UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from _______to_______
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
(Former name or former address, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, if any, every Interactive Date File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC |
As of May 13, 2024, there were outstanding shares of the Company’s Class A Common Stock, $0.0001 par value per share.
SHF HOLDINGS, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SHF Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2024 (Unaudited) | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable – trade | ||||||||
| Accounts receivable – related party | ||||||||
| Prepaid expenses – current portion | ||||||||
| Accrued interest receivable | ||||||||
| Short-term loans receivable, net | ||||||||
| Other current assets | ||||||||
| Total Current Assets | $ | $ | ||||||
| Long-term loans receivable, net | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right to use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Deferred tax asset | ||||||||
| Prepaid expenses – long term position | ||||||||
| Forward purchase receivable | ||||||||
| Security deposit | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable-related party | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Lease liabilities – current | ||||||||
| Senior secured promissory note – current portion | ||||||||
| Deferred consideration – current portion | ||||||||
| Other current liabilities | ||||||||
| Total Current Liabilities | $ | $ | ||||||
| Warrant liabilities | ||||||||
| Deferred consideration – long term portion | ||||||||
| Forward purchase derivative liability | ||||||||
| Senior secured promissory note—long term portion | ||||||||
| Net deferred indemnified loan origination fees | ||||||||
| Lease liabilities – long term | ||||||||
| Indemnity liability | ||||||||
| Total Liabilities | $ | $ | ||||||
| Commitment and Contingencies (Note 13) | ||||||||
| Stockholders’ Equity | ||||||||
| Convertible preferred stock, $ par value, shares authorized, and shares issued and outstanding on March 31, 2024, and December 31, 2023, respectively | ||||||||
| Class A common stock, $ par value, shares authorized, and issued and outstanding on March 31, 2024, and December 31, 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Retained deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | $ | $ | ||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 1 |
SHF Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | $ | ||||||
| Operating Expenses | ||||||||
| Compensation and employee benefits | $ | $ | ||||||
| General and administrative expenses | ||||||||
| Professional services | ||||||||
| Rent expense | ||||||||
| Provision (benefit) for credit losses | ( | ) | ||||||
| Total operating expenses | $ | $ | ||||||
| Operating income/ (loss) | ( | ) | ||||||
| Other (income) expenses | ||||||||
| Change in the fair value of deferred consideration | ( | ) | ||||||
| Interest expense | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Total other (income)/ expenses | $ | ( | ) | $ | ||||
| Net income/ (loss) before income tax | ( | ) | ||||||
| Income tax benefit | $ | $ | ||||||
| Net income/ (loss) | ( | ) | ||||||
| Weighted average shares outstanding, basic | ||||||||
| Basic net income/ (loss) per share | $ | $ | ( | ) | ||||
| Weighted average shares outstanding, diluted | ||||||||
| Diluted income/ (loss) per share | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 2 |
SHF Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2024
| Preferred Stock | Class A Common Stock | Additional Paid-in | Retained | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Conversion of PIPE shares | ( | ) | ( | ) | ||||||||||||||||||||||||
| Restricted stock units (net of tax) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock compensation cost | - | - | ||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ||||||||||||||||||||||||||
SHF Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2023
| Preferred Stock | Class A Common Stock | Additional Paid-in | Retained | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Cumulative effect from adoption of CECL | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Conversion of PIPE shares | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock option conversion | - | |||||||||||||||||||||||||||
| Issuance of shares to PCCU (net of tax) | - | |||||||||||||||||||||||||||
| Reversal of deferred underwriting cost | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
SHF Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income/ (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income/ (loss) to net cash provided by/ (used in) operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Stock compensation expense | ||||||||
| Amortization of deferred origination fees | ( | ) | ( | ) | ||||
| Interest expense | ||||||||
| (Benefit)/ provision for credit losses | ( | ) | ||||||
| Amortization of right of use assets | ||||||||
| Income tax benefit | ( | ) | ( | ) | ||||
| Change in the fair value of deferred consideration | ( | ) | ||||||
| Change in fair value of warrant | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable – Trade | ( | ) | ( | ) | ||||
| Accounts receivable – related party | ||||||||
| Contract assets | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Accrued interest receivable | ( | ) | ( | ) | ||||
| Deferred underwriting payable | ( | ) | ||||||
| Other current assets | ||||||||
| Other current liabilities | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accounts Payable – related party | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ||||||
| Net deferred indemnified loan origination fees | ||||||||
| Security deposit | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS PROVIDED BY INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net repayment of loans | ||||||||
| Net cash provided by investing activities | ||||||||
| CASH FLOWS USED IN FINANCING ACTIVITIES: | ||||||||
| Repayment of senior secured promissory note | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents – beginning of period | ||||||||
| Cash and cash equivalents – end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | $ | $ | ||||||
| Non-Cash transactions: | ||||||||
| Shares issued for the settlement of PCCU debt obligation | $ | $ | ||||||
| Cumulative effect from adoption of CECL | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
SHF Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Organization and Business Operations
Business Description
SHF Holdings, Inc. (the “Company”) originated as business operations conducted through Partner Colorado Credit Union (“PCCU”), which were transferred to SHF LLC (“SHF”), then an indirect wholly owned subsidiary of PCCU. The Company completed a strategic reorganization on July 1, 2021. This involved transferring select assets and operational activities from Partner Colorado Credit Union (“PCCU”) and its wholly owned subsidiary, Safe Harbor Services, to SHF Holding Co., LLC. Subsequently, these were consolidated into SHF, LLC (“SHF”), with PCCU’s investment managed at the SHF Holding Co., LLC level.
On September 28, 2022, the Company concluded a transaction wherein NLIT (“Northern Lights Acquisition Corp.”) acquired all outstanding membership interests of SHF. This acquisition prompted the renaming of NLIT to SHF Holdings, Inc. As a result, PCCU emerged as the largest shareholder of the Company.
The Company executed the Abaca Merger Agreement on October 31, 2022, facilitating a two-step merger through which Rockview Digital Solutions, Inc. (“Abaca”) became a direct wholly-owned subsidiary. The transaction expanded the Company’s fintech capabilities and market reach.
The Company generates fee income, investment income and loan interest income through providing a variety of services to financial institutions desiring to service the cannabis industry including, among other things, the origination, onboarding, and servicing of cannabis-related deposit business for and on behalf of those partner institutions; Bank Secrecy Act and other regulatory compliance and reporting related to these accounts; onboarding these accounts and responding to account and customer service inquiries; and sourcing, underwriting, and servicing, and administering loans issued to cannabis businesses and related entities. In addition, the Company provides these services to financial institutions under a Safe Harbor Master Program Agreement.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
i. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, statements of shareholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the current year ending December 31, 2024. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2023, included in the Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
The
company has made certain immaterial reclassifications to the statements of operations for the three months ended March 31, 2023, to conform
to the presentation for the three months ended March 31, 2024. These reclassifications, totaling $
The condensed consolidated financial statements include the accounts of SHF Holdings, Inc., its subsidiaries where we have controlling financial interests. All intercompany balances and transactions have been eliminated.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q.
| 5 |
ii. Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Material estimates that are particularly subject to change in the near term include the determination of the allowance for credit losses, indemnification liabilities, useful lives of intangibles and the fair value of financial instruments. Actual results could differ from the estimates.
iii. Liquidity and Going Concern
As
of March 31, 2024, the Company had $
For the period ending March 31, 2024, the Company reported positive operating income and net working capital. However, considering the historical data, where the Company experienced negative operating income and negative net working capital, management acknowledges the need to closely evaluate the financial performance in upcoming quarters to mitigate any going concern risks. As of March 31, 2024, due to these historical trends, there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the date these condensed unaudited consolidated financial statements were issued.
If the Company is not able to sustain its present level of operations, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned expansion programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.
The accompanying condensed unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result should the Company not continue as a going concern as a result of this uncertainty.
iv. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from financial institutions, and investments with maturities of three months or less.
v. Concentrations of Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. Cash balances are maintained substantially in accounts at Partner Colorado Credit Union (“PCCU”) which is insured by the National Credit Union Share Insurance Fund (“NCUSIF”) up to regulatory limits. From time to time, cash balances may exceed the NCUSIF insurance limit. The Company has not experienced any credit losses associated with its cash balances in the past.
Currently the Company only services the cannabis industry. Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan.
Currently the Company substantially relies on PCCU to hold customer deposits and fund its originated loans. As of this time, majority all of the Company’s revenue is generated by deposits and loans hosted by its PCCU pursuant to various services agreements.
The
Company had only one loan on its balance sheet as of March 31, 2024, which comprises
vi. Accounts Receivable
Accounts receivable are recorded based on account fee schedules. While fees are generated from accounts for individual cannabis-related businesses (“CRB”) related accounts, amounts are initially collected by the financial institutional partners and remitted in the subsequent month. Accounts receivable - related party represents amounts due from PCCU under related party contracts disclosed in Note 8 to the unaudited condensed consolidated financial statements.
| 6 |
vii. Loans Receivable
CRB loans that significantly support the Company’s operations are recognized as assets on the balance sheet. These loans, intended to be held either for the foreseeable future or until their maturity or full repayment, are recorded at their outstanding principal balance. This amount is adjusted for any credit loss allowances and net of any deferred loan origination fees and costs, as applicable, to reflect the net investment in these loans. The Company recognizes interest income on CRB Loans over the loan term using the simple-interest method based on outstanding principal amounts. This approach ensures a systematic recognition of income, aligning with the time value of money principle.
Interest income recognition is suspended when there is uncertainty regarding full loan repayment, such as in cases of loan impairment or when payments are overdue by ninety days or more. Loans under these conditions are placed on nonaccrual status. Any accrued interest not received by the time a loan is placed on nonaccrual is reversed from interest income. Subsequent interest payments on nonaccrual loans are recorded using either the cash basis or the cost recovery method until the loan meets the criteria for reclassification to accrual status.
Loans are returned to accrual status when they become current (less than ninety days past due) and when there is reasonable assurance of future payment compliance, evidenced by the full satisfaction of both principal and interest payments due.
Loans are assessed individually for potential charge-off, which typically occurs at the point of foreclosure. Charge offs are executed to reflect the realizable value of loans that are deemed uncollectible.
The determination of a loan’s past-due status is based on its contractual repayment terms. Loans are either placed on nonaccrual status or charged-off ahead of their contractual delinquency dates if the collection of principal and interest is deemed doubtful, ceasing the recognition of interest income on such loans.
viii. Allowance for Credit Losses (ACL)
The Company has adopted Accounting Standards Codification Topic 326 - Financial Instruments - Credit Losses (ASC Topic 326), for estimation of probable credit losses with an expected credit loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
The ACL is a valuation account that is deducted from the amortized cost basis of financial assets carried at their amortized cost, including loans held for investment, to present the net amount that is expected to be collected throughout the life of the financial asset. The estimated ACL is recorded through a provision for credit losses charged against operations. Management periodically evaluates the adequacy of the ACL to maintain it at a level it believes to be reasonable. The Company uses the same methods used to determine the ACL to assess any reserves needed for off-balance sheet credit risks such as unfunded loan commitments including Indemnified loans to PCCU. These reserves for off-balance sheet credit risks are presented in the liabilities section in the unaudited condensed consolidated balance sheets as an “Indemnity liability.”
The ACL consists of two components: an asset-specific component for estimating credit losses for individual loans that do not share similar risk characteristics with other loans; and a pooled component for estimating credit losses for pools of loans that share similar risk characteristics. The ACL for the pooled component is derived from an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters such as probability of default (“PD”) and loss given default (“LGD”) which are derived from various vendor models and/or internally developed model estimation approaches for smaller homogenous loans.
The PD is quantified by analyzing historical data to determine the rate at which loans have defaulted within the portfolio, relative to the total outstanding loans as of the end of the reporting period. This rate is expressed as a percentage and serves as a key indicator of the likelihood of default across the loan pool. LGD assessments are conducted to estimate the potential loss amount in the event of a default, considering the recoverable value from the collateral liquidation against the remaining loan balance. This involves a detailed analysis of two primary components: the loss on principal, which arises from the gap between the collateral’s liquidation value and the unpaid principal balance of the loan; and the loss associated with various ancillary costs to recover, including, but not limited to, foregone interest, transaction costs, legal and administrative fees, and expenses related to the maintenance and renovation of the property. The Company considers relevant current conditions and reasonable and supportable forecasts that relate to its lending practices and environment and the specific borrower and determines that the significant factor affecting the loan’s performance is the fact that these borrowers are involved in the cannabis business. Despite being legal at the state level in certain jurisdictions, cannabis remains federally illegal in the United States as of the date of this filing. As cannabis related lending is a new practice in the United States, there is very little historical or industry data on which to base a loss forecast. Therefore, significant judgement is required in creating a reasonable loss estimate, using similar non-MRB loans as a baseline and adjusting for the inherent risks in the cannabis industry. While the Company considers other qualitative factors, including national macroeconomic conditions, in its overall risk analysis, it has determined that they are not significant inputs to the overall loss estimate calculations.
| 7 |
The ACL estimation process also applies an economic forecast scenario, or a composite of scenarios based on management’s judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term of a loan excludes expected extensions, renewals, and modification under certain conditions.
Recoveries on loans represent collections received on amounts that were previously charged off against the ACL. Recoveries are credited to the ACL when received, to the extent of the amount previously charged off against the ACL on the related loan. Any amounts collected in excess of this limit are first recognized as interest income, then as a reduction of collection costs, and then as other income.
ix. Net Deferred Loan Origination Fees and Cost
When included with a new loan origination, the Company receives loan origination fees in conjunction with new loans funded and any indemnified liabilities which are not recorded on the balance sheet from the company financial institution partners. Where applicable, the loan origination fee is netted with loan origination costs associated with originating a specific loan. These loan origination costs are typically incremental direct costs (non-reimbursed) paid to third parties. Net loan origination fees are initially deferred and presented net of loans receivable asset for portfolio loans, or as a separate liability for indemnified loans, and recognized as interest income utilizing the interest method.
x. Indemnity Liability
Under the Loan Servicing Agreement and Commercial Alliance Agreement with PCCU, the Company had agreed to indemnify PCCU from all claims related to Company’s cannabis-related business, including but not limited to default-related credit losses as defined in the Loan Servicing Agreement. The indemnification component of the Loan Servicing Agreement and the Commercial Alliance Agreement (refer to Note 8 to the unaudited condensed consolidated financial statements) is accounted for in accordance with accounting standards codification (“ASC”) 460 Guarantees. In determining the applicability of ASC 460, the Company considered that the agreement outlines a broad indemnification of all claims related to the cannabis-related business. The most immediate and potentially significant of these are potential default-related credit losses. In the lending industry, it is inherently anticipated future credit losses will result from currently issued debt. The Company’s indemnity obligation is subordinate to financial institution clients’ other means of collecting on the loans including foreclosure of the collateral, recourse against personal and/or corporate guarantors and other default remedies available in the loan agreements. Since borrowers are not party to the agreement between Company and PCCU, any indemnity payments do not relieve borrowers of their obligation to PCCU nor would such payments preclude PCCU’s right to future recoveries from the debtor. Therefore, as defined in ASC 460, the indemnification clause represents a general loss contingency in that it is an existing condition, situation or set of circumstances involving uncertainty as to possible loss to the Company that will ultimately be resolved when one or more future events occur or fail to occur. SHF’s indemnity liability reflects SHF management’s estimate of probable credit losses inherent under the agreement at the balance sheet date. The liability is measured and recognized in accordance with our accounting policies for ACL and ALL.
In addition to default-related credit losses, the Company continuously monitors all other circumstances pursuant to the agreement and identifies events that may necessitate a loss contingency under the Loan Servicing Agreement. A loss contingency is reported when it is both probable that a future event will confirm that a loss had been incurred on or before the related balance sheet date and the loss is reasonably estimable.
xi. Property and Equipment, net
Property
and equipment are recorded at historical cost, net of accumulated depreciation. Depreciation is provided over the assets’ useful
lives on a straight-line basis
Management periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life.
The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the period of disposal and the resulting gains and losses are included in the results of operations during the same period.
The Company capitalize certain costs related to software developed for internal-use, primarily associated with the ongoing development and enhancement of our technology platform. Costs incurred in the preliminary development and post-development stages are expensed. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally five years.
| 8 |
xii. Right of Use Assets and Lease Liabilities
The Company has entered into lease agreements for a certain facility and certain items of equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. At inception of the lease agreement, the Company assesses whether the agreement conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified as a lease. Each lease is further analyzed to check whether it meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated balance sheet with a corresponding lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. The Company has elected not to recognize lease assets and lease liabilities for short-term leases (leases with a term of 12 months or less) and leases of low-value assets. Lease right-of-use assets, net and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available as of the lease commencement date.
Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Finance lease interest expense is recognized based on an effective interest method and depreciation of assets is recorded on a straight-line basis over the shorter of the lease term and useful life of the asset. Both operating and finance lease right of use assets are reviewed for impairment, consistent with other finite-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a right of use asset is impaired, any remaining balance of the asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.
xiii. Goodwill and Other Intangible Assets
The Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed.
Goodwill is tested for impairment at least annually on the elected impairment test date of December 31 unless any events or circumstances indicate it is more likely than not that the fair value of the goodwill is less than its carrying value.
Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.
Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.
The Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock Compensation. The Company’s stock-based compensation cost is measured based on the fair value at the grant date of the stock-based award. It is recognized as expense on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized as they occur. The Company estimates the fair value of each stock-based award on its measurement date using either the current market price of the stock or Black-Scholes option valuation model, whichever is most appropriate. The Black-Scholes valuation model incorporates assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s experience with similar instruments. Changes in assumptions used to estimate fair value could result in materially different results.
The shares of the Company have been listed on the Nasdaq stock exchange for a limited period of the time and also the stock price has dropped significantly from the date of listing, based on which the Company has considered the expected volatility at % for the purpose of stock compensation. The risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the awards’ expected lives. The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period the awards. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future.
| 9 |
xv. Fair Value Measurements
The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:
Level 1 — Quoted prices for identical assets or liabilities in active markets.
Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.
xvi. Revenue Recognition
SHF recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which SHF expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
Revenue is recorded at a point in time when the performance obligation is satisfied, and no contingencies exist. Majority of the revenue consists of fees earned on deposit accounts held at PCCU but serviced by SHF such as bank account charges, onboarding income, account activity fee income and other miscellaneous fees. Under the terms of the Loan Servicing Agreement and the Commercial Alliance Agreement, the Company is responsible for covering account hosting costs associated with the fees generated from deposits held at PCCU. These costs are classified as “General and Administrative Expenses” in the Consolidated Statements of Operations.
In addition, SHF recognizes revenue from the Master Program Agreement. The Master Program Agreement is a non-exclusive and non-transferable right to implement and utilize the Safe Harbor Program. The Safe Harbor Program has two performance obligations; an implementation fee recognized when the contract is effective and a service fee recognized ratable over the contract term as the compliance program is executed.
SHF recognizes revenue from interest on loans and investment income distributed by PCCU, which is determined by particular customer account balances. As per the Loan Servicing Agreement and the Commercial Alliance Agreement, SHF bears the expenses for hosting investments and servicing loans related to this interest and investment income. These expenses are allocated to “General and Administrative Expenses” in the Consolidated Statements of Operations.
Amounts received in advance of the service being provided is recorded as a liability under deferred revenue on the consolidated balance sheets. Typical Safe Harbor Program contracts are three-year contracts with amounts due monthly, quarterly or annually based on contract terms.
Customers consist of financial institutions providing services to CRBs. Revenues are concentrated in the United States of America.
xvii. Contract Liabilities
The
Company recognizes a contract liability if the customer’s payment of consideration precedes the reporting entity’s performance.
As of March 31, 2024, the Company recorded contract liabilities amounting to $
| 10 |
xviii. Warrants Liabilities
The Company has evaluated each of the warrant arrangements separately in accordance with “Distinguishing Liabilities from Equity” (“ASC 480”) and “Derivatives and Hedging” (“ASC 815”), to determine classification as either equity instruments or liabilities based on the specific terms and features of each warrant. Warrants are recognized as equity if they are indexed to our own stock and meet the equity classification criteria in ASC 815-40. These warrants are recorded within stockholders’ equity at their issuance date and are not subsequently remeasured at fair value. Conversely, warrants that do not meet the criteria for equity classification under ASC 815-40 are classified as liabilities. Such warrants are initially recorded at fair value on the issuance date and are subject to remeasurement at each balance sheet date thereafter. Any changes in fair value are recognized in the statement of operations. None of our warrant contracts met criteria to be considered indexed to their own stock, and as a result, have each been accounted for as a liability financial instrument. The fair value of warrants classified as liabilities is determined using appropriate valuation models, such as the Black- Scholes model, which incorporates various inputs, including the current stock price, expected volatility, risk-free interest rate, and the expected term of the warrants.
xix. Deferred consideration
In line with ASC Topic 815, the Company treats the deferred consideration from the Abaca acquisition as a derivative liability, since it does not fulfill the equity classification criteria. As a result, this obligation is recognized as a liability on the balance sheet at fair value and is adjusted to reflect its fair value at the end of each reporting period. The liability will be reassessed at fair value on every balance sheet date until the obligation’s term concludes. Fluctuations in its fair value are recorded in the consolidated statements of operations.
xx. Forward purchase derivative
The Company accounts for the forward purchase derivative assumed in the business combination in accordance with the guidance contained in ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company classifies the forward purchase derivatives as an assets or liabilities carried at their fair value and adjusts the forward purchase derivatives to fair value at each reporting period. This derivative asset or liability is subject to re-measurement at each balance sheet date until the conditions under the forward purchase agreement are exercised or expire, and any change in fair value is recognized in the unaudited condensed consolidated statement of operations. In December 2023, the company calculated its valuation using a Monte Carlo Simulation set within a risk-neutral environment. Initiated in December 2022, this strategy was applied to assess the fair value of the forward purchase agreement (FPA) derivatives, with an underlying assumption that future stock prices would adhere to a Geometric Brownian Motion trajectory. Throughout the first quarter of 2024, there were no transactions by FPA holders, and no considerable shifts in risk factors that could influence the valuation of FPA derivatives were observed.
Basic and diluted earnings per share are computed and disclosed in accordance with ASC Topic 260, Earnings Per Shares. The Company utilizes the two-class method to compute earnings available to common shareholders. Under the two-class method, earnings are adjusted by accretion amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance, to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other common shareholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders. Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.
xxii. Income Tax
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are adjusted through the provision for income taxes as changes in tax laws or rates are enacted.
| 11 |
ASC 740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods. If management is unable to estimate a portion of its ordinary income, but is otherwise able to reliably estimate the remainder, ASC 740-270-25-3 provides that the tax applicable to that item be reported in the interim period in which the item occurs. The tax (or benefit) related to ordinary income (or loss) shall be computed at an estimated annual effective tax rate and the tax (or benefit) related to all other items shall be individually computed and recognized when the items occur. Management is unable to estimate a portion of its ordinary income and as a result had computed the company’s tax provision in accordance with ASC 740-270-25-3.
ASC Topic 740 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
xxiii. Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations upon adoption.
Adopted Standards
Current Expected Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In November 2019, the FASB issued ASU No. 2019-10 Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The update allows the extension of the initial effective date for entities which have not yet adopted ASU No. 2016-02. The standard is effective for annual reporting periods beginning after December 15, 2022 for private companies and SEC filers classified as smaller reporting entities, with early adoption permitted. Entities apply the standard’s provisions by recording a cumulative effect adjustment to retained deficit. The Company has adopted ASU 2016-13 as of January 1, 2023, utilizing the modified retrospective method.
CECL Transition Impact: The table below provides details on the transition impacts of adopting CECL. Other balance sheet lines not presented were not affected by CECL.
CECL Transition Impact:
| Assets | December 31, 2022 |
Transition Adjustment |
January 1, 2023 |
|||||||||
| Loans receivable, gross | $ | $ | $ | |||||||||
| Less: Allowance for credit loss | ( |
) | ( |
) | ( |
) | ||||||
| $ | $ | ( |
) | $ | ||||||||
| Liabilities & Equity | December 31, 2022 | Transition Adjustment | January 1, 2023 | |||||||||
| Indemnity liability | $ | $ | $ | |||||||||
| Retained deficit | ( | ) | ( | ) | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Troubled Debt Restructurings and Vintage Disclosures
This Accounting Standard Update (ASU 2022-02) eliminates the recognition and measurement guidance on troubled debt restructurings for creditors that have adopted ASC 326 and requires them to make enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The new guidance also requires public business entities to present current period gross write-offs (on a current year-to-date basis for interim-period disclosures) by year of origination in their vintage disclosures. For entities that have adopted ASU 2016-13, this ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has adopted this standard as of January 1, 2023 and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
| 12 |
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
This Accounting Standard Update (ASU 2022-03) clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual restriction on the sale of an equity security as a separate unit of account is not permitted. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company has adopted this standard as of January 1, 2024 and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848
This Accounting Standard Update (ASU 2022-06) defers the Sunset Date of ASC Topic 848, Reference Rate Reform (Topic 848), which provides temporary optional relief in accounting for the impact of Reference Rate Reform. This ASU is effective upon issuance (December 21, 2022) and generally can be applied through December 31, 2024.This ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Investments-Equity Method and Joint Ventures
In March 2023, the FASB issued ASU 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures using the Proportional Amortization Method. The FASB issued final guidance allowing entities to apply the proportional amortization method to equity investments in all tax credit programs that meet the conditions in ASC 323-740, rather than just investments in qualified affordable projects that generate low income housing tax credits, as was required under the legacy guidance. The guidance is effective for public business entities for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. This ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Standards Pending to be Adopted
Business Combinations-Joint Venture Formations
In August 2023, the FASB issued 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60); Recognition and Initial Measurement. This ASU contains guidance requiring certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. This guidance is effective for all joint venture formations with a formation date on or after January 1, 2025. Early adoption is permitted. Joint Ventures formed before the effective date have the option to apply it retrospectively, while those formed after the effective date are required to apply it prospectively. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Disclosure Improvements, “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.”
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements, “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU amends the disclosure or presentation requirements related to various subtopics in the FASB codification.
The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The amendments in this Update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). This ASU requires public entities to provide disclosures of significant segment expenses and other segment items. It also requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment will have to provide all the disclosures required by ASC 280, including the significant segment expense disclosures. This guidance is applied retrospectively to all periods presented, unless it is impractical. This ASU applies to all public entities and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
| 13 |
Income Taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This ASU requires public business entities to disclose in their rate reconciliation table additional categories of information about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories. This ASU is effective for fiscal years after December 15, 2024. Early adoption would be permitted. The Company does not expect this ASU to have a material impact on its condensed unaudited consolidated financial statements.
ASU 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards
ASU 2024-01 clarifies the scope applications of profits interest awards by adding illustrative guidance to ASC 718 “Compensation-Stock Compensation.” The amendments in the ASU apply to all reporting entities that account for profits interest awards as compensation to employees or non-employees in return for goods or services.
The term “profits interest” is not explicitly defined in US GAAP. Rather, an IRS Revenue Procedure (Rev Proc 93-27) defines a “Profits Interest” as a “partnership interest other than a capital interest.” Unlike a capital interest, which provides rights to existing net assets of an entity, a profits interest only provides rights to future profits and/or equity appreciation of an entity. This distinction, along with other terms, conditions and characteristics of profits interests often complicates accounting decisions for profits interests, leading to diversity in practice whether to account for profits interests under ASC 718 or other US GAAP.
The ASU introduces four (4) illustrative examples of fact patterns that demonstrate how an entity would apply the scope guidance in paragraph 718-10-15-3 to a profits interest or similar award with certain features.
