SHF Holdings, Inc.: Form 10-Q/A for the period ended Mar 31, 2025

References in this section to “we,” “us,” “our,” “SHF” or the “Company” refer to SHF Holdings, Inc. 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 and the notes to those financial statements included elsewhere in this Form 10-Q This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

Founded in 2015 by Partner Colorado Credit Union (“PCCU”) (please see “Business Reorganization” below for a description of SHF’s organization), SHF’s mission is to provide access to reliable and compliant financial services for the legal cannabis industry. Through that mission and as an early leader with over ten years of experience, SHF is a leading provider of access to reliable and compliance driven banking, lending and other financial services to financial institutions desiring to provide those services to the cannabis industry.

Through our proprietary platform and on a multi-state level, SHF provides access to the following banking related services through PCCU and other financial institutions:

• Business checking and savings accounts;
• Cash management accounts;
• Savings and investment options;
• Commercial lending;
• Courier services (via third-party relationships);
• Remote deposit services;
• Automated Clearing House (ACH) payments and origination; and
• Wire payments.

Our services allow Cannabis Related Businesses (herein referred to as “CRBs”) to obtain services from financial institutions that allow them to run their business more efficiently and effectively with improved financial insight into their business and access to resources to help them grow. Due to limited availability of payment and other banking solutions for the cannabis industry, most businesses transact with high volumes of cash. Our fintech platform benefits CRBs and financial institutions by providing CRBs with access to financial institutions and financial institutions access to increased deposits with the comfort of knowing that those deposits have been compliantly monitored and validated. By facilitating the daily deposits of cash receipts between CRBs and financial institutions, the risks associated with high cash on hand are mitigated, creating a safer atmosphere for the CRB’s employees and the financial institutions at which the deposit accounts are held. Because the Company is not a financial institution, it does not hold customer deposits. All deposit accounts are held by the Company’s financial institution clients and all transmissions of funds to and from deposit accounts are handled directly by the financial institutions. In an industry with limited capital and financing options, we offer access to loan options at what we believe to be competitive rates, often with less punitive terms than the current industry average. Our financial institution clients offer loan options including senior secured debt and operating lines of debt. Collateral types include real estate, equipment, and other business assets. We also provide access to lending options for ancillary service providers serving the cannabis industry as these businesses also can have difficulty finding reliable financial services.

To ensure access to consistent and dependable banking access to CRBs, we provide our compliance, validation and monitoring services to financial institutions in a compliance driven environment ensuring strict adherence to the Bank Secrecy Act/FinCEN guidance and related anti money laundering provisions. Since inception, the Company has assisted in the processing of approximately $25.6 billion in cannabis related depository funds. Through its relationship with its financial institution clients, the Company has successfully navigated over 16 state and federal banking exams.

In strategically selected geographic areas, the Company has licensed its proprietary software and Safe Harbor Program (the “Program”) to other financial institutions to provide compliance-related services to CRBs. As part of the Program, we provide the following to financial institutions interested in licensing the Program to assist in compliant cannabis banking:

• Initial customer due diligence – Know Your Customer;
• Customer application management;
• Program management support;
• Compliance monitoring; and
• Regulatory exam assistance.

Components of our Results of Operations

Revenue

The Company generates interest and fee income through providing a variety of services to our 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.

Operating Expenses

Operating expenses consist of compensation and benefits, professional services, rent expense, credit loss (benefit) expense 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 provisions for credit losses on internally funded and indemnified loans. Prior to December 31, 2024, the Company indemnified PCCU against losses on sourced loans. With effect from the Amended PCCU CAA, the indemnification obligation ceased on December 31, 2024.

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 —March 31, 2025 Compared to March 31, 2024 (Three months ended)

Revenue

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. The decrease in account fee income was primarily attributable to the previously disclosed reduction in the average monthly ending deposit balance.

