Overview

SHF Holdings, Inc. (SHF) was founded in 2015 by Partner Colorado Credit Union (PCCU) to provide access to reliable and compliant financial services for the legal cannabis industry. SHF is a leading provider of banking, lending, and other financial services to financial institutions serving the cannabis industry.

Through its proprietary platform, SHF offers the following services to cannabis-related businesses (CRBs) and financial institutions:

• Business checking and savings accounts
• Cash management accounts
• Savings and investment options
• Commercial lending
• Courier services
• Remote deposit services
• Automated Clearing House (ACH) payments and origination
• Wire payments

SHF’s services allow CRBs to access financial services more efficiently and effectively, while also providing financial institutions access to increased deposits from the cannabis industry. SHF ensures compliance with regulations such as the Bank Secrecy Act and anti-money laundering provisions.

Key Metrics

SHF uses several non-GAAP financial measures, including EBITDA and Adjusted EBITDA, to evaluate its operating performance. These metrics exclude certain non-cash, unusual, and infrequent costs.

Other key metrics tracked by SHF include:

• Total account balances, number of accounts, and average account balances
• Account fees per average active accounts managed

Components of Results of Operations

SHF’s revenue is primarily generated from:

• Account fee income
• Safe Harbor Program income
• Investment income
• Loan interest income

Operating expenses consist of compensation and benefits, professional services, rent expense, credit loss (benefit) expense, and other general and administrative expenses.

Discussion of Results of Operations - 2024 Compared to 2023

Revenue:

• Account fee income decreased by 25.16% due to a reduction in the number of accounts and lower average monthly deposit balances.
• Investment income decreased by 64.19% due to lower interest rates and a reduction in deposit balances.
• Loan interest income increased by 122.90% due to an increase in the number of loans serviced.

Operating Expenses:

• Compensation and employee benefits decreased by 24.68% due to a reduction in stock-based compensation and lower headcount.
• Impairment charges for goodwill and intangible assets decreased by 54.13% and 45.77%, respectively, compared to 2023.
• Professional services expenses increased by 35.53% primarily due to higher legal fees related to ongoing litigation.
• Credit loss (benefit) expense decreased by 578.97% due to the elimination of the indemnification liability under the Amended CAA with PC

Other Income/Expenses:

• The change in the fair value of deferred consideration and warrant liabilities resulted in net income of $2.6 million, compared to a net loss of $1.6 million in 2023.
• Interest expense decreased by 51.28% due to the restructuring of the deferred obligation related to the reverse acquisition.

Income Taxes:

• The Company recognized a significant increase in the provision for income taxes, primarily due to the determination that it is more likely than not the deferred tax assets cannot be realized.

Financial Condition

Cash and cash equivalents decreased from $4.9 million in 2023 to $2.3 million in 2024, primarily due to repayments on the senior secured promissory note.

The Company reported a net working capital deficit of $983,833 as of December 31, 2024, which includes several non-cash liabilities. After adjusting for these non-cash items, the adjusted working capital was $2,009,784.

Liquidity and Going Concern

The Company’s ability to continue as a going concern is dependent on its capacity to generate sufficient liquidity to meet financial obligations, including interest repayments on the senior secured note with PCCU.

To address these concerns, the Company has renegotiated the senior secured loan with PCCU, including a two-year deferment of principal payments and an extension of the repayment schedule. Additionally, the Company has taken steps to reduce costs and utilize stock-based compensation.

However, the uncertainty surrounding cash flows from operations means that the management plans do not entirely resolve the going concern uncertainty. As a result, management has determined that there remains substantial doubt about the Company’s ability to continue as a going concern for at least twelve months from the date the consolidated financial statements are issued.

Litigation

The Company is involved in a legal dispute with the former shareholders of Abaca, which was acquired in 2022. The Company has filed a complaint in the District Court for the City and County of Denver, Colorado, and the former Abaca shareholders have filed a counterclaim in response.

Critical Accounting Estimates

The Company’s critical accounting estimates include revenue recognition, stock-based compensation, the valuation of the forward purchase agreement and derivative, impairment of goodwill and intangible assets, the valuation of warrants liabilities, and the accounting for deferred consideration.

These estimates involve significant management judgment and assumptions, and changes in these estimates could have a material impact on the Company’s financial statements.