UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
☒ SEMIANNUAL REPORT PURSUANT TO REGULATION A
or
☐ SPECIAL FINANCIAL REPORT PURSUANT TO REGULATION A
For the fiscal semiannual period ended June 30, 2022
SHARED CAPITAL COOPERATIVE
(Exact name of issuer as specified in its charter)
| Minnesota | 41-1621896 | |
| State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification Number) |
2388 University Ave W, Suite 300, St. Paul, Minnesota 55114
(Full mailing address of principal executive offices)
612-767-2100
(Issuer’s telephone number, including area code)
Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 |
| Other Information | 2 |
| Financial Statements | 3 |
| Exhibits | 7 |
i
Item 1. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read this section in conjunction with (i) Shared Capital’s financial statements and (ii) the section entitled “Description of Shared Capital’s Business,” in Form 1-A, Part II, Item 7.
The discussion contains forward-looking statements relating to our plans and expectations for future operations. Forward-looking statements may be based on assumptions, and reaching any predicted result is uncertain and involves risk. Shared Capital’s actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those discussed under “Risk Factors” and elsewhere in Form 1-A.
Financial Performance
Shared Capital is a growing loan fund with healthy financials and a steadily growing loan portfolio. Between 2016-2021, Shared Capital’s assets grew from $11.2 million to $20.9 million, and annual revenue increased by over 400%. In the first two quarters of 2022, assets grew another 5.11% to $23.2 million. YTD net income outpaces last year by a factor of 2.39 ($688k vs. $287k).
The gross profit from lending activities has increased by an average of 5.27% per year between 2016-2021. Contributed revenue from grants and donations also increased significantly, averaging less than $100,000 per year before 2018, and growing to over $2.6 million in 2021. $1.0 million in grant revenue was recognized through the 2nd quarter of 2022.
Operating Results
Increases in gross profit have been driven primarily by growth in annual lending volume resulting in greater outstanding loans receivable and higher earned revenue from interest and fees. 2021 net income was $407,209 on revenues of $3.6 million after dividends and provisions for loan loss reserves and taxes. 2022 net income through June 30 was $688,088 on revenues of $1.6 million.
Major Capital and Funding Sources
The CDFI Fund of the US Department of Treasury is one of the Cooperative’s largest funders. The CDFI Fund offers competitive annual funding opportunities, and Shared Capital has received multiple CDFI Fund awards in recent years. In 2021, Shared Capital was awarded a grant of $1,826,265 through the CDFI Fund’s special Rapid Response Program (RRP) to support business recovery from the COVID-19 pandemic. We received grant awards from the CDFI Fund Financial Assistance program of $520,000 in 2020 and $565,000 in 2019. In addition, in 2020, we received a $1,050,000 grant award from the CDFI Fund Health Food Financing Initiative (HFFI).
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We anticipate continued funding from the CDFI Fund, but we do not expect to receive CDFI Fund funding every year. The awards from the CDFI Fund are highly competitive, with more than 700 CDFIs vying for funding, and the amounts of potential awards depend on funding levels set by Congress. Most awards require a dollar-for-dollar match of the same type (i.e. grant, debt, or equity) and also depend on Shared Capital’s financial and programmatic performance and the strength of our funding proposals. Our access to funding from the CDFI Fund depends on our compliance with prior funding awards agreements, maintaining CDFI certification, and continued deployment of funds to economically disadvantaged communities in alignment with CDFI guidelines. These awards do not substantially fund operations – they are primarily used for lending capital.
In 2019, Shared Capital received a one-time $5 million multi-year award from the New World Foundation through its Quality Jobs Fund. The award supports Accelerate Employee Ownership, which is a collaborative program with national nonprofit Project Equity. The program seeks to expand employee ownership and create and sustain high quality jobs in local communities. The award supports assistance and financing to employees to purchase the business to worker cooperatives.
Liquidity and Capital Resources
Shared Capital’s cash and near-cash assets grew significantly over the past three years, giving the Cooperative the resources to expand lending activities and increase our impact in the cooperative ecosystem. Shared Capital has consistently maintained high rates of deployment of its lending capital, often at 90% or higher. Over the next five years, we anticipate continued strong and growing demand for loans but lower deployment rates as we have raised and continue to raise capital. We expect average deployment of 60-75% over the next three years increasing to 70-85% in years 4 and 5. At this time, there are no planned capital expenditures that would deplete cash reserves.