The ASUs are effective for public entities for fiscal years beginning after December 15, 2024, including interim periods within those years. For all other entities, adoption is required for fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
ASU 2024-02: Codification Improvements—Amendments to Remove References to the Concepts Statements
The ASU contains amendments to the Codification that remove references to various FASB Concepts Statements. The Board has a standing project on its agenda to address suggestions received from stakeholders on the Accounting Standards Codification and other incremental improvements to GAAP. This effort facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance and other minor improvements. In the Board’s view, removing all references to Concept Statements in the guidance will simplify the codification and draw a distinction between authoritative and non-authoritative literature.
The amendments in the Update are effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Note 3. Deferred Consideration
Under
the revised Abaca Merger Agreement, the Company compensated Abaca with $
The
revised terms, as of the second amendment on October 26, 2023, stipulated new deferred stock consideration of
shares of Class A common stock issued at the first anniversary based on a recalculated value of $per
share. No changes affected the scheduled cash payments. Furthermore, a third-anniversary consideration of $
| 14 |
The change in the amount of deferred consideration from January 1, 2023, to March 31, 2024, is as follows:
| Stock consideration | Cash consideration | Third Anniversary Consideration Payment | ||||||||||
| January 1, 2023 | $ | $ | $ | |||||||||
| Less: Working capital adjustment | ( | ) | - | |||||||||
| Less: Issuance of shares and payment to shareholders | ( | ) | ( | ) | - | |||||||
| Less: Issuance of Abaca warrants | ( | ) | - | - | ||||||||
| Less: Issuance of third anniversary payment consideration | ( | ) | - | |||||||||
| Less: Gain recognized in the consolidated statements of operations | ( | ) | - | - | ||||||||
| Add: Fair value adjustment | ||||||||||||
| December 31, 2023 | ||||||||||||
| Add: Fair value adjustment | ( | ) | ||||||||||
| March 31, 2024 | $ | $ | $ | |||||||||
Note 4. Goodwill and Finite-lived Intangible Assets
The Company’s goodwill was derived from the Abaca acquisition transaction executed on November 15, 2022, where the purchase price exceeded the fair value of the net identifiable assets acquired. Goodwill is tested for impairment at least annually, or more frequently if a triggering event occurs.
In
2023, the Company conducted an interim impairment assessment on June 30, 2023, and found that the carrying value of goodwill exceeded
its fair value, leading to the recognition of a $
As of March 31, 2024, the Company has not conducted an interim impairment assessment of its assets, due to the absence of any triggering events. Therefore, no additional impairment charges have been recognized in this reporting period.
As
of March 31, 2024, and December 31, 2023, the Company’s accumulated goodwill impairment was $
Finite-lived intangible assets
The Company reviews its finite-lived intangible assets for impairment at least annually on December 31st unless any events or circumstances indicate it is more likely than not that the fair value of the finite-lived intangible assets is less than its carrying value.
In
2023, following a triggering event in the second quarter, the Company performed an interim goodwill analysis. In accordance with our
established policy, an annual review was also conducted on December 31, 2023. The finite-lived intangible assets evaluated include market-related
intangibles, customer relationships, and developed technologies. The interim analysis resulted in an impairment charge of $
As of March 31, 2024, the Company has not conducted an interim impairment assessment of its assets, due to the absence of any triggering events. Therefore, no additional impairment changes have been recognized in this reporting period.
| 15 |
Following is a summary of the Company’s finite-lived intangible assets as of March 31, 2024 and December 31, 2023:
| Remaining Useful life in Years | December 31, 2023 (A) | Acquired in Acquisition (B) | Amortization (C) | Impairment (D) | March 31, 2024 (A+B-C-D) | |||||||||||||||||
| Market related intangible assets | $ | $ | $ | $ | $ | |||||||||||||||||
| Customer relationships | ||||||||||||||||||||||
| Developed technology | ||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | $ | |||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||||||||
| Customer relationships | ||||||||||||||||||||||
| Developed technology | ||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | $ | ||||||||||||||||||
During
the three months ended March 31, 2023, amortization expense and impairment of finite lived intangible assets were $
Note 5. Loans Receivable
Commercial real estate loans receivable, net consist of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Commercial real estate loans receivable, gross | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Commercial real estate loans receivable, net | ||||||||
| Current portion | ( | ) | ( | ) | ||||
| Noncurrent portion | $ | $ | ||||||
Allowance for Credit Losses
The allowance for credit losses is maintained at a level believed to be sufficient to provide for estimated credit losses based on evaluating known and inherent risks in the loan portfolio. The Company’s estimated the allowance for credit losses on the reporting date in accordance with the credit loss policy described in Note 2 to the unaudited condensed consolidated financial statements.
| 16 |
The allowance for credit losses consists of the following activity for the three months ended March 31, 2024 and three months ended March 31, 2023:
| March 31, 2024 | March 31, 2023 | |||||||
| Allowance for credit losses | ||||||||
| Beginning balance | $ | $ | ||||||
| Cumulative effect from adoption of CECL | ||||||||
| Charge-offs | ||||||||
| Recoveries | ( | ) | ||||||
| Benefit | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
| Loans receivable: | ||||||||
| Individually evaluated for an allowance for credit loss | $ | $ | ||||||
| Collectively evaluated for an allowance for credit loss | ||||||||
| $ | $ | |||||||
| Allowance for credit losses: | ||||||||
| Individually evaluated for an allowance for credit loss | $ | $ | ||||||
| Collectively evaluated for an allowance for credit loss | ||||||||
| $ | $ | |||||||
On March 31, 2024 and December 31, 2023, no loans were past due or classified as non-accrual.
Credit quality of loans:
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks credit quality indicators based on the loan payment status on monthly basis. The Company continuously evaluates the credit quality of each indemnified loan by assessing the risk factors and assigning a risk rating based on a variety of factors. The detailed breakdown of risk factors described in Note 6 to the unaudited condensed consolidated financial statements.
The carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value within each risk rating is as follows:
| Risk rating | March 31, 2024 | December 31, 2023 | ||||||
| 4 | $ | $ | ||||||
| Grand total | $ | $ | ||||||
Note 6. Indemnification Liability
As discussed at Note 8 to the unaudited condensed consolidated financial statements, and pursuant to the Commercial Alliance Agreement with PCCU, PCCU funds loans through a third-party vendor. SHF earns the associated interest and pays PCCU a loan hosting payment at an annual rate of 0.35% of the outstanding loan principal funded and serviced by PCCU and 0.25% of the outstanding loan principle serviced by SHF. The below schedule details outstanding amounts funded by PCCU and categorized as either collateralized loans or unsecured loans and lines of credit.
| March 31, 2024 | December 31, 2023 | |||||||
| Secured term loans | $ | $ | ||||||
| Unsecured loans and lines of credit | ||||||||
| Total loans funded by PCCU | $ | $ | ||||||
Secured
loans contained an interest rate ranging from
| 17 |
SHF has agreed to indemnify PCCU for losses on certain PCCU loans. The indemnity liability reflects SHF management’s estimate of probable credit losses inherent under the agreement at the balance sheet date. The Company’s estimated indemnity liability on the reporting date was calculated in accordance with the allowance for credit loss policy described in Note 2 to the unaudited condensed consolidated financial statements.
The indemnity liability activity are as follows:
| Three Months ended March 31, 2024 | Three Months ended March 31, 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Cumulative effect from adoption of CECL | ||||||||
| Charge-offs | ||||||||
| Recoveries | ||||||||
| (Benefit)/ Provision | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
As of March 31, 2024, all loans within the Company’s portfolio were current and performing. This is in contrast to the situation as of December 31, 2023, when one loan was under nonaccrual status. The Company successfully negotiated an amendment agreement on December 29, 2023, which brought this loan back to current status through the payment of all overdue amounts. Under the terms of the amendment, the loan’s maturity date was extended to November 1, 2024. Interest income from this loan is now recognized on a cash basis. Given that the loan was delinquent for over 300 days, it has been incorporated into the Company’s Current Expected Credit Losses (CECL) methodology, which aids in estimating credit losses for this particular loan and the overall loan portfolio collectively.
Credit quality of indemnified loans:
As part of the on-going monitoring of the credit quality of the Company’s indemnified loan portfolio, management tracks credit quality indicators based on the loan payment status on monthly basis. The Company continuously evaluates the credit quality of each indemnified loan by assessing the risk factors and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage ratio, project sponsorship, and other factors deemed necessary. Based on a 10-point scale, the Company’s loans are rated “0” through “10,” from less risk to greater risk, which ratings are defined as follows:
| 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. |
SHF has agreed to indemnify PCCU from all claims related to SHF’s cannabis-related business. Other than potential credit losses, no other circumstances were identified meeting the requirements of a loss contingency.
| 18 |
The carrying value, excluding the CECL Reserve, of the Company’s indemnified loans held at carrying value within each risk rating is as follows:
| Risk rating | March 31, 2024 | December 31, 2023 | |||||
| 3 | $ | $ | |||||
| 4 | |||||||
| 5 | |||||||
| 6 | |||||||
| 7 | |||||||
| 8 | |||||||
| Grand total | $ | $ | |||||
The provision for credit losses on the statement of operations consists of the following activity for the period ended March 31, 2024 and March 31, 2023:
| March 31, 2024 | March 31, 2023 | |||||||||||||||||||||||
| Commercial real estate loans | Indemnity liability | Total | Commercial real estate loans | Indemnity liability | Total | |||||||||||||||||||
| Provision (benefit) | $ | ( | ) | ( | ) | ( | ) | $ | ( | ) | ||||||||||||||
Note 7. Property and Equipment, Net
Property and equipment consist of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Equipment | $ | $ | ||||||
| Software | ||||||||
| Improvement | ||||||||
| Office furniture | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Note 8. Related Party Transactions
Commercial Alliance Agreement
On
March 29, 2023, the Company and PCCU entered into the Commercial Alliance Agreement. This Agreement sets forth the terms and conditions
of the lending and account-related services, governing the relationship between the Company and PCCU. The Commercial Alliance Agreement
sets forth the application, underwriting, loan approval, and foreclosure process for loans from PCCU to borrowers that are cannabis-related
businesses and the loan servicing and monitoring responsibilities provided by the Company and PCCU. In particular, the Commercial Alliance
Agreement provides for procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU will take title
to or possession of any cannabis-related assets, including real property, that may be collateral for a loan funded by PCCU pursuant to
the Commercial Alliance Agreement. Under the Commercial Alliance agreement, the PCCU has the right to receive monthly fees for managing
loans. For SHF-serviced loans, which are CRB loans provided by the PCCU but primarily handled by SHF, a yearly fee of
| 19 |
The below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits:
| March 31, 2024 (Unaudited) | December 31, 2023 (Unaudited) | |||||||
| CRB related deposits | $ | $ | ||||||
| Capacity at 60% | ||||||||
| PCCU net worth | ||||||||
| Capacity at 1.3125 | ||||||||
| Limiting capacity | ||||||||
| PCCU loans funded | ||||||||
| Amounts available under lines of credit | ||||||||
| Incremental capacity | $ | $ | ||||||
The revenue from the PCCU Agreements recognized in the statements of operations consists of the following for the three months ended March 31, 2024, and March 31, 2023:
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Account servicing agreement | $ | $ | ||||||
| Commercial alliance agreement | ||||||||
| Total | $ | $ | ||||||
The operating expense from the PCCU Agreements recognized in the statements of operations consists of the following for the three months ended March 31, 2024, and March 31, 2023:
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Support services agreement | $ | $ | ||||||
| Loan servicing agreement | ||||||||
| Commercial alliance agreement | ||||||||
| Total | $ | $ | ||||||
| 20 |
Issuance of shares to PCCU
On March 29, 2023, the Company and PCCU entered into the following definitive transaction documents to settle and restructure the deferred obligation:
| ● | A
-year Senior Secured Promissory Note (the “Note”) in the principal amount of $ |
| ● | A
Securities Issuance Agreement, pursuant to which the Company issued shares of the Company’s Class A Common Stock
to PCCU. Following the issuance of the Shares, PCCU own |
| ● | The Registration Rights Agreement requires the Company to register the Shares for resale pursuant to the Securities Act of 1933, as amended (the “Securities Act”); and the Lock-Up Agreement restricts PCCU from transferring the Shares until the earlier of (i) six (6) months after the date of the Securities Issuance Documents or (ii) the consummation of a transaction with an unaffiliated third party in which all of the Company’s stockholders have the right to exchange their shares of Class A Common Stock for cash, securities, or other property; and |
| ● | A Commercial Alliance Agreement that sets forth the terms and conditions of the lending-related and account-related services governing the relationship between the Company and PCCU which supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement. |
The outstanding balances associated with the PCCU disclosed in the balance sheet are as follows:
| March 31, 2024 | December 31, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Accounts payable | ||||||||
| Senior Secured Promissory Note (Refer to Note 9 to the unaudited condensed consolidated financial statements) | ||||||||
Of
the $
Note 9. Senior Secured Promissory Note
| March 31, 2024 | December 31, 2023 | |||||||
| Senior Secured Promissory Note (Current) | $ | $ | ||||||
| Senior Secured Promissory Note (long term) | ||||||||
| $ | $ | |||||||
On
March 29, 2023, the Company and PCCU entered into definitive transaction documents to settle and restructure the deferred obligation
related to business Combination under which the Company has issued the five-year Senior Secured Promissory Note (the “Note”)
in the principal amount of $
The
Note amount will be paid in 54 installments of principal and interest of $
The repayment schedule of the outstanding principal amount on March 31, 2024, is as follows:
| Year of payment | |||||
| 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Grand total | $ | ||||
| 21 |
Note 10. Leases
The
Company has non-cancellable operating leases for facility space with varying terms. All of the active leases for facility space qualified
for capitalization under FASB ASC 842, Leases. These leases have remaining lease terms between to
The Company analyzes contracts above certain thresholds to identify leases and lease components. Lease and non-lease components are not separated for facility space leases. The Company uses its contractual borrowing rate to determine lease discount rates when an implicit rate is not available. Total lease cost for the three months ended March 31, 2024 and March 31, 2023, included in Unaudited Condensed Consolidated Statements of Operations, is detailed in the table below:
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | ||||||||
| Total Lease Cost | $ | $ | ||||||
| March 31, 2024 | December 31, 2023 | |||||||
| ROU assets that are related to lease properties are presented as follows: | ||||||||
| Beginning balance | $ | $ | ||||||
| Additions to right-of-use assets | ||||||||
| Amortization charge for the period | ( | ) | ( | ) | ||||
| Lease modifications | ||||||||
| Ending balance | $ | $ | ||||||
| Further information related to leases is as follows: | ||||||||
| Weighted-average remaining lease term | ||||||||
| Weighted-average discount rate | % | % | ||||||
Future minimum lease payments as of March 31, 2024, and December 31, 2023, are as follows:
| Year | |||||||||
| 2024 | $ | $ | |||||||
| 2025 | |||||||||
| 2026 | |||||||||
| 2027 | |||||||||
| 2028 | |||||||||
| Thereafter | |||||||||
| Total future minimum lease payments | $ | $ | |||||||
| Less: Imputed interest | |||||||||
| Operating lease liabilities | |||||||||
| Less: Current portion | |||||||||
| Non-current portion of lease liabilities | $ | $ | |||||||
| 22 |
Note 11. Revenue
Disaggregated revenue
Revenue by type are as follows:
| Three months ended March 31 | ||||||||
| 2024 | 2023 | |||||||
| Deposit, activity, onboarding income | $ | $ | ||||||
| Safe Harbor Program income | ||||||||
| Investment income | ||||||||
| Loan interest income | ||||||||
| Total Revenue | $ | $ | ||||||
Account fee income consists of deposit account fees, activity fees and onboarding income, which are recognized on periodic basis as per the fee schedule with financial partner institutions. Safe Harbor Program income consists of outsourced support to other financial institutions providing banking to the cannabis industry whose income is recognized on the basis of usage as per the agreements. Loan interest income consist of interest earned on both direct and indemnified loans pursuant to a commercial alliance agreement with PCCU. Investment income consist of interest earned on the daily deposits balance with financial institution.
Under
our Commercial Alliance Agreement, we are obligated to remit
Note 12. Deferred Underwriter Fee
In
connection with the business combination, the Company executed a note on September 28, 2022 with EF Hutton related to PIPE financing
under which the Company was obligated to pay the principal sum of $
The
Company made the payment of its first installment of $
Note 13. Commitments and contingencies
| ● | 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 Company’s initial public offering (“IPO”), the Company entered into a registration rights agreement dated June 23, 2021 with the Sponsor and the individuals serving as directors and executive officers of the Company at the time of the IPO. Pursuant to this registration rights agreement, the Company has agreed to register for resale upon the expiration of the applicable lock-up period the Company securities acquired by the Sponsor and such individuals in connection with the organization of the Company and the IPO. |
| 23 |
| ● | In connection with the issuance of common stock to Abaca shareholders, the Company commits to registering the stock upon the exercise of 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. |
Basic net income (loss) per common share is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period. For the Company’s diluted earnings per share calculation, the Company uses the “if-converted” method for preferred stock and convertible debt and the “treasury stock” method for Warrants and Options.
As the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the shares issued in connection with the Business Combination have been outstanding for the entire period presented.
| For the three month period ended March 31 | 2024 | 2023 | ||||||
| Net Income/ (loss) | $ | $ | ( | ) | ||||
| Weighted average shares outstanding – basic | ||||||||
| Basic net income/ (loss) per share | $ | $ | ( | ) | ||||
| Weighted average shares outstanding – diluted | ||||||||
| Diluted net income/ (loss) per share | $ | $ | ( | ) | ||||
Three months ended March 31 | ||||||||
| Weighted average shares calculation - basic | 2024 | 2023 | ||||||
| Company public shares | ||||||||
| Company initial stockholders | ||||||||
| PCCU stockholders | ||||||||
| Shares issued for abaca acquisition | ||||||||
| Restricted stock units issued | ||||||||
| Conversion of preferred stock | ||||||||
| Grand total | ||||||||
Three months ended March 31 | ||||||||
| Weighted average shares calculation - diluted | 2024 | 2023 | ||||||
| Shares used in computation of basic earnings per share | - | |||||||
| Shares to be issued to Abaca shareholders | - | |||||||
| Share based payments | - | |||||||
| Conversion of preferred stock | - | |||||||
| Grand total | - | |||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Warrants | ||||||||
| Share based payments | ||||||||
| Shares to be issued to Abaca shareholders | ||||||||
| Conversion of preferred stock | ||||||||
| Grand total | ||||||||
The holders of Series A Convertible preferred stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series A Convertible preferred stock equal (on an as-if-converted-to-Class-A-common stock basis) to and in the same form as dividends actually paid on shares of the Class A common stock when, as and if such dividends are paid on shares of the Class A common stock. No other dividends shall be paid on shares of Series A convertible preferred stock.
| 24 |
Note 15. Forward Purchase Agreement
On June 16, 2022, the Company entered into a Forward Purchase Agreement with Midtown East Management NL, LLC (“Midtown East”). Subsequent to entering into the Forward Purchase Agreement, the Company and Midtown East entered into assignment and novation agreements with Verdun Investments LLC (“Verdun”) and Vellar Opportunity Fund SPV LLC – Series 1 (“Vellar”), pursuant to which Midtown East assigned its obligations as to shares of the shares of Class A Stock to be purchased under the Forward Purchase Agreement to each of Verdun and Vellar. As contemplated by the Forward Purchase Agreement:
| ● | Prior to the closing, Midtown East, Verdun and Vellar purchased approximately million shares of Class A common stock directly from investors at market price in the public market. Midtown East and other counter parties waived their redemption rights with respect to the acquired shares; |
| ● | One
business day following the closing, the Company paid approximately $ |
| ● |
| ● | At any time prior to the Maturity Date (defined as the earlier of i) the third anniversary of the Closing of the Business Combination, ii) the shares are delisted from The Nasdaq Stock Market or (iii) during any 30 consecutive Scheduled Trading Day-period following the closing of the Business Combination, the Volume Weighted Average Share Price (VWAP) Price for 20 Scheduled Trading Days during such period shall be less than $ per share), Midtown East, Verdun and Vellar may elect an optional early termination to sell some or all of the shares (the “Terminated Shares”) of Class A Stock in the open market. If Midtown East, Verdun and Vellar sell any shares prior to the Maturity Date, the pro-rata portion of the Reset Price will be released from the escrow account and paid to SHF. Midtown East, Verdun and Vellar shall retain any proceeds in excess of the Reset Price that is paid to SHF. |
| ● | In
2022, an agreement was reached among the Company, its common shareholders, and preferred investors, leading to a reduction in the
make-whole price to $ per share. This reset resulted in a significant decrease in the FPA receivable, from $ |
The reconciliation statement of the Class A common stock held by the parties are as follows:
| As at December 31, 2023 | Shares sold during the three months ended March 31, 2024 | As at March 31, 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 | $ | $ | $ | |||||||||||||||||||||||||||
| 2 | Midtown East | ||||||||||||||||||||||||||||||
| 3 | Verdun | ||||||||||||||||||||||||||||||
| Grand total | $ | $ | $ | ||||||||||||||||||||||||||||
Note 16. Warrant Liabilities
Public and Private Placement Warrants
As
of March 31, 2024, and December 31, 2023, the Company has
The Public and Private Placement Warrants may only be exercised for a whole number of shares.
| 25 |
No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.
Redemption of warrants become exercisable when the price per Class A Common Stock equals or exceeds $. Once the warrants become exercisable, the Company may redeem the warrants:
| ● | in whole and not in part; |
| ● | at
a price of $ |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and |
| ● | if, and only if, the reported last sale price of the Class A Common Stock equals or exceeds $ per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like and certain issuances of Class A Common Stock and equity-linked securities) for any 20 trading days within a 30-trading day period commencing no earlier than the date the warrants become exercisable and ending on the third business day before the date on which the Company sends the notice of redemption to the warrant holders. |
If and when the warrants become redeemable by the Company, the Company may exercise its redemption rights; this is also the case if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
The private placement warrants are identical to the public warrants, except that the private placement warrants and the Class A Common Stock issuable upon the exercise of the private placement warrants were not transferable, assignable or saleable, subject to certain limited exceptions. Additionally, the private placement warrants are exercisable on a cashless basis and non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.
PIPE Warrants
As
of March 31, 2024 and December 31, 2023, the Company has
The
PIPE Warrants have an exercise price of $
Abaca Warrants
As
of March 31,2024, and December 31, 2023, the Company has
| 26 |
The
Abaca
Note 17. Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows:
| ○ | Level 1 – Observable, unadjusted quoted prices in active markets | |
| ○ | Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability | |
| ○ | Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions |
The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period.
Assets and Liabilities Reported at Fair Value on a Recurring Basis
Public Warrants:
Public warrants are recorded at fair value on a recurring basis. The Company obtains exchange traded price, of Level 1 inputs, based on observable data to value these warrants.
Private Placement Warrants:
Private Placement Warrants are recorded at fair value on a recurring basis. In the first quarter of 2024, the Company internally assessed the value of these derivatives with Level 3 inputs, which are derived from Black-Scholes model. This is a change from the first quarter of 2023, when the valuation was based on third-party reports, also utilizing Level 3 inputs for these derivatives. Management believes that this change was necessary to enhance the precision and control over the valuation process, allowing for a more tailored and responsive approach to the unique characteristics of the derivatives and the evolving market conditions.
PIPE Warrants:
PIPE Warrants are recorded at fair value on a recurring basis. In the first quarter of 2024, the Company internally assessed the value of these derivatives with Level 3 inputs, which are derived from Black-Scholes model. This is a change the first quarter of 2023, when the valuation was based on third-party reports, also utilizing Level 3 inputs for these derivatives. Management believes that this change was necessary to enhance the precision and control over the valuation process, allowing for a more tailored and responsive approach to the unique characteristics of the derivatives and the evolving market conditions.
Abaca Warrants:
Abaca Warrants are recorded at fair value on a recurring basis. The Company internally assessed the value of these derivatives with Level 3 inputs. Level 3 inputs, based on unobservable data derived from Black-Scholes model.
Third Anniversary Payment Consideration:
Third anniversary payment consideration are recorded at fair value on a recurring basis. The Company value these derivatives based on third party reports for Level 3 inputs. Level 3 inputs, based on unobservable data derived from Black Scholes-Merton model.
| 27 |
Forward Purchase Option Derivatives:
Forward purchase option derivatives are recorded at fair value on a recurring basis. In 2022, the Company values these derivatives based on third party reports for Level 3 inputs. In 2023 and 2024, no significant risk factor changes affecting FPA derivative values were noted.
The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy on March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Total Fair Value | Quoted Prices in Active Markets (Level 1) | Significant Other Unobservable Inputs (Level 3) | Total Fair Value | Quoted Prices in Active Markets (Level 1) | Significant Other Unobservable Inputs (Level 3) | |||||||||||||||||||
| Description | ||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||
| PIPE warrants | $ | $ | ||||||||||||||||||||||
| Public warrants | $ | $ | ||||||||||||||||||||||
| Private placement warrants | $ | $ | ||||||||||||||||||||||
| Abaca warrant | $ | $ | ||||||||||||||||||||||
| Forward purchase derivative liability | $ | $ | ||||||||||||||||||||||
| Third anniversary payment consideration | $ | $ | ||||||||||||||||||||||
Assets Measured at Fair Value on a Nonrecurring Basis
Assets that are measured at fair value on a nonrecurring basis primarily comprises of property, plant and equipment, right-to-use assets, finite lived intangible assets and goodwill. The Company does not record these at fair value on a recurring basis, however, the carrying value of the assets may be reduced to fair value when the Company determines that impairment has occurred.
There were no assets or liabilities recorded at fair value on a nonrecurring basis for the period ended March 31, 2024 and March 31, 2023.
Fair Value of Financial Instruments
The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. With the exceptions of loans receivable, warrants and forward purchase option derivatives, the Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments.
| 28 |
The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
| As on March 31, 2024 | ||||||||||||||||||||
| Carrying amount | Fair value | Fair value measurement using | ||||||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Forward purchase receivables | ||||||||||||||||||||
| Loans | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Deferred consideration | ||||||||||||||||||||
| Senior Secured Promissory note | ||||||||||||||||||||
| Indemnity liability | ||||||||||||||||||||
| Public warrants | ||||||||||||||||||||
| Private placement warrants | ||||||||||||||||||||
| PIPE Warrants | ||||||||||||||||||||
| Abaca Warrants | ||||||||||||||||||||
| Third anniversary payment consideration | ||||||||||||||||||||
| Forward purchase derivative | ||||||||||||||||||||
| As on December 31, 2023 | ||||||||||||||||||||
| Carrying amount |
Fair value | Fair value measurement using | ||||||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Forward purchase receivables | ||||||||||||||||||||
| Loans | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Deferred consideration | ||||||||||||||||||||
| Senior secured promissory note | ||||||||||||||||||||
| Public warrants | ||||||||||||||||||||
| Private placement warrants | ||||||||||||||||||||
| PIPE warrants | ||||||||||||||||||||
| Abaca warrants | ||||||||||||||||||||
| Forward purchase derivative | ||||||||||||||||||||
| Third anniversary payment consideration | ||||||||||||||||||||
| 29 |
The change in the assets measured at fair value on a recurring basis for which the Company have utilized Level 3 inputs to determine fair value are presented in the following table:
| For the period ended March 31, 2024 | ||||||||||||||||||||
| PIPE Warrants | Abaca Warrant | Private Placement Warrants | Third Anniversary Payment Consideration | Forward Purchase Derivative | ||||||||||||||||
| Balance at the beginning of the period | $ | $ | $ | $ | $ | |||||||||||||||
| Issued to Abaca shareholders | ||||||||||||||||||||
| Fair value adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Balance at the end of the period | $ | $ | $ | $ | $ | |||||||||||||||
| For the period ended March 31, 2023 | ||||||||||||||||||||
| PIPE Warrants | Abaca Warrant | Private Placement Warrants | Third Anniversary Payment Consideration | Forward Purchase Derivative | ||||||||||||||||
| Balance at the beginning of the period | $ | $ | $ | $ | $ | |||||||||||||||
| Fair value adjustment | ( | ) | ( | ) | ||||||||||||||||
| Balance at the end of the period | $ | $ | $ | $ | $ | |||||||||||||||
As of March 31, 2024 and on December 31, 2023, the valuation of private placement warrants, PIPE warrants, and Abaca warrants was carried out using the Black-Scholes model, while the fair value of the Abaca third anniversary payment consideration was determined using the Black Scholes Merton Option pricing model. Contrastingly, in the first quarter of 2023, the fair value assessments for both the private placement warrants and PIPE warrants were conducted using the Black-Scholes model and the Black Scholes-Merton model, respectively. Management believes that the change in method for PIPE warrants was necessary to enhance the precision and control over the valuation process, allowing for a more tailored and responsive approach to the unique characteristics of the derivatives and the evolving market conditions. As of March 31, 2024 and December 31, 2023, these warrants were valued for Level 3 inputs, which are based on observable data to value these derivatives.
