SHF Holdings, Inc.: Form 10-Q for the period ended Jun 30, 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, hemp, and related industries by enabling our Financial Institution customers to provide compliance driven banking, lending and other financial services to our Cannabis Related Business “CRB” clients.

Through our proprietary platform operating in 42 states and territories, SHF ensures our Financial Institution customers can compliantly provide the following banking related services to CRBs:

• 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.

Due to limited availability of payment and other banking solutions for the cannabis industry, most CRBs 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 customers 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 customers 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 our CRB clients, 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.

Results of Operations

Revenue

The Company generates interest and fee income through providing a variety of services to our financial institution customers to facilitate their banking services to CRBs including, among other things, Bank Secrecy Act and other regulatory compliance and reporting, marketing new CRBs clients and 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, account hosting fees, advertising and marketing, 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. The indemnification obligation ceased on December 31, 2024, when the Amended PCCU CAA took effect.

Three and Six Months June 30, 2025 As Compared To June 30, 2024

Revenue

The following is the revenue for the three and six months ended June 30, 2025 and June 30, 2024.

Account fee income consists of deposit account fees, activity fees and onboarding income. The Company receives 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 the account fee income was primarily attributable to the previously disclosed reduction in the average monthly ending deposit balance.

The following is the account fee income by financial institutions for the three and six months ended June 30, 2025 and June 30, 2024.

The following is the hosting fee by financial institutions for the three and six months ended June 30, 2025 and June 30, 2024.

Account hosting fees increased in the three ended and six months ended June 30, 2025 compared to 2024, primarily due to the amendment. 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. This new asset hosting fee replaced the prior Investment Hosting Fee and Loan Hosting Fee, as described below. We anticipate that the new asset hosting fee will be more expensive than the disaggregated fees in the PCCU CAA.

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

Some of the Company’s financial institutions pay us interest on daily account balances as per the rates outlined in the agreements. The decrease in investment income was primarily attributable to a reduction in average daily deposit balances.

During 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 and six months ended June 30, 2024, PCCU’s contribution to investment income totaled $435,238 and $1,166,663, resulting in $117,620 and $277,721 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 December 31, 2024, the Company is no longer required to pay investment hosting fees to PCCU. For the three months ended and six months ended June 30, 2025, PCCU’s contribution to investment income was $260,387 and $552,823.

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 the Federal Reserve’s website, 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. The interest income split, given the current portfolio of loans, and using the loan yield allocation formula is approximately 39% in favor of the Company, the remainder is retained by PCCU. The interest income split will vary depending on changes to the loan portfolio.

For the three months and six months ended June 30, 2025, the Company recognized $506,233 and $1,046,455 in loan interest income attributable to PCCU activities. In comparison, for the three months and six months ended June 30, 2024, the Company recognized $1,836,092 and $3,472,848 in loan interest income from the same activities. Related expenses for the 2024 period included $36,156 and $72,057 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

For the three months ended June 30, 2025, as compared to June 30, 2024, the Company reduced operating expenses by $920,996, or 24.6%. For the six months ended June 30, 2025, as compared to June 30, 2024, the Company reduced operating expenses by $723,007 or 9.7%. The Company implemented a business plan that included a reduction of expenses to save cash, refer to management’s plan related to going concern, Note 2 to the accompanying financial statements.

For the three months ended June 30, 2025, compared to the same period in 2024, the Company reduced compensation and employee benefits by $681,880, or 30.1%. This decrease was primarily driven by reduction in stock compensation expense of $700,000 which is offset by $100,000 for an amount accrued for an amount owed to a former employee. For the six months ended June 30, 2025, compared to the same period in 2024, compensation and employee benefits declined by $1,589,437, or 34.9%, including $833,000 in savings from headcount reductions and a $861,000 reduction in stock compensation expense, offset by $100,000 for an accrual for an amount owed to a former employee. Compensation and employee expenses should continue to decline in the third quarter ending September 30, 2025 with a full effect of the headcount reductions taken during the quarter ended June 30, 2025.

