Core Insights - Safe Harbor Financial has launched the Fully Managed Cannabis Banking Program, the first of its kind, providing operational and compliance outsourcing for financial institutions serving the cannabis market [1][3][4] - The program aims to help community banks and credit unions enter the legal cannabis market without the need for additional staffing or risk management [2][4] Company Overview - Safe Harbor Financial is a fintech leader focused on providing financial services to the regulated cannabis industry, having processed over $26 billion in cannabis-related deposits across 41 U.S. states and territories [4][6] - The company has been operating a similar model privately since 2015 and is now expanding its services to additional financial institutions nationwide [4][6] Program Features - The program includes complete operational outsourcing, managing all aspects from client acquisition to compliance oversight, allowing partner institutions to hold deposits without direct involvement in cannabis services [2][7] - It offers a reputational shield by operating under the Safe Harbor brand, insulating financial institutions from direct association with cannabis [7] - The program is designed to improve efficiency ratios by minimizing startup costs and operational overhead, enabling stronger margins for both financial institutions and cannabis businesses [7] Strategic Importance - The launch comes at a time when financial institutions are increasingly looking for compliant and scalable ways to serve the cannabis market while navigating regulatory complexities [3][4] - Safe Harbor's CEO emphasized the program's role in providing a proven, compliant path to growth for financial institutions interested in cannabis banking [3]

Core Viewpoint - Safe Harbor Financial has launched the Fully Managed Cannabis Banking Program, the first comprehensive operational and compliance outsourcing solution for financial institutions in the cannabis industry, aiming to facilitate compliant banking services without the need for internal staffing or risk management [1][3][4]. Group 1: Program Features - The program is designed for community banks, credit unions, and financial institutions that want to serve the legal cannabis market without expanding their internal teams or taking on new risks [2][4]. - Safe Harbor manages all aspects of the program, including client acquisition, compliance oversight, and account support, while deposits are held by the partner institution [2][7]. - Key features include sticky deposit growth, complete operational outsourcing, a reputational shield, and improved efficiency ratios for financial institutions [7]. Group 2: Market Context - The launch comes as financial institutions are increasingly looking for safe and scalable ways to engage with the cannabis market amid regulatory uncertainties [3][4]. - Safe Harbor has processed over $26 billion in cannabis-related deposits across 41 U.S. states and territories, indicating a strong market presence and experience [4][6]. Group 3: Strategic Expansion - The Fully Managed Cannabis Banking Program represents a strategic expansion of a model that Safe Harbor has operated privately since 2015, now opening its platform to additional partners nationwide [4][6]. - The program also provides a seamless exit strategy for institutions that wish to wind down their cannabis banking operations, allowing for a smooth transition of deposit management and client servicing [5].

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the company's unaudited financial statements and management's discussion and analysis [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited consolidated financial statements and notes for the periods ended June 30, 2025 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, including assets, liabilities, and equity, as of June 30, 2025 | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total Assets | $5,955,577 | $13,218,287 | | Total Liabilities | $23,814,748 | $25,506,301 | | Total Stockholders' Deficit | $(17,859,171) | $(12,288,014) | - The company's total assets decreased by approximately **55%** from December 31, 2024, to June 30, 2025, while total liabilities saw a modest decrease. The stockholders' deficit worsened significantly, indicating a deteriorating financial position[20](index=20&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net income or loss for the three and six months ended June 30, 2025 | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $1,845,334 | $4,037,535 | $3,777,686 | $8,088,334 | | Total operating expenses | $2,816,376 | $3,737,372 | $6,740,223 | $7,463,230 | | Operating (loss) income | $(971,042) | $300,163 | $(2,962,537) | $625,104 | | Net (loss) income | $(930,715) | $941,527 | $(1,757,914) | $2,991,203 | | Basic net (loss) income per share | $(0.33) | $0.34 | $(0.63) | $1.08 | - The company experienced a significant decline in revenue and a shift from net income to net loss for both the three and six months ended June 30, 2025, compared to the prior year. Revenue decreased by **54.3%** for the three months and **53.3%** for the six months, leading to a basic net loss per share of **$(0.33)** and **$(0.63)** respectively[22](index=22&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This section outlines changes in stockholders' equity (deficit), including common stock and accumulated deficit, for the periods presented | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total Stockholders' Deficit | $(17,859,171) | $(12,288,014) | | Class A Common Stock Shares Outstanding | 2,826,468 | 2,783,667 | | Accumulated Deficit | $(122,513,459) | $(120,755,545) | - The total stockholders' deficit increased from **$(12,288,014)** as of December 31, 2024, to **$(17,859,171)** as of June 30, 2025, primarily due to a net loss of **$(1,757,914)** and a reclassification of forward purchase receivable of **$(4,584,221)**[30](index=30&type=chunk) [Condensed Consolidated Statement of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) This section presents cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(1,815,338) | $2,704,637 | | Net cash provided by investing activities | $6,545 | $6,083 | | Net cash used in financing activities | $(268,536) | $(1,487,507) | | Net (decrease) increase in cash and cash equivalents | $(2,077,329) | $1,223,213 | | Cash and cash equivalents – end of period | $247,318 | $6,111,982 | - The company's cash and cash equivalents significantly decreased from **$2,324,647** at the beginning of the period to **$247,318** by June 30, 2025, primarily due to cash used in operating activities of **$(1,815,338)** for the six months ended June 30, 2025, a stark contrast to the cash provided by operations in the prior year[35](index=35&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's accounting policies, financial instruments, and other significant financial statement items [Note 1 - Organization and Business Operations](index=11&type=section&id=Note%201%20-%20Organization%20and%20Business%20Operations) This note describes SHF Holdings, Inc.'s