As of December 31, 2023, the Company assessed the fair value of its forward purchase agreement (FPA) derivative utilizing a Monte Carlo Simulation within a risk-neutral setting, which is a particular instance of the Income Approach, based on calculations from December 31, 2022. Throughout the first quarters of both 2023 and 2024, there were no notable alterations in risk factors that would impact the valuation of the FPA derivative. Consequently, management retained the December 31, 2022, valuation for December 31, 2023 and March 31, 2024. The Company will continue to monitor the fair value of the forward option derivative each reporting period with subsequent revisions to be recorded in the Statements of Operations.
During the first quarters of both 2023 and 2024, there were no changes in the classification of financial instruments within Level 2 and Level 3 of the fair value hierarchy.
| 30 |
The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the private placement warrants and public warrants as of their measurement dates:
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||
| PIPE Warrants | Private Warrants | Third Anniversary Payment Consideration | Abaca Warrants | PIPE Warrants | Private Warrants | Third Anniversary Payment Consideration | Abaca Warrants | |||||||||||||||||||||||||
| Exercise price | $ | $ | ||||||||||||||||||||||||||||||
| Share Price | $ | $ | ||||||||||||||||||||||||||||||
| Expected term (years) | ||||||||||||||||||||||||||||||||
| Volatility | % | % | % | % | % | % | % | |||||||||||||||||||||||||
| Risk-free rate | % | % | % | % | % | % | % | |||||||||||||||||||||||||
The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase derivatives as of their measurement dates on March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||
| Reset Price | $ | $ | ||||||
| Expected term (years) | ||||||||
| Additional Maturity Consideration per share | $ | $ | ||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Risk-adjusted discount rate | % | % | ||||||
Note 18. Tax
For
the three months ended March 31, 2024, the Company recorded income tax benefit of $
The Company recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. As of both March 31, 2024, and December 31, 2023, the Company has no unrecognized income tax benefits.
| 31 |
Note 19. 401(k) Plan
The
Company offers to all employees a tax-qualified retirement contribution plan, with the Company’s
Note 20. Stockholders’ Equity
Preferred Stock
The
Company is authorized to issue
preferred shares with a par value of $
per share with such designation rights and preferences as may be determined from time to time by the Company’s Board of
Directors. As of March 31, 2024, there were
Class A preferred shares issued and outstanding and
preferred shares issued and outstanding on December 31, 2023. The holders of preferred stock shall be entitled to receive, and the
Company shall pay, dividends on shares of preferred stock equal(on an as-if-converted-to-Class-A-Common-Stock basis) to and in the
same form as dividends actually paid on shares of the Class A Common Stock when, as and if such dividends are paid on shares of the
Class A Common Stock. No other dividends shall be paid on the preferred stock. The terms of the preferred stock provide for an
initial conversion price of $
Common Stock
The Company is authorized to issue up to shares of Class A Common Stock with a par value of $ per share. Holders of the Company’s Class A Common Stock are entitled to one vote for each share. As of March 31, 2024 and December 31, 2023, there were and shares of Class A Common Stock issued or outstanding. As of March 31, 2024 and December 31, 2023, Class A Common Stock are held by the purchasers under forward purchase agreement dated June 16, 2022, by and among the Company and such purchasers.
2022 Equity Incentive Plan
Share-based compensation expense recognized for the three months ended March 31, 2024 and March 31, 2023 totaled $ million and $ million, respectively.
The 2022 Plan was approved by the Company’s stockholders on June 28, 2022. The 2022 Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, and performance compensation awards. The Company has not issued stock appreciation rights, restricted stock, stock bonus awards, or performance compensation awards in the three months ended March 31, 2024 and March 31, 2023. In conjunction with the 2024 Plan, as of March 31, 2024, the Company had granted stock options and restricted stock units which are described in more detail below.
Stock Options
Stock options are awarded to encourage ownership of the Company’s Class A common stock by employees and to provide increased incentive for employees to render services and to exert maximum effort for the success of the Company. The Company’s incentive stock options generally permit net-share settlement upon exercise. The option exercise price, vesting schedule and exercise period are determined for each grant by the administrator (person appointed by board to administer the stock plans) of the applicable plan. The Company’s stock options generally have a -year contractual term.
| 32 |
| Dividend yield | % | ||||
| Risk-free interest rate | % to | % | |||
| Expected volatility (weighted-average and range, if applicable) | % | ||||
| Expected term | to years |
The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period the awards. The shares of the Company were listed on the stock exchange for a limited period of the time and the share price has also dropped significantly from the date of listing. Based on these factors Management has considered the expected volatility at % for the current period. The risk-free interest rate used is the current yield on US Treasury notes with a term equal to the expected term of the options at the grant date. The expected dividend yield is based on annualized dividends on the underlying share during the expected term of the option.
| Stock Option | No. of Stock Option | Weighted- Average Grant Date Fair Value Per Stock Option | Weighted- Average Remaining Contractual Life (in Years) | |||||||||
| December 31, 2023 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Expired | - | |||||||||||
| Cancelled / Forfeited | ( | ) | - | |||||||||
| March 31, 2024 | $ | |||||||||||
A summary of the Company’s stock option activities and related information for the three months ended March 31, 2023 is as follows:
| Stock Option | No. of Stock Option | Weighted- Average Grant Date Fair Value Per Stock Option | Weighted- Average Remaining Contractual Life (in Years) | |||||||||
| December 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | - | |||||||||||
| Expired | ||||||||||||
| Cancelled / Forfeited | ( | ) | - | |||||||||
| March 31, 2023 | $ | |||||||||||
| Exercise price options outstanding | March 31, 2024 | March 31, 2023 | ||||||||
| $ | 1.56 | |||||||||
| $ | 2.58 | |||||||||
| $ | 4.00 | |||||||||
| $ | 6.67 | |||||||||
| Total | ||||||||||
| 33 |
Restricted Stock Units (“RSUs”)
| Restricted Stock Units | No. of RSU | Weighted- Average Grant Date Fair Value Per RSU | Weighted- Average Remaining Contractual Life (in Years) | |||||||||
| December 31, 2023 | $ | |||||||||||
| Granted | - | |||||||||||
| Vested | ( | ) | - | |||||||||
| Expired | - | |||||||||||
| Cancelled / Forfeited | - | |||||||||||
| March 31, 2024 | $ | |||||||||||
| Restricted Stock Units | No. of RSU | Weighted- Average Grant Date Fair Value Per RSU | Weighted- Average Remaining Contractual Life (in Years) | |||||||||
| December 31, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Vested | - | |||||||||||
| Expired | - | |||||||||||
| Cancelled / Forfeited | - | |||||||||||
| March 31, 2023 | $ | |||||||||||
The following RSU were outstanding at their respective vest price:
| Vest price RSU outstanding | March 31, 2024 | March 31, 2023 | |||||||
| $1.31 | |||||||||
| Total | |||||||||
Note 21. Subsequent events
On April 5, 2024, the Company received a letter from the listing qualifications department staff of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that for the last 30 consecutive business days, the Company did not maintain a minimum closing bid price of $ per share for its common stock, as required by Nasdaq Marketplace Rule 5550(a)(2). The Company has been granted a period of 180 days, ending on October 2, 2024, to regain compliance with this requirement. If the Company does not regain compliance by October 2, 2024, the Company may be eligible for second compliance period for up to an additional 180 days. In connection with any extension periods, if it appears that the Company will not be able to regain compliance with Nasdaq Marketplace Rule 5550(a)(2), or if the Company is not otherwise eligible, the Nasdaq staff will provide notice to the Company that its securities will be subject to delisting. At that time, the Company may appeal any such delisting determination to a Hearings Panel. If the Company’s Class A common stock maintains a closing bid price of at least $ for 10 consecutive business days at any point before the deadline, Nasdaq will confirm compliance, and the matter will be resolved. The Company’s Class A common stock will continue to be listed and traded on The Nasdaq Capital Market under the symbol “SHFS” during this period. There is no assurance that the Company will achieve compliance within the given timeframe or maintain compliance with other Nasdaq Listing Rules thereafter.
| 34 |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this section to “we,” “us,” or “our” refer to SHF Holdings, Inc (herein referred to as the “Company”). References to “management” refer to our officers and board of managers. The following discussion and analysis of our financial performance and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements.
Forward Looking Statements
All statements other than statements of historical facts contained in this report, including statements regarding future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “expect,” “objective,” “plan,” “potential,” “seek,” “grow,” “target,” “if,” and similar expressions intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, objectives, and financial needs.
Overview
We provide services to a variety of cannabis-industry participants in 41 states, including financial institutions desiring to provide business banking, private banking and commercial banking services to their customers, particularly those customers conducting business in or adjacent to the cannabis industry. Our services include, among other things:
| ● | regulatory compliance consulting and software for maintaining “Know Your Customer” (“KYC”) and Bank Secrecy Act (“BSA”) compliance to financial institutions, principally conducted vis-à-vis our proprietary financial services platform; | |
| ● | the origination, onboarding, verification, and servicing of cannabis-related deposit business for and on behalf of our partner financial institutions; and | |
| ● | sourcing, underwriting, servicing, and administering loans issued to cannabis businesses and related entities, which are often also our customers, as well as being customers of our partner financial institutions. |
Financial Services Platform
The Company has developed and commercialized a fully compliant financial services platform for financial institutions providing banking services to cannabis-related businesses (“CRBs”) to access and maintain reliable financial services as long as both the financial institution client and the CRB meet regulatory requirements. Our platform has been streamlined and finetuned for the past nine years which enables the Company’s staff to efficiently guide financial institution clients and the CRBs desiring banking services through the onboarding, validation and monitoring process. Our automated platform provides for an efficient and effective management tool allowing our employees to provide continuity of service while enabling compliance staff to monitor BSA activities.
Through the Company’s platform, our financial institution clients have the ability to provide CRBs with access to traditional financial services including wires, debit, ACH, remote deposit capture, business checking and savings accounts, courier and vaulting services, cash management accounts and commercial lending. We believe our services have been implemented consistent with applicable law and regulations, ensuring our financial institution clients will be able to provide CRBs with reliable access to these services. We feel our history of developing processes that satisfy regulatory standards has resulted in a solid reputation with related authorities and solidifies our ability to continue to grow existing services and reduces barriers in expanding into new service offerings.
| 35 |
CRB Deposits
The Company maintains relationships with Partner Colorado Credit Union (“PCCU”) and other financial institutions in which the CRB funds are deposited and monetary transactions are performed. The Company’s agreements with the financial institution allow the Company’s platform to interface with the financial institution’s core banking systems and extract data necessary to monitor the deposit accounts onboarded by the Company’s transactions, such as funds transmissions to or from the accounts, occur through PCCU’s and other financial institution client’s infrastructure.
When a CRB or ancillary service provider approaches PCCU or other financial institution for which the Company provides its onboarding services, an initial onboarding fee is assessed based on the type and complexity of the business. Onboarding is an important part of the KYC requirements set forth in federal guidance. The onboarding process can require a great deal of time depending on the business complexity and the fee we assess is based upon the complexity and required time to complete the process. Additionally, the Company assesses monthly deposit and activity fees, which have historically been the majority of our revenue. These fees are also based on business type and size. Monitoring and validating deposit activity is paramount to the success of the Company’s platform. We believe our compliance-first focus reassures regulators and law enforcement that the Company continues to focus on the safety and soundness of the financial system.
Investment income is also generated when PCCU or other financial institution clients invest CRB deposits. Under our Commercial Alliance Agreement with PCCU, the Company pays 25% of the investment income as a hosting fee to PCCU based on this income. Through its relationship with PCCU, depository amounts invested are typically restricted to low-risk assets with high liquidity and low returns. The investment income is significantly influenced by the levels of CRB deposits and the prevailing interest rate environment for cash and similar assets. We believe that fees based on deposits that we onboard and interest on the daily balance less cash used to collateralize our loan portfolios maintained with financial institutions will represent a significant portion of our revenue by 2024.
Commercial Lending Program
The level of CRB deposits onboarded by the Company and held at PCCU allows for robust lending capacity. During 2020, the Company implemented a commercial lending program, which will be a strong pillar for future revenue and profit growth. The focus will primarily include senior secured lending with smaller loans considered for unsecured lending. Collateral types would include real estate, equipment, and other business assets. The Company’s commercial lending program is built on:
| ● | stringent collateral package requirements with ample loan to value coverage; | |
| ● | strong underwriting of collateral and creditworthiness of borrower; and | |
| ● | a deep knowledge and understanding of the industry, borrowers’ operations and the cannabis industry business cycle. |
Currently, lending is primarily funded through PCCU using the funds from CRB deposit accounts onboarded by the Company. The Company is currently seeking relationships with additional financial institutions that would fund the Company’s loans and other sources of working capital with which the Company could fund the loans directly. The Company has created a lending program tailored specifically to the unique needs of CRBs while also achieving strong returns on quality loans. While third parties are presently used to provide loan underwriting and servicing, the Company plans on building out a full-service internal lending function to improve the efficiency of our lending process and to increase future profitability.
| 36 |
We feel we have taken a creative and methodical approach in building the Company’s platform, which has allowed us to nationally scale our business. The platform’s policies, training, monitoring and other processes are well established with talented and expert level knowledge. We also plan to further expand the officer level suite with talent that we believe will further our success. We anticipate this combination will provide a competitive advantage for us as we focus on continued growth.
Key Metrics
In addition to the measures presented in our condensed unaudited consolidated financial statements, our management regularly monitors certain measures in the operation of our business. These key metrics are discussed below.
Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) and Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed EBITDA and Adjusted EBITDA, both of which are non-GAAP financial measures that we calculate as net income before taxes and depreciation and amortization expense in the case of EBITDA and further adjusted to exclude non-cash, unusual and/or infrequent costs in the case of Adjusted EBITDA. Below we have provided a reconciliation of net income (the most directly comparable U.S. GAAP financial measure) to EBITDA and from EBITDA to Adjusted EBITDA.
We present EBITDA and Adjusted EBITDA because these metrics are a key measure used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of investment capacity. Accordingly, we believe that EBITDA and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.
EBITDA and Adjusted EBITDA have limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are as follows:
| ● | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and both EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; |
| ● | EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; and |
| ● | EBITDA and Adjusted EBITDA do not reflect tax payments that may represent a reduction in cash available to us. |
Because of these limitations, you should consider EBITDA and Adjusted EBITDA alongside other financial performance measures, including net loss and our other U.S. GAAP results.
| 37 |
A reconciliation of net income to non-GAAP EBITDA and Adjusted EBITDA is as follows:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net income/(loss) | $ | 2,049,676 | $ | (1,413,447 | ) | |||
| Interest expense | 154,172 | 643,260 | ||||||
| Depreciation and amortization | 195,709 | 396,314 | ||||||
| Taxes | (438,885 | ) | (609,277 | ) | ||||
| EBITDA | $ | 1,960,672 | $ | (983,150 | ) | |||
| Other adjustments – | ||||||||
| (Benefit)/ Provision for credit losses | (68,787 | ) | 66,666 | |||||
| Change in the fair value of warrants | (1,255,487 | ) | (433,148 | ) | ||||
| Change in the fair value of deferred consideration | (184,535 | ) | 190,943 | |||||
| Stock based compensation | 612,124 | 1,570,782 | ||||||
| Loan origination fees and costs | 23,373 | (2,175 | ) | |||||
| Adjusted EBITDA | $ | 1,087,360 | $ | 409,918 | ||||
For the period ended March 31, 2024, our EBITDA income improved primarily as a result of lower General and Administrative expenses and reduced stock-based compensation. Additionally, the increase in adjusted EBITDA income during this period was mainly attributed to the decrease in General and Administrative expenses. This reduction was driven by lower investment hosting fees, decreased amortization and depreciation expenses, and reduced business insurance costs. Additionally, there were decreases in compensation, employee benefits, marketing expenses, and other insurance costs. These factors contributing to our financial performance are further discussed in the “Discussion of our Results of Operations” section below. Other adjustments include estimated future credit losses not yet realized, including amounts indemnified to PCCU for loans funded by them. The Company had entered into a Commercial alliance agreement with PCCU, pursuant to which the Company agreed to indemnify PCCU for claims associated with CRB activities including any loan default related losses for loans funded by PCCU. Deferred loan origination fees and costs represent the change in net deferred loan origination fees and costs. When included with a new loan origination, we receive an upfront loan origination fee in conjunction with new loans funded by our financial institution partners and incur costs associated with originating a specific loan. For accounting purposes, the cash received for loan origination fees and costs is initially deferred and recognized as interest income utilizing the interest method.
Other Metrics
For our business operations, we monitor the following key metrics.
Total account balances, number of accounts and average account balances
Our lending capacity is dependent on the size of our managed deposit base and number of active accounts. In addition, fees are generated based on open accounts and account activity. We monitor account activity including deposits, withdrawals and ending account balance daily. Total account balances represent the balance of onboarded and monitored deposits on hand at financial institution clients at period end. Average account balance represents the total account balance divided by the number of accounts at the period end.
Account fees per average active accounts managed
Currently a significant amount of our fees is generated from account openings, active accounts and account activity. As a result, we monitor account openings and closings on a daily, weekly and monthly basis. We strive to meet the appropriate balance between depository balances and fees and therefore review account fees per average number of active accounts managed.
| Three months Ended March 31 | 2024 | 2023 | Change ($) | Change (%) | ||||||||||||||
| Average monthly ending deposit balance | (1) | $ | 135,467,105 | 222,857,256 | (87,390,151 | ) | -39.21 | % | ||||||||||
| Account fees | (2) | $ | 1,303,133 | 2,120,187 | (817,054 | ) | -38.54 | % | ||||||||||
| Average active accounts | (3) | 744 | 1,018 | (274 | ) | -26.88 | % | |||||||||||
| Average account balance | (4) | $ | 181,998 | 218,917 | (36,919 | ) | -16.86 | % | ||||||||||
| Average fees per account | (4) | $ | 1,751 | 2,083 | (332 | ) | -15.95 | % | ||||||||||
| (1) | Represents the average of monthly ending account balances |
| (2) | Reported account activity fee revenue |
| (3) | Represents the average of monthly ending active accounts |
| (4) | Refer to the below section – Discussion of Results of our Operations for additional discussion of trends. |
| 38 |
For the period ending March 31, 2024, there was a decline in the average number of accounts and fees compared to the previous period, primarily due to a decrease in clientele following the termination of an agreement with the Central Bank. We expect this trend to shift as we lead with our lending program typically requiring borrowers to place deposits with financial institutions with which we have relationships.
We are focused on enhancing and growing our lending platform. Incremental lending key metrics will be monitored as this portion of our business grows in volume. Metrics will include average loan balance, average life to repayment, average effective interest rate and loan status, amongst others.
Components of our Results of Operations
Revenue
The Company generates interest and fee income through providing a variety of services to PCCU and other financial institutions to facilitate its banking services to CRBs including, among other things, Bank Secrecy Act and other regulatory compliance and reporting, onboarding, responding to account inquiries, responding to customer service inquiries relating to CRB deposit accounts held at financial institution clients, and sourcing and originating loans. In addition, the Company provides these similar services and outsourced support to other financial institutions providing banking to the cannabis industry. These services are provided under the Safe Harbor Master Program Agreement.
Operating expenses
Operating expenses consist of compensation and benefits, professional services, rent expense, provisions for credit losses and other general and administrative expenses.
Compensation and benefits consist of employee wages and associated benefits while professional services consist of legal, general consulting and accounting fees.
The Company reports a provision for credit losses both as it relates to loans funded internally and those carried by PCCU or other financial institutions. The Company indemnifies PCCU and other financial institutions for losses on loans to borrowers sourced by the Company and funded by PCCU and other financial institutions. The Company anticipates comparable arrangements with other financial institutions that fund loans to borrowers sourced by the Company.
Other general and administrative expenses consist of various miscellaneous items including account hosting fees, insurance expense, advertising and marketing, travel meals and entertainment and other office and operating expense.
Discussion of our Results of Operations —2024 Compared to 2023 (Three Months Ended March 31)
Revenue
| Three Months Ended March 31, | 2024 | 2023 | Change ($) | Change (%) | ||||||||||||
| Deposit, activity, onboarding income | $ | 1,620,994 | $ | 2,245,831 | (624,837 | ) | (27.82 | )% | ||||||||
| Safe Harbor Program income | 19,230 | 51,103 | (31,873 | ) | (62.37 | )% | ||||||||||
| Investment income | 773,819 | 1,417,152 | (643,333 | ) | (45.40 | )% | ||||||||||
| Loan interest income | 1,636,756 | 466,293 | 1,170,463 | 251.01 | % | |||||||||||
| Total Revenue | $ | 4,050,799 | $ | 4,180,379 | (129,580 | ) | (3.10 | )% | ||||||||
Account fee income consists of deposit account fees, activity fees and onboarding income. We receive a flat fee and lower rates for ancillary accounts, which are accounts provided to businesses servicing the cannabis industry in general but do not manufacture, possess, distribute or transport cannabis.
| 39 |
The decrease in deposit, activity and onboarding income was primarily attributable to the decrease in the number of accounts related to the Abaca acquisition. In period ended March 2024, PCCU accounted for $1,217,675 of the revenue generated from deposits, activities, and client onboarding. Related to this revenue, the Company recognized $104,259 in account hosting expenses, in accordance with the Commercial Alliance Agreement. In period ended March 2023, PCCU contributed $1,377,839 to the revenue from similar sources, with account hosting expenses amounting to $55,425 as per the Loan Servicing Agreement provisions. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
The Company provides similar account services and outsourced support to other financial institutions providing banking to the cannabis industry. These services are provided under the Safe Harbor Master Program Agreement. Revenue has decreased as we narrow the financial institutions and states we allow under this program and instead focus on servicing CRBs directly. The reduction in Safe Harbor Program income is a result of the reduction in the number of accounts.
We have agreements with PCCU (related party) and Five Star Bank (FSB) where our financial institution clients pay us interest on the daily account balance as per the rates in the agreements. Under our Commercial Alliance Agreement with PCCU, we pay 25% of the investment income as a hosting fee based on this income. In period ended March 2024, the income derived from investment income associated with PCCU totaled $731,425. In relation to this income, the Company incurred $160,101 in investment hosting fees, consistent with the stipulations of the Commercial Alliance Agreement. In period ended March 2023, PCCU’s contribution to investment income amounted to $1,417,152, against which the Company recorded investment hosting fees of $323,305, as governed by the terms of the Loan Servicing Agreement. These expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.
We had a Loan Servicing Agreement with PCCU (related party) where our financial institution carries the loan balances on their financial statement; the Loan Servicing Agreement has since been superseded by the Commercial Alliance Agreement. The loan interest income reflects our share of loan interest on issued loans. We are obligated to pay 0.35% on the total outstanding principal of each loan that is funded and serviced by PCCU. Loan interest earned on the Company’s direct loans and the indemnified loans grew as the Company increased its focus on lending. For the quarter ended March 31, 2024, SHF serviced twenty two loans, as compared to eight loans in the quarter ended March 31, 2023. In quarter ended March 2024, the Company recognized $1,636,756 in loan interest income attributable to PCCU activities. Related expenses for this income included $35,901 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the Commercial Alliance Agreement. In quarter ended March 2023, loan interest income from PCCU operations amounted to $466,293, with associated loan servicing fees totaling $11,929, pursuant to the same agreements. These expenses were categorized under” General and administrative expenses” in the Consolidated Statements of Operations.
Operating expenses
| Three months Ended March 31, | 2024 | 2023 | Change ($) | Change (%) | ||||||||||||
| Compensation and employee benefits | $ | 2,280,038 | $ | 3,659,520 | $ | (1,379,482 | ) | (37.70 | )% | |||||||
| General and administrative expenses | 984,220 | 1,538,874 | (554,654 | ) | (36.04 | )% | ||||||||||
| Professional services | 460,950 | 449,246 | 11,704 | 2.61 | % | |||||||||||
| Rent expense | 69,437 | 87,742 | (18,305 | ) | (20.86 | )% | ||||||||||
| (Benefit)/provision for credit losses | (68,787 | ) | 66,666 | (135,453 | ) | (203.18 | )% | |||||||||
| Total operating expenses | $ | 3,725,858 | $ | 5,802,048 | $ | (2,076,190 | ) | (35.78 | )% | |||||||
Compensation and employee benefits decreased on account of stock-based compensation and also the decrease in the head count.
Rent expenses has been decreased due to reduction in the number of lease properties.
(Benefit)/ Provision for credit losses has decreased due to decrease in the loss rate.
General and administrative expenses decreased across various categories including: (i) approximately $163,204 in investment hosting fees, (ii) approximately $54,169 in advertising and marketing, (iii) $198,056 in amortization and depreciation, and (iv) $46,378 in business insurance.
Financial Condition
Cash and cash equivalents
Cash and cash equivalents totaled $5,626,362 and $4,888,769 as of March 31, 2024 and December 31, 2023, respectively.
| 40 |
Cash flows
For the three months ended March 31, 2024, the Company generated $1,475,123 in cash from operations, compared to cash used of $232,040 for the three months ended March 31, 2023. This improvement was mainly due to lower operating expenses and the greater number of performing loans at better rates than the previous period.
For the three months ended March 31, 2024, the Company generated $3,014 in cash from investing activities, compared to $470,597 for the three months ended March 31, 2023. The decrease was primarily due to the repayment of loans by customers in the previous period.
For the three months ended March 31, 2024, the Company used $740,544 in cash for financing activities, compared to zero cash flow in the corresponding period of 2023. This was mainly due to the repayments on the senior secured promissory note during 2024, which was not in place during the three months ended March 31, 2023.
Liquidity and going concern
Liquidity refers to our capacity to fulfill anticipated cash demands, encompassing obligations to settle debt, sustain assets and operations, distribute earnings to shareholders, and cover other typical business expenditures. Our cash outflows predominantly settle towards repaying debt principal and interest, distributing dividends to shareholders, and financing our operational activities. The main contributors to our liquidity are the cash inflows from our operational performance. As of the end of the fiscal year on March 31, 2024, the Company reports no significant commitments to capital investments.
As of March 31, 2024, the Company had $5,626,362 in cash and net working capital of $318,825, as compared to $4,888,769 in cash and net working capital deficit of $135,355 as at December 31, 2023. The retained deficit was $70,386,394 on March 31, 2024, and $71,569,821 on December 31, 2023. The Company has also generated operating income of $324,941 for the period ended March 31, 2024.
For the period ending March 31, 2024, the Company reported positive operating income and net working capital. However, considering the historical data from the four preceding quarters, where the Company experienced negative operating income and negative net working capital, management acknowledges the need to closely evaluate the financial performance in upcoming quarters to mitigate any going concern risks. As of March 31, 2024, due to these historical trends, there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the date these unaudited condensed consolidated financial statements were issued.
