U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 1-K
ANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933
For the fiscal year ended: December 31, 2023
Shared Capital Cooperative
(Exact name of issuer as specified in its charter)
Minnesota | 41-1621896 | |
(State of other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification Number) |
2388 University Ave W, Suite 300
Saint Paul, MN 55114
(Address, including zip code of principal executive office)
(612)767-2100
(Issuer’s telephone number, including area code)
Class A Preferred Stock
3-Year Note
5-Year Note
10-Year Note
(Title of each class of securities issued pursuant to Regulation A)
PART II
INFORMATION TO BE INCLUDED IN REPORT
Item 1. Business
See Form 1-A, Part II, Item 7.
Item 2. 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 (see Shared Capital’s audit reports for 2022 and 2023) 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 CDFI lender with healthy financials and a steadily growing loan portfolio. Over the past 7 years, Shared Capital’s assets have grown from $11.2 million to $25.5 million. 2023 saw a record lending year for Shared Capital, closing $14.7 million in loans to cooperative businesses (compared to $8.2 million in 2022, which was our previous record). Gross profit from lending activities increased by an average of 9.67% between 2018-2022, and increased by 50.12% in 2023.
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. 2023 net income was $146,684 on revenues of $3.86 million (up from $2.5 million in 2022) after dividends and provisions for loan loss reserves and taxes.
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). Shared Capital did not receive CDFI funding in 2022 or 2023.
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 nearly 1,500 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.
1 of 5
Liquidity and Capital Resources
With the record lending year in 2023, Shared Capital’s cash and near-cash assets dropped in 2023, limiting available loan capital for 2024, and highlighting the usefulness of new investments to meet the persistent need. 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 two years increasing to 70-85% in years 3 and 4. 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 six years, we have witnessed a growing interest in cooperative models as solutions to economic and racial equity challenges, and the interest intensified because 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.
Item 3. Directors and Officers
Name | Position | Age | Term of Office1 | Years of Relevant Experience | ||||||||||
Executive Officers2 | ||||||||||||||
Terence Courtney | President of the Board | 51 | 6/12/2020-8/2023 | 27 | ||||||||||
Camille Kerr | Vice President of the Board | 40 | 6/24/2020-8/2023 | 12 | ||||||||||
Holly Jo Sparks | Treasurer of the Board | 48 | 4/19/2017-8/2023 | 29 | ||||||||||
Charity Schmidt | Secretary of the Board | 37 | 8/11/2022-8/2025 | 11 | ||||||||||
Directors3 | ||||||||||||||
Thomas Beckett | Director | 62 | 4/30/2015-6/2024 | 32 | ||||||||||
Enrique Blanco | Director | 43 | 6/22/2023-8/2026 | 17 | ||||||||||
Anna Boyer | Director | 44 | 8/11/2022-8/2025 | 16 | ||||||||||
Terence Courtney | Director and President | 51 | 6/12/2020-8/2026 | 27 | ||||||||||
Alexandra Devendra | Director | 40 | 6/22/2023-6/2024 | 5 | ||||||||||
Camille Kerr | Director and Vice President | 40 | 6/24/2020-6/2023 | 11 | ||||||||||
Gail Patrice Lockert Anthony | Director | 63 | 5/18/2021-6/2024 | 20 | ||||||||||
Repa Mekha | Director | 65 | 5/15/2019-8/2026 | 37 | ||||||||||
Julie Ristau | Director | 69 | 5/24/2018-8/2025 | 17 | ||||||||||
Charity Schmidt | Director and Secretary | 37 | 8/11/2022-8/2025 | 11 | ||||||||||
Holly Jo Sparks | Director and Treasurer | 48 | 4/19/2017-8/2026 | 29 | ||||||||||
Significant Employees4 | Start of Employment | |||||||||||||
Christina Jennings | Executive Director | 53 | 8/25/2008 | 25 | ||||||||||
Mark Downey | Director of Finance and Operations | 60 | 4/30/2021 | 38 |
|
1 | Officers of the Board serve one-year terms, which may be consecutive. Directors serve terms of up to three years, which may also be consecutive. The start dates listed refer to the date the person first began to serve in that position. The person has served consecutive terms since that date. The end date refers to the end of the current term. |
2 | The Executive Officers are the officers of the Board. They are not compensated for director or officer duties. |
3 | All Directors serve without compensation. |
4 | The Significant Employees are full-time employees of the issuer. |
2 of 5
Family Relationships
There are no family relationships among the Executive Officers, Directors, and Significant Employees.
Item 4. Security Ownership of Management and Certain Securityholders
Title of Class | Name of beneficial owner | Amount and nature of beneficial ownership | Amount and nature of beneficial ownership acquirable | Percent of Class | ||||
Common Stock | All executive officers and directors as a group | Collectively hold 3 shares of common stock. | None | 0.68% |
Item 5. Interest of Management and Others in Certain Transactions
As a cooperative association, Shared Capital regularly engages in transactions, including significant transactions with our members in the normal course of business. During the fiscal years 2019-2023, Shared Capital engaged in the following significant transactions related to directors and executive officers. All were in the normal course of business.
Terence Courtney is a director of Shared Capital and is also an employee of the Federation of Southern Cooperatives, which is a member, investor, and borrower of Shared Capital. The Federation of Southern Cooperatives made a $250,000 purchase of Shared Capital Class A Preferred Shares in 2020. In 2020, the Federation of Southern Cooperatives received a $500,000 line of credit from Shared Capital (partially guaranteed by the Preferred Shares), and in 2021, Shared Capital renewed another line of credit in the amount of $225,000, which had originally been approved in 2018. Those lines of credit have been converted to a single installment loan, the outstanding principal of which was $470,446 as of December 31, 2023.
