Ben(BENF) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information Filing Details Beneficient, a Nevada corporation, filed its Form 10-Q for Q2 2025, trading on Nasdaq as BENF/BENFW, and is classified as a non-accelerated filer, smaller reporting, and emerging growth company - Beneficient is a Nevada corporation, filing a Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] Trading Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :-------------------------------------------------------------------------------------------------------------- | :---------------- | :---------------------------------------- | | Class A common stock, par value $0.001 per share | BENF | Nasdaq Stock Market LLC | | Warrants, each whole warrant exercisable for one share of Class A common stock, par value $0.001 per share, and one share of Series A convertible preferred stock, par value $0.001 per share | BENFW | Nasdaq Stock Market LLC | Filer Status | Large accelerated filer | ☐ | Accelerated filer | ☐ | | :---------------------- | :-- | :-------------------- | :-- | | Non-accelerated filer | ☒ | Smaller reporting company | ☒ | | | | Emerging growth company | ☒ | Explanatory Note The company executed an 80-to-1 reverse stock split on April 18, 2024, to maintain Nasdaq listing, with all share and per share amounts retroactively adjusted - The Company effected an 80-to-1 reverse stock split of its Common Stock, effective April 18, 2024, to maintain its Nasdaq listing, with all share and per share amounts retroactively adjusted[9] Summary of Risk Factors Beneficient faces significant risks including limited operating history, fair value estimation inaccuracies, Nasdaq non-compliance, HCLP loan defaults, former CEO conflicts, and a material weakness in internal controls, raising substantial doubt about its going concern ability - Key risks include lack of significant operating history, potential inaccuracies in fair value estimates of illiquid assets, and ongoing non-compliance with Nasdaq listing requirements[11] - The company has been notified of events of default on the HCLP Loan Agreement and is subject to litigation, with attempts by HCLP to secure collateral[11] - A material weakness in internal control over financial reporting was identified but has been remediated as of June 30, 2025, with failure to maintain effective controls potentially impacting financial condition and stock price[11] - Current inability to raise sufficient capital, recurring losses, negative cash flows, existing debt defaults, and an arbitration award raise substantial doubt about the company's ability to continue as a going concern[12] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Beneficient's unaudited consolidated financial statements for Q2 2025, highlighting a decrease in total assets to $334.5 million, an increase in total liabilities to $364.4 million, a net loss of $92.6 million, and an accumulated deficit of $2.07 billion Consolidated Statements of Financial Condition (June 30, 2025 vs. March 31, 2025) | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | | :--------------------------------- | :------------ | :------------- | | ASSETS | | | | Cash and cash equivalents | $7,612 | $1,346 | | Investments, at fair value | 263,769 | 291,371 | | Total assets | $334,506 | $354,875 | | LIABILITIES, TEMPORARY EQUITY, AND EQUITY (DEFICIT) | | | | Total liabilities | 364,377 | 299,274 | | Total temporary equity | 90,526 | 90,526 | | Total equity (deficit) | (120,397) | (34,925) | | Total liabilities, temporary equity, and equity (deficit) | $334,506 | $354,875 | Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands, except per share amounts) | 2025 | 2024 | | :----------------------------------------------- | :------------ | :------------ | | Total revenues | $(12,623) | $10,046 | | Total operating expenses | 80,025 | (34,292) | | Net income (loss) before income taxes | $(92,648) | $44,338 | | Net income (loss) | $(92,648) | $44,310 | | Net income (loss) attributable to Beneficient common shareholders | $(65,076) | $47,667 | | Class A - basic EPS | $(7.19) | $12.11 | | Class A - diluted EPS | $(7.19) | $0.17 | Consolidated Statements of Cash Flows (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | | :----------------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(10,836) | $(10,647) | | Net cash provided by investing activities | 26,455 | 6,392 | | Net cash (used in) provided by financing activities | (9,353) | 991 | | Net increase (decrease) in cash and cash equivalents | 6,266 | (3,264) | | Cash and cash equivalents at end of period | $7,612 | $4,713 | 1. Overview of the Business Beneficient is a technology-enabled financial services holding company providing liquidity and trust services for alternative assets, but faces significant going concern doubts due to recurring losses, debt defaults, and an arbitration award - Beneficient provides liquidity solutions and trust products/services to the alternative assets industry through its online platform, Ben AltAccess, targeting MHNW individuals, STMI investors, FAMOs, and GPs[34][35] - Ben Liquidity offers proprietary ExAlt Plan financings, making ExAlt Loans to Customer ExAlt Trusts collateralized by alternative assets, while Ben Custody provides trust and custody administration services[37][38] - The company has historically generated net losses, resulting in an accumulated deficit of $2.1 billion as of June 30, 2025, and faces substantial doubt about its ability to continue as a going concern due to outstanding obligations, debt defaults, and a confirmed arbitration award[42][43][44] - A 1-for-80 reverse stock split was effective April 18, 2024, to regain compliance with Nasdaq's minimum bid price requirement[53][54] 2. Summary of Significant Accounting Policies Beneficient's U.S. GAAP consolidated financial statements include subsidiaries and Customer ExAlt Trusts (VIEs), with intercompany eliminations impacting income allocation, and rely on significant