10-Q: SHF Holdings Secures Capital, Cuts Debt Amid Revenue Slump

SHF Holdings, Inc. reported a significant capital raise and debt reduction, improving its balance sheet and Nasdaq compliance, despite a sharp decline in revenue and a shift to net loss for the nine-month period.

Summary

• SHF Holdings, Inc. completed a significant capital restructuring, raising $24.8 million through the issuance of Series B Convertible Preferred Stock and Series B Warrants.
• The capital raise included $6.3 million in cash, the cancellation of $10.8 million in Senior Secured Promissory Notes, the termination of a $4.0 million Forward Purchase Agreement (FPA) liability, and the exchange of $0.7 million in Convertible Notes.
• The Company's total stockholders' equity improved dramatically from a deficit of $(12.3) million as of December 31, 2024, to a positive $7.0 million as of September 30, 2025.
• Nasdaq confirmed that the Company regained compliance with the minimum $2.5 million stockholders' equity requirement.
• Revenue for the three months ended September 30, 2025, decreased by 47.3% to $1.83 million, and for the nine months, it fell by 51.5% to $5.61 million compared to the prior year.
• The Company reported a net loss of $1.58 million for the nine months ended September 30, 2025, a significant shift from a net income of $3.35 million in the same period of 2024.
• Operating expenses decreased by 7.7% for the three months and 9.1% for the nine months ended September 30, 2025, reflecting cost-reduction measures.
• An Equity Line of Credit (ELOC) facility was established with CREO Investments LLC, allowing the Company to sell up to $150 million of Class A Common Stock, with potential expansion to $500 million.
• Material weaknesses in internal controls over financial reporting, particularly concerning revenue recognition, remain in the process of remediation.
• The Company continues to face a legal dispute related to the Abaca acquisition, with $3.0 million in contingent merger consideration held by the Denver County District Court.

Sentiment

Score: 7

Explanation: While operating results show significant declines in revenue and a shift to net loss, the successful capital restructuring, substantial debt reduction, and regaining of Nasdaq compliance are critical positive developments for the Company's solvency and liquidity. The establishment of an ELOC provides a future funding mechanism. However, ongoing internal control weaknesses and high customer concentration remain concerns.

Positives

• Successfully completed a capital restructuring, raising $24.8 million in aggregate consideration, significantly strengthening the balance sheet.
• Eliminated $10.75 million in Senior Secured Promissory Notes with Partner Colorado Credit Union (PCCU) through an equity exchange.
• Extinguished a $7.3 million Forward Purchase Agreement (FPA) derivative liability, resulting in a $3.3 million gain on extinguishment of debt.
• Achieved a positive stockholders' equity of $7.0 million as of September 30, 2025, reversing a $(12.3) million deficit from December 31, 2024.
• Regained compliance with Nasdaq's minimum stockholders' equity requirement of $2.5 million.
• Secured a $150 million Equity Line of Credit (ELOC) facility, providing access to future funding.
• Operating expenses decreased by $0.26 million (7.7%) for the three months and $1.0 million (9.1%) for the nine months ended September 30, 2025, due to cost-reduction measures.
• Eliminated indemnification obligations to PCCU for loan losses under the Amended PCCU Commercial Alliance Agreement.
• Active accounts increased by 3.9% for the quarter and 3.1% for the nine months ended September 30, 2025, demonstrating client retention and modest new-account growth.

Negatives

• Total revenue decreased significantly by 47.3% to $1.83 million for the three months ended September 30, 2025, and by 51.5% to $5.61 million for the nine months compared to the prior year.
• The Company reported a net loss of $1.58 million for the nine months ended September 30, 2025, a substantial decline from a net income of $3.35 million in the same period of 2024.
• Operating income shifted to a loss of $(1.22) million for the three months and $(4.18) million for the nine months ended September 30, 2025, compared to positive operating income in the prior year periods.
• Net cash used in operating activities for the nine months ended September 30, 2025, was $2.35 million, a reversal from $3.21 million provided in the prior year, indicating increased cash burn.
• Cash and cash equivalents decreased from $2.32 million at December 31, 2024, to $0.86 million at September 30, 2025.
• Average monthly deposit balances declined by 13.1% year-over-year for the nine months ended September 30, 2025.
• Average fees per account decreased by 36.0% for the nine months ended September 30, 2025, driven by the loss of higher-performing accounts and broader economic pressures.
• Identified material weaknesses in internal controls over financial reporting, particularly regarding the completeness and accuracy of activity fee income from PCCU, remain un-remediated.
• High concentration risk persists, with PCCU accounting for 85.4% of total revenues for the nine months ended September 30, 2025, and holding the majority of the Company's cash deposits.
• An ongoing legal dispute related to the Abaca acquisition involves $3.0 million in contingent merger consideration held by the court, creating uncertainty.

