulting services, cash management accounts and commercial lending. We believe our services have been implemented consistent with applicable law and regulations, ensuring our financial institution clients will be able to provide CRBs with reliable access to these services. We feel our history of developing processes that satisfy regulatory standards has resulted in a solid reputation with related authorities and solidifies our ability to continue to grow existing services while simultaneously reducing barriers to expanding into new service offerings.
Previous wording
The Company maintains relationships with PCCU and other financial institutions in which CRBs’ funds are deposited and monetary transactions are performed. The Company’s agreements with the financial institution allow the Company’s platform to interface with the financial institution’s core banking systems and extract data necessary to monitor the deposit accounts onboarded by the Company’s transactions, such as funds transmissions to or from the accounts, occur through PCCU’s and other financial institution client’s infrastructure.
Current wording
The Company maintains relationships with PCCU and other financial institutions in which CRBs’ funds are deposited and monetary transactions are performed. The Company’s agreements with the financial institution allow the Company’s platform to interface with the financial institution’s core banking systems to monitor account activity for those accounts the Company facilitated the onboarding.
Previous wording
The Company earns income on deposit activity and onboarding fees, which have historically been the majority of our revenue, based on CRB client’s initial onboarding and continuing deposit activity we facilitate between the CRB and our financial institution clients. When we help establish a new relationship between a CRB or ancillary service provider with our financial institution clients for which the Company provides its onboarding services, an initial onboarding fee is assessed based on the type and complexity of the business. Onboarding is an important part of the KYC requirements set forth in federal guidance. The onboarding process can require a great deal of time depending on the business complexity and the fee we assess is based upon the complexity and required time to complete the process. Additionally, the Company assesses fees monthly based on the frequency and amount of deposit activity fees of our CRB client.. These fees are also based on business type and size. Monitoring and validating deposit activity is paramount to the success of the Company’s platform. We believe our compliance-first focus reassures regulators and law enforcement that the Company continues to focus on the safety and soundness of the financial system.
Current wording
The Company earns income on deposit activity and from onboarding fees, which have historically been the majority of our revenue. When we help establish a new relationship between a CRB or ancillary service provider with our financial institution clients for which the Company provides its onboarding services, an initial onboarding fee is assessed based on the type and complexity of the business. Onboarding is an important part of the KYC requirements set forth in federal guidance. Additionally, the Company assesses fees monthly based on the frequency and amount of deposit activity fees of the applicable CRB client. These fees are also based on business type and size.
Previous wording
The Company earns investment income based on the balances maintained on deposit by our CRB clients with our financial institution clients. Our financial institution clients invest the deposits of our CRB clients principally in US Treasury Federal Overnight Securities. We recognize revenue pursuant to the interest earned on these deposit balances and incur a cost of revenue we owe to the financial institution for facilitating the investment activity. Under our Commercial Alliance Agreement with PCCU, the Company pays 25% of the investment income as a hosting cost of revenue fee to PCCU based on the earned investment income from the CRB deposit balances maintained at PCCU. Through its relationship with PCCU, depository amounts invested are typically restricted to low-risk assets with high liquidity and modest returns. The investment income is significantly influenced by the levels of CRB deposits and the prevailing interest rate environment for cash and similar assets. We believe that fees based on deposits that we onboard and interest on the daily balance less cash used to collateralize our loan portfolios maintained with financial institutions will represent a significant portion of our revenue by 2024.
Current wording
The Company earns investment income based on the balances maintained on deposit by our CRB clients with our financial institution clients. Our financial institution clients invest the deposits of our CRB clients principally in US Treasury Federal Overnight Securities. We recognize revenue pursuant to the interest earned on these deposit balances and incur a cost of revenue we owe to the financial institution for facilitating the investment activity. Under our PCCU CAA, the Company pays 25% of the investment income as a hosting cost of revenue fee to PCCU based on the earned investment income from the CRB deposit balances maintained at PCCU. Through its relationship with PCCU, depository amounts invested are typically restricted to low-risk assets with high liquidity and modest returns. The investment income is significantly influenced by the levels of CRB deposits and the prevailing interest rate environment for cash and similar assets.