Portfolio Risk and Loan Losses
The Cooperative has a successful 40-year track record of lending, but from time to time we have experienced loan losses due to unexpected changes in the market. For example, increased competition within retail grocery led to declining financial performance and increasing rates of failure for some food cooperatives between 2016-2019, including some Shared Capital borrowers, resulting in higher loan losses during that time. Similarly, the housing crisis led to higher failure rates of some housing cooperatives, resulting in the loss by Shared Capital of two significant loans to housing co-ops in 2008 and 2011. Likewise, unforeseeable market changes in the future could potentially affect Shared Capital borrowers in affected industries or geographic areas, leading to larger than anticipated loan losses.
Trend Information
Over the past five years, we have witnessed a growing interest in cooperative models as solutions to economic and racial equity challenges, and the interest has intensified as a result of the COVID-19 pandemic. There are a growing number of cooperative development efforts in rural and urban communities across the country, and we expect to see more cooperatives forming and expanding, which will lead to further growth in the pipeline of projects seeking financing. In addition, we are seeing growing interest from philanthropy, government, and private investors in investing in cooperative development and in investing through CDFIs. We expect this focused interest to provide the opportunity for continued growth in the capital available for our work over the coming years.
Grant and contribution income is never guaranteed, but future recognition of current grant awards and new potential grant opportunities that continue to emerge signal a high likelihood that grant and contribution revenue may continue to be available for the next several years, as we continue to increase our self-sufficiency and reduce our reliance on grants for operations.
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Shared Capital Cooperative
Balance Sheets
June 30, 2022 and December 31, 2021 and 2020
| 30-Jun | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash | 7,879,734 | 8,444,879 | 2,840,985 | |||||||||
| Accounts Receivable | 826,548 | 190,676 | 446,777 | |||||||||
| Prepaid Expenses | 94,715 | 94,593 | 26,787 | |||||||||
| Accrued Interest Receivable | 77,925 | 78,598 | 61,355 | |||||||||
| Current Portion of Notes Receivable | 3,856,072 | 3,549,654 | 2,328,571 | |||||||||
| Total Current Assets | 12,734,994 | 12,358,400 | 5,704,475 | |||||||||
| Property and Equipment - Net | 26,279 | 28,685 | 19,937 | |||||||||
| Intangible Assets - Net | 11,857 | 13,187 | 15,846 | |||||||||
| OTHER ASSETS | ||||||||||||
| Security Deposit | 3,000 | 3,000 | 3,000 | |||||||||
| Equity in Other Cooperatives | 300,000 | 154,560 | 154,560 | |||||||||
| Deposit in Other Cooperative | 5,075 | 5,000 | 5,000 | |||||||||
| Notes Receivable Less Current Portion - Net of Loan Loss Allowance | 10,022,700 | 8,245,907 | 9,996,331 | |||||||||
| Deferred Taxes | 87,000 | 87,000 | 456,000 | |||||||||
| Total Assets | 23,190,905 | 20,895,739 | 16,355,149 | |||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts Payable | 28,662 | 17,721 | 22,733 | |||||||||
| Accrued Expenses | 23,543 | 19,508 | 15,944 | |||||||||
| Deferred Revenue | 1,718,488 | 735,688 | 100,000 | |||||||||
| Funds Held for Others | 379,364 | 331,039 | 324,749 | |||||||||
| Income Taxes Payable | - | 31,020 | 17,998 | |||||||||
| Current Portion of Accrued Interest Payable | 158,667 | 173,168 | 141,209 | |||||||||
| Current Portion of Long-Term Debt | 2,694,359 | 3,368,186 | 3,509,525 | |||||||||
| Total Current Liabilities | 5,003,084 | 4,676,330 | 4,132,158 | |||||||||
| LONG-TERM LIABILITIES | ||||||||||||
| Accrued Interest Payable Net of Current Portion | 187,973 | 150,991 | 124,234 | |||||||||
| Long-Term Debt Net of Current Portion and Loan Costs | 13,939,362 | 12,840,893 | 9,348,073 | |||||||||