The reconciliation of account fee income and account hosting fees are as follows:

Account fee income:

Account hosting fees:

Account hosting fees increased in the first quarter of 2025 compared to 2024, primarily due to a change in the method used to calculate charges paid to PCCU for hosting CRB accounts. In 2024, PCCU charged a monthly per-account fee ranging from $25.32 to $27.85 for accounts hosted on their platform. In contrast, under the Amended CAA in 2025, the Company pays PCCU a fixed asset hosting fee calculated as 0.01 multiplied by the average daily balance of account relationships generated by the Company, divided by the number of days in the year, and then multiplied by the number of days in the applicable month.

The Company provides similar account services and outsourced support to other financial institutions that offer banking services to the cannabis industry. These services are provided under the Safe Harbor Master Program Agreement.

Investment income

Our financial institution pay us interest on daily account balances as per the rates outlined in the agreements. The decrease in investment income was primarily attributable to the reduction average daily deposit balances.

In 2024, under the terms of the PCCU CAA, the Company paid a hosting fee equal to 25% of the investment income generated from PCCU-related funds. For the three months ended March 31, 2024, PCCU’s contribution to investment income totaled $773,819, resulting in $160,101 in investment hosting fees. These fees were recorded under “General and Administrative Expenses” in the unaudited condensed consolidated statements of operations.

In contrast, under the Amended PCCU CAA effective on December 31, 2024, the Company is no longer required to pay hosting fees to PCCU. For the three months ended March 31, 2025, PCCU’s contribution to investment income was $292,436.

Loan interest income

Loan interest income includes interest earned from both direct loans and those issued under the PCCU CAA, which were indemnified by the Company through December 31, 2024. Upon the execution of the Amended PCCU CAA on December 31, 2024, the indemnification liability was eliminated, and the indemnified status of these loans was removed.

The majority of the Company’s loan portfolio consists of CRB loans originated by PCCU and primarily serviced by SHF. Under the original PCCU CAA in 2024, the Company received 100% of the loan interest income associated with these loans and was obligated to pay PCCU a servicing fee equal to 0.25% of the outstanding loan balance.

Effective December 31, 2024, the Amended PCCU CAA eliminated the Company’s role as guarantor, thereby removing the 100% indemnity liability. Additionally, under the amended agreement, the method for calculating loan interest income was revised, and loan service fees were eliminated. The new loan yield allocation formula factors in the Constant Maturity U.S. Treasury Rate and a proprietary risk rating to determine the interest income split for each loan.

The reduction in loan interest income for the period is mainly attributed to the implementation of the new formula and the removal of the indemnification structure. According to the Amended CAA, the Company’s interest income on all loans with PCCU is now calculated using a loan yield allocation formula. This formula takes into account the Constant Maturity US Treasury Rate from Standard & Poor’s Capital IQ data service, along with a proprietary risk rating formula to determine the fee split between the Company and PCCU. Prior to the amendment, the Company retained the full interest income from the loans and was responsible for paying loan servicing fees of 0.25% of the loan balance. The amendment eliminates both the loan servicing fees and indemnification liability, while introducing the new interest income split between the Company and PCCU.

For the three months ended March 31, 2025, the Company recognized $540,222 in loan interest income attributable to PCCU activities. In comparison, for the three months ended March 31, 2024, the Company recognized $1,636,756 in loan interest income from the same activities. Related expenses for the 2024 period included $35,901 in loan servicing fees, in accordance with the PCCU CAA, which were reported under ‘General and Administrative Expenses’ in the Unaudited Condensed Consolidated Statements of Operations.

Operating expenses

In three months ended March 31, 2025, we increased operating expenses by $197,989 or 5.31% compared to three months ended March 31, 2024.

Compensation and employee benefits expenses decreased primarily due to previously reported reductions in work force and the related reduction in stock-based compensation of $402,665 (As Restated). Restructuring efforts are ongoing as we continue to optimize our talent portfolio.

General and administrative expenses include changes across various categories, both increases and decreases, as follows (i) A decrease of $160,101 in investment hosting fees due to the elimination of such fees under the Amended PCCU agreement; (ii) An increase of $199,253 in account hosting fees in accordance with the Amended PCCU; (iii) A decrease of $156,855 in amortization and depreciation expenses; and (iv) Advertising and marketing expenses increased by $100,831, primarily driven by the amortization of $100,000 in stock-based compensation issued to a vendor.