estimates for fair value, credit losses, and contingencies - Consolidated financial statements include Ben, its subsidiaries, and Customer ExAlt Trusts (VIEs) where Ben is the primary beneficiary, with intercompany transactions eliminated for financial reporting but impacting income allocation to equity holders[61][64] - Key estimates include fair value of alternative asset investments, allowance for credit losses, income/loss allocation to equity holders, legal loss contingencies, and goodwill impairment[66] - Adopted ASU 2023-07 (Segment Reporting) for the annual period beginning April 1, 2024, with no material impact, and is assessing ASU 2024-03 (Expense Disaggregation) and ASU 2023-09 (Income Tax Disclosures) for future periods[68][69][70] 3. Understanding our Financial Statements and the Impact to the Common Shareholder Consolidated financial statements include Customer ExAlt Trusts as VIEs, where their investment income/losses are allocated to noncontrolling interests, while Ben Liquidity and Ben Custody's intercompany interest and fee income directly impact net income attributable to Beneficient's and BCH's equity holders - Customer ExAlt Trusts are consolidated VIEs, but their investment income/loss and financial instrument gains/losses are allocated to noncontrolling interests and do not directly impact net income attributable to Beneficient's common shareholders[72][73] - Interest and fee income earned by Ben Liquidity and Ben Custody from Customer ExAlt Trusts, though eliminated in consolidation, directly impact net income attributable to Ben's and BCH's equity holders[74] Ben Liquidity and Ben Custody Revenue (Three Months Ended June 30, 2025 vs. 2024) | Revenue Source | 2025 (in thousands) | 2024 (in thousands) | | :------------------------------------------- | :------------------ | :------------------ | | Ben Liquidity interest income | $8,800 | $10,800 | | Ben Custody trust services & administration | $4,200 | $5,400 | 4. De-SPAC Merger Transaction The de-SPAC merger with Avalon Acquisition, Inc. completed on June 7, 2023, involved a Forward Purchase Agreement, BCG recapitalization, and conversion of Avalon securities into Beneficient's Class A common stock, Series A preferred stock, and Warrants, with Beneficient as the accounting acquirer - The company completed its de-SPAC merger transaction with Avalon Acquisition, Inc. on June 7, 2023, with Beneficient treated as the accounting acquirer[32][92] - The transaction involved a Forward Purchase Agreement, BCG Recapitalization, and conversion of Avalon securities into Beneficient Class A common stock, Series A preferred stock, and Warrants[80][85][88] Shares and Warrants Issued Post-Business Combination | Security Type | Shares/Warrants Issued | | :------------------------ | :--------------------- | | Class A common stock | 2,367,244 | | Class B common stock | 239,256 | | Warrants | 23,757,500 | - As of June 30, 2025, and March 31, 2025, there were 24,699,725 Warrants outstanding with a fair value of $0.2 million, classified as a liability[98] 5. Investments, at Fair Value Investments held by Customer ExAlt Trusts, primarily alternative assets, totaled $263.8 million as of June 30, 2025, a decrease from $291.4 million due to dispositions and NAV adjustments, with the diversified portfolio concentrated in private equity and venture capital Composition of Investments, at Fair Value (in thousands) | Investment Type | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Alternative assets | $231,586 | $259,113 | | Public equity securities | 3,995 | 4,065 | | Debt securities available-for-sale | 1,687 | 1,687 | | Other equity securities and interests | 26,501 | 26,506 | | Total investments, at fair value | $263,769 | $291,371 | - The decrease in alternative assets by $27.6 million since March 31, 2025, was due to dispositions, distributions, and downward NAV adjustments, partially offset by $11.8 million in new originations[100] Alternative Investments Portfolio Summary by Asset Class (June 30, 2025 vs. March 31, 2025) | Asset Class | June 30, 2025 Carrying Value (in thousands) | March 31, 2025 Carrying Value (in thousands) | | :---------------- | :---------------------------------------- | :----------------------------------------- | | Private Equity | $114,895 | $120,008 | | Venture Capital | 89,260 | 109,361 | | Natural Resources | 12,201 | 12,691 | | Private Real Estate | 6,978 | 6,454 | | Hedge Funds | 3,572 | 3,931 | | Other | 4,680 | 6,668 | | Total | $231,586 | $259,113 | - As of June 30, 2025, the portfolio had exposure to 204 alternative asset investment funds, with 91% in private companies[103] 6. Fair Value Measurements Fair value measurements categorize financial instruments into Level 1, 2, and 3, with $231.6 million in NAV-valued investments excluded, resulting in a $12.8 million loss for Q2 2025, and a $3.4 million goodwill impairment charge recognized in Q1 fiscal 2025 - Fair value measurements are based on a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[112][117] - Investments valued using NAV as a practical expedient totaled $231.6 million as of June 30, 2025, and resulted in a $12.8 million loss for the three months ended June 30, 2025[114] Financial Instruments at Fair Value (June 30, 2025) | (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | | :--------------------------------- | :------ | :------ | :------ | :------ | | Assets: | | | | | | Public equity securities | $3,995 | $— | $— | $3,995 | | Other equity interests | — | 4 | — | 4 | | Debt securities available-for-sale, other | — | — | 1,687 | 1,687 | | Liabilities: | | | | | | Warrants liability | 170 | 27 | — | 197 | - A non-cash goodwill impairment charge of $3.4 million was recognized during the three months ended June 30, 2024, due to a significant decline in Class A common stock price and market capitalization, with no impairment required for the three months ended June 30, 2025[124] 7. Debt Beneficient issued up to $4.0 million in