Previous wording
We earn interest income from lending activity we facilitate between our CRB clients and our financial institution clients. The robust CRB deposits onboarded by the Company and held at PCCU provide a strong foundation for lending capacity. In 2020, the Company launched a commercial lending program, that has developed to be our largest revenue component by value and percentage. The program focuses on senior secured lending, with smaller unsecured loans also being considered. Collateral types include real estate, equipment, and other business assets. The commercial lending program is built on:
Current wording
We earn interest income from lending activity we facilitate between our CRB clients and our financial institution clients and to a lesser extent, direct lending by the Company. The robust CRB deposits onboarded by the Company and held at PCCU provide a strong foundation for lending capacity. In 2020, the Company launched a commercial lending program that has developed to be our largest revenue component by value and percentage. The program focuses on senior secured lending, with smaller unsecured loans also being considered. Collateral types include real estate, equipment, and other business assets.
Previous wording
Currently, lending is primarily funded through PCCU using CRB deposits balances onboarded by the Company. The Company is seeking relationships with additional financial institutions and other sources of working capital to directly fund the loans. The Company’s lending program is tailored to the unique needs of CRBs, achieving strong returns on high-quality loans. The Company in collaboration with third parties manages loan underwriting and loan servicing. As the program develops, the Company intends to establish a full-service internal lending function to perform a larger percentage of the underwriting and servicing activities, improve efficiency and increase profitability of this revenue element.
Current wording
Currently, lending is primarily funded through PCCU. The Company is seeking relationships with additional financial institutions and other sources of working capital to directly fund the loans. The Company, in collaboration with third parties manages loan underwriting and loan servicing. As the program develops, the Company intends to establish a full-service internal lending function to perform a larger percentage of the underwriting and servicing activities, improve efficiency and increase profitability of this revenue element.
Previous wording
For the period six months and three months ended June 30, 2024, our EBITDA income improved primarily as a result of decrease in General and Administrative expenses. This reduction was driven by lower investment hosting fees, decreased amortization and depreciation expenses, and reduced business insurance costs. Additionally, there were decreases in compensation, employee benefits, marketing expenses, and other insurance costs. These factors contributing to our financial performance are further discussed in the “Discussion of our Results of Operations” section below. Other adjustments include estimated future credit losses not yet realized, including amounts indemnified to PCCU for loans funded by them. The Company has entered into a Commercial Alliance Agreement with PCCU, pursuant to which the Company agreed to indemnify PCCU for claims associated with CRB activities including any loan default related losses for loans funded by PCCU. Deferred loan origination fees and costs represent the change in net deferred loan origination fees and costs. When included with a new loan origination, we receive an upfront loan origination fee in conjunction with new loans funded by our financial institution partners and incur costs associated with originating a specific loan. For accounting purposes, the cash received for loan origination fees and costs is initially deferred and recognized as interest income utilizing the interest method.
Current wording
For the three and nine months ended September 30, 2024, our EBITDA income improved primarily as a result of decrease in General and Administrative expenses. This reduction was driven by lower investment hosting fees, decreased amortization and depreciation expenses, and reduced business insurance costs. Additionally, there were decreases in compensation, employee benefits, marketing expenses, and other insurance costs. These factors contributing to our financial performance are further discussed in the “Discussion of our Results of Operations” section below. Other adjustments include estimated future credit losses not yet realized, including amounts indemnified to PCCU for loans funded by them. The Company has entered into a Commercial Alliance Agreement with PCCU (referred to as “PCCU CAA”), pursuant to which the Company agreed to indemnify PCCU for claims associated with CRB activities including any loan default related losses for loans funded by PCCU. Deferred loan origination fees and costs represent the change in net deferred loan origination fees and costs. When included with a new loan origination, we receive an upfront loan origination fee in conjunction with new loans funded by our financial institution partners and incur costs associated with originating a specific loan. For accounting purposes, the cash received for loan origination fees and costs is initially deferred and recognized as interest income utilizing the interest method.
Previous wording
Currently a significant amount of our fees is generated from account openings, active accounts and account activity. As a result, we monitor account openings and closings on a daily, weekly and monthly basis. We strive to meet the appropriate balance between depository balances and fees and therefore review account fees per average number of active accounts managed.
