SHF Holdings, Inc. — 2023 Form 10-K Summary
Business context and reporting period. The filing covers the fiscal year ended December 31, 2023, and was filed April 1, 2024. SHF provides compliance, onboarding, account monitoring, deposit-related services and lending support to financial institutions serving cannabis-related businesses (CRBs). It does not hold customer deposits; partner institutions, principally Partner Colorado Credit Union (PCCU), hold and transmit those funds. SHF reports operations supporting CRBs in 41 states.
Financial results and key metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $17.56 million | $9.48 million |
| Operating loss | $20.71 million | $2.20 million |
| Net loss | $17.28 million | $35.13 million |
| Basic and diluted loss per share | $0.41 | $1.85 |
| Cash used in operating activities | $0.83 million | Cash provided: $1.70 million |
| Cash and cash equivalents at year-end | $4.89 million | $8.39 million |
| Adjusted EBITDA (non-GAAP) | $3.63 million | $1.30 million |
Revenue increased 85%. Deposit, activity and onboarding income rose 42% to $8.61 million; investment income rose 176% to $5.84 million; loan interest income rose 163% to $2.97 million. Safe Harbor Program income declined 20% to $0.13 million. Management attributed higher account-related revenue partly to Abaca, acquired in November 2022, and higher investment income to a change in the calculation applied to customer deposit balances. That change was applied retroactively and added $549,000 of 2023 revenue in the fourth quarter.
Operating expenses increased to $38.28 million, including $13.21 million of goodwill impairment and $5.70 million of intangible-asset impairment. Excluding those charges, the company still reported an operating loss; the filing does not present a GAAP operating margin. Net loss improved year over year, while operating loss worsened. The year-over-year net-loss comparison was affected by large 2022 fair-value losses on the forward purchase agreement and derivative, as well as 2023 gains from remeasuring deferred consideration. Adjusted EBITDA is a non-GAAP measure and includes management-defined adjustments.
At December 31, 2023, total assets were $67.86 million, total liabilities were $33.51 million, and stockholders’ equity and parent-entity net investment totaled $34.36 million. Current assets were $7.76 million and current liabilities $7.90 million, a $135,355 working-capital deficit. The PCCU senior secured note had a $14.01 million carrying balance ($3.01 million current), bears 4.25% interest, and is secured by substantially all company assets. The note’s stated principal was $14.5 million. The filing reports no significant capital investment commitments.
Material changes versus 2022
- Revenue grew substantially, but expenses rose faster, principally due to impairment charges, higher compensation and general and administrative costs.
- Cash declined by $3.50 million, and operating cash flow shifted from positive $1.70 million to negative $0.83 million.
- SHF and PCCU restructured deferred business-combination obligations in March 2023. The arrangement included a five-year secured note and issuance of 11.2 million Class A shares to PCCU.
- Average monthly ending deposit balances declined 1.6% to $204.9 million, and average active accounts declined 3.6% to 932. Account fees increased 30%, while average fees per account rose 35%.
- The Central Bank services and revenue-sharing agreement was terminated effective October 1, 2023. SHF cited the termination as an impairment trigger and attributed a decline in average accounts partly to lost clientele.
- SHF adopted the CECL credit-loss standard in 2023; the transition increased the indemnity liability and reduced retained earnings.
Outlook, risks and unusual items
Management describes growth plans centered on expanding deposits, lending, financial-institution relationships, its fintech platform and related services, and improving operational efficiency. The filing provides no quantitative revenue, earnings or cash-flow guidance. Management expects continued lending growth, but that outlook depends on funding capacity, deposit levels and partner relationships.
- Going concern: Management and the auditor report substantial doubt about SHF’s ability to continue as a going concern for at least 12 months after issuance. The company reported significant losses, a working-capital deficit and a need to raise additional funds. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Credit exposure: PCCU funded $55.65 million of loans that SHF indemnified, compared with $18.90 million in 2022. One indemnified loan of approximately $3.1 million was more than 120 days delinquent; SHF was discussing workout options. The indemnity liability was $1.38 million. SHF had one loan on its own balance sheet at year-end.
- Partner concentration and contract: Substantially all customer deposits were held at PCCU, and the company relies heavily on PCCU for lending and revenue. The Commercial Alliance Agreement is described as expiring around March 2025, subject to renewal provisions; the filing gives both March 29 and March 31, 2025 in different passages.
- Regulatory and industry exposure: Cannabis remains illegal under federal law, despite legalization in many states. Changes in enforcement, banking regulation or partner institutions’ willingness to serve CRBs could materially affect the business. The SAFE/SAFER Banking legislation discussed in the filing had not become law.
- Impairments and estimates: 2023 included $18.91 million of goodwill and intangible-asset impairment. The filing notes that valuations depend on assumptions about future cash flows, discount rates and market conditions and could change materially.
- Internal controls: Management concluded internal control over financial reporting and disclosure controls were ineffective at year-end, citing three material weaknesses: revenue recognition, complex financial instruments and credit losses. Remediation efforts are underway but require evidence of sustained effectiveness.
- Potential dilution and obligations: Abaca-related amendments provided for 5.84 million shares issued as first-anniversary consideration, warrants for up to 5 million shares at $2.00 per share, and a $1.5 million third-anniversary payment that may be paid in cash, stock or both. A further $3 million cash payment was due at the second anniversary.
- Listing status: Nasdaq notified the company in January 2024 that it had regained minimum-bid-price compliance. The filing states the March 28, 2024 closing bid was $0.96 and warns Nasdaq could reopen the matter if the share price again fails the requirement.
- Litigation: The company reports ordinary-course legal matters but says it is not aware of pending or threatened proceedings expected to have a material adverse effect. It cautions that outcomes remain uncertain.
Important facts for investors to verify
- Liquidity plans, available financing and progress in addressing the going-concern uncertainty.
- The status and renewal terms of the PCCU Commercial Alliance Agreement, and SHF’s ability to diversify deposit, lending and revenue partners.
- Current delinquency, collateral coverage, risk ratings and potential losses for the $55.65 million indemnified loan portfolio, particularly the $3.1 million delinquent loan.
- Progress in remediating the three material weaknesses and whether subsequent reporting demonstrates effective controls.
- The cash balance: the consolidated balance sheet reports $4.89 million at year-end, while a related-party note elsewhere refers to approximately $8.9 million for 2023; the filing text does not provide a clear reconciliation.
- Cash and stock requirements under the Abaca consideration amendments, related warrants, and potential dilution from outstanding warrants, preferred shares and equity awards.
- The company’s recurring earning power apart from impairment charges and fair-value movements, including the sustainability of investment income and the non-GAAP Adjusted EBITDA calculation.