SHF Holdings, Inc 10-Q for FY2024 Q2

SHF Holdings, Inc. (SHFS)

10-Q 2024-08-14 For: 2024-06-30

Added on April 11, 2026

About this 10-Q

SHF Holdings, Inc filed this 10-Q on August 14, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).

Headline figures

Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $4.04M; down 11.7% from $4.57M a year earlier
Net income: $941.53K; compared with a net loss of $17.6M a year earlier
Diluted EPS: $0.02; compared with -$0.40 a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share	SHFS	The Nasdaq Stock Market LLC
Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share	SHFSW	The Nasdaq Stock Market LLC

		Page
PART I – FINANCIAL INFORMATION:		1

Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets as at June 30, 2024 (Unaudited) and December 31, 2023	1
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024, and June 30, 2023	2
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024, and June 30, 2023	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024, and June 30, 2023	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II - OTHER INFORMATION:		45
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46

	June 30, 2024 (Unaudited)			December 31, 2023

ASSETS
Current Assets:
Cash and cash equivalents	$	6,111,982		$	4,888,769
Accounts receivable – trade		302,749			121,875
Accounts receivable – related party		1,003,251			2,095,320
Accounts receivable		1,003,251			2,095,320
Prepaid expenses – current portion		378,102			546,437
Accrued interest receivable		23,250			13,780
Short-term loans receivable, net		12,853			12,391
Other current assets		-			82,657
Total Current Assets	$	7,832,187		$	7,761,229
Long-term loans receivable, net		376,809			381,463
Property, plant and equipment, net		7,430			84,220
Operating lease right to use assets		781,693			859,861
Goodwill		6,058,000			6,058,000
Intangible assets, net		3,408,036			3,721,745
Deferred tax asset		43,793,536			43,829,019
Prepaid expenses – long term position		487,500			562,500
Forward purchase receivable		4,584,221			4,584,221
Security deposit		19,102			18,651
Total Assets	$	67,348,514		$	67,860,909
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	154,445		$	217,392
Accounts payable-related party		103,258			577,315
Accounts payable		103,258			577,315
Accrued expenses		949,686			1,008,987
Contract liabilities		66,795			21,922
Lease liabilities – current		153,357			132,546
Senior secured promissory note – current portion		3,072,871			3,006,991
Deferred consideration – current portion		2,952,722			2,889,792
Other current liabilities		77,315			41,639
Total Current Liabilities	$	7,530,449		$	7,896,584
Warrant liabilities		1,822,356			4,164,129
Deferred consideration – long term portion		351,000			810,000
Forward purchase derivative liability		7,309,580			7,309,580
Senior secured promissory note—long term portion		9,450,788			11,004,175
Net deferred indemnified loan origination fees		410,035			63,275
Lease liabilities – long term		795,062			875,447
Indemnity liability		1,218,263			1,382,408
Total Liabilities	$	28,887,533		$	33,505,598
Commitment and Contingencies (Note 13)		-			-
Stockholders’ Equity
Convertible preferred stock, $.0001 par value, 1,250,000 shares authorized, 111 and 1,101 shares issued and outstanding on June 30, 2024, and December 31, 2023, respectively		-			-
Class A common stock, $.0001 par value, 130,000,000 shares authorized, 55,431,001 and 54,563,372 issued and outstanding on June 30, 2024, and December 31, 2023, respectively		5,545			5,458
Additional paid in capital		107,900,303			105,919,674
Retained deficit		(69,444,867	)		(71,569,821	)
Total Stockholders’ Equity	$	38,460,981		$	34,355,311
Total Liabilities and Stockholders’ Equity	$	67,348,514		$	67,860,909

	2024			2023			2024			2023
	For the three months ended June 30,						For the six months ended June 30,
	2024			2023			2024			2023