Current wording
Currently a significant amount of our fees are generated from account openings, active accounts and account activity. As a result, we monitor account openings and closings on a daily, weekly and monthly basis. We strive to meet the appropriate balance between depository balances and fees and therefore review account fees per average number of active accounts managed.
Previous wording
For the six months ended June 30, 2024, there was a decline in the average number of accounts and fees compared to the previous period, primarily due to a decrease in clientele following the termination of an agreement with the Central Bank. We expect this trend to shift as we lead with our lending program typically requiring borrowers to place deposits with financial institutions with which we have relationships.
Current wording
For the nine months ended September 30, 2024, there was a decline in the average number of accounts and fees compared to the previous period, primarily due to a decrease in clientele following the termination of an agreement with the Central Bank of Arkansas. We expect this trend to shift as we lead with our lending program typically requiring borrowers to place deposits with financial institutions with which we have relationships.
Previous wording
The Company generates interest and fee income through providing a variety of services to PCCU and other financial institutions to facilitate its banking services to CRBs including, among other things, Bank Secrecy Act and other regulatory compliance and reporting, onboarding, responding to account inquiries, responding to customer service inquiries relating to CRB deposit accounts held at financial institution clients, and sourcing and originating loans. In addition, the Company provides these similar services and outsourced support to other financial institutions providing banking to the cannabis industry.
Current wording
The Company generates interest and fee income by providing a variety of services to PCCU and other financial institutions to facilitate its banking services to CRBs including, among other things, Bank Secrecy Act and other regulatory compliance and reporting, onboarding, responding to account inquiries, responding to customer service inquiries relating to CRB deposit accounts held at financial institution clients, and sourcing and originating loans. In addition, the Company provides these similar services and outsourced support to other financial institutions providing banking to the cannabis industry.
Previous wording
Discussion of our Results of Operations —2024 Compared to 2023 (Six Months Ended June 30)
Current wording
Discussion of our Results of Operations —2024 Compared to 2023 (Nine Months Ended September 30)
Previous wording
The decrease in deposit, activity and onboarding income was primarily attributable to the decrease in the number of accounts related to the Abaca acquisition. In the six months ended June 30, 2024, PCCU accounted for $2,424,598 of the revenue generated from deposits, activities, and client onboarding. Related to this revenue, the Company recognized $277,721 in account hosting expenses, in accordance with the Commercial Alliance Agreement. In the six months ended June 30, 2023, PCCU contributed $2,763,684 to the revenue from similar sources, with account hosting expenses amounting to $116,258 as per the Loan Servicing Agreement provisions. These expenses were categorized under “General and Administrative Expenses” in the Consolidated Statements of Operations.
Current wording
The decrease in deposit, activity and onboarding income was primarily attributable to the decrease in the number of accounts related to the Abaca acquisition. In the nine months ended September 30, 2024, PCCU accounted for $3,778,633 of the revenue generated from deposits, activities, and client onboarding. Related to this revenue, the Company recognized $356,369 in account hosting expenses, in accordance with the PCCU CAA. In the nine months ended September 30, 2023, PCCU contributed $4,051,353 to the revenue from similar sources, with account hosting expenses amounting to $170,987 as per the Loan Servicing Agreement provisions. These expenses were categorized under “General and Administrative Expenses” in the Consolidated Statements of Operations.