Camille Kerr is a director of Shared Capital and is also a co-founder and organizer of ChiFresh Kitchen, LWCA (ChiFresh Kitchen), a worker cooperative, which is a member and borrower of Shared Capital. Shared Capital made a loan of $350,000 to ChiFresh Kitchen in 2021. Kerr is also affiliated with Jumpstart Housing Cooperative, to which Shared Capital made a loan of $510,000 in 2023. Kerr purchased $23,000 of Shared Capital Class A Preferred Shares in 2019 through a self-directed IRA.
Christina Jennings is Executive Director of Shared Capital and serves as Treasurer on the Board of Directors for Cooperative Development Foundation (CDF). CDF made a $100,000 debt investment in Shared Capital in 2021, adding to two previous investments in 2018 and 2016.
Holly Jo Sparks is a director of Shared Capital, and is also a director at NASCO Properties, Inc., which made debt investments in Shared Capital totaling $303,856 in 2019.
Julie Ristau is a director of Shared Capital and purchased $1,000 of Shared Capital Class A Preferred Shares in 2021.
Item 6. Other Information
There are no additional disclosures for the annual period pursuant to Form 1-U requirements.
Item 7. Financial Statements
(a) | Audit. Attached. |
(b) | Information only |
(c) | Information only |
(d) | Balance Sheet. See spreadsheet 2022 SCC Financials; Balance Sheet tab. |
(e) | Statements of income cash flows, and changes in stockholders’ equity. See spreadsheet 2022 SCC Financials; Income Statement, Cash Flows, and Change in Equity tabs. |
(f) | Oil and Gas Producing Activities. N/A |
(g) | Financial Statements of and Disclosures About Guarantors and Issuers of Guaranteed Securities. N/A |
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FINANCIAL STATEMENTS
December 31, 2023 and 2022
C O N T E N T S
Independent Auditor’s Report | F-2 |
Balance Sheets | F-4 |
Statements of Income | F-5 |
Statements of Equity | F-6 |
Statements of Cash Flows | F-7 |
Notes to Financial Statements | F-8 |
F-1
To the Board of Directors
Shared Capital Cooperative
St. Paul, Minnesota
Opinion
We have audited the financial statements of Shared Capital Cooperative, which comprise the balance sheets as of December 31, 2023 and 2022, and the related statements of income, equity, and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Shared Capital Cooperative as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Shared Capital Cooperative and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Adoption of New Accounting Guidance
As discussed in Note 1 to the financial statements, Shared Capital Cooperative adopted the Financial Accounting Standards Board’s Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326) and all subsequently issued clarifying ASUs as of January 1, 2023. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Shared Capital Cooperative’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
F-2
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
● | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Shared Capital Cooperative’s internal control. Accordingly, no such opinion is expressed. |
● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Shared Capital Cooperative’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Wegner CPAs, LLP
Madison, Wisconsin
April 16, 2024
F-3
SHARED CAPITAL COOPERATIVE
December 31, 2023 and 2022
2023 | 2022 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 2,908,090 | $ | 6,057,325 | ||||
Accounts receivable | 13,823 | 616,373 | ||||||
Prepaid expenses | 84,291 | 105,486 | ||||||
Accrued interest receivable | 157,774 | 82,979 | ||||||
Current portion of notes receivable | 6,895,101 | 4,843,226 | ||||||
Total current assets | 10,059,079 | 11,705,389 | ||||||
Property and equipment - net | 12,659 | 25,701 | ||||||
Intangible assets - net | 7,868 | 10,527 | ||||||
OTHER ASSETS | ||||||||
Operating lease right-of-use asset | 131,325 | 155,968 | ||||||
Security deposit | 3,000 | 3,000 | ||||||
Equity investments in other cooperatives - net | 300,000 | 300,000 | ||||||
Membership equity in other cooperatives | 10,075 | 5,075 | ||||||
Notes receivable - net of current portion and loan loss allowance | 14,942,823 | 10,732,349 | ||||||
Deferred taxes - net | 18,000 | 14,000 | ||||||
Total assets | $ | 25,484,829 | $ | 22,952,009 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 1,399,286 | $ | 56,137 | ||||
Accrued expenses | 34,302 | 28,125 | ||||||
Deferred revenue | 2,054,560 | 1,755,675 | ||||||
Funds held for others | 401,827 | 298,913 | ||||||
Income taxes payable | 2,510 | 36,188 | ||||||
Current portion of accrued interest payable | 161,315 | 195,134 | ||||||
Current portion of operating lease liabilities | 33,301 | 30,766 | ||||||
Current portion of long-term debt | 3,318,213 | 2,727,428 | ||||||
Total current liabilities | 7,405,314 | 5,128,366 | ||||||
LONG-TERM LIABILITIES | ||||||||
Operating lease liabilities net of current portion | 98,757 | 125,202 | ||||||
Accrued interest payable net of current portion | 177,252 | 167,599 | ||||||
Line of credit | 1,000,000 | - | ||||||
Long-term debt net of current portion and loan costs | 12,107,232 | 13,416,226 | ||||||
Total liabilities | 20,788,555 | 18,837,393 | ||||||
EQUITY | ||||||||
Preferred stock, $10 par value, 500,000 shares authorized, 393,109 and 339,098 shares issued and outstanding | 3,931,085 | 3,390,975 | ||||||
Common stock - voting, $10 par value, 1,000 shares authorized, 464 and 434 shares issued and outstanding | 4,640 | 4,340 | ||||||
Common stock - nonvoting, $10 par value, 500,000 shares authorized, 155,645 and 155,590 shares issued and outstanding | 1,556,451 | 1,555,901 | ||||||
Additional paid-in capital | 682,068 | 659,292 | ||||||
Retained patronage | 98,525 | 99,077 | ||||||
Accumulated deficit | (1,576,495 | ) | (1,594,969 | ) | ||||
Total equity | 4,696,274 | 4,114,616 | ||||||
Total liabilities and equity | $ | 25,484,829 | $ | 22,952,009 |
See accompanying notes.