Professional services expenses increased primarily due to higher stock compensation awards granted to the Directors, as well as higher legal fees related to ongoing litigation, including a $300,000 accrual for the settlement of an employment-related legal matter.

The indemnity liability was eliminated from the Balance Sheet as of December 31, 2024, due to the Amended PCCU CAA, which led to the complete reversal of the liability under the ‘credit loss (benefit) expense.’ Please refer to the “Amended and Restated CAA with PCCU” section in the Recent Updates of the Company’s Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2024.

Other (income) /expenses

The deferred consideration from the Abaca acquisition is classified as a derivative liability under ASC 815 and recorded at fair value, with periodic adjustments. Its value fluctuates based on factors such as the Company’s stock price, market volatility, risk-free interest rates, and amendments to the agreement. For the three months ending March 31, 2025, the fair value of deferred consideration decreased by $161,000 from its balance as of December 31, 2024. This reduction was due to a decline in the fair value adjustment on the stock and cash consideration payable to the Abaca shareholders, which affected the fair value of the third anniversary payment.

Interest expense for the three months ended March 31, 2025, primarily relates to the Senior Secured Promissory Note. Compared to the prior period, interest expense decreased by $41,386, largely due to a reduction in the principal balance outstanding during each reporting period.

The Company has warrant liabilities related to Public, Private Placement, PIPE, and Abaca Warrants, which may be settled in cash or stock depending on conditions such as stock price or registration status. These warrants are accounted for as derivative liabilities due to their contingent nature. The liabilities are subject to adjustments based on terms and stock performance. The change in the fair value of warrant liabilities by $1,116,082 from December 31, 2024 was attributable to the decrease in the share price.

Income taxes

For the three months ended March 31, 2025, the provision for income taxes is $0, principally due to the recognition of a valuation allowance in the year ended December 31, 2024, as it is more likely than not that the deferred tax assets cannot be realized.

Key Metrics

In addition to the measures presented in our unaudited condensed consolidated financial statements, our management regularly monitors certain measures in the operation of our business. These key metrics are discussed below.

Non-GAAP Financial Measures

In addition to financial measures presented in accordance with accounting principles generally accepted in the United States of America (GAAP), this document contains non-GAAP financial measures where management believes it to be helpful in understanding our results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

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 profit 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 profit (the most directly comparable 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 it should not be considered in isolation or as a substitute for analysis of our results as reported under 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.

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Because of these limitations, you should consider EBITDA and Adjusted EBITDA alongside other financial performance measures, including net profit and our other GAAP results.

A reconciliation of net profit to non-GAAP EBITDA and Adjusted EBITDA as restated is as follows for the three months ended March 31, 2025 and 2024:

For the three months ended March 31, 2025, our adjusted EBITDA declined primarily due to a decrease in account loan interest income resulting from the revised calculation methodology under the Amended PCCU CAA, lower investment income driven by a reduction in the average daily deposit balance, and higher asset hosting fees and professional expenses including non-cash stock compensation paid to Directors. These factors contributed to our financial performance are further discussed in the “Discussion of our Results of Operations” section above. In 2024, the other adjustments include estimated future credit losses not yet realized, including amounts indemnified to PCCU for loans funded by them. The Company entered into the PCCU CAA with PCCU, under which it agreed to indemnify PCCU for claims related to CRB activities, including loan default-related losses for loans funded by PCCU. This agreement was subsequently amended and restated, effective December 31, 2024, to eliminate the Company’s indemnification liability. 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 ability to originate loans for PCCU 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 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.

(1) Represents the average of the ending account balances for each of the three months therein

(2) Reported account activity fee revenue

(3) Represents the average of ending active accounts for each of the three months therein

(4) Refer to the below section – Discussion of Results of our Operations for additional discussion of trends.

For the three months ended March 31, 2025, there was an increase in the average number of accounts; however, the average monthly balance and fees declined due to a reduction in high value accounts compared to the three months ended March 31, 2024. The Company is focused on expanding its client base through various strategic partnerships, which is expected to drive growth in both account balances and fees in the upcoming quarters.

Financial Condition

Cash and cash equivalents

Cash and cash equivalents totaled $931,397 and $2,324,647 as of March 31, 2025, and December 31, 2024, respectively.