Previous wording
Under our Commercial Alliance Agreement with PCCU, we pay 25% of the investment income as a hosting fee based on this income. In the six months ended June 30, 2024, the income derived from investment income associated with PCCU totaled $1,166,663. In relation to this income, the Company incurred $277,721 in investment hosting fees, consistent with the stipulations of the Commercial Alliance Agreement. In the six months ended June 30, 2023, PCCU’s contribution to investment income amounted to $2,837,694, against which the Company recorded investment hosting fees of $704,732, as governed by the terms of the Loan Servicing Agreement. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
Current wording
Under our Commercial Alliance Agreement with PCCU (“PCCU CAA”), we pay 25% of the investment income as a hosting fee based on this income. In the nine months ended September 30, 2024, the income derived from investment income associated with PCCU totaled $1,601,611. In relation to this income, the Company incurred $374,591 in investment hosting fees, consistent with the stipulations of the PCCU CAA. In the nine months ended September 30, 2023, PCCU’s contribution to investment income amounted to $4,051,353, against which the Company recorded investment hosting fees of $978,671, as governed by the terms of the Loan Servicing Agreement. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
Previous wording
We previously had a Loan Servicing Agreement with PCCU (related party) which has since been superseded by the Commercial Alliance Agreement. The loan interest income reflects our share of loan interest on issued loans. We are obligated to pay 0.35% on the total outstanding principal of each loan that is funded and serviced by PCCU. Loan interest earned on the Company’s direct loans and the indemnified loans grew as the Company increased its focus on lending. For the six months ended June 30, 2024, SHF serviced twenty-four loans, as compared to twelve loans in the six months ended June 30, 2023. In six months ended June 2024, the Company recognized $3,472,848 in loan interest income attributable to PCCU activities. The related expenses for this income included $72,057 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the Commercial Alliance Agreement. In six months ended June 2023, loan interest income from PCCU operations amounted to $1,071,124, with associated loan servicing fees totaling $28,670, pursuant to the same agreements. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
Current wording
We previously had a Loan Servicing Agreement with PCCU (related party) which has since been superseded by the PCCU CAA. The loan interest income reflects our share of loan interest on issued loans. We are obligated to pay 0.35% on the total outstanding principal of each loan that is funded and serviced by PCCU. Loan interest earned on the Company’s direct loans and the indemnified loans grew as the Company increased its focus on lending. For the nine months ended September 30, 2024, SHF serviced twenty-four loans, as compared to twelve loans in the nine months ended September 30, 2023. In nine months ended September 2024, the Company recognized $4,814,349 in loan interest income attributable to PCCU activities. The related expenses for this income included $106,946 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the PCCU CAA. In nine months ended September 2023, loan interest income from PCCU operations amounted to $1,977,337, with associated loan servicing fees totaling $53,790, pursuant to the same agreements. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
Previous wording
Compensation and employee benefits decreased in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 on account of stock-based compensation and also related to a reduction in force.
Current wording
Compensation and employee benefits decreased in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 on account of stock-based compensation and also related to a reduction in force.
Previous wording
Rent expenses decreased in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to reduction in the number of lease properties.
Current wording
Rent expenses decreased in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to reduction in the number of lease properties.
Previous wording
For the six months ended June 30, 2024, general and administrative expenses decreased across various categories including: i) approximately $632,675 in investment hosting fees due to a reduction in investment income and ii) approximately $407,165 in amortization and depreciation due to the reduction in the gross value of intangible assets from impairment recorded in 2023.
Current wording
For the nine months ended September 30, 2024, general and administrative expenses decreased across various categories including: i) approximately $ 604,080 in investment hosting fees due to a reduction in investment income, and ii) approximately $535,179 in amortization and depreciation due to the reduction in the gross value of intangible assets from impairment recorded in 2023.