| Total Liabilities | 19,130,418 | 17,668,214 | 13,604,465 | |||||||||
| EQUITY | ||||||||||||
| Preferred Stock, $10 Par Value, 500,000 Shares Authorized, | 2,828,254 | 2,590,147 | 2,504,467 | |||||||||
| Common Stock - Voting, $10 Par Value, 1,000 Shares Authorized, | 4,250 | 4,170 | 3,920 | |||||||||
| Common Stock - Nonvoting, $10 par Value, 500,000 Shares | 1,555,901 | 1,557,901 | 1,557,921 | |||||||||
| Additional Paid-In Capital | 669,085 | 657,590 | 642,893 | |||||||||
| Retained Patronage | 82,785 | 82,785 | 42,090 | |||||||||
| Accumulated Deficit | (1,079,788 | ) | (1,665,068 | ) | (2,000,597 | ) | ||||||
| Total Equity | 4,060,487 | 3,227,525 | 2,750,694 | |||||||||
| Total Liabilities and Equity | 23,190,905 | 20,895,739 | 16,355,159 | |||||||||
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Shared Capital Cooperative
Income Statements
June 30, 2022 and December 31, 2021 and 2020
| 30-Jun | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| REVENUE | ||||||||||||
| Interest Income - Loans | 449,886 | 871,207 | 743,138 | |||||||||
| Interest Income - Cash Accounts | 24,959 | 13,580 | 7,919 | |||||||||
| Loan Fees | 71,275 | 107,873 | 122,273 | |||||||||
| Loan Recovery Income | - | 11,826 | 53,299 | |||||||||
| Grants and Contributions | 1,048,752 | 2,634,706 | 1,178,054 | |||||||||
| Consulting Income | - | 700 | 3,900 | |||||||||
| Other | 8,450 | 10,000 | 9,400 | |||||||||
| Total Revenue | 1,603,322 | 3,649,892 | 2,117,983 | |||||||||
| EXPENSES | ||||||||||||
| Provision for Loan Losses | 54,559 | 912,731 | 260,568 | |||||||||
| Personnel | 441,347 | 680,657 | 555,009 | |||||||||
| Outside Services | 80,819 | 419,267 | 93,839 | |||||||||
| Interest | 177,776 | 303,233 | 226,509 | |||||||||
| Contributions | 100 | 185,000 | 210,000 | |||||||||
| Professional Services | 47,242 | 81,558 | 66,473 | |||||||||
| Advertising | 14,526 | 60,139 | 26,815 | |||||||||
| Occupancy | 26,757 | 55,096 | 50,896 | |||||||||
| Office Supplies | 14,632 | 34,070 | 32,332 | |||||||||
| Depreciation and Amortization | 11,052 | 18,732 | 15,834 | |||||||||
| Seminars, Travel, Training | 20,330 | 12,884 | 13,497 | |||||||||
| Fees | 3,343 | 11,239 | 1,577 | |||||||||
| Dues | 7,101 | 8,749 | 8,621 | |||||||||
| Board Expense | 1,763 | 824 | 46 | |||||||||
| Total Expenses | 901,347 | 2,784,179 | 1,562,016 | |||||||||
| Net Income Before Income Taxes and Patronage Dividend | 701,975 | 865,713 | 555,967 | |||||||||
| Provision for Income Taxes | (13,887 | ) | (417,809 | ) | (177,998 | ) | ||||||
| Patronage Dividend | (40,695 | ) | (29,726 | ) | ||||||||
| Net Income | 688,088 | 407,209 | 348,243 | |||||||||
4
Shared Capital Cooperative
Cash Flows
June 30, 2022 and December 31, 2021 and 2020
| 30-Jun 2022 | 2021 | 2020 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net Income | 688,088 | 407,209 | 348,243 | |||||||||
| Adjustments to Reconcile Net Income to | ||||||||||||
| Net Cash Flows from Operating Activities | ||||||||||||
| Depreciation and Amortization | 11,053 | 18,732 | 15,834 | |||||||||
| Change in Loan Loss Allowance | 52,534 | 544,567 | 131,461 | |||||||||
| Deferred Taxes | - | 369,000 | 160,000 | |||||||||
| (Increase) Decrease in Assets | ||||||||||||
| Accounts Receivable | (635,871 | ) | 256,101 | (139,680 | ) | |||||||
| Prepaid Expenses | (122 | ) | (67,806 | ) | (723 | ) | ||||||
| Accrued Interest Receivable | 673 | (17,243 | ) | (15,638 | ) | |||||||
| Purchases of other assets | (75 | ) | - | - | ||||||||
| Increase (Decrease) in Liabilities | ||||||||||||
| Accounts Payable | 10,941 | (5,002 | ) | (4,788 | ) | |||||||
| Accrued Expenses | 3,765 | 3,564 | (150 | ) | ||||||||
| Deferred Revenue | 982,800 | 635,688 | 92,000 | |||||||||
| Funds Held for Others | 48,595 | 6,290 | 41,353 | |||||||||
| Income Taxes Payable | (31,020 | ) | 13,022 | 17,342 | ||||||||
| Accrued Interest Payable | 22,481 | 58,716 | (73,543 | ) | ||||||||
