10-K: SHF Holdings Reports Fiscal Year 2024 Results, Navigates Nasdaq Compliance and Restructures Debt

SHF Holdings, a financial services provider for the cannabis industry, announces its fiscal year 2024 results, addresses Nasdaq listing compliance, and restructures its debt with Partner Colorado Credit Union (PCCU).

Summary

• SHF Holdings reported its fiscal year 2024 results, showing a net loss of $48.3 million compared to a net loss of $17.3 million in 2023.
• Total revenue decreased by 13.2% to $15.2 million in 2024 from $17.6 million in 2023, primarily due to a decline in account fee income and investment income.
• The company has been working to regain compliance with Nasdaq listing requirements, including a reverse stock split of one for twenty, which became effective on March 14, 2025.
• SHF Holdings has also restructured its debt with PCCU, including an Amended and Restated Senior Secured Promissory Note with a principal balance of $10.7 million and interest-only payments until January 2027.
• The company is involved in ongoing litigation related to the Abaca acquisition, with a $3 million merger payment deposited into the Denver County District Courts registry.
• Management has identified material weaknesses in internal control over financial reporting, including revenue recognition, accounting for financial instruments, going concern assessment, and information technology.
• The company is taking steps to remediate these weaknesses and improve its internal controls.
• The company has a net working capital deficit of $983,833 as of December 31, 2024, but management believes it can address liquidity concerns through various measures, including renegotiating its senior secured loan with PCCU and reducing costs.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company is taking steps to address its financial challenges and improve its internal controls, the significant net loss, revenue decline, and material weaknesses in internal control are concerning. The ongoing litigation adds further uncertainty.

Positives

• The company successfully negotiated an Amended and Restated Senior Secured Promissory Note with PCCU, restructuring its debt and extending the repayment timeline.
• The company has taken steps to reduce costs and improve operational efficiency.
• The company has a long history of providing compliant financial services to the cannabis industry.
• The company has a strong brand and reputation in the cannabis financial services arena.
• The company has a proprietary software platform built specifically for the cannabis industry.
• The company has a strong workforce with a good mix of professional credentials, experience, tenure and diversity.

Negatives

• The company experienced a significant net loss of $48.3 million in fiscal year 2024.
• Revenue decreased by 13.2% year-over-year.
• The company has a net working capital deficit of $983,833 as of December 31, 2024.
• The company has identified material weaknesses in internal control over financial reporting.
• The company is involved in ongoing litigation related to the Abaca acquisition.
• The company is subject to extensive regulation that could limit or restrict its activities and adversely affect its earnings.

Risks

• The company's profitability is subject to interest rate risk.
• Volatility and uncertainty in the financial markets and banking industry may adversely impact the company's clients and its ability to obtain additional financial institution clients.
• The industry in which the company's clients operate is considered federally illegal, which may pose risk if actions were taken against those customers or the company.
• The company's strategic plan and growth strategy may not be achieved as quickly or as fully as it seeks.
• Potential gaps in the company's risk management policies may leave it exposed to unidentified or unanticipated risk, which could negatively affect its business.
• The company has identified and may identify additional deficiencies in its internal controls, which may have an impact on its business operations.
• The company's information systems may experience interruptions and security breaches, and are exposed to cybersecurity threats.
• The company may not be able to generate sufficient cash to service all of its debt.
• The company's business may be adversely affected by economic conditions in general and by conditions in the financial markets.
• The company is subject to capital adequacy and liquidity standards, and if it fails to meet these standards, its financial condition and results of operations would be adversely affected.
• The company may be unable to attract and retain key people to support its business.
• 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 company's business.
• The company's ability to regain compliance with Nasdaq's listing requirements and maintain its listing on the Nasdaq Capital Market is uncertain and subject to various risks and factors that may cause actual results to differ materially.

Future Outlook

The company is focused on scaling its core business, expanding its lending capabilities, adding enablement services, and building an industry-leading consortium.

Management Comments

• Management believes that anything that favorably impacts the Cannabis Industry will in turn favorably impact the Company.
• Management believes that the Companys brand has been optimized on a national level to include sound and recognized exposure with financial institutions, legislators, governing officials, attorneys generals, regulators and the overall cannabis industry.

Industry Context

The cannabis industry is facing challenges such as open borders allowing competitive illicit alternatives into the market, high inflation, a challenging tax environment, and high interest rates.

Comparison to Industry Standards

• The banking and financial services industry is highly competitive, and the company competes with a wide range of lenders and other financial institutions entering the cannabis market, mostly composed of local and regional banks or credit unions.
• The company also has limited competition with brokerage firms, trust service providers, consumer finance companies, mutual funds, securities firms, insurance companies, third-party payment processors, and other financial intermediaries on various elements of its products and services.

Management Changes

Legal Proceedings

• The Company is involved in ongoing litigation related to the Abaca acquisition, with a $3 million merger payment deposited into the Denver County District Courts registry.

Related Party Transactions

• PCCU is considered a related party as it holds a significant ownership interest in the Company, is its most significant financial institution customer, serves as the Company's sole lending financial institution, is the counterparty to the PCCU Note, and is where the company maintains the majority of its deposits.

Stakeholder Impact

• The company's financial performance and ongoing litigation could impact shareholders.
• The company's efforts to improve its internal controls and regain Nasdaq compliance are important for maintaining investor confidence.
• The company's ability to provide financial services to the cannabis industry is important for its clients and the communities they serve.
• The company's human capital management objectives are to attract, retain and develop the highest quality talent.

Next Steps

• The company intends to timely submit a Compliance Plan to Nasdaq to regain compliance with the Shareholders Equity Requirement.
• The Company will continue to monitor the litigation and assess any potential financial impact in accordance with ASC 450, Contingencies.

Key Dates

Keywords

cannabis, financial services, banking, compliance, lending, SHF Holdings, PCCU, regulation, deposits, loans