SHF (SHFS) - 2022 Q4 - Annual Report

Financial Performance - The total revenue for the year ended December 31, 2022, was $9,478,819, representing a 35.30$7,005,579 in 2021[293]. - Loan interest income surged by 997.68% to $1,130,178 in 2022 from$102,961 in 2021[293]. - The investment income increased by 462.63% to $2,120,640 in 2022 from$376,918 in 2021, driven by higher interest rates[293]. - The Company reported a net loss of $35,128,083 for the year ended December 31, 2022, compared to a net income of$3,286,887 in 2021[278]. - Total operating expenses increased to $11,676,659 in 2022, up 214.00$3,718,692 in 2021[298]. - Cash provided by operations decreased to $1,697,380 in 2022 from$2,946,383 in 2021, primarily due to reduced net income[303]. Ownership and Business Combination - The Business Combination resulted in the acquisition of SHF for an aggregate of $185 million, consisting of$115 million in Class A common stock and $70 million in cash[258]. - PCCU holds a 60.8$56,949,800 from the Business Combination will be paid in installments, including a total of $38,500,002 with interest[267]. Lending and Services - The Company generates interest and fee income through various services, including compliance and reporting for financial institutions servicing the cannabis industry[265]. - The Company offers competitive loan options to Cannabis Related Businesses (CRBs), with collateral types including real estate and equipment[252]. - The Company has established a proprietary platform to facilitate banking services for CRBs, addressing the limited availability of financial solutions in the cannabis industry[252]. - The Company serviced 11 loans in 2022, up from 4 loans in 2021, indicating a focus on expanding lending operations[296]. - The number of loans serviced by the company increased from 4 in 2021 to 11 in 2022, indicating growth in lending activities[300]. Expenses and Financial Management - The Company reported expenses of$775,259 for the year ended December 31, 2022, related to the Loan Servicing Agreement with PCCU[259]. - Compensation and employee benefits rose to $6,695,319, a 213.56$2,135,243 in 2021, driven by stock-based compensation and increased headcount[298]. - Provision for loan losses surged to $506,212, reflecting a 36,083.85$1,399 in 2021, as the company expanded lending activities[298]. - General and administrative expenses increased to $2,390,539, a 320.95$567,892 in 2021, with significant increases in account fees, advertising, and business insurance[301]. Cash and Working Capital - Cash and cash equivalents totaled $8,390,195 as of December 31, 2022, compared to$5,495,905 in 2021[302]. - The company reported a net working capital deficit of ($39,340,020) as of December 31, 2022, compared to a positive working capital of$5,922,023 in 2021[305]. Internal Controls and Compliance - The Company has identified four material weaknesses in internal controls over financial reporting as of December 31, 2022[332]. - The Company provides compliance, validation, and monitoring services to financial institutions, ensuring adherence to the Bank Secrecy Act and related regulations[253]. Going Concern and Risk Management - Management has identified substantial doubt about the company's ability to continue as a going concern for at least twelve months from the issuance of the financial statements[306]. - The company has implemented cost-cutting measures and renegotiated payables to mitigate going concern risks[307]. Stock and Derivative Transactions - NLIT entered into a Forward Purchase Agreement, resulting in the purchase of approximately 3.8 million shares of Class A common stock at market price[327]. - The fair value of the forward purchase derivative was estimated at approximately $4.6 million as of December 31, 2022, down from approximately$37.9 million at the end of September 2022[330]. - The trading value of common stock led to a lower reset price of $1.25/share under the forward purchase agreement[332]. - The Company recognized a$42.3 million charge to other expense on the statement of operations due to the reset price under the forward purchase agreement[332]. Shareholder Information - The Company has authorized the issuance of up to 130,000,000 shares of Class A Common Stock, with 20,815,912 shares issued as of December 31, 2022[273]. - As of December 31, 2022, there were 20,450 shares of preferred stock issued and outstanding, with no voting rights[329]. Agreements and Alliances - The Company entered into a Commercial Alliance Agreement with PCCU on March 29, 2023, superseding previous agreements related to lending and account services[266]. - The Loan Servicing Agreement stipulates a monthly servicing fee of 0.25% on the outstanding principal balance of loans funded by PCCU[340].