convertible debentures and warrants to Yorkville in August 2024, with debentures fully repaid by February 2025, while Yorkville Warrants, classified as a liability, have a nominal fair value as of June 30, 2025 - In August 2024, Beneficient issued up to $4.0 million in convertible debentures and warrants to Yorkville, with the debentures fully repaid by their February 2025 maturity[129][130] - The Yorkville Warrants, exercisable for Class A common stock at $2.63 per share, are classified as a liability and measured at fair value using the Black-Scholes model, with a nominal fair value as of June 30, 2025[131][133][134] 8. Debt Due to Related Parties Beneficient's debt due to related parties totaled $108.4 million as of June 30, 2025, including HCLP First and Second Lien Credit Agreements in default for $94.5 million principal and $21.2 million accrued interest, which the company is challenging due to alleged document fabrication Debt Due to Related Parties (in thousands) | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | | :---------------------------- | :------------ | :------------- | | First Lien Credit Agreement | $21,260 | $21,260 | | Second Lien Credit Agreement | 72,983 | 72,983 | | Term Loan | 12,376 | 22,000 | | Other borrowings | 2,321 | 2,292 | | Unamortized debt discount, net | (547) | (639) | | Total debt due to related parties | $108,393 | $117,896 | - HCLP declared events of default on the First and Second Lien Credit Agreements, demanding immediate payment of approximately $94.5 million principal and $21.2 million accrued interest as of June 30, 2025, with the company evaluating the validity of these obligations due to alleged document fabrication by the former CEO[144][145][148] - The HH-BDH Credit Agreement (Term Loan) has experienced defaults on payment obligations, financial covenants, and reporting requirements, triggering a cross-default provision due to the HCLP default, with ongoing negotiations for waivers and amendments[159][160] Aggregate Maturities of Principal on Debt Due to Related Parties (in thousands) | Fiscal Year Ending March 31 | Debt Due to Related Parties | | :-------------------------- | :-------------------------- | | 2026 | $108,940 | | 2027 | — | | 2028 | — | | 2029 | — | | 2030 | — | 9. Share-based Compensation Beneficient's share-based awards under the BMP Equity Incentive Plan and 2023 Long Term Incentive Plan were retroactively adjusted for the 1-for-80 reverse stock split, resulting in a $0.5 million share-based compensation expense for Q2 2025, with $2.1 million in unrecognized expense remaining - Share-based awards under the BMP Equity Incentive Plan and 2023 Incentive Plan were retroactively adjusted for the 1-for-80 reverse stock split[163] - The 2023 Incentive Plan allows for grants of RSUs, stock options, and other awards, with vesting typically over a multi-year period[172][173] Share-based Compensation Expense (Three Months Ended June 30, 2025 vs. 2024) | (dollars in thousands) | 2025 | 2024 | | :-------------------------- | :--- | :--- | | BMP equity units | $66 | $113 | | Restricted stock units | 373 | 832 | | Other | 22 | 49 | | Total share-based compensation | $461 | $994 | - Unrecognized share-based compensation expense totaled $2.1 million as of June 30, 2025, expected to be recognized over the next five fiscal years[178] 10. Equity Beneficient's equity structure comprises Class A and B common stock, Series A and B preferred stock, and various noncontrolling interests in BCH and Customer ExAlt Trusts, with Class B common stock carrying 10 votes per share, and a Standby Equity Purchase Agreement with Yorkville allowing sales of up to $250 million of Class A common stock - Class A common stock has one vote per share, while Class B common stock has 10 votes per share, with both classes voting as a single class on most matters[180] - The company has a Standby Equity Purchase Agreement (SEPA) with Yorkville, allowing it to sell up to $250.0 million of Class A common stock, with approximately $240.7 million remaining available as of June 30, 2025[183][184][46] - BCH Preferred A-0 receives a quarterly guaranteed payment of 1.50% of its initial capital balance and has redemption rights, with a portion re-designated as non-redeemable in September and November 2024[201][205][206] Noncontrolling Interests Rollforward (Three Months Ended June 30, 2025) | (Dollars in thousands) | Trusts | FLP | BCH Preferred Series A-0 Non Redeemable | BCH Preferred Series A-1 | Total Noncontrolling Interests | | :--------------------------------------------------- | :---------- | :-- | :-------------------------------------- | :----------------------- | :----------------------------- | | Balance, March 31, 2025 | $(201,518) | $— | $160,526 | $173,068 | $132,076 | | Net income (loss) | (16,212) | (189) | 2,957 | (15,795) | (29,239) | | Preferred A-0 Unit Accounts guaranteed payment accrual | — | — | (2,957) | — | (2,957) | | Reclass of distributions payable to noncontrolling interest holder | (921) | — | — | — | (921) | | Issuance of equity in connection with recent financings | 295 | — | — | — | 295 | | Miscellaneous adjustment to previously allocated FLP Subclass 3 income | — | 189 | — | — | 189 | | Balance, June 30, 2025 | $(218,356) | $— | $160,526 | $157,273 | $99,443 | 11. Net Income (Loss) per Share For Q2 2025, Beneficient reported a net loss attributable to common shareholders of $(65.1) million, resulting in basic and diluted EPS of $(7.19) for both Class A and Class B common stock, with diluted EPS equal to basic due to the net loss Net Income (Loss) Attributable to Beneficient Common Shareholders (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands, except per share amounts) | 2025 | 2024 | | :----------------------------------------------- | :------------ | :------------ | | Net income (loss) attributable to Beneficient common shareholders | $(65,076) | $47,667 | | Class A - basic | $(7.19) | $12.11 | | Class B - basic | $(7.19) | $12.11 | | Class A - diluted | $(7.19) | $0.17 | | Class B - diluted | $(7.19) | $0.17 | - For Q2 2025, diluted EPS for common shareholders was the same as basic EPS due to the net loss position[235] Anti-Dilutive Shares Not Recognized (Three Months Ended June 30, 2025 vs. 2024) | Shares | 2025 | 2024 | | :-------------------------- | :------------ | :------------ | | Series B Preferred Stock | 34,410,774 | — | | Preferred Series A Subclass 0 | 833,557,399 | — | | Preferred Series A Subclass 1 | 2,682,497,381 | — | | Warrants | 26,025,107 | 30,874,686 | | Total anti-dilutive shares | 3,577,945,953 | 31,003,688 | 12. Income Taxes Beneficient reported no income tax expense for Q2 2025, compared to $28 thousand in the same period of 2024 Income Tax Expense (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | | :--------------------- | :--- | :--- | | Current expense | $— | $28 | | Deferred expense | — | — | | Income tax expense | $— | $28 | 13. Related Parties Beneficient has extensive related party transactions with its former CEO, Mr. Heppner, and his controlled entities, including $0.6 million in services agreement expenses and $10.8 million accrued for an expired aircraft sublease, while evaluating the validity of HCLP loan obligations due to alleged document fabrication - Related parties include employees, directors, and entities directly or indirectly controlled by or benefiting Mr. Heppner, the former CEO and Chairman[239] - Expenses from the services agreement with Bradley Capital (a Related Entity) were $0.6 million for the three months ended June 30, 2025, with $4.5 million owed as of that date[245][542] - An expired aircraft sublease with Bradley Capital has $10.8 million in accrued costs as of June 30, 2025, reflected in accounts payable[248] - The company incurred approximately $1.9 million in legal fees on behalf of Mr. Heppner for the three months ended June 30, 2025, under indemnification provisions, with most expected to be covered by D&O insurance[246] - Beneficient is evaluating the validity of its HCLP Loan Agreement obligations and liens due to credible evidence that Mr. Heppner participated in fabricating and delivering fake documents regarding his relationship to HCLP[256][257] 14. Variable Interest Entities Beneficient consolidates CT Risk Management, L.L.C. and Customer ExAlt Trusts as VIEs, with their assets restricted to settling their own obligations, and as of June 30, 2025, Customer ExAlt Trusts held $265.0 million in total assets and $3.5 million in total liabilities - Beneficient consolidates CT Risk Management, L.L.C. (CT) and Customer ExAlt Trusts as Variable Interest Entities (VIEs) because it is deemed the primary beneficiary, having the power to direct significant activities and absorb potential losses[274][276][278] - Assets of Customer ExAlt Trusts are restricted to settling their own obligations, and there is no recourse to Beneficient for their liabilities, except for potentially funding capital calls[278] Consolidated VIEs Financial Condition (Dollars in thousands) | (Dollars in thousands) | June 30, 2025 | March 31, 2025 | | :--------------------------------- | :------------ | :------------- | | Assets: | | | | Cash and cash equivalents | $1,165 | $717 | | Investments, at fair value | 263,769 | 291,371 | | Other assets | 50 | 378 | | Total Assets of VIEs | $264,984 | $292,466 | | Liabilities: | | | | Accounts payable and accrued expense | $3,515 | $3,107 | | Other liabilities | — | 95 | | Total Liabilities of VIEs | $3,515 | $3,202 | Consolidated VIEs Comprehensive Income (Loss) (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | | :-------------------------------------- | :------------ | :------------ | | Total revenues | $(12,851) | $9,853 | | Total operating expenses | 801 | 1,265 | | Net income (loss) | $(13,652) | $8,588 | | Net income (loss) attributable to noncontrolling interests | $(16,212) | $(526) | 15. Segment Reporting Beneficient operates three reportable segments: Ben Liquidity, Ben Custody, and Customer ExAlt Trusts, with intersegment transactions eliminated in consolidation but impacting income allocation to equity holders, and the CEO assessing performance on an unconsolidated basis - Beneficient has three reportable segments: Ben Liquidity, Ben Custody, and Customer ExAlt Trusts, with the Corporate & Other category including unallocated overhead, equity-based compensation, and operations of Ben Insurance Services and Ben Markets[281][283][285] - Intersegment transactions between operating subsidiaries and Customer ExAlt Trusts are eliminated in consolidated financial statements but directly impact income allocation to Ben's and BCH's equity holders[282] Segment Operating Income (Loss) (Three Months Ended June 30, 2025) | (in thousands) | Ben Liquidity | Ben Custody | Customer ExAlt Trusts | Corporate & Other | Consolidating Eliminations | Consolidated | | :---------------------- | :------------ | :---------- | :-------------------- | :---------------- | :------------------------- | :----------- | | Total revenues | $8,837 | $4,183 | $(12,851) | $38 | $(12,830) | $(12,623) | | Total expenses | 14,852 | 1,055 | 41,125 | 73,587 | (50,594) | 80,025 | | Operating income (loss) | $(6,015) | $3,128 | $(53,976) | $(73,549) | $37,764 | $(92,648) | Segment Total Assets (As of June 30, 2025) | (in thousands) | Ben Liquidity | Ben Custody | Customer ExAlt Trusts | Corporate & Other | Consolidating Eliminations | Total Assets | | :------------------------------ | :------------ | :---------- | :-------------------- | :---------------- | :------------------------- | :----------- | | Loans to Customer ExAlt Trusts, net | $230,669 | $— | $— | $— | $(230,669) | $— | | Investments, at fair value | — | — | 263,769 | — | — | 263,769 | | Other assets | 2,651 | 21,241 | 16,063 | 50,582 | (32,814) | 57,723 | | Goodwill and intangible assets, net | — | 7,469 | — | 5,545 | — | 13,014 | | Total Assets | $233,320 | $28,710 | $279,832 | $56,127 | $(263,483) | $334,506 | 16. Risks and Uncertainties Beneficient's investments, primarily alternative assets held by Customer ExAlt Trusts, are exposed to market, credit, currency, and interest rate risks, with the portfolio concentrated in Food and Staples Retailing (27.6%) and North America (47.7%) as of June 30, 2025, and further impacted by geopolitical conflicts and macroeconomic conditions - Investments held by Customer ExAlt Trusts are exposed to market, credit, currency, and interest rate risks, affecting fair value, monetization, and income recognition[288] Alternative Asset Portfolio by Industry Sector (June 30, 2025 vs. March 31, 2025) | Industry Sector | June 30, 2025 Value (in thousands) | June 30, 2025 Percent of Total | March 31, 2025 Value (in thousands) | March 31, 2025 Percent of Total | | :------------------------------------ | :--------------------------------- | :----------------------------- | :-------------------------------- | :------------------------------ | | Food and staples retailing | $63,997 | 27.6% | $63,846 | 24.6% | | Software and services | 25,771 | 11.1% | 41,460 | 16.0% | | Diversified financials | 21,889 | 9.5% | 22,273 | 8.6% | | Utilities | 19,719 | 8.5% | 15,432 | 6.0% | | Semiconductors and semiconductor equipment | 15,216 | 6.6% | 15,426 | 6.0% | | Health care equipment and services | 12,145 | 5.2% | 13,464 | 5.2% | | Capital goods | 5,723 | 2.5% | 20,532 | 7.9% | | Other | 67,126 | 29.0% | 66,680 | 25.7% | | Total | $231,586 | 100.0% | $259,113 | 100.0% | Alternative Asset Portfolio by Geography (June 30, 2025 vs. March 31, 2025) | Geography | June 30, 2025 Value (in thousands) | June 30, 2025 Percent of Total | March 31, 2025 Value (in thousands) | March 31, 2025 Percent of Total | | :------------ | :--------------------------------- | :----------------------------- | :-------------------------------- | :------------------------------ | | North America | $110,453 | 47.7% | $135,066 | 52.1% | | South America | 64,657 | 27.9% | 64,969 | 25.1% | | Asia | 39,638 | 17.1% | 41,948 | 16.2% | | Europe | 16,710 | 7.2% | 17,018 | 6.6% | | Africa | 128 | 0.1% | 112 | — | | Total | $231,586 | 100.0% | $259,113 | 100.0% | - Ongoing geopolitical conflicts (Russia-Ukraine, Israel-Hamas) and macroeconomic conditions (inflation, volatile interest rates) could negatively impact the economy, business activity, and the performance of Customer ExAlt Trusts' investments, affecting revenue and net income[292][293][294][295][296] 17. Commitments and Contingencies Beneficient has unfunded capital commitments of $39.2 million as of June 30, 2025, for alternative asset funds, and is involved in several legal proceedings, including the Paul Capital Advisors lawsuit (up to $350 million exposure), a $62.8 million arbitration award loss contingency, and GWG Holdings-related litigations with a $34.5 million settlement expected to be covered by insurance - Unfunded capital commitments for Customer ExAlt Trusts totaled $39.2 million as of June 30, 2025, with Ben obligated to lend funds if trusts cannot meet these commitments[299] - The Paul Capital Advisors lawsuit alleges breaches of contract and fraud, with a maximum potential exposure of up to $350 million plus costs and expenses[302][305] - The Texas Fifth Court of Appeals confirmed an arbitration award, leading to a $62.8 million loss contingency (including interest and fees) recorded for the three months ended June 30, 2025[308][309] - A settlement agreement for GWG Holdings-related litigation was approved by the Bankruptcy Court, with a $34.5 million estimated liability and corresponding insurance recovery recorded, expected to be fully funded by insurance proceeds[314][315][319][322] - The SEC's investigation related to the company concluded on July 1, 2024, with no enforcement actions recommended[326] 18. Supplemental Cash Flow Information For Q2 2025, cash paid for taxes was de minimis, and cash paid for interest was $0.6 million, with noncash investing and financing activities including $11.5 million in Series B preferred stock issuance and a $4.6 million accrual for BCH Preferred A-0 guaranteed payment Cash Paid for Taxes and Interest (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | | :--------------------- | :--- | :--- | | Cash paid for taxes | de minimis | de minimis | | Cash paid for interest | $600 | $1,000 | - Noncash investing and financing activities for Q2 2025 included $11.5 million issuance of Series B preferred stock and $0.3 million issuance of noncontrolling interest in connection with recent financings, and a $4.6 million accrual for BCH Preferred A-0 guaranteed payment[338] 19. Subsequent Events Subsequent events include asset sales by Customer ExAlt Trusts totaling approximately $14.0 million through October 7, 2025, leadership changes with Thomas O. Hicks elected Chairman and James G. Silk named Interim CEO, and a limited conversion of BCH Preferred A-1 on October 15, 2025, resulting in the issuance of over 101 million shares of Class A common stock - Asset sales by Customer ExAlt Trusts through October 7, 2025, generated approximately $14.0 million in gross proceeds, used for beneficiary distributions and loan repayments, including $5.0 million to HH-BDH LLC[336][337][339] - Thomas O. Hicks was elected Chairman of the Board on June 30, 2025, and James G. Silk was named Interim CEO on July 20, 2025, following Brad K. Heppner's resignation on June 19, 2025[340] - On October 15, 2025, a limited conversion of $52.6 million of BCH Preferred A-1 resulted in the issuance of 101,294,288 shares of Class A common stock[341] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Beneficient's financial condition and results for Q2 2025, highlighting a consolidated net loss of $(92.6) million due to decreased revenues and a $62.8 million arbitration award accrual, with significant liquidity concerns raising substantial doubt about its going concern ability - Beneficient is a technology-enabled financial services company