10-Q: SHF Holdings Faces Liquidity Crisis, Nasdaq Delisting Risk

SHF Holdings reports a significant revenue decline and net loss, raising substantial doubt about its ability to continue as a going concern, alongside multiple material weaknesses in internal controls.

Summary

• SHF Holdings reported a net loss of $1,757,914 for the six months ended June 30, 2025, a significant deterioration from a net income of $2,991,203 in the prior year period.
• Total revenue decreased by 53.3% to $3,777,686 for the six months ended June 30, 2025, compared to $8,088,334 in the same period of 2024.
• The company's cash and cash equivalents plummeted to $247,318 as of June 30, 2025, from $2,324,647 at December 31, 2024.
• SHF Holdings had a net working capital deficit of $7,381,312 and an accumulated deficit of $122,513,459 as of June 30, 2025.
• Cash used in operating activities was $1,815,338 for the six months ended June 30, 2025, a reversal from $2,704,637 cash provided by operations in the prior year.
• The company's stockholders deficit of approximately $17.9 million is $20.4 million below the Nasdaq Capital Market's minimum equity requirement of $2.5 million.
• Management projects insufficient liquidity to continue operations beyond October 2025 without securing additional funding or renegotiating debt terms.
• The Amended PCCU Commercial Alliance Agreement, effective December 31, 2024, eliminated the company's indemnification obligations for loan losses and revised the fee structure with PCCU.
• A 1-for-20 reverse stock split of the company's Common Stock became effective on March 14, 2025.

Sentiment

Score: 1

Explanation: The company faces severe financial distress, including a significant net loss, substantial revenue decline, critical liquidity issues, and a going concern warning. Multiple material weaknesses in internal controls and Nasdaq listing non-compliance further compound the negative outlook. The overall situation indicates a high risk of operational failure or significant dilution.

Positives

• The company successfully renegotiated terms under its Amended PCCU Note, deferring principal payments until January 5, 2027, and extending full repayment to October 5, 2030.
• The Amended PCCU Commercial Alliance Agreement eliminated the company's indemnification obligations for loan losses, reducing a significant contingent liability.
• The company increased its average active accounts by 2.7% to 772 for the six months ended June 30, 2025, compared to 752 in the prior year.
• Operational expenses were reduced by 9.7% for the six months ended June 30, 2025, primarily due to headcount reductions and lower stock compensation expense.
• The 2022 Equity Incentive Plan was amended to increase authorized shares for issuance, providing more flexibility for equity compensation and incentives.

Negatives

• Total revenue decreased by 53.3% to $3,777,686 for the six months ended June 30, 2025, compared to $8,088,334 in the prior year period.
• The company reported a net loss of $1,757,914 for the six months ended June 30, 2025, a significant decline from a net income of $2,991,203 in the same period of 2024.
• Cash and cash equivalents decreased significantly to $247,318 as of June 30, 2025, from $2,324,647 at December 31, 2024.
• The company used $1,815,338 in cash from operating activities for the six months ended June 30, 2025, indicating a negative cash flow from core operations.
• The stockholders deficit increased to $17,859,171 as of June 30, 2025, from $12,288,014 at December 31, 2024, falling further below Nasdaq's minimum equity requirement.
• Average monthly deposit balance decreased by 17.6% to $103,756,620 for the six months ended June 30, 2025, impacting fee and investment income.
• Average account fees per account decreased by 35.8% to $370 for the six months ended June 30, 2025, reflecting a reduction in high-value accounts.
• Professional services expenses increased significantly by 129.3% to $2,211,871 for the six months ended June 30, 2025, primarily due to legal fees related to ongoing litigation.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern, with management projecting insufficient liquidity beyond October 2025.
• The company does not meet Nasdaq's minimum stockholders equity requirement of $2.5 million, risking delisting from The Nasdaq Capital Market.
• PCCU holds a senior security interest in substantially all of the company's assets (excluding the Nasdaq listing), and a payment default could lead to acceleration of debt and adverse effects on operations.
• The industry in which the company's clients operate (cannabis) is considered federally illegal, posing risks if actions are taken against customers or the company.
• The company has identified multiple material weaknesses in its internal controls over financial reporting, including revenue recognition, accounting for financial instruments, forward purchase receivables, going concern assessment, information technology, and stock compensation expense determination.
• Volatility and uncertainty in the financial markets and banking industry may adversely impact clients and the ability to obtain additional financial institution clients.
• The company's strategic plan and growth strategy may not be achieved as quickly or as fully as sought.
• Information systems may experience interruptions and security breaches, and are exposed to cybersecurity threats.
• Dependence on third-party vendors for major systems means failures or interruptions could adversely affect operations and services.
• Failure to protect customer information confidentiality could harm reputation and lead to financial sanctions.
• Future acquisitions and expansion activities may disrupt business, dilute shareholder value, and adversely affect operating results.
• The company may incur a substantial level of debt that could materially adversely affect its ability to generate sufficient cash to fulfill obligations.
• Litigation and regulatory investigations are increasingly common and may result in significant financial losses and/or harm to reputation.
• The company's ability to regain compliance with Nasdaq's listing requirements and maintain its listing is uncertain.
• The company may be unable to attract and retain key people to support its business.
• The company assumes the risk of fraud loss and negative balances for accounts maintained at financial institution partners.
• Severe weather, natural disasters, global pandemics, acts of war or terrorism, theft, civil unrest, government expropriation or other external events could have significant effects on the business.