Cash flows

For the three months ended March 31, 2025, the Company used $1,140,730 in cash for operating activities, compared to $1,475,123 generated during the same period in 2024. The decline in operating cash flow was primarily driven by a decrease in revenue and the payment of trade payables.

For the three months ended March 31, 2025, the Company generated $3,245 in cash from investing activities, compared to $3,014 during the same period in 2024. This change is attributed to the loan receivable repayment schedule serviced by the Company.

For the three months ended March 31, 2025, the Company used $255,765 in cash for financing activities, compared to $740,544 in the corresponding period of 2024. This decrease was primarily due to higher principal repayments on the senior secured promissory note in 2024. In the first quarter of 2025, the Company and PCCU entered into a Letter Agreement to defer principal payments on the PCCU Note for February and March 2025, while continuing interest payments. Subsequently, the Company executed the Amended PCCU Note, which replaced the original note dated March 29, 2023, and the Letter Agreement. The amended note includes a deferral of principal payments until February 5, 2027.

Contract assets and liabilities

Deferred revenue is primarily related to contract liabilities associated with the Company agreements. As of March 31, 2025, SHF reported a contract asset and liability of $0 and $9,105 respectively and on December 31, 2024, SHF reported a contract asset and liability of $0 and $28,335, respectively.

Liquidity and going concern

Liquidity refers to our ability to meet anticipated cash and cash equivalents demands, including servicing debt, funding operations, maintaining assets, and covering other routine business expenses. Our primary cash outflows include debt principal and interest repayments, operating costs, and general business expenditures. The main source of our liquidity continues to be cash inflows generated from operational performance. As of March 31, 2025, the Company does not have significant capital investment commitments.

Under Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements—Going Concern, the Company is responsible for evaluating whether conditions or events raise substantial doubt about its ability to meet future financial obligations within one year of the financial statement issuance date. This evaluation involves two steps: (1) assessing whether conditions or events raise substantial doubt about the Company’s ability to continue as a going concern, and (2) if substantial doubt is raised, evaluating whether the Company has plans to mitigate that doubt. Disclosures are required if substantial doubt exists or if the Company’s plans alleviate the substantial doubt. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

At March 31, 2025, the Company reported cash and cash equivalents of $931,397 and net working capital deficit of $6,723,895, compared to cash and cash equivalents of $2,324,647 and net working capital deficit of $983,833 as of December 31, 2024. The Company’s ability to continue as a going concern depends on its capacity to generate sufficient liquidity to meet financial obligations, including interest repayments under the senior secured note with PCCU (as defined below). The Company has an operating loss of $1,991,495 for the period ended March 31, 2025.

As a result, the Company may need to raise additional debt or equity financing to resolve these challenges. In the event of a default on the Amended PCCU debt, and if the Company is unable to cure the default within the 30-day grace period, the provisions of the debt agreement would allow PCCU to subjectively accelerate the debt and elect to exercise its security interest in all of the Company’s assets. While it is highly likely that the Company’s services would continue in such circumstances, a default would significantly impact the Company’s valuation.

As of March 31, 2025, our cash and cash equivalents amounted to $931,397, which management does not believe is sufficient to fund our operations and meet our obligations as they come due over the next 12 months, as the current funds are projected to support operations only through September 30, 2025. Additionally, the reported working capital deficit, excluding adjustments for non-cash activities, along with the uncertainty surrounding cash flows from operations, raises substantial significant doubt about the Company’s ability to continue as a going concern for at least twelve months from the issuance date of these unaudited condensed consolidated financial statements. The Company is currently developing plans to address its liquidity needs, the probability of success of such plans is uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In addition, on April 7, 2025, the Company was notified by The Nasdaq Stock Market LLC (“Nasdaq”) that it no longer meets the continued listing requirements for the Nasdaq Capital Market due to a stockholders’ equity deficit of $12,288,014 as of December 31, 2024, which was below the required $2.5 million minimum stockholders’ equity. The Company has been granted 45 calendar days, until May 22, 2025, to submit a plan to regain compliance with Nasdaq’s listing requirements. If the plan is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of this letter for the Company to meet the continued listing standards. The Company intends to timely submit a Compliance Plan to Nasdaq to regain compliance with the Shareholders’ Equity requirement. There can be no assurance that Nasdaq will accept the Company’s plan or that the Company will be able to regain compliance with Listing Rule 5550(b)(1) or maintain compliance with any other Nasdaq requirement in the future.