If the Company is not able to sustain its present level of operations, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned expansion programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result should the Company not continue as a going concern as a result of this uncertainty
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements and accompanying notes are prepared in accordance with U.S GAAP. Preparing unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as disclosure of contingent assets and liabilities. An appreciation of our critical accounting policies is necessary to understand our financial results. In some cases, we could reasonably use different accounting policies and estimates, and changes in our estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates, and our financial condition or results of operations could be affected. We base our estimates on our experience and other assumptions that we believe are reasonable, and we evaluate these estimates on an ongoing basis. We refer to the following accounting estimates as critical accounting estimates, based on their importance to the financial reporting and potential for changes in future periods:
Revenue recognition
The company records revenue when it meets its service obligations, which include various fees charged for financial services such as account maintenance and transaction fees, along with other miscellaneous fees. When determining transaction prices, the company considers potential variations in these fees, which may fluctuate based on customer usage and specific contract terms. This is in line with ASC 606 standards, which require the allocation of transaction prices to the specific services provided within a contract, such as setup and ongoing fees for certain programs. The company also earns revenue from interest on loans, which includes those directly issued and those backed by a partnership with PCCU under a commercial alliance agreement. Investment income consist of interest earned on the daily deposits balance with financial institution. A strategic change in the fourth quarter of 2023 saw the company adopt a new method for calculating interest on customer deposit balances, excluding certain amounts. The company’s customer base mainly consists of financial institutions that serve cannabis-related businesses (CRBs), with revenue primarily generated in the United States. Under the terms of its Commercial Alliance Agreement with PCCU, the company is obligated to pay PCCU various fees, including a loan servicing fee of 0.35% of the current loan balance, and monthly service fees based on account balances, with rates varying for balances below and above $1 million. Additionally, the company must pass on 25% of its investment hosting fees to PCCU, which are calculated from the returns on PCCU-related deposits.
| 41 |
Indemnity liability
The indemnification component of the Loan Servicing Agreement is accounted for in accordance with ASC 460 Guarantees, which follows guidance in ASC 326 – Financial Instruments – Credit Losses (ASC Topic 326), for estimating expected credit losses under the current expected credit loss (“CECL”) methodology, presented in the liabilities section in the consolidated balance sheets as an” Indemnity liability”. The Company accounts for the indemnification component of the Commercial Alliance Agreement for claims related to cannabis-related businesses, with a particular emphasis on default-related credit losses. The Company’s indemnity is secondary to other recovery methods like foreclosure or guarantor recourse. Indemnity payments don’t absolve borrowers of their obligations, maintaining PCCU’s rights to recoveries. The indemnification is considered a general loss contingency under ASC 460 due to uncertainties that could lead to losses, resolved by future events. The Company’s liability for indemnity is based on management’s estimation of probable credit losses at the balance sheet date, influenced by individual loan risk ratings and economic assumptions in the estimation model. These risk ratings are re-evaluated quarterly. The indemnity liability for the pooled component is derived from an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters such as probability of default (“PD”) and loss given default (“LGD”) which are derived from internally developed model estimation approaches for smaller homogenous loans. The PD is quantified by analyzing historical data to determine the rate at which loans have defaulted within the portfolio, relative to the total outstanding loans as of the end of the reporting period. This rate is expressed as a percentage and serves as a key indicator of the likelihood of default across the loan pool. LGD assessments are conducted to estimate the potential loss amount in the event of a default, considering the recoverable value from the collateral liquidation against the remaining loan balance. This involves a detailed analysis of two primary components: the loss on principal, which arises from the gap between the collateral’s liquidation value and the unpaid principal balance of the loan; and the loss associated with various ancillary costs to recover, including, but not limited to, foregone interest, transaction costs, legal and administrative fees, and expenses related to the maintenance and renovation of the property. Changes in the PD and LGD directly affect the estimated indemnity liability. An increase in PD, indicating a higher likelihood of defaults, necessitates a larger indemnity liability to cover potential losses, impacting the company’s financial reserves. Conversely, a decrease in PD would lower the required indemnity liability, reflecting a more favorable risk outlook. Similarly, a rise in LGD, due to reduced collateral values or higher recovery costs, increases the estimated loss per default, requiring a higher indemnity liability. Conversely, a reduction in LGD suggests more loss recoveries, allowing for a decrease in the indemnity liability.
Stock-based compensation
In conjunction with the 2022 Plan, as of March 31, 2024, the Company had granted stock options and restricted stock units which are described in more detail below:
Stock options
The Company awards stock options to incentivize employee ownership and performance, applying ASC 718 for equity-based payments. Options, with a 10-year term with their fair value determined at the grant date, considering either market price or the Black-Scholes model. This model factors in expected option term, stock price volatility (set at 100% due to significant price fluctuations since listing), risk-free interest rates (aligned with U.S. Treasury rates), and an assumed zero dividend yield, given the Company’s history of not paying dividends. The expected option term is derived using the simplified method, averaging the contractual term and vesting period. Compensation cost is recognized over the service period on a straight-line basis, with immediate recognition of forfeitures. Changes in valuation assumptions could significantly alter fair value estimates.
Restricted Stock Units / Restricted Stock Awards
The Company values equity-based payments under ASC 718, using fair value at grant date for stock awards, recognizing expenses over the service period. Fair value is estimated via the market price or Black-Scholes model, considering variables like expected term, stock volatility, risk-free rates, and forfeiture rates. Given the stock’s limited listing period and significant price drop, volatility is presumed at 100%. Risk-free rates align with U.S. Treasury rates matching the awards’ lifespans. The options’ expected term merges the contractual and vesting durations. The Company assumes zero dividend, reflecting the Company’s history and future dividend outlook, impacting the valuation of stock-based compensation. Changes in valuation assumptions could significantly alter fair value estimates.
| 42 |
Forward Purchase Agreement
The Company, under a Forward Purchase Agreement (FPA) with Midtown East, which was later reassigned to Verdun and Vellar, involved complex transactions around Class A common stock. Initially, about 3.8 million shares were acquired from the market. Post-business combination, the Company disbursed $39.6 million for these shares and associated costs. The FPA allows for an early termination sale of shares by the assignees, with proceeds above the reset price going to them and the rest to the Company. The final settlement at the Maturity Date includes a cash or share payment based on the Forward Price and a Maturity Cash Consideration. In 2022, the reset price adjustment, influenced by the common stock’s trading value and preferred share conversions, significantly reduced the FPA receivable from $37.9 million to $4.6 million. No further transactions or value changes were noted for the period ended March 31, 2024 and year ended December 31, 2023, maintaining the FPA receivable’s value. The value of the forward purchase agreement could diminish if the Company issues any securities at a price below the reset price of $1.25 per share before the agreement expires.
Forward Purchase Derivative
The Company records the forward purchase derivative from a business combination as per ASC 815, marking it as an asset or liability at fair value, adjusted each reporting period. Fair value adjustments are recognized in the consolidated statement of operations. The Monte-Carlo Simulation, applying Geometric Brownian Motion for stock price projections, was utilized for valuation in the year ended December 31, 2022. In 2022, the company fully accounted for the maximum contractual liability. Through March 31, 2024, there were no notable shifts in risk factors that would impact the values of FPA derivatives.
Warrants Liabilities
The Company’s accounting for warrants, including Public, Private Placement, PIPE, and Abaca warrants, constitutes a critical accounting estimate due to the significant judgments and assumptions involved in their valuation and the potential impact on our financial statements. These warrants are recorded at fair value on a recurring basis, requiring the use of observable market data and valuation techniques that involve significant estimates and assumptions. For Public warrants, the Company utilizes Level 1 inputs, relying on exchange-traded prices which provide a transparent and observable market valuation. This approach minimizes the level of estimation uncertainty associated with these warrants. For the fiscal year ending December 31, 2023, and the first quarter ending March 31, 2024, the Company shifted its approach to valuing Private Placement and PIPE (Private Investment in Public Equity) Warrants from relying on external third-party reports to conducting in-house evaluations. This internal assessment strategy utilizes Level 3 inputs, which are based on data that is not observable in the market, contrasting with the method used in the quarter ending March 31, 2023, where the valuation was grounded on third-party reports. This shift aims to enhance the precision of the valuation process, allowing for adjustments reflective of the unique characteristics of these warrants and prevailing market conditions. Key assumptions in this valuation include the expected volatility of our stock, the risk-free interest rate, the expected life of the warrants, and the dividend yield. Variability in these assumptions could significantly impact the fair value estimates of these warrants. For Abaca Warrants, the Company also utilizes an internal assessment approach with Level 3 inputs. The valuation assumptions include, but are not limited to, the exercise price, the fair market value of the underlying Class A Common Stock, the expected term of the warrants, and the risk-free interest rate. Future variations in these critical assumptions could arise from changes in market conditions, such as fluctuations in the volatility of the Company’s stock, alterations in the risk-free interest rate reflecting broader economic shifts, or adjustments in the expected life of the warrants due to changes in the holders’ exercise behavior. Additionally, regulatory changes or shifts in the market perception of the Company could also necessitate adjustments to these assumptions. Changes in these assumptions could lead to significant variations in the recorded fair value of the warrants, impacting the Company’s financial position and results of operations. The Company closely monitors these assumptions and market conditions to ensure that the warrant valuations accurately reflect their fair market value on reporting date.
| 43 |
Deferred consideration
The Company’s accounting for the deferred consideration arising from the acquisition of Abaca represents a critical accounting estimate, consistent with ASC Topic 815, “Derivatives and Hedging” (“ASC 815 “). This consideration, due to its failure to meet the equity classification criteria under ASC 815, is accounted for as a derivative liability. This approach necessitates the recognition of this obligation on the balance sheet at its fair value, with subsequent adjustments to fair value reflected at each reporting period end. The determination of fair value involves significant judgments and assumptions, particularly in light of the complex terms outlined in the Abaca merger agreement and its amendments. The deferred consideration includes cash payments scheduled at various anniversaries of the merger closing, the issuance of common stock based on specified conditions, and the introduction of additional consideration and stock warrants as per the latest amendments to the agreement. The fair value assessment of these components is influenced by several factors, including the Company’s stock price, the volatility of the stock, the risk-free interest rate, and the specific terms of the deferred and stock considerations as amended. Future variations in the fair value of this derivative liability could arise from changes in the Company’s stock price, fluctuations in market volatility, alterations in the risk-free interest rate, or changes in the terms of the agreement as negotiated with the Abaca stockholders. Such changes could be prompted by evolving business strategies, market conditions, or regulatory environments that impact the financial and operational aspects of the agreement. These estimates and assumptions are subject to inherent uncertainties and the exercise of management’s judgment. Changes in these critical assumptions could lead to significant adjustments in the recorded fair value of the derivative liability associated with the Abaca acquisition’s deferred consideration. These adjustments could materially impact the Company’s financial position and results of operations, emphasizing the importance of the estimates and assumptions used in the valuation of this complex financial instrument. The Company closely monitors related developments and market conditions to ensure the derivative liability is accurately valued, providing transparency and reliability on the reporting date.
Emerging Growth Company Status
We are an “emerging growth company,” or “EGC”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
In addition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period, for as long as it is available. We will remain an EGC until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act and (b) in which we have total annual gross revenue of at least $1.07 billion, (2) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References herein to “emerging growth company” have the meaning provided in the JOBS Act.
Internal Control Over Financial Reporting
In connection with our management assessment of internal control over financial reporting as of and for the three months ended March 31, 2024, the Company has identified two (2) material weaknesses within our internal controls associated with Revenue Recognition and Complex Financial Instrument. Refer to Item 9A of this Quarterly Report on Form 10-Q for additional details.
Related Party Relationships
Account Servicing Agreement
The Company had an Account Servicing Agreement with PCCU. SHF provides services as per the agreement to CRB accounts at PCCU. In addition to providing the services, SHF assumed the costs associated with the CRB accounts. These costs include employees to manage account onboarding, monitoring and compliance, rent and office expense, insurance and other operating expenses necessary to service these accounts. Under the agreement, PCCU agreed to pay SHF all revenue generated from CRB accounts. Amounts due to SHF were due monthly in arrears and upon receipt of invoice. This agreement was replaced and superseded in its entirety by Commercial Alliance Agreement entered on March 29, 2023, between PCCU and the Company.
Support Services Agreement
On July 1, 2021, SHF entered into a Support Services Agreement with PCCU. In connection with PCCU hosting the depository accounts and the related loans and providing certain infrastructure support, PCCU receives (and SHF pays) a monthly fee per depository account. In addition, 25% of any investment income associated with CRB deposits is paid to PCCU. This agreement was replaced and superseded in its entirety by Commercial Alliance Agreement entered on March 29, 2023, between PCCU and the Company.
| 44 |
Loan Servicing Agreement
Effective February 11, 2022, SHF entered into a Loan Servicing Agreement with PCCU. The agreement sets forth the application, underwriting and approval process for loans from PCCU to CRB customers and the loan servicing and monitoring responsibilities provided by both PCCU and SHF. PCCU receives a monthly servicing fee at the annual rate of 0.25% of the then-outstanding principal balance of each loan funded and serviced by PCCU. For the loans that are subject to this agreement, SHF originates the loans and performs all compliance analysis, credit analysis of the potential borrower, due diligence and underwriting and all administration, including hiring and incurring the costs of all related personnel or third-party vendors necessary to perform these services. Under the Loan Servicing Agreement, SHF has agreed to indemnify PCCU from all claims related to default-related credit losses as defined in the Loan Servicing Agreement. This agreement was replaced and superseded in its entirety by Commercial Alliance Agreement entered on March 29, 2023, between PCCU and the Company.
Commercial Alliance Agreement
On March 29, 2023, the Company and PCCU entered into the Commercial Alliance Agreement. This Agreement sets forth the terms and conditions of the lending and account-related services, governing the relationship between the Company and PCCU. The Commercial Alliance Agreement replaces and supersedes, in their entirety, the following agreements entered into between the aforementioned parties: the Amended and Restated Loan Servicing Agreement (the “Loan Servicing Agreement”, dated September 21, 2022); the Second Amended and Restated Account Servicing Agreement (“the “Account Servicing Agreement,” dated May 23, 2022, effective February 11, 2022) and the Second Amended and Restated Support Services Agreement (the “Support Agreement,” dated May 23, 2022, effective February 11, 2022).
The Commercial Alliance Agreement sets forth the application, underwriting, loan approval, and foreclosure process for loans from PCCU to borrowers that are cannabis-related businesses and the loan servicing and monitoring responsibilities provided by the Company and PCCU. In particular, the Commercial Alliance Agreement provides for procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU will take title to or possession of any cannabis-related assets, including real property, that may be collateral for a loan funded by PCCU pursuant to the Commercial Alliance Agreement. Under the Commercial Alliance agreement, the PCCU has the right to receive monthly fees for managing loans. For SHF-serviced loans, which are CRB loans provided by the PCCU but primarily handled by SHF, a yearly fee of 0.25% of the remaining loan balance is applied. On the other hand, loans both financed and serviced by the PCCU are charged a yearly fee of 0.35% on their outstanding balance. These fees are calculated using the average daily balance of each loan for the preceding month. In addition, the Company’s is obligated by the Commercial Alliance Agreement to indemnify PCCU from certain default-related loan losses (as fully defined in the Commercial Alliance Agreement).
In addition, the Commercial Alliance Agreement provides for certain fees to be paid to the Company for certain identified account related services to include: all cannabis-related income, including all lending-related income (such as loan origination fees, interest income on CRB-related loans, participation fees and servicing fees), investment income, interest income, account activity fees, processing fees, flat fees, and other revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system for a monthly fee equal to $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024. In addition, as it pertains to CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) will be shared 25% to PCCU and 75% to the Company. Finally, under the Commercial Alliance Agreement, PCCU will continue to allow its ratio of CRB-related deposits to total assets to equal at least 60% unless otherwise dictated by regulatory, regulator or policy requirements. The initial term of the Commercial Alliance Agreement is for a period of two years, with a one-year automatic renewal unless a party provides one hundred twenty days’ written notice prior to the end of the term.
The below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits on March 31, 2024 and December 31, 2023.
| March 31, 2024 (Unaudited) | December 31, 2023 (Unaudited) | |||||||
| CRB related deposits | $ | 106,692,488 | $ | 129,350,998 | ||||
| Capacity at 60% | 64,015,493 | 77,610,599 | ||||||
| PCCU net worth | 83,739,916 | 81,087,746 | ||||||
| Capacity at 1.3125 | 109,908,640 | 106,670,306 | ||||||
| Limiting capacity | 64,015,493 | 77,610,599 | ||||||
| PCCU loans funded | 57,737,287 | 55,660,039 | ||||||
| Amounts available under lines of credit | 775,000 | 525,000 | ||||||
| Incremental capacity | $ | 5,503,206 | $ | 21,425,560 | ||||
| 45 |
The revenue from operation on the statement of operations consists of the following agreement mentioned above for the three months ended March 31, 2024, and March 31, 2023:
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Account Servicing Agreement | $ | - | $ | 3,261,284 | ||||
| Commercial Alliance Agreement | 3,585,856 | - | ||||||
| Total | $ | 3,585,856 | $ | 3,261,284 | ||||
The operating expense on the statement of operations consists of the following agreement mentioned above for the three months ended March 31, 2024, and March 31, 2023:
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Support Services Agreement | $ | - | $ | 378,730 | ||||
| Loan Servicing Agreement | - | 11,929 | ||||||
| Commercial Alliance Agreement | 300,261 | - | ||||||
| Total | $ | 300,261 | $ | 801,347 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information otherwise required with respect to market risk.
Item 4. Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2024 due to the material weaknesses described below. In light of these material weaknesses, we performed additional analysis as deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, solely due to the below-mentioned material weaknesses, the Company’s disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of March 31, 2024.
| 46 |
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Prior to March 31, 2024, the Company has the following material weakness outstanding which we consider remediated as of and during the three-month ended March 31, 2024:
Credit Losses: As of March 31, 2023, the Company did not update its provision for credit losses correctly. The initial shortcomings included a lack of supportive documentation for the model used in our calculations and an error in applying the modified retrospective adoption method. Specifically, adjustments were made through the Consolidated Statements of Operations instead of the Consolidated Stockholders’ Equity on January 1, 2023. To address this material weakness, from June 30, 2023, to December 31, 2023, the Company improved the documentation for its allowance model. Additionally, a robust quarterly process was established, featuring enhanced management review controls for performing and reviewing the Current Expected Credit Loss (CECL) calculations. These processes and calculations are now regularly reviewed by senior management, ensuring accuracy in documentation and disclosures. On March 31, 2024, these corrective actions successfully remediated the identified material weakness.
We consider the following material weaknesses to be outstanding as of March 31, 2024:
Revenue Recognition: During the three months ended March 31, 2024 and March 31, 2023, the Company’s revenue was earned through certain related party contracts with PCCU that define contractually the revenue earned by the Company from PCCU for account servicing. The Company has identified a material weakness in our internal control over financial reporting related to the need to enhance the design and operating effectiveness of internal controls over the review of revenue recognition from allocations that occurs on a monthly basis between the Company and PCCU.
To remediate this material weakness, the Company has implemented a monthly process with enhanced management review controls to perform and review revenue recognition. The analysis and disclosures are assessed by senior management of the Company performing review of the documentation and disclosures.
Complex Financial Instruments: During the three months ended March 31, 2024 and March 31, 2023, the Company had a material weakness with regard to the ineffectiveness in management review controls of the accounting, disclosure and valuation of complex financial instruments (warrants, deferred consideration, forward purchase agreement, and stock-based compensation).
To remediate this material weakness, the Company has implemented a quarterly process with enhanced management review controls to perform and review complex financial instruments. The analysis and disclosures are assessed by senior management of the Company performing review of the documentation and disclosures.
With the implementation of our remediation plans for each material weakness, we believe, in subsequent periods, these material weaknesses can be remediated.
We plan to continue to assess and improve our internal controls and procedures and to take further action as necessary or appropriate to address any other matters we identify.
Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly. A failure to maintain effective internal controls over financial reporting could result in errors in its financial statements that could require the Company to restate past financial statements, cause the Company to fail to meet its reporting obligations and cause investors to lose confidence in the Company’s reported financial information, all of which could materially and adversely affect the Company.
Changes in Internal Control over Financial Reporting
Other than as noted above in the March 31, 2024 material weaknesses, there was no changes in our internal control over financial reporting that occurred during the period ended March 31, 2024 covered by this Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for their mediation of the material weaknesses and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.
| 47 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes in the risk factors disclosed by us under Part I, Item 1A except the notice related to the Nasdaq Listing Qualifications Department, mentioned as follows:
We have been notified by The Nasdaq Stock Market LLC of our failure to comply with certain continued listing requirements and, if we are unable to regain compliance with all applicable continued listing requirements and standards of Nasdaq, our Class A common stock and redeemable warrants could be delisted from Nasdaq, which would have an adverse impact on the trading, liquidity, and market price of our Class A common stock and redeemable warrants.
On April 5, 2024, the Company received a letter from Nasdaq Stock Market LLC (“Nasdaq”) that the Company did not maintain a minimum closing bid price of $1 per share for its common stock, as required by Nasdaq listing rule 5550(a)(2). The Company had 180 calendar days, or until October 2, 2024, to regain compliance.
The notification has no immediate effect on the listing of the Company’s common stock, and its common stock will continue to trade on The Nasdaq Capital Market under the symbol “SHFS” at this time. The Company has a period of an additional 180 calendar days, or until October 2, 2024, to regain compliance with the Minimum Bid Price Requirement. If at any time before October 2, 2024, the bid price of the Company’s common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that the Company has achieved compliance and the matter will be closed.
There can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or will otherwise be in compliance with other Nasdaq Listing Rules. However, the Company intends to actively monitor the closing bid price for its common stock and will consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement, including initiating a reverse stock split. If the Company chooses to implement a reverse stock split, we must complete the reverse stock split no later than 10 business days prior to the expiration date of the additional compliance period on October 2, 2024 in order to timely regain compliance.
With respect to the Risk Factors contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.
(a) Unregistered Sales of Equity Securities
None, except as previously disclosed in the Company’s Current Reports on Form 8-K.
(b) Use of Proceeds from the Public Offering
None.
(c) Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None.
| 48 |
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| 49 |
| * | Filed herewith. |
| ** | Furnished. |
| † | Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. |
| 50 |
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Signature | Title | Date | ||
| /s/ Sundie Seefried | Chief
Executive Officer
(Principal Executive Officer) |
May 13th, 2024 | ||
| Sundie Seefried | ||||
| /s/ James H. Dennedy | Chief
Financial Officer
(Principal Financial and Accounting Officer) |
May 13th, 2024 | ||
| James H. Dennedy |
| 51 |
Exhibit 2.8
FIRST AMENDMENT
TO
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
WARRANT AGREEMENT
AND
LOCK-UP AGREEMENT
This FIRST AMENDMENT TO SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER, WARRANT AGREEMENT, AND LOCK-UP AGREEMENT (this “Amendment”) is dated effective as of February 27, 2024, and is made and entered into by and among SHF Holdings, Inc., a Delaware corporation (“Parent”), SHF Merger Sub I Inc., a Delaware corporation and a direct wholly-owned subsidiary of Parent (“Merger Sub I”), SHF Merger Sub II LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Parent (“Merger Sub II”), Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca (the “Company”), and Dan Roda, solely in such individual’s capacity as the representative of the Company Securityholders (the “Company Stockholders’ Representative” and together with Parent, Merger Sub I, Merger Sub II and the Company, collectively, the “Parties”).
WHEREAS, the Parties entered into that certain Agreement and Plan of Merger, dated as of October 29, 2022 (the “Original Agreement”), which was subsequently amended on November 11, 2022 (the “First Amendment”), and amended again on October 26, 2023 (the “Second Amendment”);
WHEREAS, pursuant to Section 5 of the Second Amendment, Parent was to prepare, pay, and file with the U.S. Securities and Exchange Commission (the “Commission”), a Registration Statement registering the resale from time to time by the holders of the Registrable Securities of all Registrable Securities then held by such holders (the “Registration Statement Rights”);
WHEREAS, pursuant to Section 4 of the Second Amendment, on October 26, 2023, Parent entered into that certain Warrant Agreement by and between Parent and the Company Stockholders’ Representative (the “Warrant Agreement”), which was attached to the Second Amendment as Exhibit A thereto;
WHEREAS, Section 6. Redemption contained in the Warrant Agreement, including related references throughout, was not intended to be a term of agreement between the Parties and should not have been included in the Second Amendment, and as such, is being formally struck by this Amendment; and
WHEREAS, the Parties intend to amend the Form of Lock-Up Agreement entered into on November 14, 2022 (the “Lock-up Agreement”);
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the Parties agree as follows:
1. Capitalized Terms. All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Original Agreement, First Amendment, and/or Second Amendment, as applicable.
2. Amendment to the Second Amendment.
a. Section 5 of the Second Amendment is amended as follows:
5. Registration. The Parent agrees that in the event that law or regulation requires a registration of the Parent Common Stock, such that the issued shares are saleable without restrictive legends (the “Registration Requirement”), and subject to the Securities Act, within 45 calendar days after being notified of a Registration Requirement, it shall use its reasonable best efforts to file with the Commission a registration statement for the registration, under the Securities Act, of the shares of Parent Common Stock. Failure to file such registration statement within 45 calendar days after the notice of a Registration Requirement shall constitute an event of default. Parent shall use commercially reasonable efforts to cause the registration statement in connection with the Registration Requirement to be declared effective as soon as possible after filing, and once effective, to keep the registration statement continuously effective under the Securities Act at all times until the earlier of (i) the first anniversary of the date of filing “Form 10 information” (as defined in Rule 144 of the Securities Act) reflecting the consummation of the transactions contemplated by this Second Amendment or (ii) the date of which all of the Registrable Securities have been sold pursuant to a Registration Statement (but in no event prior to the applicable period referred to in Section 4(a)(3) of the Securities Act and Rule 174 thereunder (or any successor rule promulgated thereafter by the Commission)). For purposes of this section, the registration statement in connection with the Registration Requirement means a registration statement filed by the Parent with the Commission in compliance with the Securities Act and the rules and regulations promulgated thereunder for a public offering and sale of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities (other than a registration statement on Form S-4 or Form S-8, or their successors, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity).