F-4
SHARED CAPITAL COOPERATIVE
Years Ended December 31, 2023 and 2022
2023 | 2022 | |||||||
REVENUE | ||||||||
Interest income - loans | $ | 1,244,654 | $ | 956,637 | ||||
Interest income - cash accounts | 65,322 | 42,996 | ||||||
Loan fees | 260,607 | 153,080 | ||||||
Loan recovery income | 22,084 | - | ||||||
Grants and contributions | 2,239,101 | 1,365,831 | ||||||
Consulting income | 19,035 | 8,000 | ||||||
Investment income | - | 13,702 | ||||||
Other | 9,000 | 6,500 | ||||||
Total revenue | 3,859,803 | 2,546,746 | ||||||
EXPENSES | ||||||||
Contributions | 1,170,958 | 209,921 | ||||||
Personnel | 1,107,023 | 947,969 | ||||||
Provision for loan losses | 448,703 | 212,972 | ||||||
Interest | 378,162 | 358,900 | ||||||
Outside services | 171,365 | 145,452 | ||||||
Professional services | 107,377 | 88,661 | ||||||
Seminars, travel, and training | 85,182 | 80,354 | ||||||
Occupancy | 61,107 | 55,305 | ||||||
Office supplies | 57,160 | 32,790 | ||||||
Advertising | 37,813 | 62,061 | ||||||
Fees | 16,387 | 5,793 | ||||||
Depreciation and amortization | 15,701 | 19,411 | ||||||
Dues | 7,900 | 8,557 | ||||||
Board expense | 300 | 1,763 | ||||||
Total expenses | 3,665,138 | 2,229,909 | ||||||
Net income before income taxes and patronage dividend | 194,665 | 316,837 | ||||||
Provision for income taxes | (47,981 | ) | (126,532 | ) | ||||
Patronage dividend | - | (17,402 | ) | |||||
Net income | $ | 146,684 | $ | 172,903 |
See accompanying notes.
F-5
SHARED CAPITAL COOPERATIVE
Years Ended December 31, 2023 and 2022
Common | Common | Additional | ||||||||||||||||||||||||||
Preferred | Stock - | Stock - | Paid-In | Retained | Accumulated | Total | ||||||||||||||||||||||
Stock | Voting | Nonvoting | Capital | Patronage | Deficit | Equity | ||||||||||||||||||||||
Balance December 31, 2021 | $ | 2,590,147 | $ | 4,170 | $ | 1,557,901 | $ | 657,590 | $ | 82,785 | $ | (1,665,068 | ) | $ | 3,227,525 | |||||||||||||
Purchases | 698,024 | 170 | - | 4,402 | - | - | 702,596 | |||||||||||||||||||||
Redemptions | - | (10 | ) | - | (4,690 | ) | (1,110 | ) | - | (5,810 | ) | |||||||||||||||||
Stock converted | - | 10 | (2,000 | ) | 1,990 | - | - | - | ||||||||||||||||||||
Preferred stock dividend | 102,804 | - | - | - | - | (102,804 | ) | - | ||||||||||||||||||||
Patronage dividend | - | - | - | - | 17,402 | - | 17,402 | |||||||||||||||||||||
Net income | - | - | - | - | - | 172,903 | 172,903 | |||||||||||||||||||||
Balance December 31, 2022 | 3,390,975 | 4,340 | 1,555,901 | 659,292 | 99,077 | (1,594,969 | ) | 4,114,616 | ||||||||||||||||||||
Purchases | 411,900 | 300 | 25 | 30,640 | - | - | 442,865 | |||||||||||||||||||||
Redemptions | - | - | - | (7,339 | ) | (552 | ) | - | (7,891 | ) | ||||||||||||||||||
Stock converted | - | - | 525 | (525 | ) | - | - | - | ||||||||||||||||||||
Preferred stock dividend | 128,210 | - | - | - | - | (128,210 | ) | - | ||||||||||||||||||||
Patronage dividend | - | - | - | - | - | - | - | |||||||||||||||||||||
Net income | - | - | - | - | - | 146,684 | 146,684 | |||||||||||||||||||||
Balance December 31, 2023 | $ | 3,931,085 | $ | 4,640 | $ | 1,556,451 | $ | 682,068 | $ | 98,525 | $ | (1,576,495 | ) | $ | 4,696,274 |
See accompanying notes.
F-6
SHARED CAPITAL COOPERATIVE
Years Ended December 31, 2023 and 2022
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 146,684 | $ | 172,903 | ||||
Adjustments to reconcile net income to net cash flows from operating activities | ||||||||
Depreciation and amortization | 15,701 | 19,411 | ||||||
Change in loan loss allowance | 5,549 | 212,973 | ||||||
Amortization of loan costs | 5,114 | 2,411 | ||||||
Amortization of operating lease right-of-use asset | 24,643 | 32,181 | ||||||
Forgiveness of notes payable | (1,500,000 | ) | - | |||||
Deferred taxes | (4,000 | ) | 73,000 | |||||
(Increase) decrease in assets | ||||||||
Accounts receivable | 602,550 | (425,697 | ) | |||||
Prepaid expenses | 21,195 | (10,893 | ) | |||||
Accrued interest receivable | (74,795 | ) | (4,381 | ) | ||||
Equity investments in other cooperatives - net | - | (145,440 | ) | |||||
Membership equity in other cooperatives | (5,000 | ) | (75 | ) | ||||
Increase (decrease) in liabilities | ||||||||
Accounts payable | 1,343,149 | 38,416 | ||||||
Accrued expenses | 6,177 | 8,617 | ||||||
Deferred revenue | 298,885 | 1,019,987 | ||||||
Operating lease liabilities | (23,910 | ) | (32,181 | ) | ||||
Funds held for others | 102,914 | (32,126 | ) | |||||
Income taxes payable | (33,678 | ) | 5,168 | |||||
Accrued interest payable | (24,166 | ) | 36,607 | |||||
Net cash flows from operating activities | 907,012 | 970,881 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from notes receivable | 9,314,102 | 2,934,807 | ||||||
Purchases of property and equipment | - | (13,767 | ) | |||||
Proceeds from issuance of notes receivable | (15,582,000 | ) | (6,927,794 | ) | ||||
Net cash flows from investing activities | (6,267,898 | ) | (4,006,754 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from line of credit | 1,000,000 | - | ||||||
Proceeds from issuance of long-term debt | 1,901,341 | 1,697,151 | ||||||
Payments on long-term debt | (1,113,876 | ) | (1,753,920 | ) | ||||
Payments of debt issuance costs | (10,788 | ) | (9,100 | ) | ||||
Purchases of common stock | 30,965 | 4,572 | ||||||
Redemptions of common stock | (7,339 | ) | (4,700 | ) | ||||
Purchases of preferred stock | 411,900 | 698,024 | ||||||
Patronage dividend retained | - | 17,402 | ||||||
Redemptions of retained patronage | (552 | ) | (1,110 | ) | ||||
Net cash flows from financing activities | 2,211,651 | 648,319 | ||||||
Net change in cash | (3,149,235 | ) | (2,387,554 | ) | ||||
Cash at beginning of year | 6,057,325 | 8,444,879 | ||||||
Cash at end of year | $ | 2,908,090 | $ | 6,057,325 | ||||
SUPPLEMENTARY DISCLOSURES | ||||||||
Cash paid for interest | $ | 397,214 | $ | 317,915 | ||||
Cash paid for income taxes | 52,204 | 69,260 | ||||||
Preferred stock dividend | 128,210 | 102,804 |
See accompanying notes.