Management’s Plan Related to Going Concern

The Company has implemented several initiatives, to address these concerns, including implementing strategic partnerships to broaden its revenue base by providing additional financial services to cannabis operators, renegotiating its senior secured loan with PCCU, offering stock-based compensation in lieu of cash payments to attract and retain talent, and restructuring the Board of Directors’ compensation to better align with stock-based incentives. Additionally, the Company is actively engaged in discussions with various parties, including potential investors, lenders, and strategic partners, to explore financing options or other strategic transactions. While we are working diligently to secure additional financing, there can be no assurance that these efforts will be successful or that any financing will be obtained on terms favorable to us or at all. If we are unable to secure sufficient capital, we may need to curtail certain operations or pursue other strategic alternatives. We continue to closely monitor our cash flow on weekly basis and liquidity position and are taking steps to preserve cash. Management remains focused on executing our business plan while addressing these liquidity challenges in a timely manner.

PCCU is the holder of the Senior Secured Promissory Note, as disclosed in Note 10 of these unaudited condensed consolidated financial statements. As the holder of this note, PCCU has a security interest in all of the Company’s assets. In the event of default, which may reasonably occur due to the liquidity challenges described herein, PCCU may exercise its rights under this security interest.

CRB deposits are maintained with the Company’s contracted financial institutions; accordingly, the Company’s liquidity issues do not affect the security of these deposits. Furthermore, we do not anticipate any significant impact on the services provided to our CRB clients. The only foreseeable change would be a potential shift in the ownership of the Company’s underlying business operations.

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.

Litigation

On October 17, 2024, the Company caused a Complaint to be filed in the District Court for the City and County of Denver, Colorado, captioned SHF Holdings, Inc. v. Daniel Roda, Gregory W. Ellis, and James R. Carroll, Case No. 2024CV33187 (Denver County District Court). On November 21, 2024, in connection with the Company’s request, the Company caused the Merger Payment to be deposited into the Denver County District Court’s registry so that it can be distributed in accordance with the terms of the Merger Agreement. The Merger Payment has already been accounted for in the working capital deficit disclosed in the Liquidity and Going Concern section. On December 19, 2024, Daniel Roda, Gregory W. Ellis, and James R. Carroll caused an answer and counterclaim to be filed in response to the Company Complaint. For additional details, please refer to the section titled “Abaca legal case in Denver” in the Recent Updates of the Company’s Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2024 as well as the Company’s Current Reports on Form 8-K filed with the SEC on October 18, 2024 and December 19, 2024.

Critical Accounting Estimates

As of March 31, 2025, there were no significant changes in the application or the nature of accounting estimates that are considered critical in nature from those presented in our Annual Report on Form 10-K and Form 10-K/A.

Emerging Growth Company Status

The Company is an emerging growth company (“EGC”), as defined in the JOBS Act. Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued until such time as those standards apply to private companies. In electing this relief, the JOBS Act does not preclude an EGC from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. SHF has elected to use this relief and will do so until the earlier of the date that it (a) is no longer an emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result of the elected JOBS Act relief, these combined and unaudited condensed consolidated financial statements may not be comparable to companies that do not elect JOBS Act relief or choose to early adopt different accounting pronouncements than SHF.

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, 2025, the Company has identified material weaknesses within our internal controls over financial reporting. Refer to Item 9A of this document for additional details.

Related Party Relationships

PCCU is considered a related party as it holds a significant ownership interest in the Company, is our most significant financial institution customer, serves as the Company’s sole lending financial institution, is the counterparty to the PCCU Note, and is where we maintain the majority of our deposits. The agreements between PCCU and the Company are as follows:

Commercial Alliance Agreement (the “PCC CAA”)

On March 29, 2023, the Company and PCCU entered into a PCCU CAA, which was subsequently amended and restated on December 31, 2024. This agreement sets forth the terms and conditions of lending and account-related services, governing the relationship between the Company and PCCU. The PCCU CAA outlined the application, underwriting, loan approval, and foreclosure processes for loans issued by PCCU to CRBs (as defined below), as well as the loan servicing and monitoring responsibilities of both parties.