business, its financial solutions for the cannabis industry, and revenue generation methods - SHF Holdings, Inc. provides financial solutions and compliance services to financial institutions serving the cannabis industry, leveraging a proprietary technology platform for deposit and compliance activities. Revenue is generated from fee income, investment income, loan interest income, and compliance services[38](index=38&type=chunk)[39](index=39&type=chunk) [Note 2 - Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=Note%202%20-%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the basis of financial statement preparation, significant accounting policies, and the company's going concern assessment - The financial statements are unaudited and prepared in accordance with U.S. GAAP, with certain disclosures condensed or omitted per SEC rules. The company operates as one reportable segment and faces concentration risk with revenues primarily from U.S. financial institutions serving cannabis-related businesses, with substantially all deposits maintained at PCCU[44](index=44&type=chunk)[45](index=45&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) - Management has identified substantial doubt about the company's ability to continue as a going concern beyond October 2025, citing insufficient liquidity, reductions in depository activity, loan interest income, and increased legal expenses. The company also fails to meet Nasdaq's minimum equity requirement[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk)[53](index=53&type=chunk) - Management's plan to address going concern includes strategic partnerships, renegotiating the Amended PCCU Note, using stock-based compensation, employee restructuring, adjusting Board compensation, and seeking additional capital through debt/equity financing or strategic alternatives[55](index=55&type=chunk)[56](index=56&type=chunk)[60](index=60&type=chunk) [Note 3 - Deferred Consideration](index=17&type=section&id=Note%203%20-%20Deferred%20Consideration) This note details the deferred consideration related to the Abaca Merger, including amendments and fair value adjustments - Deferred consideration from the Abaca Merger, initially **$30 million** in cash and stock, was amended to include **291,791 shares** at **$40.00/share** and **250,000 stock warrants**. A **$1.5 million** third-anniversary consideration, payable in cash or stock (with a **$40.00/share** floor), is now intended to be settled with **37,500 unregistered shares** due to the company's financial condition[80](index=80&type=chunk)[81](index=81&type=chunk) | Metric | January 1, 2024 | December 31, 2024 | June 30, 2025 | | :-------------------------------- | :-------------- | :---------------- | :------------ | | Total Deferred Consideration | $3,699,792 | $3,338,343 | $3,218,303 | | Fair value adjustment (Jan 1 - Dec 31, 2024) | | $(361,449) | | | Fair value adjustment (Jan 1 - Jun 30, 2025) | | | $(120,040) | [Note 4 - Goodwill and Finite-lived Intangible Assets](index=18&type=section&id=Note%204%20-%20Goodwill%20and%20Finite-lived%20Intangible%20Assets) This note explains the full impairment of goodwill and finite-lived intangible assets recognized as of December 31, 2024 - The company recorded a full impairment of its goodwill and finite-lived intangible assets, primarily from the Abaca Merger, as of December 31, 2024. Consequently, no impairment or amortization charges were recognized for the three and six months ended June 30, 2025[85](index=85&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) [Note 5 - Loans Receivable](index=18&type=section&id=Note%205%20-%20Loans%20Receivable) This note describes the company's commercial real estate loan receivable, its classification as held for sale, and subsequent sale | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Commercial real estate loans receivable, gross | $385,642 | $392,186 | | Transferred to held for sale | $(385,642) | - | | Commercial real estate loans receivable, net | - | $392,186 | - The company's commercial real estate loan receivable was classified as held for sale as of June 30, 2025, and subsequently sold to PCCU in July 2025. No allowance for credit losses was recorded as the loan was performing[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) [Note 6 - Indemnification Liability](index=19&type=section&id=Note%206%20-%20Indemnification%20Liability) This note details the reduction of the company's indemnification liability to PCCU to $0 due to the Amended PCCU CAA - Effective December 31, 2024, the company's indemnification liability to PCCU for credit losses on funded loans was reduced to **$0** due to the Amended PCCU CAA. This eliminated the prior obligation where SHF indemnified PCCU for losses on certain loans[92](index=92&type=chunk)[93](index=93&type=chunk) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Credit loss (benefit) | - | $(97,248) | - | $(166,035) | [Note 7 - Revenue](index=19&type=section&id=Note%207%20-%20Revenue) This note provides a breakdown of revenue by type and explains the significant decline for the three and six months ended June 30, 2025 | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Account fee income | $1,009,730 | $1,681,596 | $2,082,195 | $3,302,590 | | Loan interest income | $555,971 | $1,836,092 | $1,096,193 | $3,472,848 | | Investment income | $260,403 | $500,617 | $560,838 | $1,274,436 | | Safe Harbor Program income | $19,230 | $19,230 | $38,460 | $38,460 | | Total Revenue | $1,845,334 | $4,037,535 | $3,777,686 | $8,088,334 | - Total revenue significantly decreased by **54.3%** for the three months and **53.3%** for the six months ended June 30, 2025, compared to the prior year. This decline was primarily driven by reductions in loan interest income (down **69.7%** and **68.4%** respectively) and account fee income (down **40.0%** and **37.0%** respectively), largely due to changes in the PCCU CAA and reduced average daily deposit balances[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [Note 8 - Related Party Transactions](index=21&type=section&id=Note%208%20-%20Related%20Party%20Transactions) This note identifies PCCU as a related party and details the impact of the Amended PCCU CAA on the company's financial arrangements - PCCU is a related party due to its significant ownership, role as the primary financial institution customer, sole lending institution, and counterparty to the PCCU Note. The Amended PCCU CAA, effective December 31, 2024, eliminated SHF's indemnification obligations and replaced the prior fee structure with a fixed asset hosting fee and a new loan yield allocation formula for interest income[102](index=102&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk) | Related Party Balance | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Accounts receivable | $582,855 | $968,023 | | Accounts payable | $164,917 | $75,608 | | Senior Secured Promissory Note | $10,748,408 | $11,004,173 | - As of June 30, 2025, **$235,993** of cash and cash equivalents were held in deposit accounts at PCCU, down from **$2,202,895** on December 31, 2024[112](index=112&type=chunk) [Note 9- Senior Secured Promissory Note](index=23&type=section&id=Note%209-%20Senior%20Secured%20Promissory%20Note) This note describes the amended Senior Secured Promissory Note with PCCU, including its principal balance, interest terms, and security interest - The Senior Secured Promissory Note with PCCU, initially **$14.5 million** at **4.25%** interest, was amended on March 1, 2025. The principal balance is now **$10,748,408**, with interest-only payments until January 5, 2027, and full repayment by October 5, 2030. PCCU retains a first-priority security interest in substantially all company assets[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) | Year Ended December 31, | Amount | | :------------------------ | :------- | | 2025 | - | | 2026 | - | | 2027 | $697,614 | | 2028 | $790,592 | | 2029 | $826,047 | | 2030 | $8,434,155 | | Total | $10,748,408 | [Note 10. - Leases](index=24&type=section&id=Note%2010.