Previous wording
The decrease in deposit, activity and onboarding income was primarily attributable to the decrease in the number of accounts related to the Abaca acquisition. In the three months ended June 30, 2024, PCCU accounted for $1,206,922 of the revenue generated from deposits, activities, and client onboarding. Related to this revenue, the Company recognized $121,108 in account hosting expenses, in accordance with the Commercial Alliance Agreement. In the three months ended June 30, 2023, PCCU contributed $1,385,845 to the revenue from similar sources, with account hosting expenses amounting to $60,833 as per the Loan Servicing Agreement provisions. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
Current wording
The decrease in deposit, activity and onboarding income was primarily attributable to the decrease in the number of accounts related to the Abaca acquisition. In the three months ended September 30, 2024, PCCU accounted for $1,354,036 of the revenue generated from deposits, activities, and client onboarding. Related to this revenue, the Company recognized $131,002 in account hosting expenses, in accordance with the PCCU CAA. In the three months ended September 30, 2023, PCCU contributed $1,287,669 to the revenue from similar sources, with account hosting expenses amounting to $54,729 as per the Loan Servicing Agreement provisions. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
Previous wording
We have agreements with PCCU (related party) and Five Star Bank (FSB) where our financial institution clients pay us interest on the daily account balance as per the rates in the agreements. Under our Commercial Alliance Agreement with PCCU, we pay 25% of the investment income as a hosting fee based on this income. In the three months ended June 30, 2024, the income derived from investment income associated with PCCU totaled $435,238. In relation to this income, the Company incurred $117,620 in investment hosting fees, consistent with the stipulations of the Commercial Alliance Agreement. In three months ended June 30, 2023, PCCU’s contribution to investment income amounted to $1,420,542, against which the Company recorded investment hosting fees of $381,427, as governed by the terms of the Loan Servicing Agreement. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
Current wording
We have agreements with PCCU (related party) and Five Star Bank (FSB) where our financial institution clients pay us interest on the daily account balance as per the rates in the agreements. Under our Commercial Alliance Agreement with PCCU (“PCCU CAA”), we pay 25% of the investment income as a hosting fee based on this income. In the three months ended September 30, 2024, the income derived from investment income associated with PCCU totaled $434,949. In relation to this income, the Company incurred $96,870 in investment hosting fees, consistent with the stipulations of the PCCU CAA. In three months ended September 30, 2023, PCCU’s contribution to investment income amounted to $1,186,246, against which the Company recorded investment hosting fees of $273,939, as governed by the terms of the Loan Servicing Agreement. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
Previous wording
We had a Loan Servicing Agreement with PCCU (related party) where our financial institution carries the loan balances on their financial statement; the Loan Servicing Agreement has since been superseded by the Commercial Alliance Agreement. The loan interest income reflects our share of loan interest on issued loans. We are obligated to pay 0.35% on the total outstanding principal of each loan that is funded and serviced by PCCU. Loan interest earned on the Company’s direct loans and the indemnified loans grew as the Company increased its focus on lending. For the quarter ended June 30, 2024, SHF serviced twenty-four loans, as compared to twelve loans in the quarter ended June 30, 2023. In the quarter ended June 30, 2024, the Company recognized $1,836,093 in loan interest income attributable to PCCU activities. Related expenses for this income included $36,156 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the Commercial Alliance Agreement. In the quarter ended June 30, 2023, loan interest income from PCCU operations amounted to $604,831, with associated loan servicing fees totaling $16,741, pursuant to the same agreements. These expenses were categorized under “General and Administrative Expenses” in the Consolidated Statements of Operations.
Current wording
We had a Loan Servicing Agreement with PCCU (related party) where our financial institution carries the loan balances on their financial statement; the Loan Servicing Agreement has since been superseded by the PCCU CAA. The loan interest income reflects our share of loan interest on issued loans. We are obligated to pay 0.35% on the total outstanding principal of each loan that is funded and serviced by PCCU. Loan interest earned on the Company’s direct loans and the indemnified loans grew as the Company increased its focus on lending. For the quarter ended September 30, 2024, SHF serviced twenty-four loans, as compared to twelve loans in the quarter ended September 30, 2023. In the quarter ended September 30, 2024, the Company recognized $1,341,501 in loan interest income attributable to PCCU activities. Related expenses for this income included $34,889 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the PCCU CAA. In the quarter ended September 30, 2023, loan interest income from PCCU operations amounted to $906,213, with associated loan servicing fees totaling $25,120, pursuant to the same agreements. These expenses were categorized under “General and Administrative Expenses” in the Consolidated Statements of Operations.
Previous wording
For the three months ended June 30, 2024, general and administrative expenses decreased across various categories including: i) approximately $345,271 in investment hosting fees due to a reduction in investment income , and (ii) approximately $206,560 in amortization and depreciation due to the reduction in the gross value of intangible assets from impairment recorded in 2023.
Current wording
For the three months ended September 30, 2024, general and administrative expenses decreased across various categories including: i) approximately $177,069 in investment hosting fees due to a reduction in investment income, and (ii) approximately $128,014 in amortization and depreciation due to the reduction in the gross value of intangible assets from impairment recorded in 2023.