Revenue	$	4,037,535		$	4,572,508		$	8,088,334		$	8,752,887

Operating Expenses
Compensation and employee benefits	$	2,264,931		$	2,540,331		$	4,544,969		$	6,199,851
General and administrative expenses		1,001,764			1,852,589			1,985,984			3,391,463
Impairment of goodwill		-			13,208,276			-			13,208,276
Impairment of finite-lived intangible assets		-			3,680,463			-			3,680,463
Professional services		503,727			620,735			964,677			1,069,981
Rent expense		64,198			71,001			133,635			158,743
Provision (benefit) for credit losses		(97,248	)		511,880			(166,035	)		578,546
Total operating expenses	$	3,737,372		$	22,485,275		$	7,463,230		$	28,287,323
Operating income/ (loss)	$	300,163		$	(17,912,767	)	$	625,104		$	(19,534,436	)
Other income /(expenses)
Change in the fair value of deferred consideration		211,535			(193,065	)		396,070			(384,008	)
Interest expense		(168,830	)		(160,671	)		(323,002	)		(803,931	)
Change in fair value of warrant liabilities		1,086,286			9,789			2,341,773			442,937
Total other income/ (expenses)	$	1,128,991		$	(343,947	)	$	2,414,841		$	(745,002	)
Net income/ (loss) before income tax		1,429,154			(18,256,714	)		3,039,945			(20,279,438	)
Income tax benefit/ (expense), net		(487,627	)		652,147			(48,742	)		1,261,424
Net income/ (loss)	$	941,527		$	(17,604,567	)	$	2,991,203		$	(19,018,014	)
Weighted average shares outstanding, basic		55,431,001			43,859,305			55,321,711			34,815,264
Basic net income/ (loss) per share	$	0.02		$	(0.40	)	$	0.05		$	(0.55	)
Weighted average shares outstanding, diluted		56,485,467			43,859,305			56,376,177			34,815,264
Diluted income / (loss) per share	$	0.02		$	(0.40	)	$	0.05		$	(0.55	)

	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
	Preferred Stock				Class A Common Stock				Additional Paid-in		Retained			Total Shareholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance, March 31, 2024		111	$	-		55,431,001	$	5,545	$	107,348,166	$	(70,386,394	)	$	36,967,317
Conversion of PIPE shares		-		-		-		-		-		-			-
Restricted stock units (net of tax)		-		-		-		-		35,478		-			35,478
Stock compensation cost		-		-		-		-		516,659		-			516,659
Net Income		-		-		-		-		-		941,527			941,527
Balance, June 30, 2024		111		-		55,431,001	$	5,545	$	107,900,303	$	(69,444,867	)	$	38,460,981

Assets	December 31, 2022			Transition Adjustment			January 1, 2023
Loans receivable, gross	$	1,432,560		$	-		$	1,432,560
Less: Allowance for credit loss		(21,488	)		(14,980	)		(36,468	)
	$	1,411,072		$	(14,980	)	$	1,396,092

Liabilities & Equity	December 31, 2022			Transition Adjustment			January 1, 2023
Indemnity liability	$	499,465		$	566,341		$	1,065,806
Retained deficit		(39,695,281	)		(581,321	)		(40,276,602	)
	$	(39,195,816	)	$	(14,980	)	$	(39,210,796	)

	Stock consideration			Cash consideration			Third Anniversary Consideration Payment
January 1, 2023	$	11,456,639		$	5,650,775		$	-
Less: Working capital adjustment		(108,691	)		-			-
Less: Issuance of shares and payment to shareholders		(4,085,075	)		(3,000,000	)		-
Less: Issuance of Abaca warrants		(1,643,699	)		-			-
Less: Issuance of third anniversary payment consideration		(430,000	)		-			430,000
Less: Gain recognized in the consolidated statements of operations		(5,645,107	)		-			-
Add: Fair value adjustment		455,933			239,017			380,000
December 31, 2023		-			2,889,792			810,000
Add: Fair value adjustment		-			62,930			(459,000	)
June 30, 2024	$	-		$	2,952,722		$	351,000