%20-%20Leases) This note details the company's operating lease for its corporate office, including remaining term, right-of-use asset, and lease liability - The company has a non-cancellable operating lease for its corporate office in Golden, Colorado, with a remaining term of approximately **four years** as of June 30, 2025. The net right-of-use asset was **$625,355** and the corresponding lease liability was **$794,493** as of June 30, 2025[118](index=118&type=chunk) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Operating lease cost (3 months) | $63,185 | $64,198 | | Operating lease cost (6 months) | $124,191 | $133,635 | | ROU assets ending balance | $625,355 | $703,524 | | Operating lease liabilities | $794,493 | $874,834 | [Note 11 - Earnings Per Share](index=25&type=section&id=Note%2011%20-%20Earnings%20Per%20Share) This note presents basic and diluted earnings per share, highlighting the shift to a net loss per share for the current periods | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic net (loss) income per share | $(0.33) | $0.34 | $(0.63) | $1.08 | | Diluted net (loss) income per share | $(0.33) | $0.33 | $(0.63) | $1.06 | - The company reported a basic and diluted net loss per share of **$(0.33)** for the three months and **$(0.63)** for the six months ended June 30, 2025, a significant decline from positive earnings per share in the prior year periods. Certain share-based equity awards and warrants were excluded from diluted EPS calculations due to their anti-dilutive effect[121](index=121&type=chunk)[122](index=122&type=chunk) [Note 12 - Forward Purchase Agreement](index=26&type=section&id=Note%2012%20-%20Forward%20Purchase%20Agreement) This note describes the Forward Purchase Agreement, including shares involved, payment due, reset price, and equity reclassification - The Forward Purchase Agreement (FPA) with Midtown East, Verdun, and Vellar involves **190,243 shares** of Common Stock, with a **$7.6 million** payment due by September 28, 2025. The Reset Price is **$25.00 per share** as of June 30, 2025, subject to monthly downward adjustments. Management believes it is highly improbable FPA Holders will sell shares before maturity[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - During the three months ended March 31, 2025, the forward purchase receivable balance was reclassified to additional paid-in capital, as the arrangement met conditions for equity classification[126](index=126&type=chunk) [Note 13 - Warrant Liabilities](index=26&type=section&id=Note%2013%20-%20Warrant%20Liabilities) This note details the various types of warrants outstanding, their exercise prices, expiration dates, and redemption conditions - As of June 30, 2025, the company had **287,500 public warrants**, **13,205 private placement warrants** (exercisable at **$230/share**, expiring September 28, 2027), **51,125 PIPE warrants** (exercisable at **$100/share**, expiring September 28, 2027), and **250,000 Abaca warrants** (exercisable at **$40/share**, exercisable 1 year from effective date and terminating 5 years from registration statement effective date)[128](index=128&type=chunk)[129](index=129&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[138](index=138&type=chunk) - Public and private placement warrants are redeemable by the company if the Common Stock price equals or exceeds **$360.00 per share** for 20 trading days within a 30-trading day period[131](index=131&type=chunk)[137](index=137&type=chunk) [Note 14 - Financial Instruments](index=28&type=section&id=Note%2014%20-%20Financial%20Instruments) This note explains the fair value measurements for financial instruments, categorizing them by input levels and presenting fair value tables - The company uses fair value measurements for financial instruments, categorizing them into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[68](index=68&type=chunk)[69](index=69&type=chunk)[139](index=139&type=chunk) | Liability | June 30, 2025 (Carrying Amount) | June 30, 2025 (Fair Value) | December 31, 2024 (Carrying Amount) | December 31, 2024 (Fair Value) | | :-------------------------------- | :------------------------------ | :------------------------- | :---------------------------------- | :----------------------------- | | Deferred consideration | $3,131,303 | $3,131,303 | $3,016,343 | $3,016,343 | | Senior Secured Promissory note | $10,748,408 | $6,063,400 | $11,004,173 | $10,221,652 | | Public warrants | $6,354 | $6,354 | $246,445 | $246,445 | | Private placement warrants | $384 | $384 | $9,632 | $9,632 | | PIPE Warrants | $4,440 | $4,440 | $79,512 | $79,512 | | Abaca Warrants | $95,073 | $95,073 | $1,024,900 | $1,024,900 | | Third anniversary payment consideration | $87,000 | $87,000 | $322,000 | $322,000 | | Forward purchase derivative | $7,309,580 | $7,309,580 | $7,309,580 | $7,309,580 | - The fair value of private placement warrants, PIPE warrants, and Abaca warrants as of June 30, 2025, and December 31, 2024, was determined using the Black-Scholes Merton option pricing model. The Abaca third anniversary payment consideration was valued using a Monte Carlo Simulation[142](index=142&type=chunk) [Note 15 - Income Taxes](index=30&type=section&id=Note%2015%20-%20Income%20Taxes) This note discusses the company's net operating losses, deferred tax assets, and potential limitations on their utilization - As of June 30, 2025, the company had net operating losses (NOL) of approximately **$22.9 million**, with fully reserved deferred tax assets of **$44.9 million**. NOLs can be carried forward indefinitely but are limited to offsetting **80%** of taxable income, and potential ownership changes under Section 382 could further limit their utilization[144](index=144&type=chunk)[145](index=145&type=chunk) - The company has no unrecognized income tax benefits as of December 31, 2024, and June 30, 2025[146](index=146&type=chunk) [Note 16 - Stockholders' Deficit](index=31&type=section&id=Note%2016%20-%20Stockholders'%20Deficit) This note details changes in stockholders' deficit, including a reverse stock split, outstanding shares, and stock compensation expense - A **1-for-20** reverse stock split of