3. Amendments to the Warrant Agreement.
a. Section 3.2 of the Warrant Agreement is amended as follows:
“3.2 Duration of Warrants. A Warrant may be exercised only during the period (the “Exercise Period”) commencing October 26, 2023 and terminating October 25, 2028 (the “Expiration Date”). Each Warrant not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Agreement shall cease at 5:00 p.m. New York City time on the Expiration Date. The Parent in its sole discretion may extend the duration of the Warrants by delaying the Expiration Date; provided, that the Parent shall provide at least twenty (20) days prior written notice of any such extension to Registered Holders of the Warrants.”
| 2 |
b. Section 6 is hereby deleted in its entirety, and any related references to redemption contained in the Warrant Agreement, including without limitation the second paragraph of the form “Election to Purchase (To be Executed Upon Exercise of Warrant),” are hereby deleted in their entirety.
c. Section 7.4.1 of the Warrant Agreement is hereby amended to read as follows:
7.4.1 Registration of the Common Stock. The Parent agrees that in the event that law or regulation requires the registration of Parent Common Stock issued upon exercise of the Warrants, such that the common stock issued in connection with the warrant exercise are saleable without restrictive legends (the “Warrant Registration Requirement”), that within 45 calendar days after being notified of a Warrant Registration Requirement, it shall use its reasonable best efforts to file with the Commission a registration statement for the registration, under the Securities Act, of the shares of common stock issuable upon exercise of the Warrants. Failure to file such registration statement within 45 calendar days after the notice of a Warrant Registration Requirement shall constitute an event of default. The Parent shall use its reasonable best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Warrants in accordance with the provisions of this Agreement. If any such registration statement filed pursuant to a Warrant Registration Requirement has not been declared effective by the 1 year anniversary following its filing date, holders of the Warrants shall have the right, during the period beginning on the 366th day after the filing of such registration statement and ending upon such registration statement being declared effective by the Commission, to exercise such Warrants on a “cashless basis,” by exchanging the Warrants (in accordance with Section 3(a)(9) of the Securities Act (or any successor rule) or another exemption) for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the Warrants, multiplied by the excess of the “Fair Market Value” (as defined below) over the Warrant Price by (y) the Fair Market Value. Solely for purposes of this subsection 7.4.1, “Fair Market Value” shall mean the volume weighted average price of the Common Stock as reported during the ten (10) trading day period ending on the trading day prior to the date that notice of exercise is received by the Warrant Agent from the holder of such Warrants or its securities broker or intermediary. The date that notice of cashless exercise is received by the Warrant Agent shall be conclusively determined by the Warrant Agent. In connection with the “cashless exercise” of a Warrant, the Parent shall, upon request, provide the Warrant Agent with an opinion of counsel for the Parent (which shall be an outside law firm with securities law experience) stating that (i) the exercise of the Warrants on a cashless basis in accordance with this subsection 7.4.1 is not required to be registered under the Securities Act and (ii) the shares of Common Stock issued upon such exercise shall be freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act (or any successor rule)) of the Parent and, accordingly, shall not be required to bear a restrictive legend.
| 3 |
4. Consideration. In consideration of the foregoing amendments, Parent has agreed to modify the Lock-Up Agreement and shall accelerate the Lock-up Period as defined in Section 1(a) of the Lock-up Agreement to expire contemporaneous with the effective date of this Amendment and to cooperate in the removal of any related restrictive legends such that the issued Parent Common Stock are saleable without restrictive legends, subject the Securities Act. For the avoidance of doubt, no other provisions of the Lock-Up Agreement shall be amended by this Amendment.
5. Representations and Warranties. Each Party, including the Company Stockholders’ Representative on behalf of each of the Company Stockholders, hereby represents and warrants to the other Parties that:
| a. | It has the full right, power, and authority to enter into this Amendment and to perform its obligations hereunder and under the agreements amended by this Amendment; |
| b. | the execution of this Amendment by the individual whose signature is set forth at the end of this Amendment on behalf of such Party, and the delivery of this Amendment by such Party, have been duly authorized by all necessary action on the part of such Party; and |
| c. | this Amendment has been executed and delivered by such Party and (assuming due authorization, execution, and delivery by the other Party) constitutes the legal, valid, and binding obligation of such Party, enforceable against such Party in accordance with its terms, except as may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws and equitable principles related to or affecting creditors’ rights generally or the effect of general principles of equity. |
| 4 |
| d. | EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THE ORIGINAL AGREEMENT AND IN THIS SECTION 5 OF THIS AMENDMENT, (A) NO PARTY HERETO NOR ANY PERSON ON SUCH PARTY’S BEHALF HAS MADE OR MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER, EITHER ORAL OR WRITTEN, WHETHER ARISING BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE, OR OTHERWISE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED, AND (B) EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS NOT RELIED UPON ANY REPRESENTATION OR WARRANTY MADE BY THE OTHER PARTY, OR ANY OTHER PERSON ON SUCH OTHER PARTY’S BEHALF, EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION 5. |
6. No Other Amendments; Conflict. Except as amended herein, the Second Amendment, the Warrant Agreement, and the Lock-Up Agreement shall remain in full force and effect in accordance with their original terms. Furthermore, the Original Agreement, the First Amendment, the Second Amendment, and the Warrant Agreement shall be interpreted consistent with this Amendment. In the event of any conflict between the Original Agreement, the First Amendment, the Second Amendment, and the Warrant Agreement and this Amendment, this Amendment shall prevail.
7. Governing Law. This Amendment is governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of such State.
8. Entire Agreement. The Original Agreement, the First Amendment, the Second Amendment, the Warrant Agreement, and this Amendment (including any Exhibits and Disclosure Schedules thereto) shall constitute the full and entire understanding and agreement between the Parties with respect to the subject matter hereof and thereof and supersede any and all other written or oral agreements.
9. Costs. Each Party shall pay its own costs and expenses in connection with this Amendment (including the fees and expenses of its advisors, accountants, and legal counsel).
10. Counterparts. This Amendment may be executed in any number of counterparts, each of which so executed are deemed to be an original, but all of which together constitute one and the same instrument. A signed copy of this Amendment delivered by facsimile, email, or other means of electronic transmission is deemed to have the same legal effect as delivery of an original signed copy of this Amendment.
[SIGNATURE PAGE FOLLOWS]
| 5 |
IN WITNESS WHEREOF, the Parties have duly acknowledged, certified, and executed this Amendment as of the date first written above.
| SHF HOLDINGS, INC. | ||
| /s/ Sundie Seefried | ||
| Name: | Sundie Seefried | |
| Title: | Chief Executive Officer | |
| SHF MERGER SUB I | ||
| /s/ Sundie Seefried | ||
| Name: | Sundie Seefried | |
| Title: | Chief Executive Officer | |
| SHF MERGER SUB II | ||
| /s/ Sundie Seefried | ||
| Name: | Sundie Seefried | |
| Title: | Chief Executive Officer | |
| ROCKVIEW DIGITAL SOLUTIONS, INC. | ||
| /s/ Dan Roda | ||
| Name: | Dan Roda | |
| Title: | Chief Executive Officer | |
| COMPANY STOCKHOLDERS’ REPRESENTATIVE | ||
| /s/ Dan Roda | ||
| Name: | Dan Roda | |
| SHFxABACA LLC, successor in interest to ROCKVIEW DIGITAL SOLUTIONS, INC. | ||
| /s/ Sundie Seefried | ||
| Name: | Sundie Seefried | |
| Title: | Chief Executive Officer | |
| 6 |
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sundie Seefried, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2024 of SHF Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 13, 2024 | /s/ Sundie Seefried |
| Sundie Seefried | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James H. Dennedy, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2024 of SHF Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 13, 2024 | /s/ James H. Dennedy |
| James H. Dennedy | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SHF Holdings, Inc. on Form 10-Q for the annual period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sundie Seefried, Chief Executive Officer of SHF Holdings, Inc., certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 13, 2024 |
/s/ Sundie Seefried |
| Sundie Seefried | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SHF Holdings, Inc. on Form 10-Q for the quarterly period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James H. Dennedy, Chief Financial Officer of SHF Holdings, Inc., certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 13, 2024 | /s/ James H. Dennedy |
| James H. Dennedy | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Convertible preferred stock, par value | $ 0.0001 | $ 0.0001 |
| Convertible preferred stock, shares authorized | 1,250,000 | 1,250,000 |
| Convertible preferred stock, shares issued | 111 | 1,101 |
| Convertible preferred stock, shares outstanding | 111 | 1,101 |
| Class A common stock, par value | $ 0.0001 | $ 0.0001 |
| Class A common stock, shares authorized | 130,000,000 | 130,000,000 |
| Class A common stock, shares issued | 55,431,001 | 54,563,372 |
| Class A common stock, shares outstanding | 55,431,001 | 54,563,372 |
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) |
Preferred Stock [Member] |
Common Stock [Member]
Common Class A [Member]
|
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|
| Balance at Dec. 31, 2022 | $ 1 | $ 2,374 | $ 44,806,031 | $ (39,695,281) | $ 5,113,125 |
| Balance, shares at Dec. 31, 2022 | 14,616 | 23,732,889 | |||
| Conversion of PIPE shares | $ 473 | 5,004,727 | (5,005,200) | ||
| Conversion of PIPE shares, shares | (3,720) | 4,726,200 | |||
| Net loss | (1,413,447) | (1,413,447) | |||
| Cumulative effect from adoption of CECL | (581,321) | (581,321) | |||
| Stock option conversion | $ 62 | 1,570,719 | 1,570,781 | ||
| Stock option conversion, shares | 629,728 | ||||
| Issuance of shares to PCCU (net of tax) | $ 1,120 | 38,405,288 | 38,406,408 | ||
| Issuance of shares to PCCU (net of tax), shares | 11,200,000 | ||||
| Reversal of deferred underwriting cost | 900,500 | 900,500 | |||
| Balance at Mar. 31, 2023 | $ 1 | $ 4,029 | 90,687,265 | (46,695,249) | 43,996,046 |
| Balance, shares at Mar. 31, 2023 | 10,896 | 40,288,817 | |||
| Balance at Dec. 31, 2023 | $ 5,458 | 105,919,674 | (71,569,821) | 34,355,311 | |
| Balance, shares at Dec. 31, 2023 | 1,101 | 54,563,372 | |||
| Conversion of PIPE shares | $ 79 | 866,170 | (866,249) | ||
| Conversion of PIPE shares, shares | (990) | 792,000 | |||
| Restricted stock units (net of tax) | $ 8 | (14,325) | (14,317) | ||
| Restricted stock units (net of tax), shares | 75,629 | ||||
| Stock compensation cost | 576,647 | 576,647 | |||
| Net loss | 2,049,676 | 2,049,676 | |||
| Balance at Mar. 31, 2024 | $ 5,545 | $ 107,348,166 | $ (70,386,394) | $ 36,967,317 | |
| Balance, shares at Mar. 31, 2024 | 111 | 55,431,001 |
Organization and Business Operations |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Accounting Policies [Abstract] | |
| Organization and Business Operations | Note 1. Organization and Business Operations
Business Description
SHF Holdings, Inc. (the “Company”) originated as business operations conducted through Partner Colorado Credit Union (“PCCU”), which were transferred to SHF LLC (“SHF”), then an indirect wholly owned subsidiary of PCCU. The Company completed a strategic reorganization on July 1, 2021. This involved transferring select assets and operational activities from Partner Colorado Credit Union (“PCCU”) and its wholly owned subsidiary, Safe Harbor Services, to SHF Holding Co., LLC. Subsequently, these were consolidated into SHF, LLC (“SHF”), with PCCU’s investment managed at the SHF Holding Co., LLC level.
On September 28, 2022, the Company concluded a transaction wherein NLIT (“Northern Lights Acquisition Corp.”) acquired all outstanding membership interests of SHF. This acquisition prompted the renaming of NLIT to SHF Holdings, Inc. As a result, PCCU emerged as the largest shareholder of the Company.
The Company executed the Abaca Merger Agreement on October 31, 2022, facilitating a two-step merger through which Rockview Digital Solutions, Inc. (“Abaca”) became a direct wholly-owned subsidiary. The transaction expanded the Company’s fintech capabilities and market reach.
The Company generates fee income, investment income and loan interest income through providing a variety of services to financial institutions desiring to service the cannabis industry including, among other things, the origination, onboarding, and servicing of cannabis-related deposit business for and on behalf of those partner institutions; Bank Secrecy Act and other regulatory compliance and reporting related to these accounts; onboarding these accounts and responding to account and customer service inquiries; and sourcing, underwriting, and servicing, and administering loans issued to cannabis businesses and related entities. In addition, the Company provides these services to financial institutions under a Safe Harbor Master Program Agreement.
|
Basis of Presentation and Summary of Significant Accounting Policies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation and Summary of Significant Accounting Policies | Note 2. Basis of Presentation and Summary of Significant Accounting Policies
i. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, statements of shareholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the current year ending December 31, 2024. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2023, included in the Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
The company has made certain immaterial reclassifications to the statements of operations for the three months ended March 31, 2023, to conform to the presentation for the three months ended March 31, 2024. These reclassifications, totaling $190,943, were moved from ‘Interest Expense’ to ‘Change in the Fair Value of Deferred Consideration’. Corresponding adjustments have been made to the statement of cash flows and the applicable notes to the unaudited condensed consolidated financial statements.
The condensed consolidated financial statements include the accounts of SHF Holdings, Inc., its subsidiaries where we have controlling financial interests. All intercompany balances and transactions have been eliminated.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q.
ii. Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Material estimates that are particularly subject to change in the near term include the determination of the allowance for credit losses, indemnification liabilities, useful lives of intangibles and the fair value of financial instruments. Actual results could differ from the estimates.
iii. Liquidity and Going Concern
As of March 31, 2024, the Company had $5,626,362 in cash and net working capital of $318,825, as compared to $4,888,769 in cash and net working capital deficit of $135,355 as of December 31, 2023. The retained deficit was $70,386,394 on March 31, 2024, and $71,569,821 on December 31, 2023. The Company has also generated operating income of $324,941 for the period ended March 31, 2024.
For the period ending March 31, 2024, the Company reported positive operating income and net working capital. However, considering the historical data, where the Company experienced negative operating income and negative net working capital, management acknowledges the need to closely evaluate the financial performance in upcoming quarters to mitigate any going concern risks. As of March 31, 2024, due to these historical trends, there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the date these condensed unaudited consolidated financial statements were issued.
If the Company is not able to sustain its present level of operations, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned expansion programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.
The accompanying condensed unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result should the Company not continue as a going concern as a result of this uncertainty.
iv. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from financial institutions, and investments with maturities of three months or less.
v. Concentrations of Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. Cash balances are maintained substantially in accounts at Partner Colorado Credit Union (“PCCU”) which is insured by the National Credit Union Share Insurance Fund (“NCUSIF”) up to regulatory limits. From time to time, cash balances may exceed the NCUSIF insurance limit. The Company has not experienced any credit losses associated with its cash balances in the past.
Currently the Company only services the cannabis industry. Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan.
Currently the Company substantially relies on PCCU to hold customer deposits and fund its originated loans. As of this time, majority all of the Company’s revenue is generated by deposits and loans hosted by its PCCU pursuant to various services agreements.
The Company had only one loan on its balance sheet as of March 31, 2024, which comprises 100% of the total loan balance. The Company also indemnified 21 loans as of March 31, 2024; three of these indemnified loans were in excess of 10% of the total balance.
vi. Accounts Receivable
Accounts receivable are recorded based on account fee schedules. While fees are generated from accounts for individual cannabis-related businesses (“CRB”) related accounts, amounts are initially collected by the financial institutional partners and remitted in the subsequent month. Accounts receivable - related party represents amounts due from PCCU under related party contracts disclosed in Note 8 to the unaudited condensed consolidated financial statements.
vii. Loans Receivable
CRB loans that significantly support the Company’s operations are recognized as assets on the balance sheet. These loans, intended to be held either for the foreseeable future or until their maturity or full repayment, are recorded at their outstanding principal balance. This amount is adjusted for any credit loss allowances and net of any deferred loan origination fees and costs, as applicable, to reflect the net investment in these loans. The Company recognizes interest income on CRB Loans over the loan term using the simple-interest method based on outstanding principal amounts. This approach ensures a systematic recognition of income, aligning with the time value of money principle.
Interest income recognition is suspended when there is uncertainty regarding full loan repayment, such as in cases of loan impairment or when payments are overdue by ninety days or more. Loans under these conditions are placed on nonaccrual status. Any accrued interest not received by the time a loan is placed on nonaccrual is reversed from interest income. Subsequent interest payments on nonaccrual loans are recorded using either the cash basis or the cost recovery method until the loan meets the criteria for reclassification to accrual status.
Loans are returned to accrual status when they become current (less than ninety days past due) and when there is reasonable assurance of future payment compliance, evidenced by the full satisfaction of both principal and interest payments due.
Loans are assessed individually for potential charge-off, which typically occurs at the point of foreclosure. Charge offs are executed to reflect the realizable value of loans that are deemed uncollectible.
The determination of a loan’s past-due status is based on its contractual repayment terms. Loans are either placed on nonaccrual status or charged-off ahead of their contractual delinquency dates if the collection of principal and interest is deemed doubtful, ceasing the recognition of interest income on such loans.
viii. Allowance for Credit Losses (ACL)
The Company has adopted Accounting Standards Codification Topic 326 - Financial Instruments - Credit Losses (ASC Topic 326), for estimation of probable credit losses with an expected credit loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
The ACL is a valuation account that is deducted from the amortized cost basis of financial assets carried at their amortized cost, including loans held for investment, to present the net amount that is expected to be collected throughout the life of the financial asset. The estimated ACL is recorded through a provision for credit losses charged against operations. Management periodically evaluates the adequacy of the ACL to maintain it at a level it believes to be reasonable. The Company uses the same methods used to determine the ACL to assess any reserves needed for off-balance sheet credit risks such as unfunded loan commitments including Indemnified loans to PCCU. These reserves for off-balance sheet credit risks are presented in the liabilities section in the unaudited condensed consolidated balance sheets as an “Indemnity liability.”
The ACL consists of two components: an asset-specific component for estimating credit losses for individual loans that do not share similar risk characteristics with other loans; and a pooled component for estimating credit losses for pools of loans that share similar risk characteristics. The ACL for the pooled component is derived from an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters such as probability of default (“PD”) and loss given default (“LGD”) which are derived from various vendor models and/or internally developed model estimation approaches for smaller homogenous loans.
The PD is quantified by analyzing historical data to determine the rate at which loans have defaulted within the portfolio, relative to the total outstanding loans as of the end of the reporting period. This rate is expressed as a percentage and serves as a key indicator of the likelihood of default across the loan pool. LGD assessments are conducted to estimate the potential loss amount in the event of a default, considering the recoverable value from the collateral liquidation against the remaining loan balance. This involves a detailed analysis of two primary components: the loss on principal, which arises from the gap between the collateral’s liquidation value and the unpaid principal balance of the loan; and the loss associated with various ancillary costs to recover, including, but not limited to, foregone interest, transaction costs, legal and administrative fees, and expenses related to the maintenance and renovation of the property. The Company considers relevant current conditions and reasonable and supportable forecasts that relate to its lending practices and environment and the specific borrower and determines that the significant factor affecting the loan’s performance is the fact that these borrowers are involved in the cannabis business. Despite being legal at the state level in certain jurisdictions, cannabis remains federally illegal in the United States as of the date of this filing. As cannabis related lending is a new practice in the United States, there is very little historical or industry data on which to base a loss forecast. Therefore, significant judgement is required in creating a reasonable loss estimate, using similar non-MRB loans as a baseline and adjusting for the inherent risks in the cannabis industry. While the Company considers other qualitative factors, including national macroeconomic conditions, in its overall risk analysis, it has determined that they are not significant inputs to the overall loss estimate calculations.
The ACL estimation process also applies an economic forecast scenario, or a composite of scenarios based on management’s judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term of a loan excludes expected extensions, renewals, and modification under certain conditions.
Recoveries on loans represent collections received on amounts that were previously charged off against the ACL. Recoveries are credited to the ACL when received, to the extent of the amount previously charged off against the ACL on the related loan. Any amounts collected in excess of this limit are first recognized as interest income, then as a reduction of collection costs, and then as other income.
ix. Net Deferred Loan Origination Fees and Cost
When included with a new loan origination, the Company receives loan origination fees in conjunction with new loans funded and any indemnified liabilities which are not recorded on the balance sheet from the company financial institution partners. Where applicable, the loan origination fee is netted with loan origination costs associated with originating a specific loan. These loan origination costs are typically incremental direct costs (non-reimbursed) paid to third parties. Net loan origination fees are initially deferred and presented net of loans receivable asset for portfolio loans, or as a separate liability for indemnified loans, and recognized as interest income utilizing the interest method.
x. Indemnity Liability
Under the Loan Servicing Agreement and Commercial Alliance Agreement with PCCU, the Company had agreed to indemnify PCCU from all claims related to Company’s cannabis-related business, including but not limited to default-related credit losses as defined in the Loan Servicing Agreement. The indemnification component of the Loan Servicing Agreement and the Commercial Alliance Agreement (refer to Note 8 to the unaudited condensed consolidated financial statements) is accounted for in accordance with accounting standards codification (“ASC”) 460 Guarantees. In determining the applicability of ASC 460, the Company considered that the agreement outlines a broad indemnification of all claims related to the cannabis-related business. The most immediate and potentially significant of these are potential default-related credit losses. In the lending industry, it is inherently anticipated future credit losses will result from currently issued debt. The Company’s indemnity obligation is subordinate to financial institution clients’ other means of collecting on the loans including foreclosure of the collateral, recourse against personal and/or corporate guarantors and other default remedies available in the loan agreements. Since borrowers are not party to the agreement between Company and PCCU, any indemnity payments do not relieve borrowers of their obligation to PCCU nor would such payments preclude PCCU’s right to future recoveries from the debtor. Therefore, as defined in ASC 460, the indemnification clause represents a general loss contingency in that it is an existing condition, situation or set of circumstances involving uncertainty as to possible loss to the Company that will ultimately be resolved when one or more future events occur or fail to occur. SHF’s indemnity liability reflects SHF management’s estimate of probable credit losses inherent under the agreement at the balance sheet date. The liability is measured and recognized in accordance with our accounting policies for ACL and ALL.
In addition to default-related credit losses, the Company continuously monitors all other circumstances pursuant to the agreement and identifies events that may necessitate a loss contingency under the Loan Servicing Agreement. A loss contingency is reported when it is both probable that a future event will confirm that a loss had been incurred on or before the related balance sheet date and the loss is reasonably estimable.
xi. Property and Equipment, net
Property and equipment are recorded at historical cost, net of accumulated depreciation. Depreciation is provided over the assets’ useful lives on a straight-line basis 3-5 years for equipment and furniture and fixtures. Repairs and maintenance costs are expensed as incurred.
Management periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life.
The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the period of disposal and the resulting gains and losses are included in the results of operations during the same period.
The Company capitalize certain costs related to software developed for internal-use, primarily associated with the ongoing development and enhancement of our technology platform. Costs incurred in the preliminary development and post-development stages are expensed. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally five years.
xii. Right of Use Assets and Lease Liabilities
The Company has entered into lease agreements for a certain facility and certain items of equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. At inception of the lease agreement, the Company assesses whether the agreement conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified as a lease. Each lease is further analyzed to check whether it meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated balance sheet with a corresponding lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. The Company has elected not to recognize lease assets and lease liabilities for short-term leases (leases with a term of 12 months or less) and leases of low-value assets. Lease right-of-use assets, net and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available as of the lease commencement date.
Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Finance lease interest expense is recognized based on an effective interest method and depreciation of assets is recorded on a straight-line basis over the shorter of the lease term and useful life of the asset. Both operating and finance lease right of use assets are reviewed for impairment, consistent with other finite-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a right of use asset is impaired, any remaining balance of the asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.
xiii. Goodwill and Other Intangible Assets
The Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed.
Goodwill is tested for impairment at least annually on the elected impairment test date of December 31 unless any events or circumstances indicate it is more likely than not that the fair value of the goodwill is less than its carrying value.
Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.
Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.
The Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock Compensation. The Company’s stock-based compensation cost is measured based on the fair value at the grant date of the stock-based award. It is recognized as expense on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized as they occur. The Company estimates the fair value of each stock-based award on its measurement date using either the current market price of the stock or Black-Scholes option valuation model, whichever is most appropriate. The Black-Scholes valuation model incorporates assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s experience with similar instruments. Changes in assumptions used to estimate fair value could result in materially different results.
The shares of the Company have been listed on the Nasdaq stock exchange for a limited period of the time and also the stock price has dropped significantly from the date of listing, based on which the Company has considered the expected volatility at % for the purpose of stock compensation. The risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the awards’ expected lives. The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period the awards. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future.
xv. Fair Value Measurements
The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:
Level 1 — Quoted prices for identical assets or liabilities in active markets.
Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.
xvi. Revenue Recognition
SHF recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which SHF expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
Revenue is recorded at a point in time when the performance obligation is satisfied, and no contingencies exist. Majority of the revenue consists of fees earned on deposit accounts held at PCCU but serviced by SHF such as bank account charges, onboarding income, account activity fee income and other miscellaneous fees. Under the terms of the Loan Servicing Agreement and the Commercial Alliance Agreement, the Company is responsible for covering account hosting costs associated with the fees generated from deposits held at PCCU. These costs are classified as “General and Administrative Expenses” in the Consolidated Statements of Operations.
In addition, SHF recognizes revenue from the Master Program Agreement. The Master Program Agreement is a non-exclusive and non-transferable right to implement and utilize the Safe Harbor Program. The Safe Harbor Program has two performance obligations; an implementation fee recognized when the contract is effective and a service fee recognized ratable over the contract term as the compliance program is executed.
SHF recognizes revenue from interest on loans and investment income distributed by PCCU, which is determined by particular customer account balances. As per the Loan Servicing Agreement and the Commercial Alliance Agreement, SHF bears the expenses for hosting investments and servicing loans related to this interest and investment income. These expenses are allocated to “General and Administrative Expenses” in the Consolidated Statements of Operations.
Amounts received in advance of the service being provided is recorded as a liability under deferred revenue on the consolidated balance sheets. Typical Safe Harbor Program contracts are three-year contracts with amounts due monthly, quarterly or annually based on contract terms.
Customers consist of financial institutions providing services to CRBs. Revenues are concentrated in the United States of America.
xvii. Contract Liabilities
The Company recognizes a contract liability if the customer’s payment of consideration precedes the reporting entity’s performance. As of March 31, 2024, the Company recorded contract liabilities amounting to $2,692 from contracts with customers. This compares to contract liabilities of $21,922 as reported on December 31, 2023.
xviii. Warrants Liabilities
The Company has evaluated each of the warrant arrangements separately in accordance with “Distinguishing Liabilities from Equity” (“ASC 480”) and “Derivatives and Hedging” (“ASC 815”), to determine classification as either equity instruments or liabilities based on the specific terms and features of each warrant. Warrants are recognized as equity if they are indexed to our own stock and meet the equity classification criteria in ASC 815-40. These warrants are recorded within stockholders’ equity at their issuance date and are not subsequently remeasured at fair value. Conversely, warrants that do not meet the criteria for equity classification under ASC 815-40 are classified as liabilities. Such warrants are initially recorded at fair value on the issuance date and are subject to remeasurement at each balance sheet date thereafter. Any changes in fair value are recognized in the statement of operations. None of our warrant contracts met criteria to be considered indexed to their own stock, and as a result, have each been accounted for as a liability financial instrument. The fair value of warrants classified as liabilities is determined using appropriate valuation models, such as the Black- Scholes model, which incorporates various inputs, including the current stock price, expected volatility, risk-free interest rate, and the expected term of the warrants.
xix. Deferred consideration
In line with ASC Topic 815, the Company treats the deferred consideration from the Abaca acquisition as a derivative liability, since it does not fulfill the equity classification criteria. As a result, this obligation is recognized as a liability on the balance sheet at fair value and is adjusted to reflect its fair value at the end of each reporting period. The liability will be reassessed at fair value on every balance sheet date until the obligation’s term concludes. Fluctuations in its fair value are recorded in the consolidated statements of operations.
xx. Forward purchase derivative
The Company accounts for the forward purchase derivative assumed in the business combination in accordance with the guidance contained in ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company classifies the forward purchase derivatives as an assets or liabilities carried at their fair value and adjusts the forward purchase derivatives to fair value at each reporting period. This derivative asset or liability is subject to re-measurement at each balance sheet date until the conditions under the forward purchase agreement are exercised or expire, and any change in fair value is recognized in the unaudited condensed consolidated statement of operations. In December 2023, the company calculated its valuation using a Monte Carlo Simulation set within a risk-neutral environment. Initiated in December 2022, this strategy was applied to assess the fair value of the forward purchase agreement (FPA) derivatives, with an underlying assumption that future stock prices would adhere to a Geometric Brownian Motion trajectory. Throughout the first quarter of 2024, there were no transactions by FPA holders, and no considerable shifts in risk factors that could influence the valuation of FPA derivatives were observed.