Risks

• Substantial reliance on Partner Colorado Credit Union (PCCU) for revenue (85.4% of total revenues for the nine months ended September 30, 2025) and cash deposits, making the Company vulnerable to changes in this relationship.
• Ongoing material weaknesses in internal controls over financial reporting, particularly regarding the completeness and accuracy of activity fee income, which could lead to financial misstatements.
• Exposure to litigation risk from the Abaca acquisition dispute, which could result in adverse decisions, significant defense costs, and diversion of management resources.
• The cannabis industry's evolving and complex regulatory environment could impact CRB operations and the demand for the Company's financial services.
• Broader economic pressures within the U.S. cannabis industry, including reduced wholesale pricing and constrained operator liquidity, may continue to negatively affect deposit balances and transaction activity.
• Potential for significant dilution for existing shareholders from future equity issuances, including through the Equity Line of Credit (ELOC) and conversion of Series B Preferred Stock and Warrants.
• Market volatility impacting the fair value of warrant liabilities, leading to non-cash gains or losses that affect reported financial results.
• No assurance that the Company will maintain compliance with all Nasdaq listing requirements in the future, despite regaining current compliance.

Future Outlook

Management anticipates continued cost reductions and improved cash generation, with the full impact of operational efficiencies expected to be realized in 2026. Existing cash resources, combined with potential access to the Equity Line of Credit (ELOC), are projected to be sufficient to fund operations for at least 12 months. The Company believes that broader U.S. economic improvements, particularly increased discretionary spending, and potential regulatory easing in the cannabis industry, such as federal rescheduling, could lead to higher account balances and transaction activity over time. The assessment of operating effectiveness for remediated internal controls is expected to be completed in the fourth quarter of 2025. The registration for the Series B Preferred Stock and Series B Warrants is expected to become effective in November 2025. Shareholders have authorized the Board of Directors to effect a reverse stock split at a ratio between 2-for-1 and 12-for-1 at its discretion.

Management Comments

• Management is using stock-based compensation awards to reduce the cash component of employee compensation and align incentives with the performance of the Company's Class A Common Stock.
• The Company believes these results demonstrate that its cost-containment initiatives are generating sustainable reductions in ongoing cash expenditures, the full effect of which is expected to become more evident in 2026.
• The Company expects that, following completion of the legal and auditor transitions, annualized professional service costs will decline compared with maintaining both internal and multiple external service providers.
• Based on current forecasts, existing cash resources, combined with potential access to the ELOC, are expected to be sufficient to fund operations for at least 12 months beyond the issuance date of these unaudited condensed consolidated financial statements.
• The current depositor mix remains more diversified, reducing concentration risk and positioning the Company to benefit from any industry recovery.

Industry Context

The Company operates within the specialized financial services sector for Cannabis Related Businesses (CRBs), an industry characterized by limited access to traditional banking and financing due to regulatory complexities. The fintech platform aims to provide compliant banking solutions, mitigating the high cash volumes prevalent in the cannabis market. The industry is currently experiencing broader economic pressures, including reduced wholesale pricing and constrained operator liquidity, which have negatively impacted the Company's average account balances. Future growth is highly dependent on potential improvements in overall U.S. economic conditions and significant regulatory easing, such as federal rescheduling of cannabis, which could stimulate increased discretionary spending and transaction activity within the sector.