providing liquidity solutions and trust services for alternative assets, primarily through Ben Liquidity and Ben Custody[345][346][348] Consolidated Revenues (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :---------------------------------- | :------------ | :------------ | | Investment income (loss), net | $(12,776) | $11,028 | | Gain (loss) on financial instruments, net | (45) | (1,183) | | Interest and dividend income | 10 | 12 | | Trust services and administration revenues | 188 | 189 | | Total revenues | $(12,623) | $10,046 | Consolidated Expenses (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :------------------------------------------------ | :------------ | :------------ | | Employee compensation and benefits | $3,331 | $3,850 | | Interest expense | 3,415 | 4,288 | | Professional services | 7,957 | 5,544 | | Provision for credit losses | — | 524 | | Loss on impairment of goodwill | — | 3,394 | | Accrual (release) of loss contingency related to arbitration award | 62,831 | (54,973) | | Other expenses | 2,491 | 3,081 | | Total expenses | $80,025 | $(34,292) | - The company's liquidity and capital resources are severely constrained, with substantial doubt about its ability to continue as a going concern due to recurring net losses, negative cash flows, events of default on related party debts, and a confirmed $62.8 million arbitration award[495][501][502][509] Overview Beneficient is a technology-enabled financial services company providing liquidity solutions and trust services for alternative assets through Ben Liquidity and Ben Custody via its AltAccess platform, with Customer ExAlt Trusts consolidated but their income/loss allocated to noncontrolling interests - Beneficient provides liquidity solutions and trust products/services to the alternative assets industry through its online platform, Ben AltAccess, targeting MHNW individuals, STMI investors, FAMOs, and GPs[345] - Ben Liquidity finances liquidity transactions via ExAlt Loans to Customer ExAlt Trusts, collateralized by alternative assets, while Ben Custody provides trustee, custody, and administration services[346][348] - The company plans to expand into Ben Insurance Services and Ben Markets, with all products and services designed to be delivered digitally through the AltAccess platform[350][351] - Customer ExAlt Trusts are consolidated VIEs, but their investment income/loss is allocated to noncontrolling interests, while interest and fee income earned by Ben Liquidity and Ben Custody from these trusts directly impact income allocated to Ben's and BCH's equity holders[353][359] How We Generate Revenue Consolidated revenue primarily stems from changes in fair value of Customer ExAlt Trusts' investments, while Ben Liquidity earns interest income on ExAlt Loans and Ben Custody earns fee income, with recent asset sales generating significant gross proceeds - Consolidated revenue is primarily from changes in fair value of investments held by Customer ExAlt Trusts[365] - Ben Liquidity earns interest income on ExAlt Loans, and Ben Custody earns fee income (upfront and recurring) for trust services, with these revenues, though eliminated in consolidation, directly impacting income allocated to equity holders[368] Ben Liquidity and Ben Custody Revenue (Three Months Ended June 30, 2025 vs. 2024) | Revenue Source | 2025 (in thousands) | 2024 (in thousands) | | :------------------------------------------- | :------------------ | :------------------ | | Ben Liquidity interest income | $8,800 | $10,800 | | Ben Custody trust services & administration | $4,200 | $5,400 | - Recent asset sales initiatives generated approximately $25.1 million in gross proceeds from June 6, 2025, and July 1, 2025, and an additional $11.6 million on August 8, 2025, with further sales of $1.4 million in October 2025[366][367] Basis of Presentation Beneficient's consolidated financial statements include subsidiaries and Customer ExAlt Trusts (VIEs), with intercompany eliminations impacting income allocation to equity holders, and primary consolidated assets and revenues allocated to noncontrolling interests - Consolidated financial statements include Ben, its subsidiaries, and Customer ExAlt Trusts (VIEs), with intercompany transactions eliminated but impacting income allocation to equity holders[373][375] - Primary consolidated assets are investments held by Customer ExAlt Trusts, and primary revenues are investment income/loss and financial instrument gains/losses, which are allocated to noncontrolling interests[374] - Noncontrolling interests represent third-party ownership in BCH and Customer ExAlt Trusts, adjusted for their proportionate share of earnings/losses and distributions[378] Recent Developments Recent developments include leadership changes with Thomas O. Hicks as Chairman and James G. Silk as Interim CEO following Brad K. Heppner's resignation amidst allegations, an Asset Sales Initiative generating $38.1 million in proceeds, recent financings involving Series B preferred stock, ongoing Nasdaq non-compliance issues, a confirmed $62.8 million arbitration award, and a proposed transaction to revise BCH liquidation priority unlikely to proceed as planned - Thomas O. Hicks was elected Chairman on June 30, 2025, and James G. Silk became Interim CEO on July 20, 2025, following Brad K. Heppner's resignation due to alleged document fabrication related to HCLP[379][380] - The Asset Sales Initiative generated approximately $38.1 million in gross proceeds from alternative asset sales through October 2025 to address cash flow constraints and satisfy obligations[381][382][383][384][385] - Beneficient issued Series B-6, B-7, and B-8 Resettable Convertible Preferred Stock in exchange for limited partner interests in investment funds, totaling approximately $11.7 million in NAV[386][387][388] - The company faces Nasdaq non-compliance for bid price, periodic reporting, and stockholders' equity, with an extension granted for compliance, and a