F-7
SHARED CAPITAL COOPERATIVE
December 31, 2023 and 2022
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Shared Capital Cooperative (Shared Capital) is a member-owned and member- governed financial intermediary loan fund whose mission is to build a just, equitable, and democratic economy by investing in cooperative enterprises. Shared Capital provides financing to consumer, worker, housing, and producer cooperatives and their members throughout the United States.
Formed in 1978, Shared Capital is organized as a cooperative association under Chapter 308A of Minnesota law and has over 300 member cooperatives and over 100 individual members. Shared Capital obtains funds from its members as well as from non-member individuals and institutions interested in supporting the cooperative economy.
Accounts Receivable
Shared Capital considers all accounts receivables to be fully collectible based on based on historical experience, economic conditions, business conditions, and collection efforts. Accordingly, no allowance for doubtful accounts has been established. If amounts become uncollectible, they will be charged to operations when that determination is made.
Notes Receivable
Shared Capital provides commercial loans to cooperatively owned businesses and housing organizations throughout the United States. The ability of the borrowers to honor their contracts is dependent upon sound management of the cooperative, general economic conditions, and the value of collateral, including real estate, equipment, and other business assets securing the loan.
Notes receivable are stated at unpaid principal balances, less an allowance for loan losses. Interest on loans is recognized over the term of the loan and is calculated using the simple-interest method on principal amount outstanding.
Loans are placed on non-accrual status or written off if all or a portion of the loan is deemed to be uncollectible by management based on economic conditions, business conditions, and collection efforts. It is Shared Capital’s policy that any loan that is more than 120 days delinquent will be written off unless management determines that repayment of the loan is imminent, whether through collections, liquidation, or foreclosure. The Board of Directors must approve the write off of any loan, generally upon recommendation from the Loan and Finance Committees.
Property and Equipment
Purchases of property and equipment over $1,000 are capitalized at cost and depreciated using the straight-line method over the estimated useful lives of the assets, five years for leasehold improvements and three to ten years for office equipment and furniture.
F-8
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible Assets
Intangible assets consist of website development and trademark costs. Website development costs are amortized over 3 years and trademark costs are amortized over 10 years using the straight-line method.
Adoption of New Accounting Guidance
On January 1, 2023 Shared Capital adopted the Financial Accounting Standards Board’s Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326) and all subsequently issued clarifying ASUs. The main difference between previous guidance and Topic 326 is the recognition of losses on financial instruments. Under Topic 326, businesses account for losses under an expected loss methodology rather than an incurred loss methodology. Topic 326 requires the immediate recognition of estimated credit losses expected to occur over the life of financial assets such as notes receivable. Expected losses are based on relevant information about past events, current conditions, and reasonable and supportable forecasts.
Allowance for Loan Losses
The allowance for loan losses is a non-cash reserve established against expected losses on notes receivable. Each loan in the portfolio is assigned a risk rating and each rating has a corresponding percentage that must be set aside as an allowance. The ratings and the allowance are evaluated regularly by management based upon qualitative factors that require a high degree of management judgment. These factors include adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, and prevailing economic conditions. The Loan Committee establishes initial risk ratings at the time loans are approved and must approve any changes to ratings. On a quarterly basis the Loan Committee reviews and approves all risk ratings and the allowance for loan losses. The Board of Directors reviews the allowance and risk ratings at least annually.
The allowance for loan losses is established as losses are estimated. Loan losses are charged against the allowance when management believes the loan is uncollectible. Subsequent recoveries are recorded as loan recovery income.
In addition to the accrual-based allowance for loan losses, Shared Capital holds cash reserves for its loans made through the Accelerate Employee Ownership Program. At December 31, 2023 and 2022, these cash reserves totaled $290,000.
Loan Costs
Loan costs are the costs, including legal fees, associated with obtaining specific long-term liabilities. Loan costs of $30,576 and $19,418 at December 31, 2023 and 2022 are being amortized over the length of the underlying notes payable. Amortization of loan costs, recorded as interest expense in the statements of income, was $5,114 and $2,411 for 2023 and 2022. Accumulated amortization was $9,750 and $4,636 at December 31, 2023 and 2022.
F-9
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Subscription Fees
Subscription fees consist of costs associated with the issuance of preferred equity in Shared Capital and are recorded on the balance sheets as a reduction of additional paid-in capital. Subscription fees totaled $125,548 and $113,908 at December 31, 2023 and 2022.