Previous wording
Cash and cash equivalents totaled $6,111,982 and $4,888,769 as of June 30, 2024 and December 31, 2023, respectively.
Current wording
Cash and cash equivalents totaled $5,861,475 and $4,888,769 as of September 30, 2024 and December 31, 2023, respectively.
Previous wording
For the six months ended June 30, 2024, the Company generated $2,704,637 in cash from operations, compared to cash used of $964,786 for the six months ended June 30, 2023. This improvement was mainly due to lower operating expenses and the greater number of performing loans at better interest rates than the previous period.
Current wording
For the nine months ended September 30, 2024, the Company generated $3,207,069 in cash from operations, compared to cash used of $225,032 for the nine months ended September 30, 2023. This improvement was mainly due to lower operating expenses and the greater number of performing loans at better interest rates than the previous period.
Previous wording
For the six months ended June 30, 2024, the Company generated $6,083 in cash from investing activities, compared to $813,686 for the six months ended June 30, 2023. The decrease was primarily due to the repayment of loans by customers in the previous period.
Current wording
For the nine months ended September 30, 2024, the Company generated $8,173 in cash from investing activities, compared to $783,481 for the nine months ended September 30, 2023. The decrease was primarily due to the repayment of loans by customers in the previous period.
Previous wording
For the six months ended June 30, 2024, the Company used $1,487,507 in cash for financing activities, compared to zero cash flow in the corresponding period of 2023. This was mainly due to the repayments on the senior secured promissory note during 2024, which was not in place during the three months ended June 30, 2023.
Current wording
For the nine months ended September 30, 2024, the Company used $2,242,536 in cash for financing activities, compared to zero cash flow in the corresponding period of 2023. This was mainly due to the repayments on the senior secured promissory note during 2024, which was not in place during the nine months ended September 30, 2023.
Previous wording
As of June 30, 2024, the Company had $6,111,982 in cash and net working capital of $301,738, as compared to $4,888,769 in cash and net working capital deficit of $135,355 as at December 31, 2023. The retained deficit was $69,444,867 on June 30, 2024, and $71,569,821 on December 31, 2023. The Company has also generated operating income of $300,163 and $625,104 for the three months and six months period ended June 30, 2024.
Current wording
As of September 30, 2024, the Company had $5,861,475 in cash and net working capital deficit of $2,520,441 as compared to $4,888,769 in cash and net working capital deficit of $135,355 as at December 31, 2023. The retained deficit was $69,091,050 on September 30, 2024, and $71,569,821 on December 31, 2023. The Company has also generated operating income of $176,909 and $802,013 for the three months and nine months period ended September 30, 2024.
Previous wording
For the six months ended June 30, 2024, the Company reported positive operating income and net working capital. However, considering the historical data from the four preceding quarters, where the Company experienced negative operating income and negative net working capital, management acknowledges the need to closely evaluate the financial performance in upcoming quarters to mitigate any going concern risks. As of June 30, 2024, due to these historical trends, there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the date these unaudited condensed consolidated financial statements were issued.
Current wording
For the nine months ended September 30, 2024, the Company reported positive operating income. However, considering the historical data from the four preceding quarters, where the Company experienced negative operating income and negative net working capital, management acknowledges the need to closely evaluate the financial performance in upcoming quarters to mitigate any going concern risks. As of September 30, 2024, due to these historical trends, there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the date these unaudited condensed consolidated financial statements were issued.
Previous wording
In connection with our management assessment of internal control over financial reporting as of and for the six months ended June 30, 2024, the Company has identified two (2) material weaknesses within our internal controls associated with Revenue Recognition and Complex Financial Instruments. Refer to Item 4 of this Quarterly Report on Form 10-Q for additional details.
Current wording
In connection with our management assessment of internal control over financial reporting as of and for the nine months ended September 30, 2024, the Company has identified two (2) material weaknesses within our internal controls associated with Revenue Recognition and Complex Financial Instruments. Refer to Item 4 of this Quarterly Report on Form 10-Q for additional details.
