Safe Harbor Navigates Troubled Waters

Safe Harbor said the suit exposes it to as much as $7.8 million in damages. However, that amount was in addition to the $3 million Safe Harbor has put into escrow to cover damages related to the cash payments. Three days before the ruling, the company said it is "reasonably possible but not probable" that it will be ordered to pay the other $7.8 million.

"We cannot predict the timing, outcome or cost of this litigation," the company said in the risks section of its annual report filed April 15. "An adverse ruling could result in financial judgments against us, require us to alter our business practices, or damage our reputation."

On Thursday Mendez said the former Abaca shareholders will have to assert how much in damages they are seeking at the Aug. 10 trial and can appeal any ruling.

"We do not anticipate making any cash payment until we have exhausted our ability to appeal, and it is possible under a specific performance mandate that we may be able to resolve this matter without using cash," he said.

Safe Harbor lost $2.2 million in 2025, an improvement from its $48.3 million loss in 2024. Revenue fell 50% to $7.7 million. Its operating loss was $5.4 million, down from a $7.1 million operating loss in 2024. Cash and cash equivalents were $6.8 million at the end of 2024, up from $2.3 million a year earlier.

The company has carried a "going-concern" warning from its auditors for the past three years.

Meanwhile, Safe Harbor (SHFS) has continued to be threatened with delisting by Nasdaq.

Safe Harbor announced a plan May 6 to allow certain shareholders to exchange their warrants at a reduced exercise price of $0.65. To accomplish this, Safe Harbor was planning to authorize more common shares. Although it would make no money from the stock sale, Safe Harbor stands to make as much as $15 million as warrant holders pay the $0.65 exercise price.

In any case, the market responded by immediately lowering the stock price from a close of $0.79 on May 6 to $0.46 on May 7.

SHFS closed Thursday at $0.44, making its market capitalization $1.97 million, down from $3.6 million on May 6. About a quarter of the stock is still owned by Partner Colorado, which spun it off in September 2022 from a CUSO it founded in 2015.

Current Nasdaq rules require Safe Harbor to maintain a minimum of $2.5 million in stockholders' equity and a minimum stock price of $1.00. After the stock closed below $1.00 for 30 consecutive business days, Nasdaq sent Safe Harbor a deficiency notice April 22, and gave the company until Oct. 19 to regain compliance.

Safe Harbor's annual report showed total stockholders' equity was $8.2 million as of Dec. 31, up from a $12.3 million deficit a year earlier. However, its stock has been trading below $1.00 since March 10, or 48 trading days.

And things could get worse.

The SEC is considering approving stricter listing requirements this summer requested by Nasdaq in January.

These rules would require companies to maintain a minimum market value of listed securities of at least $5 million. If a company's market value of listed securities falls below $5 million for 30 consecutive business days, Nasdaq would immediately suspend trading and delist the company's securities without a cure period and without a stay of suspension during any appeal.

Safe Harbor's market cap has been below $5 million since Feb. 2, or 73 trading days.

In an April 16 interview, Mendez told CU Times that he thought it was "highly likely" that the SEC would approve Nasdaq's request for the $5 million threshold. But he added, "I have tools at my beck and call that could fix that situation."

At the time, the SEC was expected to make a decision by April 29. But instead, its April 28 decision was to delay any decision and take further comments. The SEC will either decide on the $5 million threshold rule in late July or add 60 more days, and then render a decision in late September.

On Thursday, Mendez said the rule might "never take effect in its current form." In July, he said the SEC "could approve the proposal, modify it, reject it, or delay implementation further."

"Importantly, even under the current proposal timeline, the rule would not be expected to become effective until at least mid-September 2026. There are multiple strategies available to management that can be implemented in the event the rule is ratified by the SEC," he said.

The April 15 annual report took a slightly stiffer tone.

"Based on the company's current stock price and number of shares outstanding as of the date of this filing, the Company may not be in compliance with this proposed requirement at the time of its adoption and could be subject to immediate delisting as soon as 30 business days after the rule takes effect," Safe Harbor said in its annual report.

"There can be no assurance that the Company will maintain compliance with these or any other Nasdaq listing requirements in the future. Failure to do so could ultimately result in the delisting of the Company's common stock, which would adversely affect stockholders' ability to trade their shares and the Company's ability to raise capital," the annual report said.

The annual report also noted that a delisting would trigger provisions in its agreement with Partner Colorado that would reduce the company's share of loan income, "compounding the adverse financial impact of any such event."

In the April 16 interview, Mendez said Safe Harbor is considered a "micro-cap" company, which the SEC defines as companies with market caps of less than $250 million or $300 million. Mendez said micro-cap companies with market caps of less than $10 million "have massive short coverage" – stocks with investors betting on their price falling.

"I think our short coverage is like 60%, which means people are betting not on the success of the fundamentals of the company, but on the impact of this particular rule to push people off of the Nasdaq and into the OTC (over-the-counter market), which is less liquid," Mendez said.
On Thursday, Mendez noted that Safe Harbor eliminated its debt last September and has since been investing in growth.

"The company has made strategic investments in people, process, technology and the launch of new products such as our multiple-employer 401(k) plan," he said. "In addition, the company has selectively leveraged the $150 million equity line of credit to raise more than $1.8 million."
And, he said those facts don't show up in its stock price.

"As with many small-cap public companies, our stock price may experience periods of volatility that do not necessarily reflect the underlying fundamentals or long-term strategic direction of the business. Our focus remains on executing our strategy, supporting our clients, maintaining regulatory compliance and creating long-term shareholder value," he said.

Contact Jim DuPlessis at Jim.DuPlessis@arc-network.com.