Advertising
Advertising costs are expensed as incurred.
Income Taxes
Shared Capital is taxed as a cooperative and is subject to the provisions of Subchapter T of the Internal Revenue Code. The Bylaws of Shared Capital require the cooperative to annually distribute net income from patronage to its members, based on their patronage with Shared Capital (interest paid by borrowers), at the discretion of the Board of Directors. Distributions in the form of qualified patronage dividends reduce Shared Capital’s income tax liability. However, losses in Shared Capital’s patronage business may be carried forward to offset future distributions of net income from patronage.
Revenue Recognition
Grants and contributions revenue is recognized when Shared Capital fulfills its performance obligations required by an award. Conditional awards that have been received but have not yet been recognized as revenue are shown as deferred revenue on the balance sheets.
Loan fees revenue consist of non-refundable commitment fees, which are recognized as income when a loan is approved; loan origination fees, which are recognized as income when a loan is closed; and loan servicing fees received from participating lenders/investors and organizations for whom Shared Capital services loans, which are recognized as income when earned.
Investment income consists of dividends and gains on equity investments in other cooperatives.
Leases
Shared Capital does not recognize short-term leases in the balance sheet. For these leases, Shared Capital recognizes the lease payments in the results of operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred. Shared Capital also does not separate nonlease components from lease components for all classes of underlying assets and instead accounts for each separate lease component and the nonlease components associated with that lease component as a single lease component. If the rate implicit in the lease in not readily determinable, Shared Capital uses a risk-free rate as the discount rate for the lease for all classes of underlying assets.
F-10
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Estimates
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.
Date of Management’s Review
Management has evaluated subsequent events through April 16, 2024, the date which the financial statements were available to be issued.
NOTE 2 - NOTES RECEIVABLE
Recorded investments in loans by portfolio segment at December 31, 2023 and 2022 consisted of the following:
2023 | 2022 | |||||||
Cooperative housing mortgage loans | $ | 6,904,733 | $ | 4,692,111 | ||||
Cooperative business mortgage loans | 3,770,610 | 1,489,590 | ||||||
Cooperative business loans | 12,670,294 | 10,914,160 | ||||||
Loans to individuals to purchase cooperative housing (Share) | 61,027 | 69,154 | ||||||
Microenterprise | 26,249 | - | ||||||
Total notes receivable | 23,432,913 | 17,165,015 | ||||||
Less current portion of notes receivable | 6,895,101 | 4,843,226 | ||||||
Less allowance for loan losses | 1,594,989 | 1,589,440 | ||||||
Notes receivable - net of current portion and loan loss allowance | $ | 14,942,823 | $ | 10,732,349 |
In addition to the loans summarized above, December 31, 2023 and 2022 Shared Capital serviced $4,784,603 and $2,964,768 in off-balance sheet loans, including $4,643,599 and $2,725,889 of loan participations, which have been sold to other lenders and loan funds administered for other organizations.
Descriptions of the loan portfolio segments are as follows:
● | Cooperative housing mortgage loans are loans for multifamily housing properties secured by a mortgage. |
● | Cooperative business mortgage loans are loans for commercial real estate secured by a mortgage. |
● | Cooperative business loans are loans secured by other business assets excluding real estate. |
● | Loans to individuals are loans to purchase cooperative housing. |
● | Loans to cooperative businesses in the developmental stage. |
F-11
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 2 - NOTES RECEIVABLE (continued)
The change in the allowance for loans losses in 2023 and 2022 consisted of the following:
2023 | 2022 | |||||||
Beginning allowance | $ | 1,589,440 | $ | 1,376,467 | ||||
Loans written off | (443,153 | ) | - | |||||
Increase in provision for loan losses | 448,702 | 212,973 | ||||||
Ending allowance | $ | 1,594,989 | $ | 1,589,440 |
The allowance for loan losses by portfolio segment at December 31, 2023 and 2022 was as follows:
Cooperative housing mortgage loans | Cooperative business mortgage loans | Cooperative business loans | Loans to individuals (Share) | Micro- enterprise | Total | |||||||||||||||||||
Beginning allowance | $ | 144,255 | $ | 51,557 | $ | 1,393,282 | $ | 346 | $ | - | $ | 1,589,440 | ||||||||||||
Loans written off | - | - | (443,153 | ) | - | - | (443,153 | ) | ||||||||||||||||
Increase (decrease) | 93,068 | 82,427 | 270,318 | 264 | 2,625 | 448,702 | ||||||||||||||||||
2023 Ending allowance | $ | 237,323 | $ | 133,984 | $ | 1,220,447 | $ | 610 | $ | 2,625 | $ | 1,594,989 | ||||||||||||
Beginning allowance | $ | 84,509 | $ | 33,227 | $ | 1,258,347 | $ | 384 | $ | - | $ | 1,376,467 | ||||||||||||
Loans written off | - | - | - | - | - | - | ||||||||||||||||||
Increase (decrease) | 59,746 | 18,330 | 134,935 | (38 | ) | - | 212,973 | |||||||||||||||||
2022 Ending allowance | $ | 144,255 | $ | 51,557 | $ | 1,393,282 | $ | 346 | $ | - | $ | 1,589,440 |
The aging of loans by portfolio segment at December 31, 2023 and 2022 was as follows:
Cooperative housing mortgage loans | Cooperative business mortgage loans | Cooperative business loans | Loans to individuals (Share) | Micro- enterprise | Total | |||||||||||||||||||