Common Stock became effective on March 14, 2025. As of June 30, 2025, there were **111 shares** of Convertible Preferred Stock outstanding and **2,826,648 shares** of Common Stock issued and outstanding[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - The 2022 Equity Incentive Plan authorized **351,857 shares** for issuance, with **179,884** remaining available as of June 30, 2025. Stock compensation expense for stock options was **$23,666** and **$764,914** for the three and six months ended June 30, 2025, respectively[151](index=151&type=chunk)[155](index=155&type=chunk) - Unrecognized stock compensation expense related to stock options was **$261,971** as of June 30, 2025, expected to be recognized over approximately **1.8 years**. For RSUs, unrecognized expense was **$19,098**, expected over **six months**[156](index=156&type=chunk)[159](index=159&type=chunk) [Note 17- Commitments and Contingencies](index=33&type=section&id=Note%2017-%20Commitments%20and%20Contingencies) This note addresses Nasdaq compliance, legal disputes, and settlement offers, outlining potential impacts on the company - The company is not in compliance with Nasdaq's minimum stockholders' equity requirement of **$2.5 million**, with a deficit of approximately **$17.9 million** as of June 30, 2025. A compliance plan was submitted to Nasdaq on May 22, 2025, but there's no assurance of regaining compliance[164](index=164&type=chunk)[165](index=165&type=chunk) - The company is involved in a legal dispute regarding a **$3.0 million** contingent merger consideration payment from the Abaca acquisition, with funds held by the Denver County District Court. A counterclaim alleging breach of contract was filed against the company, which is vigorously defending the action[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[171](index=171&type=chunk) - A settlement offer of **$300,000** to a former employee was accepted and finalized in Q3 2025, with **$100,000** payable in cash over **12 months** and **89,308 shares** of Common Stock issued for the remaining **$200,000**[172](index=172&type=chunk)[173](index=173&type=chunk) [Note 18 - Subsequent Events](index=35&type=section&id=Note%2018%20-%20Subsequent%20Events) This note reports on events occurring after the reporting period, including plan amendments, loan sales, and new tax legislation - On July 8, 2025, stockholders approved an amendment to the 2022 Equity Incentive Plan, increasing authorized shares from **351,857** to **626,749** and providing for automatic annual increases to maintain **15%** of outstanding shares[174](index=174&type=chunk) - On July 31, 2025, the company sold a **$385,642** loan receivable to PCCU for **$384,527**[175](index=175&type=chunk) - The One Big Beautiful Bill Act (OBBBA) was signed into law in July 2025, enacting tax changes. The company is evaluating its impact but does not anticipate a material change to its effective income tax rate due to a full valuation allowance[176](index=176&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results for the periods ended June 30, 2025 [Overview](index=37&type=section&id=Overview) This section provides an overview of SHF Holdings, Inc.'s business, its fintech platform, and services offered to the cannabis industry - SHF Holdings, Inc. provides compliant financial services to the legal cannabis, hemp, and related industries through its proprietary fintech platform, operating in **42 states** and territories. Services include business checking, cash management, commercial lending, and compliance monitoring for CRBs[180](index=180&type=chunk)[181](index=181&type=chunk)[183](index=183&type=chunk) - The platform mitigates risks associated with high cash volumes in the cannabis industry by facilitating daily deposits and ensuring compliance with Bank Secrecy Act/FinCEN guidance. Since inception, the company has processed approximately **$25.6 billion** in cannabis-related depository funds[181](index=181&type=chunk)[182](index=182&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) This section analyzes the company's revenue and operating expenses for the three and six months ended June 30, 2025 | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Account fee income | $1,009,730 | $1,681,596 | $(671,866) | (40.0)% | | Loan interest income | $555,971 | $1,836,092 | $(1,280,121) | (69.7)% | | Investment income | $260,403 | $500,617 | $(240,214) | (48.0)% | | Safe Harbor Program income | $19,230 | $19,230 | - | 0.0% | | Total Revenue | $1,845,334 | $4,037,535 | $(2,192,201) | (54.3)% | | Operating Expense Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Compensation and employee benefits | $1,583,051 | $2,264,931 | $(681,880) | (30.1)% | | General and administrative expenses | $457,803 | $1,001,764 | $(543,961) | (54.3)% | | Professional services | $712,337 | $503,727 | $208,610 | 41.4% | | Rent expense | $63,185 | $64,198 | $(1,013) | (1.6)% | | Provision (benefit) for credit losses | - | $(97,248) | $97,248 | (100.0)% | | Total operating expenses | $2,816,376 | $3,737,372 | $(920,996) | (24.6)% | - Total operating expenses decreased by **24.6%** for the three months and **9.7%** for the six months ended June 30, 2025, driven by reductions in compensation and employee benefits (**30.1%** and **34.9%** respectively, due to headcount reductions and lower stock compensation) and general and administrative expenses (**54.3%** and **27%** respectively, from franchise taxes and marketing). Professional services increased significantly (**41.4%** and **129.3%**) due to legal fees and non-cash stock compensation to directors[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) [Other Income / (Expenses)](index=43&type=section&id=Other%20Income%20%2F%20(Expenses)) This section details non-operating income and expenses, including fair value changes in deferred consideration and warrant liabilities | Other Income/(Expenses) Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Change in fair value of deferred consideration | $(40,960) | $211,535 | $(252,495) | 119.4% | | Interest expense | $(115,341) | $(168,830) | $53,489 | (31.7)% | | Change in fair value of warrant liabilities | $138,158 | $1,086,286 | $(948,128) | 87.3% | | Total Other Income/(Expenses) | $(18,143) | $1,128,991 | $(1,147,134) | 101.6% | - Total other income/(expenses) shifted from a gain of **$1,128,991** in Q2 2024 to a loss of **$(18,143)** in Q2 2025. This was primarily due to a significant decrease in the change in fair value of warrant liabilities (down **87.3%**) and a negative change in the fair value of deferred consideration (down **119.4%**), both largely influenced by a decline in the company's stock price[207](index=207&type=chunk)[209](index=209&type=chunk) [Income Taxes](index=43&type=section&id=Income%20Taxes) This section discusses the company's income tax benefit for the current periods, contrasting it with prior year expenses - The company recorded an income tax benefit of **$(58,470)** for the three and six months ended June 30, 2025, a reversal from income tax expenses of **$487,627** and **$48,742** in the prior