For the three months ended June 30, 2025, as compared to June 30, 2024, there was a decrease in general and administrative expense of $543,961, or 54.3%. The decrease is primarily related to a decrease of $271,000 from franchise taxes, a decrease of $191,000 for amortization of intangible assets, and a decrease in marketing expenses of $41,000. For the six months ended June 30, 2025, as compared to June 30, 2024, there was a decrease in general and administrative expense of $537,355, or 27%. The decrease was primarily attributed to a franchise taxes of $271,000, and a decrease in marketing expenses of $92,000.

For the three months ended June 30, 2025, as compared to June 30, 2024, there was an increase in professional services of $208,610, or 41.4%, The increase was attributed to legal fees associated with the Company’s litigation, For the six months ended June 30, 2025, as compared to June 30, 2024, there was an increase in professional services of $1,247,194, or 129.3%. The increase was attributed to legal fees associated with the Abaca legal case, non-cash stock compensation to directors, and a $200,000 legal settlement with a former employee, refer to Note 17 – Commitments and Contingencies for further details.

For the three months ended June 30, 2025, there was no credit loss (benefit) expense as compared to a credit loss (benefit) of $(97,248). For the six months ended June 30, 2025, there was no credit loss (benefit) expense as compared to a credit loss (benefit) of $(166,035). Effective with the Amended PCCU CAA, the Company is not indemnifying loans issued by PCCU.

Other Income / (Expenses)

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 and six months ending June 30, 2025, the fair value of deferred consideration decreased by $252,495, of 119.4% and $276,030, or 69.7%. This decrease was predominantly due to a decline in the stock price which affected the fair value of the warrants and third anniversary payment.

Interest expense for the three and six months ended June 30, 2025, and June 30, 2024, primarily relates to the Senior Secured Promissory Note. For the three months ended June 30, 2025, interest expense decreased by $53,489, or 31.7%, compared to the same period in 2024, primarily due to principal repayments on the note. For the six months ended June 30, 2025, interest expense decreased by $94,875, or 29.4%, compared to the prior-year period, also driven by principal repayments on the Senior Secured Promissory Note.

The Company has warrant liabilities related to Public, Private Placement, PIPE, and Abaca Warrants, which may be settled in cash or stock at the option of the Company. The liabilities are subject to adjustments based on its fair value which is calculated by the Black Scholes Merton option pricing method and Monte Carlo Simulation method. Changes in the Company’s stock price primarily resulted in the decrease in fair market value.

Income Taxes

Income tax (benefit) expense for the three months ended June 30, 2025 was $(58,470) as compared to income tax of $487,627 for the three months ended June 30, 2024. Income tax (benefit) expense for the six months ended June 30, 2025 was $(58,470) as compared to an income tax expense of $48,742 for the six months ended June 30, 2024. The change in income tax (benefit) resulted in a reversal of estimated accrual.

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 our 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.

8

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 is as follows:

Other Metrics

The Company monitors the following key metrics for its business operations.

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) 2025 represents the average of the daily account balance for the three and six months therein; 2024 represents the average of the ending account balances for each of the three and six months therein.

(2) Reported account activity fee revenue per month.

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

(4) See below section – s for additional discussion of trends.

For the three months and six months ended June 30, 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 and six months ended June 30, 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.

Liquidity, Capital Resources and Capital Resources.

Liquidity refers to our ability to meet expected cash obligations, including operating costs, interest payments, and general business expenditures. As of June 30, 2025, we had cash and cash equivalents of $247,318 and a net working capital deficit of $7,381,312. We also had an accumulated deficit of $122,513,459 and used cash of $1,815,338 in operating activities during the six months ended June 30, 2025.

Pursuant to ASC 205-40, Presentation of Financial Statements – Going Concern, we evaluated whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of these unaudited condensed consolidated financial statements. Based on current financial projections, we believe substantial doubt exists regarding our ability to continue as a going concern.

Management projects that the Company will not have sufficient liquidity to continue operations, including making required interest payments under the Amended PCCU Note, see Note 9), beyond October 2025. The total outstanding balance under the Amended PCCU Note is $10,748,408. xPCCU holds a senior security interest in all of the Company’s assets other than the NASDAQ listing. In the event of a payment default, and if such default is not cured within the applicable grace period, PCCU may exercise its rights under the security agreement, which could include accelerating the debt and pursuing remedies that could materially and adversely affect the Company’s operations and financial position.