Current | $ | 6,904,733 | $ | 3,770,670 | $ | 12,669,583 | $ | 61,027 | $ | 26,249 | $ | 23,432,262 | ||||||||||||
31 - 90 | - | - | - | - | - | - | ||||||||||||||||||
90 + days | - | - | 651 | - | - | 651 | ||||||||||||||||||
2023 Total | $ | 6,904,733 | $ | 3,770,670 | $ | 12,670,234 | $ | 61,027 | $ | 26,249 | $ | 23,432,913 | ||||||||||||
Current | $ | 4,692,111 | $ | 1,489,590 | $ | 10,914,160 | $ | 69,154 | $ | - | $ | 17,165,015 | ||||||||||||
31 - 90 | - | - | - | - | - | - | ||||||||||||||||||
90 + days | - | - | - | - | - | - | ||||||||||||||||||
2022 Total | $ | 4,692,111 | $ | 1,489,590 | $ | 10,914,160 | $ | 69,154 | $ | - | $ | 17,165,015 |
F-12
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 2 - NOTES RECEIVABLE (continued)
The credit quality of loans receivable at December 31, 2023 and 2022 was as follows:
Cooperative housing mortgage loans | Cooperative business mortgage loans | Cooperative business loans | Loans to individuals (Share) | Micro- enterprise | Total | |||||||||||||||||||
A | $ | 1,307,000 | $ | - | $ | - | $ | 61,027 | $ | - | $ | 1,368,027 | ||||||||||||
B | 3,308,683 | 2,727,490 | 4,009,702 | - | - | 10,045,875 | ||||||||||||||||||
C | 2,078,255 | 1,043,180 | 5,095,555 | - | - | 8,216,990 | ||||||||||||||||||
D | 210,795 | 2,794,326 | - | 26,249 | 3,031,370 | |||||||||||||||||||
E | - | - | - | - | - | - | ||||||||||||||||||
F | - | - | - | - | - | - | ||||||||||||||||||
G | - | - | 770,651 | - | - | 770,651 | ||||||||||||||||||
2023 Total | $ | 6,904,733 | $ | 3,770,670 | $ | 12,670,234 | $ | 61,027 | $ | 26,249 | $ | 23,432,913 | ||||||||||||
A | $ | 1,204,523 | $ | - | $ | 53,799 | $ | 69,154 | $ | - | $ | 1,327,476 | ||||||||||||
B | 2,638,178 | 1,146,108 | 3,824,223 | - | - | 7,608,509 | ||||||||||||||||||
C | 637,539 | 343,482 | 4,624,570 | - | - | 5,605,591 | ||||||||||||||||||
D | 211,871 | - | 1,073,402 | - | - | 1,285,273 | ||||||||||||||||||
E | - | - | 137,640 | - | - | 137,640 | ||||||||||||||||||
F | - | - | 340,516 | - | - | 340,516 | ||||||||||||||||||
G | - | - | 860,010 | - | - | 860,010 | ||||||||||||||||||
2022 Total | $ | 4,692,111 | $ | 1,489,590 | $ | 10,914,160 | $ | 69,154 | $ | - | $ | 17,165,015 |
Category | Description of Creditworthiness | Commercial | Share | |||||||
A+ | Highest credit quality, borrower is stable and reliable | 0 | % | 0 | % | |||||
A | Borrower is stable and reliable | 1 | % | 0.5 | % | |||||
B | Good borrower, but some recent internal or external changes | 3 | % | 2 | % | |||||
C | Good borrower, but recent significant internal or external changes | 5 | % | 3 | % | |||||
D | Borrower is either rebounding or heading into a period of significant difficulties | 10 | % | 6 | % | |||||
E | Relatively weak borrower facing some internal or external challenges | 15 | % | 10 | % | |||||
F | Weak borrower facing significant challenges | 25+ | % | 25+ | % | |||||
G | Doubtful | Up to 100 | % | Up to 100 | % |
Loans are considered impaired if it is likely that at least some of the principal and interest payments will not be collected. All loans are individually reviewed for impairment. Two business loans receivable totaling $443,153 were written off as uncollectable in 2023. No loans were written off as uncollectable in 2022.
F-13
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 3 - EQUITY INVESTMENTS IN OTHER COOPERATIVES
Shared Capital holds equity investments as part of its financing activities. At December 31, 2023 and 2022, the investments were comprised of $300,000 of preferred stock in a food cooperative and $10,000 of preferred stock in a worker cooperative. Shared Capital recorded allowances for collectability on these investments of $10,000 at December 31, 2023 and 2022.
NOTE 4 - MEMBERSHIP EQUITY IN OTHER COOPERATIVES
Membership equity in other cooperatives primarily consists of an investment in National Cooperative Bank (NCB). Shared Capital held $10,000 and $5,000 of Class B membership shares in NCB at December 31, 2023 and 2022. Shared Capital also held $75 in membership shares in Seward Community Co-op at December 31, 2023 and 2022. Shared Capital does not consider this part of its financing activities or its investment portfolio.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2023 and 2022 consisted of the following:
2023 | 2022 | |||||||
Leasehold improvements | $ | 16,333 | $ | 16,333 | ||||
Office equipment and furniture | 82,284 | 82,284 | ||||||
Property and equipment | 98,617 | 98,617 | ||||||
Less accumulated depreciation | 85,958 | 72,916 | ||||||
Property and equipment - net | $ | 12,659 | $ | 25,701 |
Depreciation expense for 2023 and 2022 was $13,042 and $16,752.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets at December 31, 2023 and 2022 consisted of the following:
2023 | 2022 | |||||||
Intangible assets - gross | $ | 44,656 | $ | 44,656 | ||||
Less accumulated amortization | 36,788 | 34,129 | ||||||
Intangible assets - net | $ | 7,868 | $ | 10,527 |
Amortization expense for 2023 and 2022 was $2,659.
F-14
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 7 - LINE OF CREDIT
Shared Capital has a $1,000,000 unsecured line of credit with NCB which expires in December 2025. It bears an interest rate of 30-day Averaged Secured Overnight Financing Rate plus 225 basis points. Shared Capital’s outstanding balance on the line of credit was $1,000,000 and $0 at December 31, 2023 and 2022.
NOTE 8 - LEASES
Shared Capital leases office space in St. Paul, Minnesota under an operating lease that expires in 2027.