	Remaining Useful Life in Years	December 31, 2023 (A)		Acquired in Acquisition (B)		Amortization (C)		Impairment (D)		June 30, 2024 (A+B-C-D)
Market related intangible assets	6.37 Years	$	65,216	$	-	$	4,733	$	-	$	60,483
Customer relationships	8.37 Years		56,775		-		3,192		-		53,583
Developed technology	5.37 Years		3,599,754		-		305,783		-		3,293,970
Total intangible assets		$	3,721,745	$	-	$	313,708	$	-	$	3,408,036

	Remaining Useful Life in Years	December 31, 2022 (A)		Acquired in Acquisition (B)		Amortization (C)		Impairment (D)		December 31, 2023 (A+B-C-D)
Market related intangible assets	6.87 Years	$	2,066,918	$	-	$	136,034		1,865,668	$	65,216
Customer relationships	8.87 Years		1,974,795		-		103,225		1,814,795		56,775
Developed technology	5.87 Years		6,579,374		-		960,619		2,019,001		3,599,754
Total intangible assets		$	10,621,087	$	-	$	1,199,878		5,699,464	$	3,721,745

	June 30, 2024			December 31, 2023
Commercial real estate loans receivable, gross	$	398,495		$	404,577
Allowance for credit losses		(8,833	)		(10,723	)
Commercial real estate loans receivable, net		389,662			393,854
Current portion		(12,853	)		(12,391	)
Noncurrent portion	$	376,809		$	381,463

Three months ended June 30,	2024			2023
Allowance for credit losses
Beginning balance	$	9,081		$	21,078
Charge-offs		-			-
Recoveries		-			-
Benefit		(248	)		(1,909	)
Ending balance	$	8,833		$	19,169

Six months ended June 30,	2024			2023
Allowance for credit losses
Beginning balance	$	10,723		$	21,488
Cumulative effect from adoption of CECL		-			14,980
Charge-offs		-			-
Recoveries		-			-
Benefit		(1,890	)		(17,299	)
Ending balance	$	8,833		$	19,169

	June 30, 2024		June 30, 2023
Loans receivable:
Individually evaluated for an allowance for credit loss	$	-	$	-
Collectively evaluated for an allowance for credit loss		398,495		410,440
		398,495	$	410,440
Allowance for credit losses:
Individually evaluated for an allowance for credit loss	$	-	$	-
Collectively evaluated for an allowance for credit loss		8,833		19,169
		8,833	$	19,169

Risk rating	June 30, 2024		December 31, 2023
4	$	398,495	$	404,577
Grand total	$	398,495	$	404,577

	June 30, 2024		December 31, 2023
Secured term loans	$	54,059,933	$	55,215,013
Unsecured loans and lines of credit		900,000		431,640
Total loans funded by PCCU	$	54,959,933	$	55,646,653

	2024			2023
	Six months ended June 30,
	2024			2023
Beginning balance	$	1,382,408		$	499,465
Cumulative effect from adoption of CECL		-			566,341
Charge-offs		-			-
Recoveries		-			-
(Benefit)/ Provision		(164,145	)		595,845
Ending balance	$	1,218,263		$	1,661,651

Risk rating	Category	Description
0	Risk Free	Free of repayment risk. The loan is fully guaranteed by the full faith and backing of the US Government or entirely secured by cash controlled by SHF.
1	Highest Quality	High caliber loan with the lowest risk of default. Significant excess cash flow after debt service and moderate to low leverage.
2	Excellent	High quality loan that carry’s a low risk of default. Strong cash flow and relatively few negative individual risk factors.
3	Good	Loans with lower-than-average level of risk. Excess cash flow and other factors contributing to the overall low level of risk in the loan.
4	Average	Risk factors may be mixed with some negative and some positive aspects, but the overall rating will indicate an average level of risk.
5	Fair	Loans in this category have the maximum level of risk that can be accepted while still recommending a new loan for origination. The loan risk factors may contain multiple negative factors, but they are generally outweighed by the positive aspects of the loan.
6	Watch List	There is a temporary and curable condition resulting in a lower risk rating.
7	Special Mention	There is a potential weakness that may result in the deterioration of the prospect of repayment that are not temporary and may require additional collection or workout efforts.
8	Substandard	Loans in this category are inadequately protected by the current net worth and paying capacity of the obligors or of the collateral pledged and have well-defined weaknesses that jeopardize the liquidation of the debt with distinct possibility of loss. SHF may be required to advance additional funds to manage the loan. Escalated collection activities such as foreclosure have been scheduled with anticipated losses up to 20% of the outstanding balance.
9	Doubtful	Collection or liquidation in full highly questionable and improbable. Escalated collection activities such as foreclosure have commenced with anticipated losses from 20% to 50% of the outstanding balance.
10	Loss	Uncollectable loans. A complete write-off is imminent although a partial recovery may be affected in the future.