Basic and diluted earnings per share are computed and disclosed in accordance with ASC Topic 260, Earnings Per Shares. The Company utilizes the two-class method to compute earnings available to common shareholders. Under the two-class method, earnings are adjusted by accretion amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance, to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other common shareholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders. Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.
xxii. Income Tax
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are adjusted through the provision for income taxes as changes in tax laws or rates are enacted.
ASC 740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods. If management is unable to estimate a portion of its ordinary income, but is otherwise able to reliably estimate the remainder, ASC 740-270-25-3 provides that the tax applicable to that item be reported in the interim period in which the item occurs. The tax (or benefit) related to ordinary income (or loss) shall be computed at an estimated annual effective tax rate and the tax (or benefit) related to all other items shall be individually computed and recognized when the items occur. Management is unable to estimate a portion of its ordinary income and as a result had computed the company’s tax provision in accordance with ASC 740-270-25-3.
ASC Topic 740 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
xxiii. Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations upon adoption.
Adopted Standards
Current Expected Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In November 2019, the FASB issued ASU No. 2019-10 Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The update allows the extension of the initial effective date for entities which have not yet adopted ASU No. 2016-02. The standard is effective for annual reporting periods beginning after December 15, 2022 for private companies and SEC filers classified as smaller reporting entities, with early adoption permitted. Entities apply the standard’s provisions by recording a cumulative effect adjustment to retained deficit. The Company has adopted ASU 2016-13 as of January 1, 2023, utilizing the modified retrospective method.
CECL Transition Impact: The table below provides details on the transition impacts of adopting CECL. Other balance sheet lines not presented were not affected by CECL.
CECL Transition Impact:
Troubled Debt Restructurings and Vintage Disclosures
This Accounting Standard Update (ASU 2022-02) eliminates the recognition and measurement guidance on troubled debt restructurings for creditors that have adopted ASC 326 and requires them to make enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The new guidance also requires public business entities to present current period gross write-offs (on a current year-to-date basis for interim-period disclosures) by year of origination in their vintage disclosures. For entities that have adopted ASU 2016-13, this ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has adopted this standard as of January 1, 2023 and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
This Accounting Standard Update (ASU 2022-03) clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual restriction on the sale of an equity security as a separate unit of account is not permitted. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company has adopted this standard as of January 1, 2024 and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848
This Accounting Standard Update (ASU 2022-06) defers the Sunset Date of ASC Topic 848, Reference Rate Reform (Topic 848), which provides temporary optional relief in accounting for the impact of Reference Rate Reform. This ASU is effective upon issuance (December 21, 2022) and generally can be applied through December 31, 2024.This ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Investments-Equity Method and Joint Ventures
In March 2023, the FASB issued ASU 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures using the Proportional Amortization Method. The FASB issued final guidance allowing entities to apply the proportional amortization method to equity investments in all tax credit programs that meet the conditions in ASC 323-740, rather than just investments in qualified affordable projects that generate low income housing tax credits, as was required under the legacy guidance. The guidance is effective for public business entities for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. This ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Standards Pending to be Adopted
Business Combinations-Joint Venture Formations
In August 2023, the FASB issued 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60); Recognition and Initial Measurement. This ASU contains guidance requiring certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. This guidance is effective for all joint venture formations with a formation date on or after January 1, 2025. Early adoption is permitted. Joint Ventures formed before the effective date have the option to apply it retrospectively, while those formed after the effective date are required to apply it prospectively. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Disclosure Improvements, “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.”
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements, “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU amends the disclosure or presentation requirements related to various subtopics in the FASB codification.
The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The amendments in this Update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). This ASU requires public entities to provide disclosures of significant segment expenses and other segment items. It also requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment will have to provide all the disclosures required by ASC 280, including the significant segment expense disclosures. This guidance is applied retrospectively to all periods presented, unless it is impractical. This ASU applies to all public entities and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This ASU requires public business entities to disclose in their rate reconciliation table additional categories of information about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories. This ASU is effective for fiscal years after December 15, 2024. Early adoption would be permitted. The Company does not expect this ASU to have a material impact on its condensed unaudited consolidated financial statements.
ASU 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards
ASU 2024-01 clarifies the scope applications of profits interest awards by adding illustrative guidance to ASC 718 “Compensation-Stock Compensation.” The amendments in the ASU apply to all reporting entities that account for profits interest awards as compensation to employees or non-employees in return for goods or services.
The term “profits interest” is not explicitly defined in US GAAP. Rather, an IRS Revenue Procedure (Rev Proc 93-27) defines a “Profits Interest” as a “partnership interest other than a capital interest.” Unlike a capital interest, which provides rights to existing net assets of an entity, a profits interest only provides rights to future profits and/or equity appreciation of an entity. This distinction, along with other terms, conditions and characteristics of profits interests often complicates accounting decisions for profits interests, leading to diversity in practice whether to account for profits interests under ASC 718 or other US GAAP.
The ASU introduces four (4) illustrative examples of fact patterns that demonstrate how an entity would apply the scope guidance in paragraph 718-10-15-3 to a profits interest or similar award with certain features.
The ASUs are effective for public entities for fiscal years beginning after December 15, 2024, including interim periods within those years. For all other entities, adoption is required for fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
ASU 2024-02: Codification Improvements—Amendments to Remove References to the Concepts Statements
The ASU contains amendments to the Codification that remove references to various FASB Concepts Statements. The Board has a standing project on its agenda to address suggestions received from stakeholders on the Accounting Standards Codification and other incremental improvements to GAAP. This effort facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance and other minor improvements. In the Board’s view, removing all references to Concept Statements in the guidance will simplify the codification and draw a distinction between authoritative and non-authoritative literature.
The amendments in the Update are effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Consideration |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Consideration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Consideration | Note 3. Deferred Consideration
Under the revised Abaca Merger Agreement, the Company compensated Abaca with $30 million through a mix of cash and stock. The payment structure included $9 million in cash, distributed in three equal installments, with the first installment occurring at the merger closing and the other installments being paid on the first and second anniversaries of the merger closing. Additionally, the common stock consideration was settled through shares which represented a monetary equivalent calculated against the closing trading price, alongside deferred stock consideration calculated with a 10-day VWAP formula. Adjustments were made via amendments to redefine the terms and conditions of the deferred stock and cash considerations.
The revised terms, as of the second amendment on October 26, 2023, stipulated new deferred stock consideration of shares of Class A common stock issued at the first anniversary based on a recalculated value of $per share. No changes affected the scheduled cash payments. Furthermore, a third-anniversary consideration of $1.5 million was introduced, payable in cash or stock at the Company’s discretion, alongside an issue of 5 million stock warrants at an exercise price of $2.00 each. The adjustments and additional considerations have been valued and recorded according to ASC 815, reflecting changes in the fair value of deferred consideration in the consolidated statements of operations for the periods ending December 31, 2023.
The change in the amount of deferred consideration from January 1, 2023, to March 31, 2024, is as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Finite-lived Intangible Assets |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Finite-lived Intangible Assets | Note 4. Goodwill and Finite-lived Intangible Assets
The Company’s goodwill was derived from the Abaca acquisition transaction executed on November 15, 2022, where the purchase price exceeded the fair value of the net identifiable assets acquired. Goodwill is tested for impairment at least annually, or more frequently if a triggering event occurs.
In 2023, the Company conducted an interim impairment assessment on June 30, 2023, and found that the carrying value of goodwill exceeded its fair value, leading to the recognition of a $13.21 million non-cash goodwill impairment charge in the Company’s consolidated statements of operations. The December 31, 2023, annual impairment test resulted in no additional impairment change recognized, as the fair value did not surpass the carrying value. As of March 31, 2024, and December 31, 2023, the carrying value of the company’s goodwill was $6,058,000.
As of March 31, 2024, the Company has not conducted an interim impairment assessment of its assets, due to the absence of any triggering events. Therefore, no additional impairment charges have been recognized in this reporting period.
As of March 31, 2024, and December 31, 2023, the Company’s accumulated goodwill impairment was $13,208,276.
Finite-lived intangible assets
The Company reviews its finite-lived intangible assets for impairment at least annually on December 31st unless any events or circumstances indicate it is more likely than not that the fair value of the finite-lived intangible assets is less than its carrying value.
In 2023, following a triggering event in the second quarter, the Company performed an interim goodwill analysis. In accordance with our established policy, an annual review was also conducted on December 31, 2023. The finite-lived intangible assets evaluated include market-related intangibles, customer relationships, and developed technologies. The interim analysis resulted in an impairment charge of $3,680,463, attributed to the carrying values of market-related intangibles and customer relationships surpassing their fair values. The annual review further identified an impairment charge of $2,019,000 related to developed technologies.
As of March 31, 2024, the Company has not conducted an interim impairment assessment of its assets, due to the absence of any triggering events. Therefore, no additional impairment changes have been recognized in this reporting period.
Following is a summary of the Company’s finite-lived intangible assets as of March 31, 2024 and December 31, 2023:
During the three months ended March 31, 2023, amortization expense and impairment of finite lived intangible assets were $354,911 and $0 respectively.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans Receivable |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Receivable | Note 5. Loans Receivable
Commercial real estate loans receivable, net consist of the following:
Allowance for Credit Losses
The allowance for credit losses is maintained at a level believed to be sufficient to provide for estimated credit losses based on evaluating known and inherent risks in the loan portfolio. The Company’s estimated the allowance for credit losses on the reporting date in accordance with the credit loss policy described in Note 2 to the unaudited condensed consolidated financial statements.
The allowance for credit losses consists of the following activity for the three months ended March 31, 2024 and three months ended March 31, 2023:
On March 31, 2024 and December 31, 2023, no loans were past due or classified as non-accrual.
Credit quality of loans:
As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks credit quality indicators based on the loan payment status on monthly basis. The Company continuously evaluates the credit quality of each indemnified loan by assessing the risk factors and assigning a risk rating based on a variety of factors. The detailed breakdown of risk factors described in Note 6 to the unaudited condensed consolidated financial statements.
The carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value within each risk rating is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Indemnification Liability |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indemnification Liability | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indemnification Liability | Note 6. Indemnification Liability
As discussed at Note 8 to the unaudited condensed consolidated financial statements, and pursuant to the Commercial Alliance Agreement with PCCU, PCCU funds loans through a third-party vendor. SHF earns the associated interest and pays PCCU a loan hosting payment at an annual rate of 0.35% of the outstanding loan principal funded and serviced by PCCU and 0.25% of the outstanding loan principle serviced by SHF. The below schedule details outstanding amounts funded by PCCU and categorized as either collateralized loans or unsecured loans and lines of credit.
Secured loans contained an interest rate ranging from 7.35% to 15.25%. Unsecured loans and lines of credit contain variable rates ranging from Prime +1.50% to Prime +6.00%. Unsecured lines of credit had incremental availability of $525,000 and $996,958 on March 31, 2024 and December 31, 2023.
SHF has agreed to indemnify PCCU for losses on certain PCCU loans. The indemnity liability reflects SHF management’s estimate of probable credit losses inherent under the agreement at the balance sheet date. The Company’s estimated indemnity liability on the reporting date was calculated in accordance with the allowance for credit loss policy described in Note 2 to the unaudited condensed consolidated financial statements.
The indemnity liability activity are as follows:
As of March 31, 2024, all loans within the Company’s portfolio were current and performing. This is in contrast to the situation as of December 31, 2023, when one loan was under nonaccrual status. The Company successfully negotiated an amendment agreement on December 29, 2023, which brought this loan back to current status through the payment of all overdue amounts. Under the terms of the amendment, the loan’s maturity date was extended to November 1, 2024. Interest income from this loan is now recognized on a cash basis. Given that the loan was delinquent for over 300 days, it has been incorporated into the Company’s Current Expected Credit Losses (CECL) methodology, which aids in estimating credit losses for this particular loan and the overall loan portfolio collectively.
Credit quality of indemnified loans:
As part of the on-going monitoring of the credit quality of the Company’s indemnified loan portfolio, management tracks credit quality indicators based on the loan payment status on monthly basis. The Company continuously evaluates the credit quality of each indemnified loan by assessing the risk factors and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage ratio, project sponsorship, and other factors deemed necessary. Based on a 10-point scale, the Company’s loans are rated “0” through “10,” from less risk to greater risk, which ratings are defined as follows:
SHF has agreed to indemnify PCCU from all claims related to SHF’s cannabis-related business. Other than potential credit losses, no other circumstances were identified meeting the requirements of a loss contingency.
The carrying value, excluding the CECL Reserve, of the Company’s indemnified loans held at carrying value within each risk rating is as follows:
The provision for credit losses on the statement of operations consists of the following activity for the period ended March 31, 2024 and March 31, 2023:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, Net |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment, Net | Note 7. Property and Equipment, Net
Property and equipment consist of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions | Note 8. Related Party Transactions
Commercial Alliance Agreement
On March 29, 2023, the Company and PCCU entered into the Commercial Alliance Agreement. This Agreement sets forth the terms and conditions of the lending and account-related services, governing the relationship between the Company and PCCU. The Commercial Alliance Agreement sets forth the application, underwriting, loan approval, and foreclosure process for loans from PCCU to borrowers that are cannabis-related businesses and the loan servicing and monitoring responsibilities provided by the Company and PCCU. In particular, the Commercial Alliance Agreement provides for procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU will take title to or possession of any cannabis-related assets, including real property, that may be collateral for a loan funded by PCCU pursuant to the Commercial Alliance Agreement. Under the Commercial Alliance agreement, the PCCU has the right to receive monthly fees for managing loans. For SHF-serviced loans, which are CRB loans provided by the PCCU but primarily handled by SHF, a yearly fee of 0.25% of the remaining loan balance is applied. On the other hand, loans both financed and serviced by the PCCU are charged a yearly fee of 0.35% on their outstanding balance. These fees are calculated using the average daily balance of each loan for the preceding month. In addition, the Company’s is obligated by the Commercial Alliance Agreement to indemnify PCCU from certain default-related loan losses (as fully defined in the Commercial Alliance Agreement).
In addition, the Commercial Alliance Agreement provides for certain fees to be paid to the Company for certain identified account related services to include: all cannabis-related income, including all lending-related income (such as loan origination fees, interest income on CRB-related loans, participation fees and servicing fees), investment income, interest income, account activity fees, processing fees, flat fees, and other revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system for a monthly fee equal to $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024. In addition, as it pertains to CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) will be shared 25% to PCCU and 75% to the Company. Finally, under the Commercial Alliance Agreement, PCCU will continue to allow its ratio of CRB-related deposits to total assets to equal at least 60% unless otherwise dictated by regulatory, regulator or policy requirements. The initial term of the Commercial Alliance Agreement is for a period of two years, with a one-year automatic renewal unless a party provides one hundred twenty days’ written notice prior to the end of the term.
The below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits:
The revenue from the PCCU Agreements recognized in the statements of operations consists of the following for the three months ended March 31, 2024, and March 31, 2023:
The operating expense from the PCCU Agreements recognized in the statements of operations consists of the following for the three months ended March 31, 2024, and March 31, 2023:
Issuance of shares to PCCU
On March 29, 2023, the Company and PCCU entered into the following definitive transaction documents to settle and restructure the deferred obligation:
The outstanding balances associated with the PCCU disclosed in the balance sheet are as follows:
Of the $5.6 million and $8.6 million of cash and cash equivalents on March 31, 2024 and December 31, 2023, $5 million and $4.6 million of the cash and cash equivalents were held in deposit accounts at PCCU as a related party.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior Secured Promissory Note |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior Secured Promissory Note | Note 9. Senior Secured Promissory Note
On March 29, 2023, the Company and PCCU entered into definitive transaction documents to settle and restructure the deferred obligation related to business Combination under which the Company has issued the five-year Senior Secured Promissory Note (the “Note”) in the principal amount of $14,500,000 bearing interest at the rate of 4.25% and a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security interest in substantially all of the assets of the Company.
The Note amount will be paid in 54 installments of principal and interest of $295,487 each starting from November 5, 2023 and for the period between March 29, 2023, to October 05, 2023, the Company has paid the interest portion.
The repayment schedule of the outstanding principal amount on March 31, 2024, is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | Note 10. Leases
The Company has non-cancellable operating leases for facility space with varying terms. All of the active leases for facility space qualified for capitalization under FASB ASC 842, Leases. These leases have remaining lease terms between to seven years and may include options to extend the leases for up to ten years. The extension terms are not recognized as part of the right-of-use assets. The Company has elected not to capitalize leases with terms equal to, or less than, one year. As of March 31, 2024, and December 31, 2023, net assets recorded under operating leases were $820,777 and $859,861 on, respectively, and net lease liabilities were $978,461 and $1,007,993, respectively.
The Company analyzes contracts above certain thresholds to identify leases and lease components. Lease and non-lease components are not separated for facility space leases. The Company uses its contractual borrowing rate to determine lease discount rates when an implicit rate is not available. Total lease cost for the three months ended March 31, 2024 and March 31, 2023, included in Unaudited Condensed Consolidated Statements of Operations, is detailed in the table below:
Future minimum lease payments as of March 31, 2024, and December 31, 2023, are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | Note 11. Revenue
Disaggregated revenue
Revenue by type are as follows:
Account fee income consists of deposit account fees, activity fees and onboarding income, which are recognized on periodic basis as per the fee schedule with financial partner institutions. Safe Harbor Program income consists of outsourced support to other financial institutions providing banking to the cannabis industry whose income is recognized on the basis of usage as per the agreements. Loan interest income consist of interest earned on both direct and indemnified loans pursuant to a commercial alliance agreement with PCCU. Investment income consist of interest earned on the daily deposits balance with financial institution.
Under our Commercial Alliance Agreement, we are obligated to remit 25% of the investment hosting fees to PCCU based on this income which is classified as “General and Administrative Expenses” in the Consolidated Statements of Operations. In 2024, PCCU’s contributions to the Company’s revenues included $1,217,675 from deposits, activities, and client onboarding, $731,425 from investment income, and $1,636,756 from loan interest income. The associated expenses for these revenues were $104,259 for account hosting, $160,101 for investment hosting fees, and $35,901 for loan servicing fees, all in accordance with the Loan Servicing Agreement and the Commercial Alliance Agreement, classified as “General and Administrative Expenses” in the Consolidated Statements of Operations. In first quarter March 2023, contributed to the Company’s revenues with $2,245,831 from deposits, activities, and client onboarding, $1,417,152 from investment income, and $466,293 from loan interest income. The related expenses for these revenue streams were $55,425 for account hosting, $323,305 for investment hosting fees, and $11,929 for loan servicing fees, all in compliance with the Loan Servicing Agreement, classified as “General and Administrative Expenses” in the Consolidated Statements of Operations.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Underwriter Fee |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Deferred Underwriter Fee | |
| Deferred Underwriter Fee | Note 12. Deferred Underwriter Fee
In connection with the business combination, the Company executed a note on September 28, 2022 with EF Hutton related to PIPE financing under which the Company was obligated to pay the principal sum of $2,166,250 on the following schedule: (i) $715,750 on October 14, 2022, and (ii) $362,625 on each of October 31, 2022, November 30, 2022, December 31, 2022, and January 31, 2023.
The Company made the payment of its first installment of $715,750 and defaulted on the remaining outstanding amounts. The outstanding balance of the note on December 31, 2022 was $1,450,500. On March 13, 2023, the Company and EF Hutton entered into a settlement agreement pursuant to which the Company paid $550,000 to EF Hutton in full settlement of the amount due and the difference of $900,500 has been accounted for in the “Unaudited Condensed Consolidated Statements of Stockholders’ Equity.”
|
Commitments and contingencies |
3 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||
| Commitments and contingencies | Note 13. Commitments and contingencies
|
Earnings Per Share |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share |
Basic net income (loss) per common share is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period. For the Company’s diluted earnings per share calculation, the Company uses the “if-converted” method for preferred stock and convertible debt and the “treasury stock” method for Warrants and Options.
As the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the shares issued in connection with the Business Combination have been outstanding for the entire period presented.
The holders of Series A Convertible preferred stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series A Convertible preferred stock equal (on an as-if-converted-to-Class-A-common stock basis) to and in the same form as dividends actually paid on shares of the Class A common stock when, as and if such dividends are paid on shares of the Class A common stock. No other dividends shall be paid on shares of Series A convertible preferred stock.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward Purchase Agreement |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forward Purchase Agreement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forward Purchase Agreement | Note 15. Forward Purchase Agreement
On June 16, 2022, the Company entered into a Forward Purchase Agreement with Midtown East Management NL, LLC (“Midtown East”). Subsequent to entering into the Forward Purchase Agreement, the Company and Midtown East entered into assignment and novation agreements with Verdun Investments LLC (“Verdun”) and Vellar Opportunity Fund SPV LLC – Series 1 (“Vellar”), pursuant to which Midtown East assigned its obligations as to shares of the shares of Class A Stock to be purchased under the Forward Purchase Agreement to each of Verdun and Vellar. As contemplated by the Forward Purchase Agreement:
The reconciliation statement of the Class A common stock held by the parties are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrant Liabilities |
3 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||
| Warrant Liabilities | |||||||||
| Warrant Liabilities | Note 16. Warrant Liabilities
Public and Private Placement Warrants
As of March 31, 2024, and December 31, 2023, the Company has 5,750,000 Public warrants and 264,088 Private Placement Warrants.
The Public and Private Placement Warrants may only be exercised for a whole number of shares.
The Public and Private Placement Warrants became exercisable on September 28, 2022, the date of the Business Combination and will expire on September 28, 2027, or earlier upon redemption or liquidation.
No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.
Redemption of warrants become exercisable when the price per Class A Common Stock equals or exceeds $. Once the warrants become exercisable, the Company may redeem the warrants:
If and when the warrants become redeemable by the Company, the Company may exercise its redemption rights; this is also the case if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
The private placement warrants are identical to the public warrants, except that the private placement warrants and the Class A Common Stock issuable upon the exercise of the private placement warrants were not transferable, assignable or saleable, subject to certain limited exceptions. Additionally, the private placement warrants are exercisable on a cashless basis and non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.
PIPE Warrants
As of March 31, 2024 and December 31, 2023, the Company has 1,022,500 PIPE Warrants.
The PIPE Warrants have an exercise price of $11.50 per share of Class A Common Stock to be paid in cash (except if the shares underlying the warrants are not covered by an effective registration statement after the six-month anniversary of the closing date, in which case cashless exercise is permitted), subject to adjustment to a price equal to the greater of (i)125% of the conversion price if at any time there is an adjustment to the Conversion Price and the exercise price after such adjustment is greater than 125% of the Conversion Price as adjusted and (ii) $5.00. The PIPE Warrants are also subject to adjustment for other customary adjustments for stock dividends, stock splits and similar corporate actions. The PIPE Warrants are exercisable for a period of five years following the Closing, or September 28, 2027. After exercise of a PIPE Warrant, the Company may be required to pay certain penalties if it fails to deliver the Class A Common Stock within a specified period of time.
Abaca Warrants
As of March 31,2024, and December 31, 2023, the Company has 5,000,000 Abaca warrants.
The Abaca 5,000,000 warrants have an exercise price of $2.00 per share of Class A common stock to be paid in cash. An Abaca Warrant may be exercised only during the period commencing 1 year of the Effective Date and terminating five (5) years from the effective date of the registration statement. The Company may, in its sole discretion, settle the Abaca Warrant when exercised, in whole or in part, in cash in lieu of issuing shares of common stock underlying the Warrant. The Company may elect to pay the Registered Holder in cash in the amount equal to the difference between the fair market value of the Company’s Class A common stock on the date of exercise and the warrant price ($2.00) multiplied by the number of shares of Class A common stock. The Company commits to promptly registering shares of Class A common stock issued upon Abaca Warrant exercises if required by law, ensuring these shares can be sold without restrictions. This registration must be filed within 45 days of receiving a notification of such a requirement, with failure to do so constituting a default. The Company will endeavor to keep the registration effective until the Warrants expire. If the registration isn’t effective within one year, Abaca Warrant holders may exercise their Warrants on a cashless basis, receiving shares based on a defined fair market value calculation. This process aims to facilitate the straightforward and lawful exercise of the Abaca Warrants, ensuring the shares issued are readily tradable without the need for restrictive legends.
|
Financial Instruments |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, All Other Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Instruments | Note 17. Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows:
The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period.
Assets and Liabilities Reported at Fair Value on a Recurring Basis
Public Warrants:
Public warrants are recorded at fair value on a recurring basis. The Company obtains exchange traded price, of Level 1 inputs, based on observable data to value these warrants.
Private Placement Warrants:
Private Placement Warrants are recorded at fair value on a recurring basis. In the first quarter of 2024, the Company internally assessed the value of these derivatives with Level 3 inputs, which are derived from Black-Scholes model. This is a change from the first quarter of 2023, when the valuation was based on third-party reports, also utilizing Level 3 inputs for these derivatives. Management believes that this change was necessary to enhance the precision and control over the valuation process, allowing for a more tailored and responsive approach to the unique characteristics of the derivatives and the evolving market conditions.
PIPE Warrants:
PIPE Warrants are recorded at fair value on a recurring basis. In the first quarter of 2024, the Company internally assessed the value of these derivatives with Level 3 inputs, which are derived from Black-Scholes model. This is a change the first quarter of 2023, when the valuation was based on third-party reports, also utilizing Level 3 inputs for these derivatives. Management believes that this change was necessary to enhance the precision and control over the valuation process, allowing for a more tailored and responsive approach to the unique characteristics of the derivatives and the evolving market conditions.
Abaca Warrants:
Abaca Warrants are recorded at fair value on a recurring basis. The Company internally assessed the value of these derivatives with Level 3 inputs. Level 3 inputs, based on unobservable data derived from Black-Scholes model.
Third Anniversary Payment Consideration:
Third anniversary payment consideration are recorded at fair value on a recurring basis. The Company value these derivatives based on third party reports for Level 3 inputs. Level 3 inputs, based on unobservable data derived from Black Scholes-Merton model.
Forward Purchase Option Derivatives:
Forward purchase option derivatives are recorded at fair value on a recurring basis. In 2022, the Company values these derivatives based on third party reports for Level 3 inputs. In 2023 and 2024, no significant risk factor changes affecting FPA derivative values were noted.
The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy on March 31, 2024 and December 31, 2023:
Assets Measured at Fair Value on a Nonrecurring Basis
Assets that are measured at fair value on a nonrecurring basis primarily comprises of property, plant and equipment, right-to-use assets, finite lived intangible assets and goodwill. The Company does not record these at fair value on a recurring basis, however, the carrying value of the assets may be reduced to fair value when the Company determines that impairment has occurred.
There were no assets or liabilities recorded at fair value on a nonrecurring basis for the period ended March 31, 2024 and March 31, 2023.
Fair Value of Financial Instruments
The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. With the exceptions of loans receivable, warrants and forward purchase option derivatives, the Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments.
The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
The change in the assets measured at fair value on a recurring basis for which the Company have utilized Level 3 inputs to determine fair value are presented in the following table:
As of March 31, 2024 and on December 31, 2023, the valuation of private placement warrants, PIPE warrants, and Abaca warrants was carried out using the Black-Scholes model, while the fair value of the Abaca third anniversary payment consideration was determined using the Black Scholes Merton Option pricing model. Contrastingly, in the first quarter of 2023, the fair value assessments for both the private placement warrants and PIPE warrants were conducted using the Black-Scholes model and the Black Scholes-Merton model, respectively. Management believes that the change in method for PIPE warrants was necessary to enhance the precision and control over the valuation process, allowing for a more tailored and responsive approach to the unique characteristics of the derivatives and the evolving market conditions. As of March 31, 2024 and December 31, 2023, these warrants were valued for Level 3 inputs, which are based on observable data to value these derivatives.