The components of total lease cost are as follows:
2023 | 2022 | |||||||
Operating lease expense | $ | 39,613 | $ | 36,125 | ||||
Short-term lease expense | - | - | ||||||
Variable lease expense | 6,448 | - | ||||||
Total lease expense | $ | 46,061 | $ | 36,125 |
Other information related to operating leases is as follows:
2023 | 2022 | |||||||
Operating cash flows from operating leases | 38,880 | 32,925 | ||||||
ROU assets obtained in exchange for new operating lease liabilities | 7,176 | 184,949 | ||||||
Weighted-average remaining lease term in years for operating leases | 3.58 | 4.58 | ||||||
Weighted-average discount rate for operating leases | 5.50 | % | 5.50 | % |
The maturities of operating lease liabilities as of December 31, 2023 are as follows:
2024 | $ | 39,552 | ||
2025 | 40,046 | |||
2026 | 41,248 | |||
2027 | 24,477 | |||
Total minimum lease payments | 145,323 | |||
Imputed interest | (13,265 | ) | ||
Total lease liabilities | $ | 132,058 |
F-15
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 9 - LONG-TERM DEBT
Long-term debt primarily consists of various notes payable to institutional investors, other cooperatives, and individuals.
Long-term debt at December 31, 2023 and 2022 consisted of the following:
2023 | 2022 | |||||||
Senior loans payable | $ | 9,292,434 | $ | 9,832,434 | ||||
Subordinate loans payable | 6,046,334 | 6,219,899 | ||||||
Paycheck Protection Program loan | 107,134 | 106,103 | ||||||
Long-term debt | 15,445,902 | 16,158,436 | ||||||
Less current portion of long-term debt | 3,318,213 | 2,727,428 | ||||||
Less loan costs | 20,457 | 14,782 | ||||||
Long-term debt net of current portion and loan costs | $ | 12,107,232 | $ | 13,416,226 |
Some of the loans payable are subject to covenants as outlined in the loan agreements.
Future minimum principal payments on long-term debt consist of the following:
Due on demand | $ | 317,294 | ||
2024 | 3,000,918 | |||
2025 | 1,209,672 | |||
2026 | 1,104,790 | |||
2027 | 1,237,913 | |||
2028 | 2,205,974 | |||
Thereafter | 6,369,341 | |||
Long-term debt | $ | 15,445,902 |
The notes payable at December 31, 2023 and 2022 have interest rates ranging from 0% to 5%, are unsecured, and mature through 2034.
In April 2020, Shared Capital applied for a Paycheck Protection Program (PPP) loan as part of the Coronavirus Aid, Relief, and Economic Security Act implemented by the United States Small Business Administration (SBA) to help cover payroll costs, rent, and utilities during the COVID-19 outbreak. Shared Capital received a 1% interest loan from this program, repayable in 24 months, which is included in the long-term debt tables above. The PPP loan balance, part of the current portion of long-term debt, was $107,134 and $106,103 at December 31, 2023 and 2022.
In 2022 the SBA informed Shared Capital that the PPP award does not meet the criteria for loan forgiveness due to Shared Capital’s status as a for-profit financial institution. Shared Capital has appealed this decision. The maturity date was extended for 24 months while the SBA reviews this matter. Shared Capital is prepared to repay the loan if the appeal is unsuccessful.
F-16
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 10 - CONCENTRATION OF CREDIT RISK
Shared Capital maintains cash balances at two financial institutions located in the United States. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2023 and 2022, Shared Capital’s uninsured cash balances totaled approximately $2,443,000 and $5,591,000.
NOTE 11 - FUNDS HELD FOR OTHERS
Shared Capital has an agreement with NASCO Development Services (NDS) to provide loan servicing functions for its Kagawa Fund. Shared Capital accumulates principal and interest collections, net of remitting interest due to investors of the Kagawa Fund, for use in providing additional loans on behalf of Kagawa Fund. NDS and the Kagawa Fund investors bear all risk of loss pertaining to these loans. Shared Capital receives a servicing fee for administering the portfolio and closing and origination fees on new loans issued.
At December 31, 2023 and 2022, Shared Capital held $401,827 and $298,913 in funds payable to NDS and available for lending. At December 31, 2023 and 2022, Shared Capital was servicing $141,064 and $238,879 of loans for the Kagawa Fund, which were not recorded on Shared Capital’s balance sheets.
NOTE 12 - PREFERRED STOCK
At the discretion of the Board of Directors, Shared Capital may pay holders of preferred stock an annual dividend of up to 8% in the form of cash, additional shares of preferred stock, or equity credits. The preferred stock has no voting rights and shares may only be transferred upon the approval of the Board of Directors. The preferred stock has a liquidation preference over other equity.
As conditions of their investments, two foundations that hold preferred shares in Shared Capital in the amounts of $250,000 and $500,000 have certain rights to request redemption of all or part of their preferred stock under certain conditions.
NOTE 13 - DIVIDENDS
In 2023 and 2022 Shared Capital’s Board of Directors declared preferred stock dividends in the amount of $128,210 and $102,804, which reflect a 5% return each year to investors on prior year holdings.
Shared Capital’s Board of Directors declared nonqualified patronage dividends on 2022 earnings in the amount of $17,402. The dividends were recorded as a component of retained patronage on the balance sheets. The dividends will not be tax deductible to Shared Capital until the year the cash is disbursed to the cooperative’s members.
F-17
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 14 - RETIREMENT PLAN
Shared Capital has established a salary deferral retirement plan with matching contributions for participating employees. The plan has received IRS approval under Section 408(p) of the Internal Revenue Code. The plan covers all employees who have met certain service requirements. Shared Capital will match the elective contributions of an employee in an amount not exceeding 3% of the employee’s compensation. Matching contributions totaled $24,156 and $20,258 for 2023 and 2022.
NOTE 15 - COMMITMENTS
As of December 31, 2023, Shared Capital has made commitments of approximately $2,812,000 to lend funds in the normal course of business to meet the financing needs of its members. These are commitments to extend credit that involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.