Risk rating	June 30, 2024		December 31, 2023
3	$	9,885,795	$	10,100,000
4		2,987,716		3,431,640
5		26,084,464		28,115,013
6		11,800,000		10,900,000
7		4,201,958		3,100,000
Grand total	$	54,959,933	$	55,646,653

	Commercial real estate loans			Indemnity liability			Total			Commercial real estate loans			Indemnity liability		Total
	June 30, 2024									June 30, 2023
	Commercial real estate loans			Indemnity liability			Total			Commercial real estate loans			Indemnity liability		Total
Provision (benefit)	$	(248	)		(97,000	)		(97,248	)	$	(1,909	)	$	513,789	$	511,880

	June 30, 2024			December 31, 2023
Equipment	$	45,397		$	45,397
Software		51,692			51,692
Improvement		71,635			71,635
Office furniture		215,504			215,504
Property and equipment, gross		384,228			384,228
Less: accumulated depreciation		(376,798	)		(300,008	)
Property and equipment, net	$	7,430		$	84,220

	June 30, 2024 (Unaudited)			December 31, 2023 (Unaudited)
CRB related deposits	$	90,562,105		$	129,350,998
Capacity at 60%		54,337,263			77,610,599
PCCU net worth		83,299,448			81,087,746
Capacity at 1.3125		109,330,526			106,670,306
Limiting capacity		54,337,263			77,610,599
PCCU loans funded		54,209,933			55,660,039
Amounts available under lines of credit		750,000			525,000
Incremental capacity*	$	(622,670	)	$	21,425,560

	June 30, 2024		December 31, 2023
Senior Secured Promissory Note (current)	$	3,072,871	$	3,006,991
Senior Secured Promissory Note (long term)		9,450,788		11,004,175
Total	$	12,523,659	$	14,011,166

Year of payment
2024	$	1,519,485
2025		3,138,931
2026		3,274,966
2027		3,416,896
2028		1,173,381
Grand total	$	12,523,659

	June 30, 2024			December 31, 2023
ROU assets that are related to lease properties are presented as follows:
Beginning balance	$	859,861		$	1,016,198
Additions to right-of-use assets		-			-
Amortization charge for the period		(78,168	)		(156,337	)
Lease modifications		-			-
Ending balance	$	781,693		$	859,861

Further information related to leases is as follows:
Weighted-average remaining lease term		2.92 Years			3.42 Years
Weighted-average discount rate		6.87	%		6.87	%

	June 30,		December 31,
	2024		2023
Year
2024	$	104,699	$	197,520
2025		217,925		217,925
2026		222,275		222,275
2027		226,705		226,705
2028		231,216		231,216
Thereafter		117,710		117,710
Total future minimum lease payments	$	1,120,530	$	1,213,351
Less: Imputed interest		172,111		205,358
Operating lease liabilities		948,419		1,007,993
Less: Current portion		153,357		132,546
Non-current portion of lease liabilities	$	795,062	$	875,447


	Three months ended June 30,
	2024		2023
Deposit, activity, onboarding income	$	1,681,596	$	2,557,410
Safe Harbor Program income (expense)		19,230		(10,275	)
Investment income		500,617		1,420,542
Loan interest income		1,836,092		604,831
Total Revenue	$	4,037,535	$	4,572,508


	Six months ended June 30,
	2024		2023
Deposit, activity, onboarding income	$	3,302,590	$	4,803,241
Safe Harbor Program income		38,460		40,828
Investment income		1,274,436		2,837,694
Loan interest income		3,472,848		1,071,124
Total Revenue	$	8,088,334	$	8,752,887

●	The Company is involved in, or has been involved in, arbitrations or various other legal proceedings that arise from the normal course of its business. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material impact on the Company’s results of operations, balance sheets and cash flows due to defense costs, and divert management resources. The Company cannot predict the timing or outcome of these claims and other proceedings.