year periods, respectively. This change resulted from a reversal of estimated accrual[210](index=210&type=chunk) [Key Metrics](index=43&type=section&id=Key%20Metrics) This section presents key financial and operational metrics, including non-GAAP measures like EBITDA and Adjusted EBITDA, and average account data - Management monitors EBITDA and Adjusted EBITDA as non-GAAP financial measures to evaluate operating performance and strategic decisions, acknowledging their limitations as analytical tools[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(930,715) | $941,527 | $(1,757,914) | $2,991,203 | | EBITDA | $(872,767) | $1,792,774 | $(1,585,739) | $3,753,446 | | Adjusted EBITDA | $(949,014) | $973,642 | $(2,176,257) | $2,061,002 | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Average monthly deposit balance | $103,756,620 | $125,852,436 | $(22,095,816) | (17.6)% | | Average Account fees | $285,433 | $432,888 | $(147,455) | (34.1)% | | Average active accounts | 772 | 752 | 20 | 2.7% | | Average account balance | $134,400 | $167,283 | $(32,883) | (19.7)% | | Average fees per account | $370 | $576 | $(206) | (35.8)% | - Despite an increase in the average number of active accounts (up **2.7%** for six months), average monthly deposit balances decreased by **17.6%** and average fees per account declined by **35.8%** for the six months ended June 30, 2025, primarily due to a reduction in high-value accounts[221](index=221&type=chunk)[222](index=222&type=chunk) [Liquidity, Capital Resources and Capital Resources](index=47&type=section&id=Liquidity,%20Capital%20Resources%20and%20Capital%20Resources) This section addresses the company's liquidity position, working capital deficit, going concern issues, and management's remediation plans - As of June 30, 2025, the company had cash and cash equivalents of **$247,318**, a net working capital deficit of **$7,381,312**, and an accumulated deficit of **$122,513,459**. Cash used in operating activities for the six months ended June 30, 2025, was **$1,815,338**[224](index=224&type=chunk) - Management believes substantial doubt exists about the company's ability to continue as a going concern beyond October 2025 due to insufficient liquidity, reduced revenue, increased legal expenses, and failure to meet Nasdaq's minimum equity requirement[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk)[229](index=229&type=chunk) - Management's plan includes strategic partnerships, renegotiating debt terms, using stock-based compensation, employee restructuring, adjusting Board compensation, and seeking additional capital or strategic alternatives, though no assurance can be given of successful execution or financing[231](index=231&type=chunk)[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) [Cash Flows](index=48&type=section&id=Cash%20Flows) This section analyzes cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 - For the six months ended June 30, 2025, the company used **$1,815,338** in operating activities, primarily due to a net loss of **$1,757,914**. This contrasts with **$2,704,637** cash provided by operations in the prior year[236](index=236&type=chunk) - Investing activities generated **$6,545** in cash for the six months ended June 30, 2025, from loan proceeds. Financing activities used **$268,536**, mainly for repayment of senior secured promissory notes[237](index=237&type=chunk) [Emerging Growth Company Status](index=48&type=section&id=Emerging%20Growth%20Company%20Status) This section clarifies the company's status as an Emerging Growth Company and its election for an extended accounting transition period - The company is an 'emerging growth company' (EGC) and has elected to use the extended transition period for complying with new or revised accounting standards, which may make its financial statements not comparable to non-EGCs or those that early adopt[239](index=239&type=chunk) [Internal Control Over Financial Reporting](index=49&type=section&id=Internal%20Control%20Over%20Financial%20Reporting) This section discusses identified material weaknesses in internal controls over financial reporting as of June 30, 2025 - Management identified material weaknesses in internal controls over financial reporting as of June 30, 2025, necessitating additional analysis to ensure fair presentation of interim financial statements[241](index=241&type=chunk)[245](index=245&type=chunk) [Related Party Relationships](index=49&type=section&id=Related%20Party%20Relationships) This section identifies PCCU as a related party due to its significant ownership and various financial and operational roles - PCCU is a related party, holding significant ownership, serving as the most significant financial institution customer, sole lending institution, and counterparty to the PCCU Note, where the majority of the company's deposits are maintained[242](index=242&type=chunk) [Item 3A. Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, SHF Holdings, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[243](index=243&type=chunk) [Item 4A. Controls and Procedures](index=49&type=section&id=Item%204A.%20Controls%20and%20Procedures) This section evaluates the company's disclosure controls and procedures, concluding they were ineffective due to identified material weaknesses and outlining remediation efforts - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to identified material weaknesses[245](index=245&type=chunk)[248](index=248&type=chunk) - **Revenue Recognition:** Inability to support completeness and accuracy of activity fee income from PCCU's system - **Accounting for Financial Instruments:** Incorrect classification of the Amended PCCU Note as a current liability - **Accounting for Forward Purchase Receivables:** Failure to appropriately reclassify receivables to additional paid-in-capital and inadequate valuation documentation - **Going Concern:** Failure to recognize substantial doubt about the company's ability to continue as a going concern as of December 31, 2024, based on financial projections - **Information Technology:** Lack of regular monitoring, review, and restriction of privileged user access to key financial applications (Jack Henry system and company's accounting system) - **Determination of stock compensation expense:** Initial reversal of previously recognized stock compensation expense for vested stock options and incorrect inputs in the Black-Scholes option pricing model[251](index=251&type=chunk) - Remediation efforts include replacing the former CFO with an SVP Controller, enhancing support, and implementing improved technology security procedures. However, there is no assurance that these efforts will prevent all future errors[250](index=250&type=chunk)[252](index=252&type=chunk) [PART II - OTHER INFORMATION](index=52&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other disclosures [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings, with management believing their final disposition will not materially adversely affect its financial position - The company is involved in routine legal proceedings and claims, with