As of December 31, 2023, the Company assessed the fair value of its forward purchase agreement (FPA) derivative utilizing a Monte Carlo Simulation within a risk-neutral setting, which is a particular instance of the Income Approach, based on calculations from December 31, 2022. Throughout the first quarters of both 2023 and 2024, there were no notable alterations in risk factors that would impact the valuation of the FPA derivative. Consequently, management retained the December 31, 2022, valuation for December 31, 2023 and March 31, 2024. The Company will continue to monitor the fair value of the forward option derivative each reporting period with subsequent revisions to be recorded in the Statements of Operations.
During the first quarters of both 2023 and 2024, there were no changes in the classification of financial instruments within Level 2 and Level 3 of the fair value hierarchy.
The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the private placement warrants and public warrants as of their measurement dates:
The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase derivatives as of their measurement dates on March 31, 2024 and December 31, 2023:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Income Tax Disclosure [Abstract] | |
| Tax | Note 18. Tax
For the three months ended March 31, 2024, the Company recorded income tax benefit of $438,885 for continuing operations. The effective tax rate of 28.14% for the three months ended March 31, 2024, varied from the statutory United States federal income tax rate of 21.0% primarily because of state income taxes, net of the federal benefit, and adjustments to the fair market value of warrant liabilities. The Company has net deferred tax assets of $44,278,374 and $43,829,019 as of March 31, 2024, and December 31, 2023, respectively. The Company considers their deferred tax assets to be realizable and has not established a valuation allowance, as it is considered more likely than not that the Company will utilize deferred tax assets in future periods through future taxable income.
The Company recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. As of both March 31, 2024, and December 31, 2023, the Company has no unrecognized income tax benefits.
|
401(k) Plan |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Retirement Benefits [Abstract] | |
| 401(k) Plan | Note 19. 401(k) Plan
The Company offers to all employees a tax-qualified retirement contribution plan, with the Company’s 100% matching contribution up to 4% of a participant’s eligible compensation. The Company’s consolidated matching contributions for the three months ended March 31, 2024, amounting to $35,233, and March 31, 2023, amounting to $20,663, respectively.
|
Stockholders’ Equity |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ Equity | Note 20. Stockholders’ Equity
Preferred Stock
The Company is authorized to issue preferred shares with a par value of $ per share with such designation rights and preferences as may be determined from time to time by the Company’s Board of Directors. As of March 31, 2024, there were Class A preferred shares issued and outstanding and preferred shares issued and outstanding on December 31, 2023. The holders of preferred stock shall be entitled to receive, and the Company shall pay, dividends on shares of preferred stock equal(on an as-if-converted-to-Class-A-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Class A Common Stock when, as and if such dividends are paid on shares of the Class A Common Stock. No other dividends shall be paid on the preferred stock. The terms of the preferred stock provide for an initial conversion price of $ 10.00 per share of Class A Common Stock, which conversion price is subject to downward adjustment on each of the dates that are 10 days, 55 days, 100days, 145 days and 190 days after the effectiveness of a registration statement registering the shares of Class A Common Stock issuable upon conversion of the preferred stock to the lower of the Conversion Price and the greater of (i) 80% of the volume weighted average price of the Class A Common Stock for the prior five trading days and (ii) $2.00 (the “Floor Price”), provided that, so long as a preferred stock holders continues to hold any preferred shares, such preferred stock holder will be entitled to receive the aggregate shares of Class A Common Stock that would be issuable based upon its initial purchase of preferred stock at the adjusted Conversion Price. Additionally, on January 25, 2023, at a special meeting of the Company’s stockholders, the stockholders approved a reduction in the floor conversion price of the outstanding preferred stock from $ per share to $ per share.
Common Stock
The Company is authorized to issue up to shares of Class A Common Stock with a par value of $ per share. Holders of the Company’s Class A Common Stock are entitled to one vote for each share. As of March 31, 2024 and December 31, 2023, there were and shares of Class A Common Stock issued or outstanding. As of March 31, 2024 and December 31, 2023, Class A Common Stock are held by the purchasers under forward purchase agreement dated June 16, 2022, by and among the Company and such purchasers.
2022 Equity Incentive Plan
Share-based compensation expense recognized for the three months ended March 31, 2024 and March 31, 2023 totaled $ million and $ million, respectively.
The 2022 Plan was approved by the Company’s stockholders on June 28, 2022. The 2022 Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, and performance compensation awards. The Company has not issued stock appreciation rights, restricted stock, stock bonus awards, or performance compensation awards in the three months ended March 31, 2024 and March 31, 2023. In conjunction with the 2024 Plan, as of March 31, 2024, the Company had granted stock options and restricted stock units which are described in more detail below.
Stock Options
Stock options are awarded to encourage ownership of the Company’s Class A common stock by employees and to provide increased incentive for employees to render services and to exert maximum effort for the success of the Company. The Company’s incentive stock options generally permit net-share settlement upon exercise. The option exercise price, vesting schedule and exercise period are determined for each grant by the administrator (person appointed by board to administer the stock plans) of the applicable plan. The Company’s stock options generally have a -year contractual term.
The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period the awards. The shares of the Company were listed on the stock exchange for a limited period of the time and the share price has also dropped significantly from the date of listing. Based on these factors Management has considered the expected volatility at % for the current period. The risk-free interest rate used is the current yield on US Treasury notes with a term equal to the expected term of the options at the grant date. The expected dividend yield is based on annualized dividends on the underlying share during the expected term of the option.
A summary of the Company’s stock option activities and related information for the three months ended March 31, 2023 is as follows:
Restricted Stock Units (“RSUs”)
The following RSU were outstanding at their respective vest price:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subsequent events |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Subsequent Events [Abstract] | |
| Subsequent events | Note 21. Subsequent events
On April 5, 2024, the Company received a letter from the listing qualifications department staff of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that for the last 30 consecutive business days, the Company did not maintain a minimum closing bid price of $ per share for its common stock, as required by Nasdaq Marketplace Rule 5550(a)(2). The Company has been granted a period of 180 days, ending on October 2, 2024, to regain compliance with this requirement. If the Company does not regain compliance by October 2, 2024, the Company may be eligible for second compliance period for up to an additional 180 days. In connection with any extension periods, if it appears that the Company will not be able to regain compliance with Nasdaq Marketplace Rule 5550(a)(2), or if the Company is not otherwise eligible, the Nasdaq staff will provide notice to the Company that its securities will be subject to delisting. At that time, the Company may appeal any such delisting determination to a Hearings Panel. If the Company’s Class A common stock maintains a closing bid price of at least $ for 10 consecutive business days at any point before the deadline, Nasdaq will confirm compliance, and the matter will be resolved. The Company’s Class A common stock will continue to be listed and traded on The Nasdaq Capital Market under the symbol “SHFS” during this period. There is no assurance that the Company will achieve compliance within the given timeframe or maintain compliance with other Nasdaq Listing Rules thereafter. |
Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | i. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, statements of shareholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the current year ending December 31, 2024. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2023, included in the Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
The company has made certain immaterial reclassifications to the statements of operations for the three months ended March 31, 2023, to conform to the presentation for the three months ended March 31, 2024. These reclassifications, totaling $190,943, were moved from ‘Interest Expense’ to ‘Change in the Fair Value of Deferred Consideration’. Corresponding adjustments have been made to the statement of cash flows and the applicable notes to the unaudited condensed consolidated financial statements.
The condensed consolidated financial statements include the accounts of SHF Holdings, Inc., its subsidiaries where we have controlling financial interests. All intercompany balances and transactions have been eliminated.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Use of Estimates | ii. Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Material estimates that are particularly subject to change in the near term include the determination of the allowance for credit losses, indemnification liabilities, useful lives of intangibles and the fair value of financial instruments. Actual results could differ from the estimates.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liquidity and Going Concern | iii. Liquidity and Going Concern
As of March 31, 2024, the Company had $5,626,362 in cash and net working capital of $318,825, as compared to $4,888,769 in cash and net working capital deficit of $135,355 as of December 31, 2023. The retained deficit was $70,386,394 on March 31, 2024, and $71,569,821 on December 31, 2023. The Company has also generated operating income of $324,941 for the period ended March 31, 2024.
For the period ending March 31, 2024, the Company reported positive operating income and net working capital. However, considering the historical data, where the Company experienced negative operating income and negative net working capital, management acknowledges the need to closely evaluate the financial performance in upcoming quarters to mitigate any going concern risks. As of March 31, 2024, due to these historical trends, there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the date these condensed unaudited consolidated financial statements were issued.
If the Company is not able to sustain its present level of operations, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned expansion programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.
The accompanying condensed unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result should the Company not continue as a going concern as a result of this uncertainty.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents | iv. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from financial institutions, and investments with maturities of three months or less.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentrations of Risk | v. Concentrations of Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. Cash balances are maintained substantially in accounts at Partner Colorado Credit Union (“PCCU”) which is insured by the National Credit Union Share Insurance Fund (“NCUSIF”) up to regulatory limits. From time to time, cash balances may exceed the NCUSIF insurance limit. The Company has not experienced any credit losses associated with its cash balances in the past.
Currently the Company only services the cannabis industry. Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan.
Currently the Company substantially relies on PCCU to hold customer deposits and fund its originated loans. As of this time, majority all of the Company’s revenue is generated by deposits and loans hosted by its PCCU pursuant to various services agreements.
The Company had only one loan on its balance sheet as of March 31, 2024, which comprises 100% of the total loan balance. The Company also indemnified 21 loans as of March 31, 2024; three of these indemnified loans were in excess of 10% of the total balance.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Receivable | vi. Accounts Receivable
Accounts receivable are recorded based on account fee schedules. While fees are generated from accounts for individual cannabis-related businesses (“CRB”) related accounts, amounts are initially collected by the financial institutional partners and remitted in the subsequent month. Accounts receivable - related party represents amounts due from PCCU under related party contracts disclosed in Note 8 to the unaudited condensed consolidated financial statements.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Receivable | vii. Loans Receivable
CRB loans that significantly support the Company’s operations are recognized as assets on the balance sheet. These loans, intended to be held either for the foreseeable future or until their maturity or full repayment, are recorded at their outstanding principal balance. This amount is adjusted for any credit loss allowances and net of any deferred loan origination fees and costs, as applicable, to reflect the net investment in these loans. The Company recognizes interest income on CRB Loans over the loan term using the simple-interest method based on outstanding principal amounts. This approach ensures a systematic recognition of income, aligning with the time value of money principle.
Interest income recognition is suspended when there is uncertainty regarding full loan repayment, such as in cases of loan impairment or when payments are overdue by ninety days or more. Loans under these conditions are placed on nonaccrual status. Any accrued interest not received by the time a loan is placed on nonaccrual is reversed from interest income. Subsequent interest payments on nonaccrual loans are recorded using either the cash basis or the cost recovery method until the loan meets the criteria for reclassification to accrual status.
Loans are returned to accrual status when they become current (less than ninety days past due) and when there is reasonable assurance of future payment compliance, evidenced by the full satisfaction of both principal and interest payments due.
Loans are assessed individually for potential charge-off, which typically occurs at the point of foreclosure. Charge offs are executed to reflect the realizable value of loans that are deemed uncollectible.
The determination of a loan’s past-due status is based on its contractual repayment terms. Loans are either placed on nonaccrual status or charged-off ahead of their contractual delinquency dates if the collection of principal and interest is deemed doubtful, ceasing the recognition of interest income on such loans.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses (ACL) | viii. Allowance for Credit Losses (ACL)
The Company has adopted Accounting Standards Codification Topic 326 - Financial Instruments - Credit Losses (ASC Topic 326), for estimation of probable credit losses with an expected credit loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.
The ACL is a valuation account that is deducted from the amortized cost basis of financial assets carried at their amortized cost, including loans held for investment, to present the net amount that is expected to be collected throughout the life of the financial asset. The estimated ACL is recorded through a provision for credit losses charged against operations. Management periodically evaluates the adequacy of the ACL to maintain it at a level it believes to be reasonable. The Company uses the same methods used to determine the ACL to assess any reserves needed for off-balance sheet credit risks such as unfunded loan commitments including Indemnified loans to PCCU. These reserves for off-balance sheet credit risks are presented in the liabilities section in the unaudited condensed consolidated balance sheets as an “Indemnity liability.”
The ACL consists of two components: an asset-specific component for estimating credit losses for individual loans that do not share similar risk characteristics with other loans; and a pooled component for estimating credit losses for pools of loans that share similar risk characteristics. The ACL for the pooled component is derived from an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters such as probability of default (“PD”) and loss given default (“LGD”) which are derived from various vendor models and/or internally developed model estimation approaches for smaller homogenous loans.
The PD is quantified by analyzing historical data to determine the rate at which loans have defaulted within the portfolio, relative to the total outstanding loans as of the end of the reporting period. This rate is expressed as a percentage and serves as a key indicator of the likelihood of default across the loan pool. LGD assessments are conducted to estimate the potential loss amount in the event of a default, considering the recoverable value from the collateral liquidation against the remaining loan balance. This involves a detailed analysis of two primary components: the loss on principal, which arises from the gap between the collateral’s liquidation value and the unpaid principal balance of the loan; and the loss associated with various ancillary costs to recover, including, but not limited to, foregone interest, transaction costs, legal and administrative fees, and expenses related to the maintenance and renovation of the property. The Company considers relevant current conditions and reasonable and supportable forecasts that relate to its lending practices and environment and the specific borrower and determines that the significant factor affecting the loan’s performance is the fact that these borrowers are involved in the cannabis business. Despite being legal at the state level in certain jurisdictions, cannabis remains federally illegal in the United States as of the date of this filing. As cannabis related lending is a new practice in the United States, there is very little historical or industry data on which to base a loss forecast. Therefore, significant judgement is required in creating a reasonable loss estimate, using similar non-MRB loans as a baseline and adjusting for the inherent risks in the cannabis industry. While the Company considers other qualitative factors, including national macroeconomic conditions, in its overall risk analysis, it has determined that they are not significant inputs to the overall loss estimate calculations.
The ACL estimation process also applies an economic forecast scenario, or a composite of scenarios based on management’s judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term of a loan excludes expected extensions, renewals, and modification under certain conditions.
Recoveries on loans represent collections received on amounts that were previously charged off against the ACL. Recoveries are credited to the ACL when received, to the extent of the amount previously charged off against the ACL on the related loan. Any amounts collected in excess of this limit are first recognized as interest income, then as a reduction of collection costs, and then as other income.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Deferred Loan Origination Fees and Cost | ix. Net Deferred Loan Origination Fees and Cost
When included with a new loan origination, the Company receives loan origination fees in conjunction with new loans funded and any indemnified liabilities which are not recorded on the balance sheet from the company financial institution partners. Where applicable, the loan origination fee is netted with loan origination costs associated with originating a specific loan. These loan origination costs are typically incremental direct costs (non-reimbursed) paid to third parties. Net loan origination fees are initially deferred and presented net of loans receivable asset for portfolio loans, or as a separate liability for indemnified loans, and recognized as interest income utilizing the interest method.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indemnity Liability | x. Indemnity Liability
Under the Loan Servicing Agreement and Commercial Alliance Agreement with PCCU, the Company had agreed to indemnify PCCU from all claims related to Company’s cannabis-related business, including but not limited to default-related credit losses as defined in the Loan Servicing Agreement. The indemnification component of the Loan Servicing Agreement and the Commercial Alliance Agreement (refer to Note 8 to the unaudited condensed consolidated financial statements) is accounted for in accordance with accounting standards codification (“ASC”) 460 Guarantees. In determining the applicability of ASC 460, the Company considered that the agreement outlines a broad indemnification of all claims related to the cannabis-related business. The most immediate and potentially significant of these are potential default-related credit losses. In the lending industry, it is inherently anticipated future credit losses will result from currently issued debt. The Company’s indemnity obligation is subordinate to financial institution clients’ other means of collecting on the loans including foreclosure of the collateral, recourse against personal and/or corporate guarantors and other default remedies available in the loan agreements. Since borrowers are not party to the agreement between Company and PCCU, any indemnity payments do not relieve borrowers of their obligation to PCCU nor would such payments preclude PCCU’s right to future recoveries from the debtor. Therefore, as defined in ASC 460, the indemnification clause represents a general loss contingency in that it is an existing condition, situation or set of circumstances involving uncertainty as to possible loss to the Company that will ultimately be resolved when one or more future events occur or fail to occur. SHF’s indemnity liability reflects SHF management’s estimate of probable credit losses inherent under the agreement at the balance sheet date. The liability is measured and recognized in accordance with our accounting policies for ACL and ALL.
In addition to default-related credit losses, the Company continuously monitors all other circumstances pursuant to the agreement and identifies events that may necessitate a loss contingency under the Loan Servicing Agreement. A loss contingency is reported when it is both probable that a future event will confirm that a loss had been incurred on or before the related balance sheet date and the loss is reasonably estimable.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment, net | xi. Property and Equipment, net
Property and equipment are recorded at historical cost, net of accumulated depreciation. Depreciation is provided over the assets’ useful lives on a straight-line basis 3-5 years for equipment and furniture and fixtures. Repairs and maintenance costs are expensed as incurred.
Management periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life.
The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the period of disposal and the resulting gains and losses are included in the results of operations during the same period.
The Company capitalize certain costs related to software developed for internal-use, primarily associated with the ongoing development and enhancement of our technology platform. Costs incurred in the preliminary development and post-development stages are expensed. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally five years.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Right of Use Assets and Lease Liabilities | xii. Right of Use Assets and Lease Liabilities
The Company has entered into lease agreements for a certain facility and certain items of equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. At inception of the lease agreement, the Company assesses whether the agreement conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified as a lease. Each lease is further analyzed to check whether it meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated balance sheet with a corresponding lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. The Company has elected not to recognize lease assets and lease liabilities for short-term leases (leases with a term of 12 months or less) and leases of low-value assets. Lease right-of-use assets, net and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available as of the lease commencement date.
Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Finance lease interest expense is recognized based on an effective interest method and depreciation of assets is recorded on a straight-line basis over the shorter of the lease term and useful life of the asset. Both operating and finance lease right of use assets are reviewed for impairment, consistent with other finite-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a right of use asset is impaired, any remaining balance of the asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Other Intangible Assets | xiii. Goodwill and Other Intangible Assets
The Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed.
Goodwill is tested for impairment at least annually on the elected impairment test date of December 31 unless any events or circumstances indicate it is more likely than not that the fair value of the goodwill is less than its carrying value.
Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.
Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation |
The Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock Compensation. The Company’s stock-based compensation cost is measured based on the fair value at the grant date of the stock-based award. It is recognized as expense on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized as they occur. The Company estimates the fair value of each stock-based award on its measurement date using either the current market price of the stock or Black-Scholes option valuation model, whichever is most appropriate. The Black-Scholes valuation model incorporates assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s experience with similar instruments. Changes in assumptions used to estimate fair value could result in materially different results.
The shares of the Company have been listed on the Nasdaq stock exchange for a limited period of the time and also the stock price has dropped significantly from the date of listing, based on which the Company has considered the expected volatility at % for the purpose of stock compensation. The risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the awards’ expected lives. The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period the awards. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | xv. Fair Value Measurements
The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:
Level 1 — Quoted prices for identical assets or liabilities in active markets.
Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue Recognition | xvi. Revenue Recognition
SHF recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which SHF expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.
Revenue is recorded at a point in time when the performance obligation is satisfied, and no contingencies exist. Majority of the revenue consists of fees earned on deposit accounts held at PCCU but serviced by SHF such as bank account charges, onboarding income, account activity fee income and other miscellaneous fees. Under the terms of the Loan Servicing Agreement and the Commercial Alliance Agreement, the Company is responsible for covering account hosting costs associated with the fees generated from deposits held at PCCU. These costs are classified as “General and Administrative Expenses” in the Consolidated Statements of Operations.
In addition, SHF recognizes revenue from the Master Program Agreement. The Master Program Agreement is a non-exclusive and non-transferable right to implement and utilize the Safe Harbor Program. The Safe Harbor Program has two performance obligations; an implementation fee recognized when the contract is effective and a service fee recognized ratable over the contract term as the compliance program is executed.
SHF recognizes revenue from interest on loans and investment income distributed by PCCU, which is determined by particular customer account balances. As per the Loan Servicing Agreement and the Commercial Alliance Agreement, SHF bears the expenses for hosting investments and servicing loans related to this interest and investment income. These expenses are allocated to “General and Administrative Expenses” in the Consolidated Statements of Operations.
Amounts received in advance of the service being provided is recorded as a liability under deferred revenue on the consolidated balance sheets. Typical Safe Harbor Program contracts are three-year contracts with amounts due monthly, quarterly or annually based on contract terms.
Customers consist of financial institutions providing services to CRBs. Revenues are concentrated in the United States of America.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contract Liabilities | xvii. Contract Liabilities
The Company recognizes a contract liability if the customer’s payment of consideration precedes the reporting entity’s performance. As of March 31, 2024, the Company recorded contract liabilities amounting to $2,692 from contracts with customers. This compares to contract liabilities of $21,922 as reported on December 31, 2023.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants Liabilities | xviii. Warrants Liabilities
The Company has evaluated each of the warrant arrangements separately in accordance with “Distinguishing Liabilities from Equity” (“ASC 480”) and “Derivatives and Hedging” (“ASC 815”), to determine classification as either equity instruments or liabilities based on the specific terms and features of each warrant. Warrants are recognized as equity if they are indexed to our own stock and meet the equity classification criteria in ASC 815-40. These warrants are recorded within stockholders’ equity at their issuance date and are not subsequently remeasured at fair value. Conversely, warrants that do not meet the criteria for equity classification under ASC 815-40 are classified as liabilities. Such warrants are initially recorded at fair value on the issuance date and are subject to remeasurement at each balance sheet date thereafter. Any changes in fair value are recognized in the statement of operations. None of our warrant contracts met criteria to be considered indexed to their own stock, and as a result, have each been accounted for as a liability financial instrument. The fair value of warrants classified as liabilities is determined using appropriate valuation models, such as the Black- Scholes model, which incorporates various inputs, including the current stock price, expected volatility, risk-free interest rate, and the expected term of the warrants.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred consideration | xix. Deferred consideration
In line with ASC Topic 815, the Company treats the deferred consideration from the Abaca acquisition as a derivative liability, since it does not fulfill the equity classification criteria. As a result, this obligation is recognized as a liability on the balance sheet at fair value and is adjusted to reflect its fair value at the end of each reporting period. The liability will be reassessed at fair value on every balance sheet date until the obligation’s term concludes. Fluctuations in its fair value are recorded in the consolidated statements of operations.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forward purchase derivative | xx. Forward purchase derivative
The Company accounts for the forward purchase derivative assumed in the business combination in accordance with the guidance contained in ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company classifies the forward purchase derivatives as an assets or liabilities carried at their fair value and adjusts the forward purchase derivatives to fair value at each reporting period. This derivative asset or liability is subject to re-measurement at each balance sheet date until the conditions under the forward purchase agreement are exercised or expire, and any change in fair value is recognized in the unaudited condensed consolidated statement of operations. In December 2023, the company calculated its valuation using a Monte Carlo Simulation set within a risk-neutral environment. Initiated in December 2022, this strategy was applied to assess the fair value of the forward purchase agreement (FPA) derivatives, with an underlying assumption that future stock prices would adhere to a Geometric Brownian Motion trajectory. Throughout the first quarter of 2024, there were no transactions by FPA holders, and no considerable shifts in risk factors that could influence the valuation of FPA derivatives were observed.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share |
Basic and diluted earnings per share are computed and disclosed in accordance with ASC Topic 260, Earnings Per Shares. The Company utilizes the two-class method to compute earnings available to common shareholders. Under the two-class method, earnings are adjusted by accretion amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance, to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other common shareholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders. Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax | xxii. Income Tax
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are adjusted through the provision for income taxes as changes in tax laws or rates are enacted.
ASC 740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods. If management is unable to estimate a portion of its ordinary income, but is otherwise able to reliably estimate the remainder, ASC 740-270-25-3 provides that the tax applicable to that item be reported in the interim period in which the item occurs. The tax (or benefit) related to ordinary income (or loss) shall be computed at an estimated annual effective tax rate and the tax (or benefit) related to all other items shall be individually computed and recognized when the items occur. Management is unable to estimate a portion of its ordinary income and as a result had computed the company’s tax provision in accordance with ASC 740-270-25-3.
ASC Topic 740 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recently Issued Accounting Standards | xxiii. Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations upon adoption.
Adopted Standards
Current Expected Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In November 2019, the FASB issued ASU No. 2019-10 Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The update allows the extension of the initial effective date for entities which have not yet adopted ASU No. 2016-02. The standard is effective for annual reporting periods beginning after December 15, 2022 for private companies and SEC filers classified as smaller reporting entities, with early adoption permitted. Entities apply the standard’s provisions by recording a cumulative effect adjustment to retained deficit. The Company has adopted ASU 2016-13 as of January 1, 2023, utilizing the modified retrospective method.
CECL Transition Impact: The table below provides details on the transition impacts of adopting CECL. Other balance sheet lines not presented were not affected by CECL.
CECL Transition Impact:
Troubled Debt Restructurings and Vintage Disclosures
This Accounting Standard Update (ASU 2022-02) eliminates the recognition and measurement guidance on troubled debt restructurings for creditors that have adopted ASC 326 and requires them to make enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The new guidance also requires public business entities to present current period gross write-offs (on a current year-to-date basis for interim-period disclosures) by year of origination in their vintage disclosures. For entities that have adopted ASU 2016-13, this ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has adopted this standard as of January 1, 2023 and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
This Accounting Standard Update (ASU 2022-03) clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual restriction on the sale of an equity security as a separate unit of account is not permitted. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company has adopted this standard as of January 1, 2024 and the ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848
This Accounting Standard Update (ASU 2022-06) defers the Sunset Date of ASC Topic 848, Reference Rate Reform (Topic 848), which provides temporary optional relief in accounting for the impact of Reference Rate Reform. This ASU is effective upon issuance (December 21, 2022) and generally can be applied through December 31, 2024.This ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Investments-Equity Method and Joint Ventures
In March 2023, the FASB issued ASU 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures using the Proportional Amortization Method. The FASB issued final guidance allowing entities to apply the proportional amortization method to equity investments in all tax credit programs that meet the conditions in ASC 323-740, rather than just investments in qualified affordable projects that generate low income housing tax credits, as was required under the legacy guidance. The guidance is effective for public business entities for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. This ASU has not had a material impact on the Company’s unaudited condensed consolidated financial statements.
Standards Pending to be Adopted
Business Combinations-Joint Venture Formations
In August 2023, the FASB issued 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60); Recognition and Initial Measurement. This ASU contains guidance requiring certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value. This guidance is effective for all joint venture formations with a formation date on or after January 1, 2025. Early adoption is permitted. Joint Ventures formed before the effective date have the option to apply it retrospectively, while those formed after the effective date are required to apply it prospectively. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Disclosure Improvements, “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.”
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements, “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU amends the disclosure or presentation requirements related to various subtopics in the FASB codification.
The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The amendments in this Update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). This ASU requires public entities to provide disclosures of significant segment expenses and other segment items. It also requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment will have to provide all the disclosures required by ASC 280, including the significant segment expense disclosures. This guidance is applied retrospectively to all periods presented, unless it is impractical. This ASU applies to all public entities and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This ASU requires public business entities to disclose in their rate reconciliation table additional categories of information about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories. This ASU is effective for fiscal years after December 15, 2024. Early adoption would be permitted. The Company does not expect this ASU to have a material impact on its condensed unaudited consolidated financial statements.
ASU 2024-01: Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards
ASU 2024-01 clarifies the scope applications of profits interest awards by adding illustrative guidance to ASC 718 “Compensation-Stock Compensation.” The amendments in the ASU apply to all reporting entities that account for profits interest awards as compensation to employees or non-employees in return for goods or services.