reverse stock split is anticipated to address the bid price requirement[392][393][394][396][398] - An arbitration award of $62.8 million (including interest and fees) was confirmed against the company on October 10, 2025, reversing a prior vacating order[401][402] - A proposed transaction to revise BCH liquidation priority is not expected to be consummated on initial terms due to Mr. Heppner's resignation[406] Key Factors Affecting Our Business Beneficient's business is affected by its ability to execute new strategies, attract customers, deploy capital into attractive collateral, manage Class A common stock price volatility, maintain data and regulatory advantages, and navigate global macroeconomic conditions and capital access - Future performance depends on the ability to execute new strategies, attract customers, and successfully deploy financing capital into attractive alternative asset investments[408][409] - Volatility in Class A common stock price impacts the ability to engage customers and accept stock as consideration, and can trigger goodwill impairment assessments[409] - Maintaining data and regulatory advantages, competitive positioning, and navigating unpredictable global macroeconomic conditions (e.g., geopolitical conflicts, inflation, interest rates) are crucial[409][410] - The ability to access capital at attractive rates is a key factor, as adverse market conditions could limit financing availability and increase costs[410] Current Events Ongoing geopolitical conflicts (Israel-Hamas, Russia-Ukraine) and global economic conditions (inflation, volatile interest rates) pose significant risks to Beneficient, potentially impacting Customer ExAlt Trusts' investments, liquidity, earnings, and capital raising ability, though the direct impact remains uncertain - Ongoing geopolitical conflicts (Israel-Hamas, Russia-Ukraine) and macroeconomic conditions (inflation, volatile interest rates) could negatively impact the global economy and the performance of Customer ExAlt Trusts' investments[411][412] - These events may lead to reduced liquidity, earnings, and cash flow, impairment charges, challenges in raising capital, and reduced opportunities for future liquidity solution transactions[412][414] - Management is evaluating the impact but concludes that while a negative effect is reasonably possible, the specific impact is not readily determinable as of the financial statements' date[415] Factors Affecting the Comparability of Our Financial Condition and Results of Operations Comparability of Beneficient's financial results is affected by GWG Holdings' bankruptcy, vesting of performance-based equity awards, goodwill impairment charges (e.g., $3.4 million in Q1 fiscal 2025), and the accrual of a $62.8 million arbitration award loss contingency in Q2 2025 versus a $55.0 million release in Q2 2024 - GWG Holdings' bankruptcy resulted in conversion of securities to interests in the GWG Wind Down Trust, accounted for at fair value, leading to nominal net losses in Q2 2025[416] - Vesting of performance-based equity awards, particularly after the June 2023 public listing, impacted compensation expense, with $0.1 million recognized in Q2 2025 versus $0.5 million in Q2 2024[416] - A non-cash goodwill impairment charge of $3.4 million was recorded in Q1 fiscal 2025 (Q2 2024 calendar) due to a significant decline in Class A common stock price, with cumulative impairment through June 30, 2025, totaling $2.4 billion[416] - A $62.8 million loss contingency related to an arbitration award was accrued in Q2 2025, contrasting with a $55.0 million release in Q2 2024, significantly affecting comparability[416] Key Performance Indicators Beneficient uses GAAP and non-GAAP measures, including adjusted revenue and adjusted operating income (loss), to assess performance, monitoring operating metrics like loan payments received for Ben Liquidity and fee payments for Ben Custody, alongside financial condition indicators such as loans to Customer ExAlt Trusts, allowance for credit losses, and investments at fair value - Key performance indicators include non-GAAP adjusted revenue and adjusted operating income (loss), which exclude mark-to-market adjustments on GWG Wind Down Trust interests, credit losses, non-cash asset impairment, share-based compensation, and specific legal/professional costs[417][419][420] Key Operating Metrics (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :------------------------------ | :------------ | :------------ | | Ben Liquidity | | | | Loan payments received | $24,609 | $4,246 | | Operating income (loss) | (6,015) | (514) | | Adjusted operating income (loss) | (6,015) | (509) | | Ben Custody | | | | Fee payments received | $1,350 | $1,516 | | Operating income (loss) | 3,128 | 1,287 | | Adjusted operating income (loss) | 3,128 | 4,416 | | Consolidated | | | | Revenue | $(12,623) | $10,046 | | Adjusted revenue | (12,622) | 10,411 | | Operating income (loss) | (92,648) | 44,338 | | Adjusted operating income (loss) | (25,438) | (4,725) | Key Financial Condition Metrics (June 30, 2025 vs. March 31, 2025) | (dollars in thousands) | June 30, 2025 | March 31, 2025 | | :-------------------------------------- | :------------ | :------------- | | Ben Liquidity | | |\ | Loans to Customer ExAlt Trusts, net | $230,669 | $244,070 | | Allowance to total loans | 60.46% | 58.39% | | Nonperforming loans to total loans | 53.74% | 50.53% | | Ben Custody | | | | Fees receivable | $18,761 | $16,890 | | Deferred revenue | 16,858 | 17,762 | | Customer ExAlt Trusts | | | | Investments, at fair value | $263,769 | $291,371 | | Distributions to Original Loan Balance | 0.77 x | 0.75 x | | Total Value to Original Loan Balance | 1.03 x | 1.04 x | Principal Revenue and Expense Items Beneficient's consolidated revenues primarily derive from investment income (loss), net, and financial instrument gains/losses, while key expenses include interest expense, employee compensation, professional services, provision