Management Changes

Corporate Governance

Legal Proceedings

• The Company filed a declaratory judgment action in the Denver County District Court (Case No. 2024CV33187) against former Abaca shareholders (Daniel Roda, Gregory W. Ellis, and James R. Carroll) concerning a $3.0 million contingent merger consideration payment.
• The $3.0 million payment was deposited into the court registry on November 21, 2024, and remains held by the court pending resolution of the dispute among former Abaca shareholders.
• The 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 member of the Company's board of directors.
• On April 18, 2025, the District Court dismissed Gregory W. Ellis as a counter-plaintiff and third-party plaintiff due to lack of standing.
• No trial date has been set, and the case remains in the pleading stage; management has determined that no accrual for loss is required as of September 30, 2025.

Related Party Transactions

• Partner Colorado Credit Union (PCCU) is considered a related party, holding approximately 37.1% of the Company's Class A Common Stock as of September 30, 2025.
• PCCU no longer has contractual rights to appoint members to the Board of Directors.
• PCCU holds the majority of the Company's cash deposits.
• Substantially all of the Company's revenue (88.0% for Q3 2025, 85.4% for 9 months 2025) is derived from services provided to PCCU under the Commercial Alliance Agreement (PCCU CAA).
• Amounts due from PCCU totaled $0.7 million, representing 93.5% of total accounts receivable, as of September 30, 2025.
• The Amended PCCU CAA, effective December 31, 2024, eliminated the Company's indemnification obligations to PCCU for loan losses.
• The Amended PCCU CAA replaced the prior fee structure with an asset hosting fee structure, which has resulted in higher total account hosting costs for the Company.
• The Company's interest income on loans with PCCU is now calculated using a loan yield allocation formula, resulting in approximately 39% of interest income allocated to the Company.
• PCCU received 13,436 shares of Series B Convertible Preferred Stock and a warrant to purchase 865,200 Class A Common Shares in exchange for canceling the $10.75 million Senior Secured Promissory Note.

Stakeholder Impact

• Shareholders face significant potential dilution from the issuance of Series B Preferred Stock and Warrants, and future draws on the Equity Line of Credit (ELOC). However, the improved balance sheet and Nasdaq compliance are positive for shareholder value.
• Employees may experience continued workforce realignments as part of cost-reduction measures, but new executive hires and increased stock-based compensation aim to align incentives.
• Customers (financial institutions and CRBs) continue to receive compliant banking services, though new fee structures with PCCU may alter service costs.
• Creditors benefit from the substantial reduction in the Company's debt obligations through the cancellation of the Senior Secured Promissory Note and extinguishment of the FPA liability, improving the Company's credit profile.
• Regulatory bodies will note the Company's regained Nasdaq compliance and ongoing efforts to remediate internal control weaknesses.

Next Steps

• Continue to implement cost-reduction measures to improve cash generation, with full effects expected in 2026.
• Complete the assessment of operating effectiveness for remediated internal controls during the fourth quarter of 2025.
• Monitor the status of the Abaca legal dispute and potential financial exposure.
• Await the expected effectiveness of the registration statement for Series B Preferred Stock and Series B Warrants in November 2025.
• Potentially utilize the Equity Line of Credit (ELOC) for future funding, following shareholder approval and registration effectiveness.
• The Board of Directors may, at its discretion, effect a reverse stock split at a ratio between 2-for-1 and 12-for-1.

Key Dates

Recommendation

While SHF Holdings has made significant strides in strengthening its balance sheet through a substantial capital raise and debt reduction, which is a strong positive for solvency and Nasdaq compliance, the underlying operational performance remains challenging. The Company experienced a sharp decline in revenue and a shift to a net loss for the nine-month period, coupled with continued cash burn from operations. High customer concentration with PCCU and un-remediated material weaknesses in internal controls present ongoing risks. The Equity Line of Credit provides a liquidity buffer but also introduces potential for further dilution. A seasoned investor would likely maintain a 'hold' position, awaiting clear signs of operational turnaround and sustained revenue growth before considering a 'buy' recommendation, while acknowledging the improved financial stability prevents a 'sell'.

Keywords

Cannabis Banking, Fintech, SEC Filing, 10-Q, Financial Services, Capital Raise, Debt Reduction, Nasdaq Compliance, Equity Line of Credit, CRB, Partner Colorado Credit Union, Warrants, Preferred Stock, Internal Controls, Legal Proceedings