| Net Cash Flows from Operating Activities | 1,153,842 | 2,222,838 | 571,711 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Proceeds from Notes Receivable | 1,368,732 | 2,890,587 | 2,069,704 | |||||||||
| Purchases of Property and Equipment | (7,317 | ) | (24,821 | ) | (3,180 | ) | ||||||
| Issuance of Notes Receivable | (3,504,477 | ) | (2,905,813 | ) | (4,205,851 | ) | ||||||
| Purchases of Mission Equity Investments | (145,440 | ) | - | - | ||||||||
| Net Cash Flows from Investing Activities | (2,288,502 | ) | (40,047 | ) | (2,139,327 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Issuance of Long-Term Debt | 833,737 | 4,366,875 | 2,914,641 | |||||||||
| Payments on Long-Term Debt | (409,540 | ) | (1,016,281 | ) | (722,750 | ) | ||||||
| Amortization of Loan Costs | 443 | 887 | 886 | |||||||||
| Purchases of Common Stock | 135,300 | 17,280 | 25,745 | |||||||||
| Redemptions of Common Stock | - | (2,353 | ) | (3,590 | ) | |||||||
| Purchases of Preferred Stock | 9,575 | 14,000 | 340,000 | |||||||||
| Patronage Dividend Retained | - | 40,695 | 29,726 | |||||||||
| Redemptions of Retained Patronage | - | - | (6 | ) | ||||||||
| Net Cash Flows from Financing Activities | 569,515 | 3,421,103 | 2,584,652 | |||||||||
| Net Change in Cash | (565,145 | ) | 5,603,894 | 1,017,036 | ||||||||
| Cash at Beginning of Year | 8,444,879 | 2,840,985 | 1,823,949 | |||||||||
| Cash at End of Period | 7,879,734 | 8,444,879 | 2,840,985 | |||||||||
| SUPPLEMENTARY DISCLOSURES | ||||||||||||
| Cash Paid for Interest | 153,587 | 243,630 | 299,166 | |||||||||
| Cash Paid for Income Taxes | 31,024 | 17,998 | 656 | |||||||||
5
Shared Capital Cooperative
Changes in Stockholder Equity
December 31, 2021 and 2020
| Common | Common | Additional | ||||||||||||||||||||||||||
| Preferred | Stock - | Stock - | Paid-In | Retained | Accumulated | Total | ||||||||||||||||||||||
| Stock | Voting | Nonvoting | Capital | Patronage | Deficit | Equity | ||||||||||||||||||||||
| Balance December 31, 2020 | 2,504,467 | 3,920 | 1,557,921 | 642,893 | 42,090 | (2,000,597 | ) | 2,750,694 | ||||||||||||||||||||
| - | ||||||||||||||||||||||||||||
| Purchases | 14,000 | 270 | 17,010 | 31,280 | ||||||||||||||||||||||||
| Redemptions | (20 | ) | (2,333 | ) | (2,353 | ) | ||||||||||||||||||||||
| Stock Converted | (20 | ) | 20 | - | ||||||||||||||||||||||||
| Preferred Stock Dividend | 71,680 | (71,680 | ) | - | ||||||||||||||||||||||||
| Patronage Dividend | 40,695 | 40,695 | ||||||||||||||||||||||||||
| Net Income | 407,209 | 407,209 | ||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||
| Balance December 31, 2021 | 2,590,147 | 4,170 | 1,557,901 | 657,590 | 82,785 | (1,665,068 | ) | 3,227,525 | ||||||||||||||||||||
| Purchases | 135,300 | 70 | 9,505 | 144,875 | ||||||||||||||||||||||||
| Redemptions | - | |||||||||||||||||||||||||||
| Stock Converted | 10 | (2,000 | ) | 1,990 | - | |||||||||||||||||||||||
| Preferred Stock Dividend | 102,807 | (102,807 | ) | - | ||||||||||||||||||||||||
| Patronage Dividend | - | |||||||||||||||||||||||||||
| Net Income | 688,088 | 688,088 | ||||||||||||||||||||||||||
| Balance June 30, 2022 | 2,828,254 | 4,250 | 1,555,901 | 669,085 | 82,785 | (1,079,787 | ) | 4,060,488 | ||||||||||||||||||||
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7
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Shared Capital Cooperative, a Minnesota Cooperative Corporation
By
| Signature | /s/ Christina Jennings | |
| Name | Christina Jennings | |
| Title | Executive Director | |
| Date | October 5, 2022 |
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
| Signature | /s/ Christina Jennings | |
| Name | Christina Jennings | |
| Title | Executive Director | |
| Date | April 25, 2022 |
| Signature | /s/ Mark Downey | |
| Name | Mark Downey | |
| Title | Director of Finance and Operations | |
| Date | October 5, 2022 |
| Signature | /s/ Holly Jo Sparks | |
| Name | Holly Jo Sparks | |
| Title | Treasurer and Director | |
| Date | October 6, 2022 |
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