management assessing that their ultimate outcome will not have a material adverse effect on the business, financial position, results of operations, or cash flows[257](index=257&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, SHF Holdings, Inc. is not required to provide the detailed risk factor disclosures typically found in this item - The company is a smaller reporting company and is not required to provide the information otherwise required by Item 1A (Risk Factors)[258](index=258&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds occurred during the reporting period - No unregistered sales of equity securities or use of proceeds occurred during the reporting period[259](index=259&type=chunk) [Item 3. Defaults Upon Senior Securities](index=52&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[260](index=260&type=chunk) [Item 4. Mine Safety Disclosures](index=52&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[261](index=261&type=chunk) [Item 5. Other Information](index=52&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the six months ended June 30, 2025 - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the six months ended June 30, 2025[262](index=262&type=chunk) [Item 6. Exhibits](index=53&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - The exhibits include various agreements such as the Agreement and Plan of Merger (and amendments), the Second Amended and Restated Certificate of Incorporation, Bylaws, and employment agreements. It also includes certifications and XBRL taxonomy documents[264](index=264&type=chunk)[265](index=265&type=chunk)

Core Insights - Safe Harbor Financial is a leader in providing compliant financial services to the regulated cannabis industry and will participate in the PBC Conference 2025 [1][3] - CEO Terry Mendez will discuss practical infrastructure for cannabis banking, emphasizing the need for actionable solutions rather than theoretical frameworks [2][3] - The company has processed over $26 billion in cannabis-related funds across 41 states and territories, highlighting its significant role in the industry [3][5] Company Overview - Safe Harbor is one of the first service providers to offer compliance and monitoring services to financial institutions serving the cannabis sector, contributing to safer communities and local economic growth [5] - The company implements high standards of accountability and transparency while adhering to Bank Secrecy Act obligations and FinCEN guidance [5] - Over the past decade, Safe Harbor has facilitated more than $25 billion in deposit transactions for cannabis-related businesses [5] Industry Context - The PBC Conference is a key event for decision-makers in financial services and cannabis, focusing on the challenges and opportunities in this rapidly growing sector [3] - The conference aims to address how financial institutions can refine their strategies to remain competitive and enhance customer experience in the evolving cannabis landscape [2][3]

Company Overview - Safe Harbor Financial, a fintech leader, provides financial services and credit facilities for the regulated cannabis industry [1][5] - The company has facilitated over $25 billion in deposit transactions across more than 41 states and US territories with regulated cannabis markets [5] Event Participation - Terry Mendez, CEO of Safe Harbor, will participate as a featured "Conscious Capitalist" at the Psychedelic Science 2025 conference [1][2] - The conference is the largest of its kind, bringing together various stakeholders in the psychedelic and cannabis industries [2] Workshop Details - The Conscious Capitalism Workshop, likened to a "Shark Tank" format, focuses on mentorship and allows startups to pitch ideas to impact investors [3] - Mendez will provide real-time feedback and insights on values-based business building in regulated sectors [3][4] Company Goals - Safe Harbor aims to provide cannabis operators with affordable access to expertise and solutions, enhancing operational efficiency and cost control [5]

Core Insights - Safe Harbor Financial, a fintech leader in the cannabis industry, is participating in the Benzinga Cannabis Capital Conference from June 8-10, 2025, in Chicago [1][2] - The CEO, Terry Mendez, will be part of a panel discussing financial resilience in the cannabis market on June 9, 2025 [2] - Safe Harbor has facilitated over $25 billion in deposit transactions for cannabis-related businesses across more than 41 states and territories [4] Company Overview - Safe Harbor provides compliance, monitoring, and validation services to financial institutions serving the cannabis, hemp, and CBD sectors [4] - The company emphasizes accountability, transparency, and risk mitigation while adhering to Bank Secrecy Act obligations [4] - Safe Harbor aims to foster long-term partnerships and drive growth in local economies through its services [4]

Core Insights - Safe Harbor Financial has formed a strategic partnership with Bennett Thrasher to enhance financial compliance and advisory services for cannabis businesses in regulated markets [1][2] - The collaboration aims to address financial challenges faced by operators in the cannabis industry, providing essential tools and guidance for growth [2][3] Company Overview - Safe Harbor Financial is a fintech leader that facilitates financial services and credit facilities specifically for the cannabis industry, having facilitated over $25 billion in deposit transactions across more than 41 states [8] - Bennett Thrasher is a prominent accounting and advisory firm with over 45 years of experience, offering a range of services including tax, audit, and advisory [4] Services Offered - The partnership provides a comprehensive suite of financial services tailored for cannabis businesses, including annual audits, tax preparation, ongoing financial advisory, corporate valuations, M&A support, and CFO services [6][7] - These services are designed to improve audit readiness, enhance credibility with stakeholders, and provide strategic financial guidance [7] Industry Context - Operators in the cannabis industry face unique financial challenges, such as navigating the complexities of 280E tax law and limited access to traditional advisory services [3] - The partnership aims to fill a critical gap in financial infrastructure, enabling cannabis businesses to operate with greater efficiency and confidence [2][3]