The Company continues to experience reductions in depository activity, loan interest income, and fee revenue, as well as legal expenses related to ongoing shareholder and former employee litigation. These factors have further constrained liquidity and heightened the uncertainty surrounding our ability to sustain operations.

The Company entered into a purchase loan agreement with PCCU on July 31, 2025, for the sale of a loan receivable of $385,642 as of June 30, 2025 to PCCU. On July 31, 2025, the Company received $384,527 from PCCU for the sale of the loan, see Note 18, Subsequent Events.

Additionally, as of June 30, 2025, our stockholders’ deficit of approximately $17.9 million is $20.4 million below the $2.5 million minimum equity requirement for continued listing on The Nasdaq Capital Market under Rule 5550(b)(1). We received a deficiency notice from Nasdaq and submitted a compliance plan on May 22, 2025. Nasdaq confirmed receipt of the plan but has provided no additional commentary as of the date of issuance of the financial statements. There is no assurance that the Company will regain compliance within the allowed period.

Notwithstanding these financial conditions, the Company does not anticipate any material impact to services provided to its cannabis-related business (CRB) clients, whose deposits are maintained with the Company’s contracted financial institutions. However, these developments could ultimately result in changes to the Company’s ownership structure.

Management’s Plan Related to Going Concern

In response to the liquidity challenges and the existence of substantial doubt about the Company’s ability to continue as a going concern, management has implemented and is pursuing a series of initiatives intended to improve the Company’s financial condition and operating flexibility.

The Company has undertaken several operational and financial restructuring measures, including:

• Strategic partnerships aimed at expanding its service offerings to cannabis-related businesses;
• Renegotiating terms under its Amended PCCU Note;
• Offering stock-based compensation in lieu of cash to conserve liquidity while continuing to attract and retain key personnel;
• Restructuring its employee base to align staffing with current operating needs; and
• Adjusting Board of Directors’ compensation to further align interests with shareholders through equity incentives.

11

In addition, the Company is actively engaged in discussions with potential investors, lenders, acquirers, investment banks, and strategic partners to secure additional capital through debt and equity financing or other strategic alternatives. Management is also exploring the potential use of its Nasdaq listing as part of a broader strategy that may include digital assets or treasury-related partnerships. These discussions remain preliminary, and no assurance can be given that any such transaction will materialize.

While these plans are factored and heighted to alleviate the conditions giving rise to the going concern uncertainty, there can be no assurance that they will be successfully executed, or that any financing will be secured on acceptable terms, or at all. If the Company is unable to implement these plans or obtain sufficient funding, it may be required to curtail operations or pursue other strategic alternatives. The Company is closely monitoring its cash flows, reducing discretionary expenditures, and prioritizing liquidity preservation while continuing to assess all available strategic options.

Management remains committed to executing its business plan while addressing the Company’s liquidity needs in a timely and prudent manner.

Cash Flows

For the six months ended June 30, 2025, the Company used $1,815,338 of cash in operating activities to fund its net loss of $1,757,914. Operating cash flow benefited from $783,762 in non-cash stock-based compensation and $532,761 generated through effective working capital management. For the six months ended June 30, 2024, the Company cash provided by operations was $2,704,637 primarily from a net income of $2,991,203, increases in changes in operating assets and liabilities $1,390,207, offset by non-cash expenses of $1,340,207.

For the six months ended June 30, 2025, and June 30, 2024, the Company generated cash from investing activities was $6,545 and $6,083 from the proceeds of loan, respectively.

For the six months ended June 30, 2025, and June 2024, the Company used from financing activities was $268,536 and $1,487,507 was primarily from the repayment of the senior secured promissory notes, respectively.

Critical Accounting Estimates

As of June 30, 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 six months ended June 30, 2025, the Company has identified material weaknesses within our internal controls over financial reporting. Refer to Item 4A 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 the Company’s deposits. Refer to Note 8 Related Party Transactions, to the accompanying unaudited consolidated financial statements that describe the related party transactions.

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.