Previous wording
The Company had an Account Servicing Agreement with PCCU. SHF provides services as per the agreement to CRB accounts at PCCU. In addition to providing the services, SHF assumed the costs associated with the CRB accounts. These costs include employees to manage account onboarding, monitoring and compliance, rent and office expense, insurance and other operating expenses necessary to service these accounts. Under the agreement, PCCU agreed to pay SHF all revenue generated from CRB accounts. Amounts due to SHF were due monthly in arrears and upon receipt of invoice. This agreement was replaced and superseded in its entirety by Commercial Alliance Agreement entered on March 29, 2023, between PCCU and the Company.
Current wording
The Company had an Account Servicing Agreement with PCCU. SHF provides services as per the agreement to CRB accounts at PCCU. In addition to providing the services, SHF assumed the costs associated with the CRB accounts. These costs include employees to manage account onboarding, monitoring and compliance, rent and office expense, insurance and other operating expenses necessary to service these accounts. Under the agreement, PCCU agreed to pay SHF all revenue generated from CRB accounts. Amounts due to SHF were due monthly in arrears and upon receipt of invoice. This agreement was replaced and superseded in its entirety by PCCU CAA entered on March 29, 2023, between PCCU and the Company.
Previous wording
On July 1, 2021, SHF entered into a Support Services Agreement with PCCU. In connection with PCCU hosting the depository accounts and the related loans and providing certain infrastructure support, PCCU receives (and SHF pays) a monthly fee per depository account. In addition, 25% of any investment income associated with CRB deposits is paid to PCCU. This agreement was replaced and superseded in its entirety by Commercial Alliance Agreement entered on March 29, 2023, between PCCU and the Company.
Current wording
On July 1, 2021, SHF entered into a Support Services Agreement with PCCU. In connection with PCCU hosting the depository accounts and the related loans and providing certain infrastructure support, PCCU receives (and SHF pays) a monthly fee per depository account. In addition, 25% of any investment income associated with CRB deposits is paid to PCCU. This agreement was replaced and superseded in its entirety by PCCU CAA entered on March 29, 2023, between PCCU and the Company.
Previous wording
Effective February 11, 2022, SHF entered into a Loan Servicing Agreement with PCCU. The agreement sets forth the application, underwriting and approval process for loans from PCCU to CRB customers and the loan servicing and monitoring responsibilities provided by both PCCU and SHF. PCCU receives a monthly servicing fee at the annual rate of 0.25% of the then-outstanding principal balance of each loan funded and serviced by PCCU. For the loans that are subject to this agreement, SHF originates the loans and performs all compliance analysis, credit analysis of the potential borrower, due diligence and underwriting and all administration, including hiring and incurring the costs of all related personnel or third-party vendors necessary to perform these services. Under the Loan Servicing Agreement, SHF has agreed to indemnify PCCU from all claims related to default-related credit losses as defined in the Loan Servicing Agreement. This agreement was replaced and superseded in its entirety by Commercial Alliance Agreement entered on March 29, 2023, between PCCU and the Company.
Current wording
Effective February 11, 2022, SHF entered into a Loan Servicing Agreement with PCCU. The agreement sets forth the application, underwriting and approval process for loans from PCCU to CRB customers and the loan servicing and monitoring responsibilities provided by both PCCU and SHF. PCCU receives a monthly servicing fee at the annual rate of 0.25% of the then-outstanding principal balance of each loan funded and serviced by PCCU. For the loans that are subject to this agreement, SHF originates the loans and performs all compliance analysis, credit analysis of the potential borrower, due diligence and underwriting and all administration, including hiring and incurring the costs of all related personnel or third-party vendors necessary to perform these services. Under the Loan Servicing Agreement, SHF has agreed to indemnify PCCU from all claims related to default-related credit losses as defined in the Loan Servicing Agreement. This agreement was replaced and superseded in its entirety by PCCU CAA entered on March 29, 2023, between PCCU and the Company.