NOTE 16 - INCOME TAXES
The provision for income taxes for 2023 and 2022 was comprised of the following:
2023 | 2022 | |||||||
Current federal income tax expense | $ | (42,935 | ) | $ | (45,868 | ) | ||
Current state income tax expense | (9,046 | ) | (7,664 | ) | ||||
Deferred income tax benefit (expense) | 4,000 | (73,000 | ) | |||||
Provision for income taxes | $ | (47,981 | ) | $ | (126,532 | ) |
Deferred taxes consist of the future tax effects of net operating loss carryforwards and timing differences between costs recorded as expenses for financial statement purposes and deductions for income tax purposes.
Shared Capital’s total deferred tax asset, valuation allowance, and total deferred tax liability at December 31, 2023 and 2022 consisted of the following:
2023 | 2022 | |||||||
Total deferred tax asset | $ | 18,000 | $ | 16,000 | ||||
Valuation allowance | - | - | ||||||
Total deferred tax liability | - | (2,000 | ) | |||||
Deferred taxes - net | $ | 18,000 | $ | 14,000 |
Shared Capital has net operating loss carryforwards with the state of Minnesota of approximately $158,000 that begin to expire in 2028. Realization of the deferred tax asset is primarily dependent upon sufficient future taxable income during the net operating loss carry forward period.
F-18
SHARED CAPITAL COOPERATIVE
NOTES TO FINANCIAL STATEMENTS
December 31, 2023 and 2022
NOTE 17 - MULTI-YEAR AWARD
In January 2019, Shared Capital finalized a financial arrangement with a funder, New World Foundation, through its Quality Jobs Fund to expand employee ownership and create and sustain high-quality jobs in local communities. New World Foundation provided Shared Capital with a $4,000,000 forgivable loan to be disbursed in three tranches. The first two tranches, in the amount of $1,500,000 each, were received in 2019 and 2021, and the final tranche of $1,000,000 was received in 2023.
Upon meeting certain benchmarks, all or parts of Shared Capital’s loan payable to New World Foundation will be forgiven in future years. Under the terms of its agreement with a program partner organization, Shared Capital will retain 40% of any funds that are forgiven and 60% will be allocated to the partner organization. $1,500,000 of the note Cooperative’s note payable to New World Foundation was forgiven in 2023, and a $900,000 donation was recorded.
NOTE 18 - RELATED PARTIES
Several directors of Shared Capital are employed by, or are directors of, Shared Capital member organizations or other organizations that borrow from, lend to, or hold common or preferred stock in Shared Capital. Several Shared Capital directors as well as several staff members are members of the cooperative’s individual class of members and hold common stock. They may also lend to Shared Capital.
Several staff members are directors of member organizations or other organizations that borrow from, lend to, award grant funding to, or hold common or preferred stock in Shared Capital.
Such activities were in the ordinary course of business at normal credit terms, including interest rates and collateralization, and do not represent more than a normal risk of collection.
Significant related party activities for 2023 and 2022 are summarized as follows:
2023 | 2022 | |||||||
Equity and deposits in related parties | $ | 310,000 | $ | 310,000 | ||||
Notes receivable from related parties | 5,407,718 | 2,496,729 | ||||||
Long-term debt payable to related parties | 719,904 | 684,075 | ||||||
Preferred stock held by related parties | 723,617 | 689,600 | ||||||
Interest income earned from related parties | 182,996 | 133,524 | ||||||
Interest expense incurred to related parties | 24,558 | 47,710 | ||||||
Lines of credit from related parties | 1,000,000 | - |
Additionally, an employee of NCB is a member of Shared Capital’s loan committee. Shared Capital holds membership equity in NCB as disclosed in Note 4 and has a line of credit as disclosed in Note 7. NCB also holds membership equity in Shared Capital.
F-19
Item 8. Exhibits
Exhibit 2(a)(i): | Articles of Incorporation as Restated* | |
Exhibit 2(a)(ii): | All Amendments to Articles of Incorporation after Restatement* | |
Exhibit 2(b): | Bylaws in Effect as of the Date of the Offering Statement* | |
Exhibit 3(a): | Form of Investment Note* | |
Exhibit 4(a): | Form of Shared Capital Cooperative Subscription Agreement for Class A Preferred Stock* | |
Exhibit 4(b): | Form of Shared Capital Cooperative Subscription Agreement for an Investment Note* | |
Exhibit 6(a): | CDFI Fund Assistance Agreement (1/27/2021)* | |
Exhibit 6(b): | CDFI 2021 RRP Assistance Agreement* | |
Exhibit 11: | Auditor Letter of Consent | |
Exhibit 12: | Opinion of Counsel re: Legality of Securities Offered* |
* | Previously filed |
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SIGNATURES
Pursuant to the requirement 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 | April 25, 2023 |
Pursuant to the requirement 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/ Mark Downey | |
Name | Mark Downey | |
Title | Director of Finance and Operations | |
Date | April 25, 2024 | |
Signature | /s/ Terence Courtney | |
Name | Terence Courtney | |
Title | President and Director | |
Date | April 25, 2024 | |
Signature | /s/ Gail Patrice Anthony | |
Name | Gail Patrice Anthony | |
Title | Director | |
Date | April 25, 2024 | |
Signature | /s/ Charity Schmidt | |
Name | Charity Schmidt | |
Title | Secretary and Director | |
Date | April 25, 2024 | |
Signature | /s/ Camille Kerr | |
Name | Camille Kerr | |
Title | Vice President and Director | |
Date | April 25, 2024 | |
Signature | /s/ Holly Jo Sparks | |
Name | Holly Jo Sparks | |
Title | Treasurer and Director | |
Date | April 25, 2024 | |
Signature | /s/ Thomas Beckett | |
Name | Thomas Beckett | |
Title | Director | |
Date | April 25, 2024 |
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