The term “profits interest” is not explicitly defined in US GAAP. Rather, an IRS Revenue Procedure (Rev Proc 93-27) defines a “Profits Interest” as a “partnership interest other than a capital interest.” Unlike a capital interest, which provides rights to existing net assets of an entity, a profits interest only provides rights to future profits and/or equity appreciation of an entity. This distinction, along with other terms, conditions and characteristics of profits interests often complicates accounting decisions for profits interests, leading to diversity in practice whether to account for profits interests under ASC 718 or other US GAAP.
The ASU introduces four (4) illustrative examples of fact patterns that demonstrate how an entity would apply the scope guidance in paragraph 718-10-15-3 to a profits interest or similar award with certain features.
The ASUs are effective for public entities for fiscal years beginning after December 15, 2024, including interim periods within those years. For all other entities, adoption is required for fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements.
ASU 2024-02: Codification Improvements—Amendments to Remove References to the Concepts Statements
The ASU contains amendments to the Codification that remove references to various FASB Concepts Statements. The Board has a standing project on its agenda to address suggestions received from stakeholders on the Accounting Standards Codification and other incremental improvements to GAAP. This effort facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance and other minor improvements. In the Board’s view, removing all references to Concept Statements in the guidance will simplify the codification and draw a distinction between authoritative and non-authoritative literature.
The amendments in the Update are effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025. The Company does not expect this ASU to have a material impact on its unaudited condensed consolidated financial statements. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Summary of Significant Accounting Policies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Current Expected Credit Losses Transition Impact |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Consideration (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Consideration | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Change in Deferred Consideration | The change in the amount of deferred consideration from January 1, 2023, to March 31, 2024, is as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Finite-lived Intangible Assets (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Finite Lived Intangible Assets | Following is a summary of the Company’s finite-lived intangible assets as of March 31, 2024 and December 31, 2023:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans Receivable (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Commercial Real Estate Loans Receivable | Commercial real estate loans receivable, net consist of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Allowance For Loan Losses | The allowance for credit losses consists of the following activity for the three months ended March 31, 2024 and three months ended March 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Risk Rating | The carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value within each risk rating is as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Indemnification Liability (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indemnification Liability | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Outstanding Amounts |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Indemnity Liability | The indemnity liability activity are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Indemnified Loans Risk Rating | The carrying value, excluding the CECL Reserve, of the Company’s indemnified loans held at carrying value within each risk rating is as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Provision for Loan Losses | The provision for credit losses on the statement of operations consists of the following activity for the period ended March 31, 2024 and March 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, Net (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment | Property and equipment consist of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Revenue from Operations | The revenue from the PCCU Agreements recognized in the statements of operations consists of the following for the three months ended March 31, 2024, and March 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Operating Expense from Operations | The operating expense from the PCCU Agreements recognized in the statements of operations consists of the following for the three months ended March 31, 2024, and March 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Outstanding Balances from Balance Sheet | The outstanding balances associated with the PCCU disclosed in the balance sheet are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loan Servicing Agreement [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Demonstrated Deposit Capacity | The below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Senior Secured Promissory Note (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
| Schedule of Senior Secured Promissory Note |
|
||||||||||||||||||||||||||||||||||||||||||
| Schedule of Outstanding Amount on Debt | The repayment schedule of the outstanding principal amount on March 31, 2024, is as follows:
|
||||||||||||||||||||||||||||||||||||||||||
Leases (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Lease Cost |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Right Of Use Assets |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Future Minimum Lease Payments | Future minimum lease payments as of March 31, 2024, and December 31, 2023, are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Disaggregated Revenue | Revenue by type are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earning Per Shares, Basic and Diluted |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Weighted Average Shares Outstanding - Basic And Diluted |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Share-based equity awards and Warrants Excluded from Computation of Earnings |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forward Purchase Agreement (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forward Purchase Agreement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Forward Purchase Agreement | The reconciliation statement of the Class A common stock held by the parties are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value Assets and Liabilities Measured on Recurring Basis | The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy on March 31, 2024 and December 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Carrying Amounts and Fair Values of Financial Instruments | The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value Assets Measured on Recurring Basis | The change in the assets measured at fair value on a recurring basis for which the Company have utilized Level 3 inputs to determine fair value are presented in the following table:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase Agreement Option [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Level 3 Fair Value Measurements Inputs | The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase derivatives as of their measurement dates on March 31, 2024 and December 31, 2023:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Level 3 Fair Value Measurements Inputs | The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the private placement warrants and public warrants as of their measurement dates:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders’ Equity (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value of Options Granted Black-Scholes-Merton Model |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option and Related Information |
A summary of the Company’s stock option activities and related information for the three months ended March 31, 2023 is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Options Outstanding |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Restricted Stock Units |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Exercise Price of Restricted Stock Units | The following RSU were outstanding at their respective vest price:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
Dec. 31, 2023 |
|
| Property, Plant and Equipment [Line Items] | |||
| Cash | $ 5,626,362 | $ 4,888,769 | |
| Working capital deficit | 318,825 | 135,355 | |
| Retained deficit | 70,386,394 | 71,569,821 | |
| Operating income | $ 324,941 | $ (1,621,669) | |
| Percentage of total loans receivables | 100.00% | ||
| Percentage of loans receivables | 10.00% | ||
| Expected volatility rate | 100.00% | ||
| Contract liabilities | $ 2,692 | $ 21,922 | |
| Equipment and Furniture and Fixtures [Member] | Minimum [Member] | |||
| Property, Plant and Equipment [Line Items] | |||
| Property and equipment useful life | 3 years | ||
| Equipment and Furniture and Fixtures [Member] | Maximum [Member] | |||
| Property, Plant and Equipment [Line Items] | |||
| Property and equipment useful life | 5 years | ||
| Revision of Prior Period, Reclassification, Adjustment [Member] | |||
| Property, Plant and Equipment [Line Items] | |||
| Accounts receivable trade | $ 190,943 | ||
Goodwill and Finite-lived Intangible Assets (Details Narrative) - USD ($) |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
Dec. 31, 2023 |
|
| Finite-Lived Intangible Assets [Line Items] | |||
| Non-cash goodwill impairment charge | $ 13,210,000 | ||
| Goodwill | $ 6,058,000 | 6,058,000 | |
| Goodwill impairment | 13,208,276 | $ 13,208,276 | |
| Impairment charge | 3,680,463 | ||
| Impairment | 354,911 | $ 0 | |
| Developed Technology Rights [Member] | |||
| Finite-Lived Intangible Assets [Line Items] | |||
| Impairment charge | $ 2,019,000 | ||
Schedule of Commercial Real Estate Loans Receivable (Details) - Commercial Real Estate Loans Receivable [Member] - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Short-Term Debt [Line Items] | ||
| Commercial real estate loans receivable, gross | $ 401,564 | $ 404,577 |
| Allowance for credit losses | (9,081) | (10,723) |
| Commercial real estate loans receivable, net | 392,483 | 393,854 |
| Current portion | (12,620) | (12,391) |
| Noncurrent portion | $ 379,863 | $ 381,463 |
Schedule of Allowance For Loan Losses (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
Dec. 31, 2023 |
|
| Receivables [Abstract] | |||
| Allowance for credit losses, beginning balance | $ 10,723 | $ 21,488 | |
| Cumulative effect from adoption of CECL | 14,980 | ||
| Charge-offs | |||
| Recoveries | (15,390) | ||
| Provision | (1,642) | ||
| Allowance for credit losses,ending balance | 9,081 | 21,078 | |
| Individually evaluated for impairment | |||
| Collectively evaluated for impairment | 401,564 | 413,292 | $ 404,577 |
| Loans receivable | 401,564 | 413,292 | |
| Individually evaluated for impairment | |||
| Collectively evaluated for impairment | 9,081 | 21,078 | |
| Allowance for loan losses | $ 9,081 | $ 21,078 | $ 10,723 |
Schedule of Risk Rating (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
Mar. 31, 2023 |
|---|---|---|---|
| Financing Receivable, Credit Quality Indicator [Line Items] | |||
| Grand total | $ 401,564 | $ 404,577 | $ 413,292 |
| Risk Rate 4 [Member] | |||
| Financing Receivable, Credit Quality Indicator [Line Items] | |||
| Grand total | $ 401,564 | $ 404,577 |
Schedule of Outstanding Amounts (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Total loans funded by PCCU | $ 58,168,928 | $ 55,646,653 |
| P C C U Agreement [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Secured term loans | 57,737,288 | 55,215,013 |
| Unsecured loans and lines of credit | 431,640 | 431,640 |
| Total loans funded by PCCU | $ 58,168,928 | $ 55,646,653 |
Schedule of Indemnity Liability (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Indemnification Liability | ||
| Beginning balance | $ 1,382,408 | $ 499,465 |
| Cumulative effect from adoption of CECL | 566,341 | |
| Charge-offs | ||
| Recoveries | ||
| (Benefit)/ Provision | (67,145) | 82,026 |
| Ending balance | $ 1,315,263 | $ 1,147,832 |
Schedule of Indemnified Loans Risk Rating (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Financing Receivable, Credit Quality Indicator [Line Items] | ||
| Grand total | $ 58,168,928 | $ 55,646,653 |
| Risk Rate 3 [Member] | ||
| Financing Receivable, Credit Quality Indicator [Line Items] | ||
| Grand total | 9,988,588 | 10,100,000 |
| Risk Rate 4 [Member] | ||
| Financing Receivable, Credit Quality Indicator [Line Items] | ||
| Grand total | 3,425,158 | 3,431,640 |
| Risk Rate 5 [Member] | ||
| Financing Receivable, Credit Quality Indicator [Line Items] | ||
| Grand total | 30,553,007 | 28,115,013 |
| Risk Rate Six [Member] | ||
| Financing Receivable, Credit Quality Indicator [Line Items] | ||
| Grand total | 10,900,000 | 10,900,000 |
| Risk Rate 7 [Member] | ||
| Financing Receivable, Credit Quality Indicator [Line Items] | ||
| Grand total | 3,100,000 | |
| Risk Rate 8 [Member] | ||
| Financing Receivable, Credit Quality Indicator [Line Items] | ||
| Grand total | $ 3,302,175 |
Schedule of Provision for Loan Losses (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Financing Receivable, Past Due [Line Items] | ||
| Provision (benefit) | $ (68,787) | $ 66,666 |
| Commercial Real Estate Portfolio Segment [Member] | ||
| Financing Receivable, Past Due [Line Items] | ||
| Provision (benefit) | (1,642) | (15,390) |
| Indemnity Liability Segment [Member] | ||
| Financing Receivable, Past Due [Line Items] | ||
| Provision (benefit) | $ (67,145) | $ 82,056 |
Indemnification Liability (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Secured Debt [Member] | Minimum [Member] | ||
| Debt Instrument [Line Items] | ||
| Interest rate | 7.35% | |
| Secured Debt [Member] | Maximum [Member] | ||
| Debt Instrument [Line Items] | ||
| Interest rate | 15.25% | |
| Unsecured Debt [Member] | ||
| Debt Instrument [Line Items] | ||
| Variable rate description | Unsecured loans and lines of credit contain variable rates ranging from Prime +1.50% to Prime +6.00%. | |
| Lines of credit | $ 525,000 | $ 996,958 |
Schedule of Property and Equipment (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 384,228 | $ 384,228 |
| Less: accumulated depreciation | (338,862) | (300,008) |
| Property and equipment, net | 45,366 | 84,220 |
| Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 45,397 | 45,397 |
| Software Development [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 51,692 | 51,692 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 71,635 | 71,635 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 215,504 | $ 215,504 |
Schedule of Revenue from Operations (Details) - Related Party [Member] - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Related Party Transaction [Line Items] | ||
| Revenue | $ 3,585,856 | $ 3,261,284 |
| Account Servicing Agreement [Member] | ||
| Related Party Transaction [Line Items] | ||
| Revenue | 3,261,284 | |
| Commercial Alliance Agreement [Member] | ||
| Related Party Transaction [Line Items] | ||
| Revenue | $ 3,585,856 | |
Schedule of Operating Expense from Operations (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Related Party Transaction [Line Items] | ||
| Operating expense | $ 3,725,858 | $ 5,802,048 |
| Related Party [Member] | ||
| Related Party Transaction [Line Items] | ||
| Operating expense | 300,261 | 390,659 |
| Support Services Agreement [Member] | Related Party [Member] | ||
| Related Party Transaction [Line Items] | ||
| Operating expense | 378,730 | |
| Loan Servicing Agreement [Member] | Related Party [Member] | ||
| Related Party Transaction [Line Items] | ||
| Operating expense | 11,929 | |
| Commercial Alliance Agreement [Member] | Related Party [Member] | ||
| Related Party Transaction [Line Items] | ||
| Operating expense | $ 300,261 | |
Schedule of Outstanding Balances from Balance Sheet (Details) - Related Party [Member] - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Related Party Transaction [Line Items] | ||
| Accounts receivable | $ 1,111,390 | $ 2,095,320 |
| Accounts payable | 125,693 | 577,315 |
| Senior Secured Promissory Note (Refer to Note 9 to the unaudited condensed consolidated financial statements) | $ 13,270,622 | $ 14,011,166 |
Related Party Transactions (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 29, 2023 |
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Debt instrument, face amount | $ 14,500,000 | ||
| Debt instrument, interest rate, effective percentage | 4.25% | ||
| Cash and cash equivalents | $ 5,600,000 | $ 8,600,000 | |
| Deposits | $ 5,000,000 | $ 4,600,000 | |
| Senior Secured Promissory Note [Member] | |||
| Debt instrument term | 5 years | ||
| Debt instrument, face amount | $ 14,500,000 | ||
| Debt instrument, interest rate, effective percentage | 4.25% | ||
| Loan Servicing Agreement [Member] | Partner Colorado Credit Union [Member] | |||
| Servicing fee | 0.25% | ||
| Yearly fee percentage | 0.35% | ||
| Support Services Agreement [Member] | |||
| Alliance agreement, description | In addition, the Commercial Alliance Agreement provides for certain fees to be paid to the Company for certain identified account related services to include: all cannabis-related income, including all lending-related income (such as loan origination fees, interest income on CRB-related loans, participation fees and servicing fees), investment income, interest income, account activity fees, processing fees, flat fees, and other revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system for a monthly fee equal to $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024. In addition, as it pertains to CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) will be shared 25% to PCCU and 75% to the Company. Finally, under the Commercial Alliance Agreement, PCCU will continue to allow its ratio of CRB-related deposits to total assets to equal at least 60% unless otherwise dictated by regulatory, regulator or policy requirements. The initial term of the Commercial Alliance Agreement is for a period of two years, with a one-year automatic renewal unless a party provides one hundred twenty days’ written notice prior to the end of the term. | ||
| Securities Issuance Agreement [Member] | Partner Colorado Credit Union [Member] | Common Class A [Member] | |||
| Number of shares issued | 11,200,000 | ||
| Ownwership percentage | 46.39% |
Schedule of Senior Secured Promissory Note (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
Mar. 29, 2023 |
|---|---|---|---|
| Short-Term Debt [Line Items] | |||
| Total | $ 14,500,000 | ||
| Security Agreement [Member] | |||
| Short-Term Debt [Line Items] | |||
| Total | $ 13,270,622 | $ 14,011,166 | |
| Senior Secured Promissory Note Current [Member] | Security Agreement [Member] | |||
| Short-Term Debt [Line Items] | |||
| Total | 3,028,738 | 3,006,991 | |
| Senior Secured Promissory Note Non Current [Member] | Security Agreement [Member] | |||
| Short-Term Debt [Line Items] | |||
| Total | $ 10,241,884 | $ 11,004,175 |
Schedule of Outstanding Amount on Debt (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Short-Term Debt [Line Items] | ||
| Total loans funded by PCCU | $ 58,168,928 | $ 55,646,653 |
| Senior Secured Promissory Note [Member] | ||
| Short-Term Debt [Line Items] | ||
| 2024 | 2,266,449 | |
| 2025 | 3,138,931 | |
| 2026 | 3,274,966 | |
| 2027 | 3,416,896 | |
| 2028 | 1,173,380 | |
| Total loans funded by PCCU | $ 13,270,622 |
Senior Secured Promissory Note (Details Narrative) - USD ($) |
Nov. 05, 2023 |
Mar. 29, 2023 |
|---|---|---|
| Debt instrument, face amount | $ 14,500,000 | |
| Debt instrument, interest rate, effective percentage | 4.25% | |
| 54 Equal Installments [Member] | ||
| Deferred consideration payable | $ 295,487 |
Schedule of Lease Cost (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Leases | ||
| Operating lease cost | ||
| Short-term lease cost | 69,437 | 87,742 |
| Total Lease Cost | $ 69,437 | $ 87,742 |
Schedule of Right Of Use Assets (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Leases | ||
| Beginning balance | $ 859,861 | $ 1,016,198 |
| Additions to right-of-use assets | ||
| Amortization charge for the period | (39,084) | (156,337) |
| Lease modifications | ||
| Ending balance | $ 820,777 | $ 859,861 |
| Weighted-average remaining lease term | 3 years 2 months 1 day | 3 years 5 months 1 day |
| Weighted-average discount rate | 6.87% | 6.87% |
Schedule of Future Minimum Lease Payments (Details) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Leases | ||
| 2024 | $ 151,111 | $ 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 | 1,166,942 | 1,213,351 |
| Less: Imputed interest | 188,481 | 205,358 |
| Operating lease liabilities | 978,461 | 1,007,993 |
| Less: Current portion | 142,863 | 132,546 |
| Non-current portion of lease liabilities | $ 835,598 | $ 875,447 |
Leases (Details Narrative) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Operating lease right to use assets | $ 820,777 | $ 859,861 | $ 1,016,198 |
| Operating lease liablities | $ 978,461 | $ 1,007,993 | |
| Minimum [Member] | |||
| Lease term | 1 year | ||
| Maximum [Member] | |||
| Lease term | 7 years |
Schedule of Disaggregated Revenue (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Total Revenue | $ 4,050,799 | $ 4,180,379 |
| Deposit Activity Onboarding Income [Member] | ||
| Total Revenue | 1,620,994 | 2,245,831 |
| Safe Harbor Program Income [Member] | ||
| Total Revenue | 19,230 | 51,103 |
| Investment Income [Member] | ||
| Total Revenue | 773,819 | 1,417,152 |
| Interest Income [Member] | ||
| Total Revenue | $ 1,636,756 | $ 466,293 |
Revenue (Details Narrative) - Partner Colorado Credit Union [Member] - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Investment hosting fees remit percent | 25.00% | |
| Proceeds from deposits | $ 1,217,675 | $ 2,245,831 |
| Investment income | 731,425 | 1,417,152 |
| Loan interest income | 1,636,756 | 466,293 |
| Account hosting expenses | 104,259 | 55,425 |
| Investment hosting fee | 160,101 | 323,305 |
| Loan servicing fees | $ 35,901 | $ 11,929 |
Deferred Underwriter Fee (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Mar. 13, 2023 |
Jan. 31, 2023 |
Dec. 31, 2022 |
Oct. 31, 2022 |
Oct. 14, 2022 |
Nov. 30, 2022 |
Mar. 31, 2023 |
Sep. 28, 2022 |
|
| Deferred underwriting cost | $ 900,500 | |||||||
| Benchmark Investments LLC [Member] | ||||||||
| Notes payable | $ 1,450,500 | $ 2,166,250 | ||||||
| Periodic payment | $ 362,625 | $ 362,625 | $ 362,625 | $ 715,750 | $ 362,625 | |||
| Repayments of debt | $ 550,000 |
Schedule of Earning Per Shares, Basic and Diluted (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Earnings Per Share [Abstract] | ||
| Net Income/ (loss) | $ 2,049,676 | $ (1,413,447) |
| Weighted average shares outstanding – basic | 55,213,609 | 25,670,730 |
| Basic net income/ (loss) per share | $ 0.04 | $ (0.06) |
| Weighted average shares outstanding – diluted | 56,268,075 | 25,670,730 |
| Diluted net income/ (loss) per share | $ 0.04 | $ (0.06) |
Schedule of Weighted Average Shares Outstanding - Basic And Diluted (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Earnings Per Share [Abstract] | ||
| Company public shares | 3,926,598 | 3,926,598 |
| Company initial stockholders | 3,403,175 | 3,403,175 |
| PCCU stockholders | 22,586,139 | 11,759,472 |
| Shares issued for abaca acquisition | 7,935,800 | 2,099,977 |
| Restricted stock units issued | 1,308,089 | 566,755 |
| Conversion of preferred stock | 16,053,808 | 3,914,753 |
| Weighted average shares outstanding - basic | 55,213,609 | 25,670,730 |
| Shares used in computation of basic earnings per share | 55,213,609 | 25,670,730 |
| Shares to be issued to Abaca shareholders | 750,000 | |
| Share based payments | 215,666 | |
| Conversion of preferred stock | 88,800 | |
| Grand total | 56,268,075 | 25,670,730 |
Schedule of Share-based equity awards and Warrants Excluded from Computation of Earnings (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Earnings Per Share [Abstract] | ||
| Warrants | 12,036,588 | 7,036,588 |
| Share based payments | 2,284,080 | 2,775,655 |
| Shares to be issued to Abaca shareholders | 6,433,839 | |
| Conversion of preferred stock | 10,896,000 | |
| Grand total | 14,320,668 | 27,142,082 |
Forward Purchase Agreement (Details Narrative) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | |||
|---|---|---|---|---|
Jun. 16, 2022 |
Mar. 31, 2024 |
Dec. 31, 2022 |
Sep. 30, 2022 |
|
| Related expense amounts | $ 0.3 | |||
| Maturity date, description | At the Maturity Date, Midtown East, Verdun and Vellar shall be entitled to (1) the product of the shares then held by them multiplied by the Forward Price, and (2) an amount, in cash or shares at the sole discretion of the Company, equal to (a) in the case of cash, the product of (i)(x) 3.8 million shares less (y) the number of Terminated Shares and (ii) $2.00 (the “Maturity Cash Consideration”) and (b) in the case of shares, (i) the Maturity Cash Consideration divided by (ii) the VWAP Price for the 30 Scheduled Trading Days prior to the Maturity Date. | |||
| Shares per share | $ 3.00 | $ 1.25 | ||
| Forward Purchase Agreement [Member] | ||||
| Decrease in receivables | $ 37.9 | |||
| Receivables | $ 4.6 | |||
| Cash [Member] | ||||
| Asset held with trust | $ 39.3 | |||
| Midtown East Management NL LLC [Member] | Common Class A [Member] | ||||
| Shares, issued | 1,666,666 | |||
| Number of new stock issued | 3,800,000 |
Warrant Liabilities (Details Narrative) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Common Class A [Member] | ||
| Shares issued, price per share | $ 18.00 | |
| Warrants execise price | $ 11.50 | |
| Public Warrants [Member] | ||
| Warrants outstanding | 5,750,000 | |
| Warrants execise price | $ 0.01 | |
| Private Placement Warrants [Member] | ||
| Warrants outstanding | 264,088 | |
| Public and Private Warrants [Member] | ||
| Warrants description | The Public and Private Placement Warrants became exercisable on September 28, 2022, the date of the Business Combination and will expire on September 28, 2027, or earlier upon redemption or liquidation. | |
| PIPE Warrants [Member] | ||
| Warrants outstanding | 1,022,500 | 1,022,500 |
| Warrants description | (i)125% of the conversion price if at any time there is an adjustment to the Conversion Price and the exercise price after such adjustment is greater than 125% of the Conversion Price as adjusted and (ii) $5.00. | |
| Abaca Warrants [Member] | ||
| Warrants outstanding | 5,000,000 | 5,000,000 |
| Warrants execise price | $ 2.00 | |
| Abaca Warrants [Member] | Common Class A [Member] | ||
| Warrants execise price | $ 2.00 | |
| Number of warrant issued | 5,000,000 | |
| Warrants term | 5 years |
Tax (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
Dec. 31, 2023 |
|
| Income Tax Disclosure [Abstract] | |||
| Income tax benefit | $ 438,885 | $ 609,277 | |
| Effective income tax rate reconciliation other adjustments | 28.14% | ||
| Effective income tax rate, federal | 21.00% | ||
| Deferred tax assets liabilities net | $ 44,278,374 | $ 43,829,019 | |
401(k) Plan (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Retirement Benefits [Abstract] | ||
| Defined contribution plan employee percent | 100.00% | |
| Defined contribution plan employee matching contribution | 4.00% | |
| Defined contribution plan amount | $ 35,233 | $ 20,663 |
Schedule of Fair Value of Options Granted Black-Scholes-Merton Model (Details) |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Dividend yield | 0.00% |
| Risk-free interest rate, minimum | 3.62% |
| Risk-free interest rate, maximum | 4.23% |
| Expected volatility | 100.00% |
| Minimum [Member] | |
| Expected term | 6 years |
| Maximum [Member] | |
| Expected term | 6 years 6 months |
Schedule of Options Outstanding (Details) - shares |
Mar. 31, 2024 |
Mar. 31, 2023 |
|---|---|---|
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | ||
| Exercise price options | 2,284,080 | 2,441,855 |
| Exercise Price One [Member] | ||
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | ||
| Exercise price options | 374,580 | 359,355 |
| Exercise Price Two [Member] | ||
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | ||
| Exercise price options | 350,000 | 350,000 |
| Exercise Price Three [Member] | ||
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | ||
| Exercise price options | 309,500 | 482,500 |
| Exercise Price Four [Member] | ||
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | ||
| Exercise price options | 1,250,000 | 1,250,000 |
Schedule of Exercise Price of Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member] - shares |
Mar. 31, 2024 |
Dec. 31, 2023 |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|---|---|
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | ||||
| Exercise price options | 215,667 | 323,500 | 963,528 | |
| Exercise Price One [Member] | ||||
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | ||||
| Exercise price options | 215,667 | 963,528 |
Stockholders’ Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
Jan. 25, 2024 |
Dec. 31, 2023 |
|
| Preferred stock, shares authorized | 1,250,000 | 1,250,000 | ||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 | ||
| Convertible preferred stock, shares issued | 111 | 1,101 | ||
| Convertible preferred stock, shares outstanding | 111 | 1,101 | ||
| Conversion Price | $ 10.00 | |||
| Conversion of stock description | 80% of the volume weighted average price of the Class A Common Stock for the prior five trading days and (ii) $2.00 (the “Floor Price”), provided that, so long as a preferred stock holders continues to hold any preferred shares, such preferred stock holder will be entitled to receive the aggregate shares of Class A Common Stock that would be issuable based upon its initial purchase of preferred stock at the adjusted Conversion Price | |||
| Class A common stock, shares authorized | 130,000,000 | 130,000,000 | ||
| Class A common stock, par value | $ 0.0001 | $ 0.0001 | ||
| Class A common stock, shares issued | 55,431,001 | 54,563,372 | ||
| Class A common stock, shares outstanding | 55,431,001 | 54,563,372 | ||
| Common stock held for purchase | 3,667,377 | |||
| Share based compensation | $ 0.6 | $ 1.6 | ||
| Expected volatility | 100.00% | |||
| Share-Based Payment Arrangement, Option [Member] | ||||
| Contractual term | 10 years | |||
| Forward Purchase Agreement [Member] | ||||
| Common stock held for purchase | 3,667,377 | 3,667,377 | ||
| Maximum [Member] | ||||
| Share price | $ 2.00 | |||
| Minimum [Member] | ||||
| Share price | $ 1.25 | |||
Subsequent events (Details Narrative) |
Apr. 05, 2024
$ / shares
|
|---|---|
| Subsequent Event [Member] | |
| Subsequent Event [Line Items] | |
| Share price | $ 1.00 |