Previous wording
On March 29, 2023, the Company and PCCU entered into the Commercial Alliance Agreement. This Agreement sets forth the terms and conditions of the lending and account-related services, governing the relationship between the Company and PCCU. The Commercial Alliance Agreement sets forth the application, underwriting, loan approval, and foreclosure process for loans from PCCU to borrowers that are cannabis-related businesses and the loan servicing and monitoring responsibilities provided by the Company and PCCU. In particular, the Commercial Alliance Agreement provides for procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU will take title to or possession of any cannabis-related assets, including real property, that may be collateral for a loan funded by PCCU pursuant to the Commercial Alliance Agreement. Under the Commercial Alliance agreement, the PCCU has the right to receive monthly fees for managing loans. For SHF-serviced loans, which are CRB loans provided by the PCCU but primarily handled by SHF, a yearly fee of 0.25% of the remaining loan balance is applied. On the other hand, loans both financed and serviced by the PCCU are charged a yearly fee of 0.35% on their outstanding balance. These fees are calculated using the average daily balance of each loan for the preceding month. In addition, the Company’s is obligated by the Commercial Alliance Agreement to indemnify PCCU from certain default-related loan losses (as fully defined in the Commercial Alliance Agreement).
Current wording
On March 29, 2023, the Company and PCCU entered into the Commercial Alliance Agreement (referred to as PCCU CAA). This Agreement sets forth the terms and conditions of the lending and account-related services, governing the relationship between the Company and PCCU. The PCCU CAA sets forth the application, underwriting, loan approval, and foreclosure process for loans from PCCU to borrowers that are cannabis-related businesses and the loan servicing and monitoring responsibilities provided by the Company and PCCU. In particular, the PCCU CAA provides for procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU will take title to or possession of any cannabis-related assets, including real property, that may be collateral for a loan funded by PCCU pursuant to the PCCU CAA. Under the PCCU CAA, the PCCU has the right to receive monthly fees for managing loans. For SHF-serviced loans, which are CRB loans provided by the PCCU but primarily handled by SHF, a yearly fee of 0.25% of the remaining loan balance is applied. On the other hand, loans both financed and serviced by the PCCU are charged a yearly fee of 0.35% on their outstanding balance. These fees are calculated using the average daily balance of each loan for the preceding month. In addition, the Company’s is obligated by the PCCU CAA to indemnify PCCU from certain default-related loan losses (as fully defined in the PCCU CAA).
Previous wording
In addition, the Commercial Alliance Agreement provides for certain fees to be paid to the Company for certain identified account related services to include: all cannabis-related income, including all lending-related income (such as loan origination fees, interest income on CRB-related loans, participation fees and servicing fees), investment income, interest income, account activity fees, processing fees, flat fees, and other revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system for a monthly fee equal to $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024. In addition, as it pertains to CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) will be shared 25% to PCCU and 75% to the Company. Finally, under the Commercial Alliance Agreement, PCCU will continue to allow its ratio of CRB-related deposits to total assets to equal at least 60% unless otherwise dictated by regulatory, regulator or policy requirements. The initial term of the Commercial Alliance Agreement is for a period of two years, with a one-year automatic renewal unless a party provides one hundred twenty days’ written notice prior to the end of the term.
Current wording
In addition, the PCCU CAA provides for certain fees to be paid to the Company for certain identified account related services to include: all cannabis-related income, including all lending-related income (such as loan origination fees, interest income on CRB-related loans, participation fees and servicing fees), investment income, interest income, account activity fees, processing fees, flat fees, and other revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system for a monthly fee equal to $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024. In addition, as it pertains to CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) will be shared 25% to PCCU and 75% to the Company. Finally, under the PCCU CAA, PCCU will continue to allow its ratio of CRB-related deposits to total assets to equal at least 60% unless otherwise dictated by regulatory, regulator or policy requirements. The initial term of the PCCU CAA is for a period of two years, with a one-year automatic renewal unless a party provides one hundred twenty days’ written notice prior to the end of the term.
Previous wording
The below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits:
Current wording
The schedule below demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits:
Previous wording
If the loans funded by PCCU exceed the limiting capacity, the CAA specifies that PCCU will be unable to fund additional loans until the incremental capacity is positive.
Current wording
If the loans funded by PCCU exceed the limiting capacity, the PCCU CAA specifies that PCCU will be unable to fund additional loans until the incremental capacity is positive.