SHF (US:SHFS)2023-08-14 20:06Business Combination and Ownership - The company completed a business combination with Northern Lights Acquisition Corp. for a total consideration of $185 million, consisting of $115 million in stock and $70 million in cash, with $56.9 million deferred[237]. - PCCU holds a 60.8% ownership stake in SHF Holdings, Inc. following the business combination, changing its status from Parent to majority shareholder[238]. - The deferred payment of $56.9 million from the business combination is structured to be paid in installments over five years, with a total of $38.5 million including interest[242]. - The estimated tax basis Goodwill balance from the business combination is $44,102,572, creating a deferred tax asset reported as Additional Paid-in Capital[251]. Financial Performance - The Company reported a total revenue of $8,752,887 for the six months ended June 30, 2023, representing an increase of 148.39% compared to $3,523,899 in the same period of 2022[264]. - Total revenue for the three months ended June 30, 2023, reached $4,572,508, up 146.79% from $1,852,789 in the same period of 2022[273]. - The Company reported total revenue of $6,672,502 for the six months ended June 30, 2023, compared to $3,436,731 for the same period in 2022, representing an increase of approximately 94.5%[338]. - The Company generated $1,071,124 in loan interest income for the six months ended June 30, 2023, a significant increase of 328.73% from $249,834 in 2022[264]. - Loan interest income for the three months ended June 30, 2023, was $604,831, reflecting a 231.24% increase from $182,598 in the same period of 2022[273]. - Total account fees for the six months ended June 30, 2023, were $717,945, reflecting a 53.22% increase from $468,572 in 2022[257]. Operational Metrics - Average monthly ending deposit balance increased to $226,798,931 for the six months ended June 30, 2023, up 58.79% from $142,833,436 in 2022[257]. - The number of average active accounts rose to 1,010 for the six months ended June 30, 2023, a 69.75% increase from 595 in 2022[257]. - CRB related deposits increased to $287,445,745 as of June 30, 2023, compared to $161,138,975 as of December 31, 2022, indicating a growth of approximately 78.5%[338]. - The capacity for CRB related loans funded by PCCU was limited to $122,898,704 as of June 30, 2023, down from $174,866,429 as of December 31, 2022[338]. Expenses and Losses - The Company incurred an operating loss of $19,534,436 for the six-month period ended June 30, 2023[287]. - For the six months ended June 30, 2023, total operating expenses increased to $28,287,323, a rise of 953.16% compared to $2,685,955 in the same period of 2022[270]. - Compensation and employee benefits for the six months ended June 30, 2023, rose to $6,199,851, an increase of 308.55% from $1,517,522 in the same period of 2022[270]. - The Company incurred operating expenses of $849,660 for the six months ended June 30, 2023, compared to $220,654 for the same period in 2022, reflecting a significant increase in operational costs[338]. Compliance and Regulatory Matters - SHF has successfully navigated 16 state and federal banking exams, demonstrating its compliance and operational capabilities in the cannabis financial services sector[230]. - The company offers compliance, validation, and monitoring services to financial institutions, ensuring adherence to regulatory requirements in the cannabis industry[230]. - The Company identified three material weaknesses in internal controls over financial reporting related to Revenue Recognition, Complex Financial Instruments, and Credit Losses as of June 30, 2023[329]. - The Company adopted the current expected credit loss (CECL) methodology in 2023, replacing the incurred loss methodology for estimating credit losses[309]. Agreements and Partnerships - The company has entered into a Commercial Alliance Agreement with PCCU, which governs the lending-related and account-related services, superseding previous agreements[240]. - Under the Commercial Alliance Agreement, PCCU receives a servicing fee of 0.25% on the outstanding principal balance of each loan funded by PCCU, and the Company is obligated to indemnify PCCU from certain default-related loan losses[334]. - The initial term of the Commercial Alliance Agreement is for two years, with a one-year automatic renewal unless a party provides 120 days' written notice prior to the end of the term[335]. - The Commercial Alliance Agreement stipulates that the Company will share 75% of the investment and interest income earned on CRB deposits held at PCCU[335]. Asset and Liability Management - The Company reported a contract asset of $1,980 and a contract liability of $60,382 as of June 30, 2023[285]. - The Company recognized a noncash goodwill impairment charge of $13.21 million for the three and six months ended June 30, 2023, reducing goodwill from $19.27 million to $6.06 million[319][322]. - An impairment charge of $3.68 million was recognized for market-related intangible assets as of June 30, 2023, while no impairment was recorded for developed technologies[325]. - As of June 30, 2023, the total finite-lived intangible assets amounted to $6,230,802, a decrease from $10,621,087 as of December 31, 2022, reflecting a significant amortization of $709,822 and impairment of $3,680,463[327].