●	In connection with the issuance of Class A Common Stock to Abaca shareholders, the Company commits to registering the stock upon the exercise of Abaca Warrants if required by law or regulation to ensure the shares can be sold without restrictive legends, known as the Warrant Registration Requirement. Should this requirement arise, the Company is obliged to file a registration statement with the SEC within 45 calendar days of notification of the Warrant Registration Requirement. The failure to file within this timeframe constitutes an event of default. Moreover, the Company is dedicated to making the registration statement effective as promptly as possible and maintaining its effectiveness, along with a current prospectus, until the Warrants expire according to this Agreement’s terms. In the event a registration statement triggered by a Warrant Registration Requirement is not declared effective by the SEC within one year from its filing date, Warrant holders are entitled to exercise their Warrants on a cashless basis from the 366th day post-filing until the statement becomes effective.

For the three month period ended June 30,	2024		2023
Net Income/ (loss)	$	941,527	$	(17,604,567	)
Weighted average shares outstanding – basic		55,431,001		43,859,305
Basic net income/ (loss) per share	$	0.02	$	(0.40	)
Weighted average shares outstanding – diluted		56,485,467		43,859,305
Diluted net income/ (loss) per share	$	0.02	$	(0.40	)

For the six month period ended June 30,	2024		2023
Net Income/ (loss)	$	2,991,203	$	(19,018,014	)
Weighted average shares outstanding – basic		55,321,711		34,815,264
Basic net income/ (loss) per share	$	0.05	$	(0.55	)
Weighted average shares outstanding – diluted		56,376,177		34,815,264
Diluted net income/ (loss) per share	$	0.05	$	(0.55	)


Weighted average shares calculation – basic	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Company public shares		3,926,598		3,926,598		3,926,598		3,926,598
Company initial stockholders		3,403,175		3,403,175		3,403,175		3,403,175
PCCU stockholders		22,586,139		22,586,139		22,586,139		17,202,714
Shares issued for abaca acquisition		7,935,799		2,099,977		7,935,799		2,099,977
Restricted stock units issued		1,308,090		1,000,437		1,308,090		784,794
Conversion of preferred stock		16,271,200		10,842,979		16,161,910		7,398,006
Grand total		55,431,001		43,859,305		55,321,711		34,815,264
Weighted average shares outstanding - basic		55,431,001		43,859,305		55,321,711		34,815,264


Weighted average shares calculation - diluted	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Shares used in computation of basic earnings per share		55,431,001		43,859,305		55,321,711		34,815,264
Shares to be issued to Abaca shareholders		750,000		-		750,000		-
Restricted stock units		215,666		-		215,666		-
Conversion of preferred stock		88,800		-		88,800		-
Grand total		56,485,467		43,859,305		56,376,177		34,815,264

		As at December 31, 2023				Shares sold during the six months ended June 30, 2024				As at June 30, 2024
S.no	Name of the party	Opening Shares (a)		Amount		Shares (b)		Amount		Shares (c=a-b)		Rest price (iii)		Amount (c x iii)
1	Vellar		971,204	$	1,214,005		-	$	-		971,204		1.25	$	1,214,005
2	Midtown East		1,517,924		1,897,405		-		-		1,517,924		1.25		1,897,405
3	Verdun		1,178,249		1,472,811		-		-		1,178,249		1.25		1,472,811
Grand total			3,667,377	$	4,584,221		-	$	-		3,667,377			$	4,584,221