Future Outlook

Management projects that the company will not have sufficient liquidity to continue operations beyond October 2025 without securing additional funding or renegotiating terms under its Amended PCCU Note. 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. There is no assurance that any such transaction will materialize or that financing will be secured on acceptable terms. The company anticipates that compensation and employee expenses will continue to decline in the third quarter ending September 30, 2025, with the full effect of headcount reductions. 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. The impact of the One Big Beautiful Bill Act (OBBBA) on tax laws is being evaluated, but no material change to the effective income tax rate or net deferred federal income tax assets is anticipated due to a full valuation allowance.

Management Comments

• Management believes substantial doubt exists regarding the company's 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, beyond October 2025.
• Management is making progress towards regaining compliance with Nasdaq listing requirements, however, there is no assurance that Management will be successful.
• Management remains committed to executing its business plan while addressing the Company's liquidity needs in a timely and prudent manner.

Industry Context

SHF Holdings operates in the niche and highly regulated cannabis banking industry, providing compliance-driven financial services to cannabis-related businesses (CRBs). The industry faces unique challenges due to the federal illegality of cannabis in the U.S., leading to limited banking options. The company's significant revenue decline and liquidity issues suggest a struggle to maintain market share or adapt to changing dynamics within this challenging sector, potentially exacerbated by increased competition or reduced demand for its specific services. The shift in the PCCU agreement's fee structure and indemnification terms reflects an evolving risk landscape and business model within cannabis banking.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess against global benchmarks. However, the significant decline in revenue and shift to a net loss, coupled with severe liquidity issues and a going concern warning, indicate performance well below typical industry standards for a healthy, growing financial services company, even within the specialized cannabis banking sector.
• The company's average monthly deposit balance decreased by 17.6%, and average fees per account decreased by 35.8%, suggesting a loss of higher-value accounts or a less favorable fee structure compared to industry peers who might be attracting larger CRB clients or maintaining more robust fee income streams.
• The identified material weaknesses in internal controls, particularly in revenue recognition and financial instrument accounting, suggest a governance and operational maturity gap compared to established financial institutions or fintech companies operating in regulated environments.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in a declaratory judgment action (Case No. 2024CV33187) in Denver County District Court against Daniel Roda, Gregory W. Ellis, and James R. Carroll, former shareholders of Abaca, concerning a $3.0 million contingent merger consideration payment. The company deposited the funds into the court registry.
• Defendants filed a counterclaim against the company alleging breach of contract and related causes of action, and a third-party claim was asserted against a board member. A motion to dismiss counterclaims was filed, and Gregory W. Ellis was dismissed as a counter-plaintiff due to lack of standing.
• The company made a settlement offer of $300,000 to a former employee related to employment matters, which was accepted and finalized in Q3 2025. The settlement includes $100,000 cash over 12 months and 89,308 shares of Common Stock valued at $200,000.