for credit losses, and goodwill impairment, with intersegment revenues impacting income allocation to equity holders - Consolidated revenues are primarily from investment income (loss), net (changes in NAV of alternative assets), and gain (loss) on financial instruments, net[427][429] - Principal consolidated expenses include interest expense (on senior debt and HH-BDH loans), employee compensation and benefits (including share-based compensation), professional services, provision for credit losses, and goodwill impairment[427][429] - Intersegment revenues, such as interest income on ExAlt Loans and trust services/administration fees from Customer ExAlt Trusts to Ben Liquidity and Ben Custody, are eliminated in consolidation but impact income allocated to equity holders[428] Results of Operations — Three Months Ended June 30, 2025 and 2024 (Unaudited) Beneficient reported a consolidated net loss of $(92.6) million for Q2 2025, a significant decline from $44.3 million net income in 2024, primarily due to a $23.8 million decrease in investment income and a $62.8 million arbitration award accrual, with varied segment performance Consolidated Results of Operations (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :------------------------------------------------ | :------------ | :------------ | | Total revenues | $(12,623) | $10,046 | | Total expenses | 80,025 | (34,292) | | Operating income (loss) | $(92,648) | $44,338 | | Income tax expense | — | 28 | | Net income (loss) | $(92,648) | $44,310 | CONSOLIDATED Consolidated revenues decreased by $23.8 million to $(12.6) million for Q2 2025, primarily due to downward NAV adjustments, while total operating expenses increased significantly to $80.0 million from $(34.3) million due to a $62.8 million arbitration award accrual versus a $55.0 million release in the prior year Consolidated Revenues (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :---------------------------------- | :------------ | :------------ | | Investment income (loss), net | $(12,776) | $11,028 | | Gain (loss) on financial instruments, net | (45) | (1,183) | | Interest and dividend income | 10 | 12 | | Trust services and administration revenues | 188 | 189 | | Total revenues | $(12,623) | $10,046 | - Investment income (loss), net decreased by $23.8 million, driven by $14.6 million in downward NAV adjustments and $0.8 million in downward quoted market price adjustments, partially offset by foreign currency impacts[433] Consolidated Expenses (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :------------------------------------------------ | :------------ | :------------ | | Employee compensation and benefits | $3,331 | $3,850 | | Interest expense | 3,415 | 4,288 | | Professional services | 7,957 | 5,544 | | Provision for credit losses | — | 524 | | Loss on impairment of goodwill | — | 3,394 | | Accrual (release) of loss contingency related to arbitration award | 62,831 | (54,973) | | Other expenses | 2,491 | 3,081 | | Total expenses | $80,025 | $(34,292) | - A $62.8 million accrual for an arbitration award was recognized in Q2 2025, contrasting with a $55.0 million release in Q2 2024, significantly impacting total expenses[441] BEN LIQUIDITY Ben Liquidity's operating loss increased to $(6.0) million for Q2 2025, from $(0.5) million in the prior year, primarily due to a $2.0 million decrease in interest income from nonaccrual loans and a $3.4 million increase in provision for credit losses Ben Liquidity Results of Operations (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :---------------------------------- | :------------ | :------------ | | Interest income | $8,837 | $10,849 | | Employee compensation and benefits | 384 | 430 | | Interest expense | 3,346 | 3,081 | | Professional services | 614 | 474 | | Provision for credit losses | 10,269 | 6,927 | | Other expenses | 239 | 451 | | Total expenses | 14,852 | 11,363 | | Operating income (loss) | $(6,015) | $(514) | - Interest income decreased by $2.0 million due to a higher percentage of loans being placed on nonaccrual status[444] - Provision for credit losses increased to $10.3 million from $6.9 million, primarily due to interest capitalization outpacing loan paydowns[446] BEN CUSTODY Ben Custody's operating income increased to $3.1 million for Q2 2025, from $1.3 million in the prior year, despite a $1.2 million decrease in revenues, primarily due to the absence of a $3.1 million goodwill impairment charge recognized in the prior year Ben Custody Results of Operations (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :---------------------------------------- | :---------- | :---------- | | Trust services and administration revenues | $4,183 | $5,382 | | Employee compensation and benefits | 647 | 356 | | Professional services | 209 | 396 | | Loss on impairment of goodwill | — | 3,129 | | Other expenses | 199 | 214 | | Total expenses | 1,055 | 4,095 | | Operating income (loss) | $3,128 | $1,287 | - Trust services and administration revenues decreased by $1.2 million due to a decline in the NAV of alternative assets held by Customer ExAlt Trusts[448] - Operating income increased primarily because no goodwill impairment test was required in Q2 2025, compared to a $3.1 million impairment charge in Q2 2024[449] CUSTOMER EXALT TRUSTS The Customer ExAlt Trusts segment reported an operating loss of $(54.0) million for Q2 2025, significantly wider than the $(29.6) million loss in the prior year, driven by a $23.8 million decrease in investment income and a $2.3 million increase in interest expense Customer ExAlt Trusts Results of Operations (Three Months Ended June 30, 2025 vs. 2024) | (in thousands) | 2025 | 2024 | | :---------------------------------- | :------------ | :------------ | | Investment income (loss), net | $(12,776) | $11,028 | | Gain (loss) on financial instruments, net | (75) | (1,175) | | Total revenues | (12,851) | 9,853 | | Interest expense | 37,145 | 34,799 | | Professional services | 406 | 622