In particular, the PCCU CAA provided procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU would take title to or possession of cannabis-related assets, including real property that may have served as collateral for loans funded by PCCU pursuant to the agreement.

Under the PCCU CAA, PCCU had the right to receive monthly fees for managing loans. For SHF-serviced loans (CRB loans provided by PCCU but primarily handled by SHF), a yearly fee of 0.25% of the remaining loan balance was applied. For loans both financed and serviced by PCCU, a yearly fee of 0.35% on the outstanding balance was charged. These fees were calculated based on the average daily balance of each loan for the preceding month.

Additionally, until December 31, 2024 the Company was obligated under the PCCU CAA to indemnify PCCU from certain default-related loan losses, as fully defined in the agreement.

Furthermore, the PCCU CAA outlined certain fees to be paid to the Company for specified account-related services, including cannabis-related income such as loan origination fees, interest income on CRB-related loans, participation fees, servicing fees, investment income, account activity fees, processing fees, and other revenue. These fees were set at $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024.

Regarding CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) was shared at a ratio of 25% to PCCU and 75% to the Company. Additionally, PCCU maintained its CRB-related deposits to total assets ratio at 60%, unless otherwise dictated by regulatory, regulator, or policy requirements. The initial term of the PCCU CAA was two years, with a one-year automatic renewal, unless either party provided a one hundred twenty-day written notice prior to the end of the term.

The Amended PCCU CAA extends the term through December 31, 2028, with automatic renewals every two years unless terminated with 12 months’ notice.

The key modifications under the Amended PCCU CAA include several significant changes:

• The indemnification obligations have been eliminated, meaning the Company is no longer required to indemnify PCCU for any loan-related losses under either the original or future agreements.
• The prior fee structure has been replaced by a more efficient asset hosting fee structure. Previously, the Company paid various fees to PCCU, including per-account servicing, investment hosting, and loan servicing fees. Under the new structure, the Company will pay a fixed asset hosting fee calculated as 0.01 multiplied by the average daily balance of account relationships generated by the Company, divided by the number of days in the year, and multiplied by the number of days in the applicable month.
• Provides the Company with all investment income earned on CRB funds invested on its behalf by PCCU, effectively eliminating the investment hosting fees that were previously payable.
• The Company’s interest income on all loans with PCCU are now calculated using a loan yield allocation formula that incorporates the Constant Maturity US Treasury Rate from Standard & Poor’s Capital IQ data service, along with a proprietary risk rating formula to determine the fee split between the Company and PCCU. Before the amendment, the Company received the entire interest income from the loan and was responsible for paying loan servicing fees of 0.25% of the loan balance. The amendment removes the loan servicing fees and indemnification liability, while introducing the interest income split between the Company and PCCU.
• There are penalties charged to the Company if it fails to maintain the agreed Loan-to-Share (LTS) Ratio. If the LTS Maximum (60%) is exceeded for over 90 days, the asset hosting fee increases from 1.00% to 1.10% of the average daily balance (ADB) until compliance is restored. If the LTS Minimum (27.5%) is breached, the Company must pay a quarterly adjustment fee based on the shortfall. Additionally, if the LTS Ratio exceeds 100% for 90 days, the Company incurs an interest charge at the Federal Funds Rate + 120 bps, calculated daily and paid monthly.

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The schedule below illustrates the ratio of CRB-related loans funded by PCCU to the corresponding lending limits under the Amended PCCU CAA.:

As of March 31, 2025, the Company implemented an improvement to its reporting of business metrics. CRB related deposits historically was computed as of the date reported. As of March 31, 2025, CRB related deposits are being computed using a 30day average. As of December 31, 2024, the incremental capacity if reported using the 30day average of CRB related deposits would have reflected a shortfall of $663,713.

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 by this Item 1A.