Related Party Transactions

• PCCU is considered a related party due to significant ownership interest, being the most significant financial institution customer, sole lending financial institution, counterparty to the PCCU Note, and holding the majority of the company's deposits.
• The Commercial Alliance Agreement (PCCU CAA) with PCCU was amended and restated on December 31, 2024, eliminating indemnification obligations for loan losses and replacing the prior fee structure with an asset hosting fee.
• Under the Amended PCCU CAA, the company now receives all investment income earned on CRB funds invested by PCCU, eliminating prior investment hosting fees.
• The company's interest income on all loans with PCCU is now calculated using a loan yield allocation formula, resulting in approximately 39% in favor of the company.
• As of June 30, 2025, accounts receivable from related party (PCCU) were $582,855, and accounts payable to related party (PCCU) were $164,917.
• The Senior Secured Promissory Note with PCCU has an outstanding balance of $10,748,408 as of June 30, 2025.
• Of the total cash and cash equivalents, $235,993 (June 30, 2025) and $2,202,895 (December 31, 2024) were held in deposit accounts at PCCU.
• The company entered into a purchase loan agreement with PCCU on July 31, 2025, for the sale of a $385,642 loan receivable, receiving $384,527.

Stakeholder Impact

• **Shareholders**: Significant dilution risk due to potential capital raises, stock-based compensation, and the 1-for-20 reverse stock split. The substantial net loss, declining revenue, and going concern warning indicate severe erosion of shareholder value. Nasdaq delisting risk further impacts liquidity and investor confidence.
• **Employees**: Restructuring of the employee base to align staffing with current operating needs suggests potential layoffs or reduced hiring. Stock-based compensation in lieu of cash may impact employee cash flow but aligns incentives with company performance.
• **Customers (CRBs)**: While the company states no material impact to services provided to CRB clients is anticipated, the company's financial instability and potential changes in ownership structure could introduce uncertainty regarding long-term service continuity.
• **Creditors (PCCU)**: PCCU holds a senior security interest in substantially all of the company's assets, providing some protection, but the going concern warning and liquidity issues indicate increased risk of default on the Senior Secured Promissory Note.
• **Suppliers/Vendors**: The company's liquidity challenges and cash conservation efforts may impact payment terms or future engagements with vendors.

Next Steps

• Management will continue to pursue strategic partnerships aimed at expanding service offerings to cannabis-related businesses.
• The company will continue renegotiating terms under its Amended PCCU Note.
• Management plans to continue offering stock-based compensation in lieu of cash to conserve liquidity.
• The company will continue restructuring its employee base to align staffing with current operating needs.
• Management will continue adjusting Board of Directors compensation to further align interests with shareholders through equity incentives.
• The company will continue active discussions with potential investors, lenders, acquirers, investment banks, and strategic partners to secure additional capital.
• The company will continue exploring the potential use of its Nasdaq listing as part of a broader strategy that may include digital assets or treasury-related partnerships.
• The company will continue to monitor its cash flows, reduce discretionary expenditures, and prioritize liquidity preservation.
• The company will continue to assess all available strategic options.
• The company expects to reduce the accrued liability for the former employee settlement by $200,000 in the third quarter of 2025 through equity issuance.
• Compensation and employee expenses are expected to continue to decline in the third quarter ending September 30, 2025, with a full effect of headcount reductions.
• The impact of the One Big Beautiful Bill Act (OBBBA) tax law changes will be included in the company's financial statements beginning in the quarter ending September 30, 2025.

Key Dates

Recommendation

The company is in a precarious financial position, explicitly stating 'substantial doubt' about its ability to continue as a going concern. It is experiencing significant revenue decline, a shift to net loss, and is burning cash from operations. The company is non-compliant with Nasdaq listing requirements, facing potential delisting. Furthermore, multiple material weaknesses in internal controls indicate severe operational and financial reporting deficiencies. While management is pursuing strategic alternatives and capital raises, there is no assurance of success. The risks are overwhelming, and the current financial trajectory is unsustainable, making the stock a strong sell for any investor.

Keywords

Cannabis banking, Fintech, SEC filing, 10-Q, Financial services, Liquidity, Going concern, Nasdaq listing, Internal controls, Risk management, Financial performance, Revenue decline, Net loss, Debt restructuring, PCCU, Cannabis industry, Compliance, Financial reporting