PART I – FINANCIAL INFORMATION [Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Unaudited Q1 2025 financial statements reveal significant deterioration, including a net loss and negative operating cash flow, raising substantial doubt about going concern [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, total assets significantly decreased to $6.66 million, and the stockholders' deficit worsened to -$16.95 million Condensed Consolidated Balance Sheet Highlights (as of March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 ($) | December 31, 2024 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | 931,397 | 2,324,647 | | Total Assets | 6,655,102 | 13,218,287 | | Total Liabilities | 23,604,509 | 25,506,301 | | Total Stockholders' Deficit | (16,949,407) | (12,288,014) | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q1 2025, the company reported a net loss of $0.31 million, a significant reversal from prior-year net income, driven by a 52% revenue decline Statement of Operations Summary (For the three months ended March 31) | Metric | 2025 ($) | 2024 ($) | | :--- | :--- | :--- | | Revenue | 1,932,352 | 4,050,799 | | Total operating expenses | 3,410,275 | 3,725,858 | | Operating (loss)/income | (1,477,923) | 324,941 | | Net (loss)/income | (313,627) | 2,049,676 | | Diluted (loss)/income per share | (0.11) | 0.73 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For Q1 2025, net cash used in operating activities was $1.14 million, a significant reversal from prior-year cash provided, reducing cash and equivalents to $931,397 Cash Flow Summary (For the three months ended March 31) | Metric | 2025 ($) | 2024 ($) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | (1,140,730) | 1,475,123 | | Net cash provided by investing activities | 3,245 | 3,014 | | Net cash used in financing activities | (255,765) | (740,544) | | Net (decrease)/increase in cash and cash equivalents | (1,393,250) | 737,593 | | Cash and cash equivalents – end of period | 931,397 | 5,626,362 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail critical accounting policies, a significant 'going concern' warning, impairment charges, PCCU note amendments, revenue declines, and material weaknesses in internal controls - The company specializes in providing financial solutions, including banking and lending access, for the cannabis industry through partnerships with financial institutions[26](index=26&type=chunk)[27](index=27&type=chunk) - There is **substantial doubt** about the Company's ability to continue as a going concern, with **cash of $931,397** projected to support operations only through September 30, 2025, alongside a **working capital deficit of $6.7 million** and an **operating loss of $1.5 million** for the quarter[37](index=37&type=chunk)[41](index=41&type=chunk) - Management's plans to address the going concern issue include seeking strategic partnerships, renegotiating debt, using stock-based compensation, and exploring new financing, but the success of these plans is uncertain[43](index=43&type=chunk) - On April 7, 2025, Nasdaq notified the company of non-compliance with listing requirements due to a **stockholders' equity deficit of $12.3 million**, below the **$2.5 million** minimum[42](index=42&type=chunk)[102](index=102&type=chunk) - The company recorded a **full goodwill impairment charge of $6.06 million** and full impairment of finite-lived intangible assets for the fiscal year ended December 31, 2024, with no impairment in Q1 2025[63](index=63&type=chunk)[65](index=65&type=chunk)[67](index=67&type=chunk) - Effective December 31, 2024, the company's indemnification liability to **PCCU** for loan losses was eliminated under an amended agreement, revising the fee and interest income structure[75](index=75&type=chunk)[86](index=86&type=chunk) - Subsequent to the quarter, the **CFO and three board members resigned** for personal reasons, and a new director and audit committee chair was appointed[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2025's poor results to significant revenue declines, especially in loan interest and investment income, coupled with increased professional services costs, raising substantial doubt about going concern Revenue Breakdown Q1 2025 vs Q1 2024 | Revenue Type | Q1 2025 ($) | Q1 2024 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Account fee income | 1,072,465 | 1,620,994 | (548,529) | (33.84)% | | Investment income | 300,435 | 773,819 | (473,384) | (61.18)% | | Loan interest income | 540,222 | 1,636,756 | (1,096,534) | (66.99)% | | **Total Revenue** | **1,932,352** | **4,050,799** | **(2,118,447)** | **(52.30)%** | Operating Expenses Q1 2025 vs Q1 2024 | Expense Type | Q1 2025 ($) | Q1 2024 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Compensation and employee benefits | 1,342,261 | 2,280,038 | (937,777) | (41.13)% | | General and administrative expenses | 990,826 | 984,220 | 6,606 | 0.67% | | Professional services | 1,016,182 | 460,950 | 555,232 | 120.45% | | **Total Operating Expenses** | **3,410,275** | **3,725,858** | **(315,583)** | **(8.47)%** | - The decrease in loan interest income is attributed to a revised loan yield allocation formula under the **Amended PCCU CAA**[181](index=181&type=chunk)[182](index=182&type=chunk) - Professional services expenses increased significantly due to higher legal fees, including a **$300,000 accrual** for a potential employment-related legal settlement[187](index=187&type=chunk) Adjusted EBITDA Reconciliation (Non-GAAP) | Metric | Three months Ended March 31, 2025 ($) | Three months Ended March 31, 2024 ($) | | :--- | :--- | :--- | | Net (loss)/income | (313,627) | 2,049,676 | | EBITDA | (199,400) | 1,960,672 | | **Adjusted EBITDA** | **(1,227,243)** | **1,087,360** | - The company's **cash of $931,397** as of March 31, 2025, is insufficient to fund operations for the next 12 months, raising **substantial doubt** about its ability to continue as a going concern[217](index=217&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, SHF Holdings, Inc. is not required to provide information regarding market risk - The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide information regarding market risk[238](index=238&type=chunk) [Controls and Procedures](index=50&type=section&id=Item%204A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of March 31, 2025, due to multiple material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025[240](index=240&type=chunk)[243](index=243&type=chunk) - Multiple material weaknesses were identified, including deficiencies in **Revenue Recognition** (PCCU calculations), **Financial Instruments** (Amended PCCU Note classification), **Going Concern** assessment, **Information Technology** access controls, **Stock Compensation** forfeiture recording, and **Forward Purchase Receivables** reclassification and valuation[245](index=245&type=chunk)[247](index=247&type=chunk)[248](index=248&type=chunk)[250](index=250&type=chunk)[252](index=252&type=chunk)[254](index=254&type=chunk) - The company is implementing remediation plans for these weaknesses, including developing new tools, enhancing monthly review processes, and strengthening IT access controls[246](index=246&type=chunk)[249](index=249&type=chunk)[251](index=251&type=chunk)[253](index=253&type=chunk)[255](index=255&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, including the Abaca case, but management does not anticipate a material adverse effect from their final disposition - The company is subject to various legal proceedings; details on the Abaca legal case are in Note 12 of the financial statements[260](index=260&type=chunk) [Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, SHF Holdings, Inc. is not required to provide information for this item - The Company is a smaller reporting company and is not required to provide the information otherwise required by this Item 1A[261](index=261&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None[262](index=262&type=chunk) [Defaults Upon Senior Securities](index=54&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - None[263](index=263&type=chunk) [Mine Safety Disclosures](index=54&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[264](index=264&type=chunk) [Other Information](index=54&type=section&id=Item%205.%20Other%20Information) During Q1 2025, no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended March 31, 2025[265](index=265&type=chunk) [Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including merger agreements, corporate governance documents, and Sarbanes-Oxley certifications - A list of exhibits filed with the report is provided, including merger agreements, corporate governance documents, and executive certifications[267](index=267&type=chunk)[268](index=268&type=chunk)

Core Insights - SHF Holdings, Inc. (Safe Harbor Financial) has formed a strategic partnership with FundCanna to enhance financial services for the cannabis industry, focusing on accessible funding and compliant banking solutions [1][2][3] Company Overview - Safe Harbor Financial is a fintech leader providing financial services to the regulated cannabis industry, having facilitated over $25 billion in deposit transactions across more than 41 states and U.S. territories [7] - FundCanna specializes in providing flexible capital solutions tailored for cannabis operators, offering customizable and reliable funding products [4][5] Partnership Details - The partnership allows FundCanna to refer clients to Safe Harbor for banking services, while Safe Harbor will refer clients to FundCanna for various credit-based solutions [2][3] - This collaboration aims to address the financial challenges faced by cannabis operators, particularly in light of regulatory hurdles and limited access to traditional capital [3] Industry Context - The cannabis industry continues to experience significant limitations from traditional financial institutions, necessitating innovative financial solutions [3] - The partnership is positioned to provide an end-to-end solution for cannabis businesses, enhancing their ability to manage cash flow and pursue growth opportunities [3]

Revenue and Income - For the year ended December 31, 2024, total revenue decreased by 13.21% to $15,242,560 compared to $17,562,903 in 2023[190] - Account fee income declined by 25.16% to $6,447,201 from $8,614,945, primarily due to a reduction in the number of accounts and average monthly ending deposit balance[190] - Loan interest income increased significantly by 122.90% to $6,625,576 compared to $2,972,434 in 2023[190] - Investment income from PCCU decreased from $5,803,114 in 2023 to $1,903,422 in 2024, resulting in a reduction of investment hosting fees from $1,445,517 to $457,105[196] - The revenue from the Commercial Alliance Agreement for the year ended December 31, 2024, was $12,601,271, compared to $10,761,245 for the year ended December 31, 2023, reflecting an increase of approximately 17.1%[267] Account and Deposit Metrics - Average monthly ending deposit balance decreased by 42.49% to $117,847,512 from $204,923,090[182] - The average active accounts dropped by 18.78% to 757 from 932[182] - The average account balance decreased by 29.16% to $155,728 from $219,835[182] - CRB related deposits as of December 31, 2024, were $116,064,487, a decrease from $129,350,998 as of December 31, 2023[267] Expenses and Financial Performance - Adjusted EBITDA for 2024 was $2,888,868, down from $3,607,681 in 2023, attributed to decreased account fee income and higher professional expenses[177] - Total operating expenses were reduced by $15,959,906, or 41.68%, from $38,293,952 in 2023 to $22,334,046 in 2024[200] - The total operating expenses for the Commercial Alliance Agreement in 2024 were $1,052,693, down from $2,056,303 in 2023, indicating a decrease of approximately 48.9%[268] Cash Flow and Working Capital - Cash and cash equivalents decreased from $4,888,769 in 2023 to $2,324,647 in 2024[210] - The Company generated $430,477 in cash from operations in 2024, an improvement from cash used of $832,144 in 2023[212] - The Company reported a net working capital deficit of $983,833 at the end of 2024, compared to a deficit of $135,355 at the end of 2023[219] Debt and Obligations - Interest expense decreased by $561,346, from $1,094,736 in 2023 to $533,390 in 2024, primarily due to restructuring of obligations[206] - The Company has renegotiated its senior secured loan with PCCU, deferring principal payments for February and March 2025[222] - The Company modified the outstanding principal of $10,748,408 with an interest rate of 4.25% per annum, unlocking $6,437,050 in cash flow, significantly improving liquidity[223] - As of December 31, 2024, the Company reclassified short-term obligations of the PCCU Note totaling $2,883,167 as non-current liabilities[224] Impairments and Financial Reporting - The Company recorded a full goodwill impairment charge of $6.06 million due to the fair value of the asset group being lower than its carrying amount[243] - Impairment charges of $0.05 million for market-related intangible assets, $0.05 million for customer relationships, and $2.99 million for developed technologies were also recorded[244] - The Company identified material weaknesses in internal controls over financial reporting as of December 31, 2024[251] Strategic Initiatives and Future Outlook - The company anticipates a reversal of the trend in account numbers as it focuses on its lending program[182] - The Company has implemented stock-based compensation to attract talent, alongside cost reductions through lower headcount and operational spending[225] - Management has substantial doubt about the Company's ability to continue as a going concern for at least twelve months from the issuance of the financial statements[226] - The Amended Commercial Alliance Agreement extends the term through December 31, 2028, with automatic two-year renewal periods[263] - Under the Amended CAA, the Company will pay a single asset hosting fee calculated as 0.01 multiplied by the average daily balance of account relationships[266] - The Company is classified as an emerging growth company, allowing it to delay adopting new accounting standards until they apply to private companies[250] Compliance and Regulatory Matters - The company successfully navigated over 16 state and federal banking exams, ensuring compliance in a regulated environment[167] - The Company’s obligations under the PCCU CAA include paying 25% of investment earnings as a hosting fee to PCCU[262] - The deferred consideration from the Abaca acquisition is accounted for as a derivative liability, with fair value assessments influenced by stock price and market conditions[249] - The Company utilizes a Monte-Carlo Simulation for the valuation of forward purchase derivatives, maintaining the established valuation for 2023 and 2024[241]