SHFS 10-K & 10-Q changes, risk factors and insider trading

We are subject to risks and uncertainties that could potentially negatively impact our business, financial conditions, results of operations and cash flows. This section contains a description of certain risks and uncertainties identified by management that could, individually or in combination, harm our business, results of operations, liquidity and financial condition, as well as our financial instruments and our securities. These disclosures reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. In evaluating us and our business and making or continuing an investment in our securities, you should carefully consider the risks described below as well as other information contained in this Form 10-K and any risk factors and uncertainties discussed in our other public filings with the SEC under the caption “Risk Factors.” We may face other risks that are not contained in this Form 10-K, including additional risk that are not presently known, or that we presently deem immaterial. This Form 10-K and the risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in such forward-looking statements. Please refer to the sections in this Form 10-K titled “Cautionary Note Regarding Forward-Looking Statements” for additional information regarding forward-looking statements and “Summary of Risk Factors” for additional information regarding the risks and uncertainties that could potentially negatively impact our business, financial conditions, results of operations and cash flows.

Risks Related to the Company’s Business

Our revenue has declined significantly in recent periods, and we cannot guarantee that the economics of the Second Amended CAA will fully restore our financial performance.

Our loan interest income declined sharply following the First Amended CAA, which reduced our income share to approximately 35%. While the Second Amended CAA, increases our income share to up to 65%, this comes at the cost of an up to 65% loan loss indemnification obligation. As such, we cannot guarantee that the economics of the Second Amended CAA will fully restore our financial performance if we are required to fulfill our indemnification obligations.

Our revenue has declined due to account attrition, lower pricing, introduction of money market accounts that share interest earned with the depositor and reduced transaction activity within the cannabis industry.

The fees we earn from deposit accounts and transaction activity are directly tied to the number of active CRB accounts, the average balances those accounts maintain, and the volume of transactions processed through our platform. Over recent periods, we have experienced account attrition and lower balances, reflecting broader economic pressures in the U.S. cannabis industry, including reduced wholesale pricing and constrained operator liquidity. These trends reduce both our account fee income and the deposit base on which we earn investment income. We also introduced a money market account that shares the interest earned with depositors, which reduces the average revenue generated from CRBs. We cannot predict when, or whether, conditions in the cannabis industry will improve, or whether accounts lost to attrition will be replaced by new customers.

Volatility in interest rates may adversely affect our revenues, profitability, and competitive position.

Our investment income is earned on CRB deposits held at PCCU based on the Interest on Reserve Balances (IORB) paid by the Federal Reserve, which is sensitive to changes in prevailing interest rates and including policy decisions by the Federal Reserve. When interest rates decline, the yield earned on CRB deposits decreases, and when interest rates rise, the yield earned on CRB deposits increases. A sustained low-rate environment could materially reduce our revenues and make it more difficult for us to achieve or maintain profitability. In addition, lower interest rates could reduce the interest rates charged on new loans made to CRB borrowers.

Our recurring operating losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern.

The Company has incurred recurring losses from operations and negative cash flows from operations, including an operating loss of approximately $5.4 million and cash used in operating activities of approximately $3.4 million for the year ended December 31, 2025, which raise substantial doubt about the Company’s ability to continue as a going concern. Management has taken steps to preserve liquidity, including restructuring revenue sharing under the Second Amended CAA to increase the Company’s share of loan program income from approximately 35% to 65%, seeking strategic partnerships, reducing operating expenses, maintaining access to a $150 million ELOC and monitoring its liquidity position. Notwithstanding these measures, there is no assurance that management’s plans will be sufficient to sustain operations, and if the Company is unable to achieve profitability or access adequate capital on acceptable terms, it may be forced to reduce spending, liquidate assets, or curtail operations, any of which could materially harm the Company’s business and financial condition.

Furthermore, the independent auditors’ report on our consolidated financial statements for the year ended December 31, 2025 includes an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern. In addition, our future financial statements may include similar qualifications about our ability to continue as a going concern. Our financial statements were prepared assuming that we will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty. See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years ended December 31, 2025 and 2024––Liquidity” and Note 2 to the Company’s consolidated financial statements in this Form 10-K for further details.

Risks Related to the Second Amended CAA

PCCU’s loan program is substantially dependent on the regulatory restrictions placed on PCCU, which may limit the types, terms, and amounts of loans offered.

PCCU is a federally chartered credit union subject to regulation by the National Credit Union Administration. PCCU is subject to regulatory capital requirements, portfolio concentration limits, currently capped at 60% of total assets in CRB-related deposits, and periodic examinations by applicable oversight authorities. If PCCU’s regulators impose more restrictive requirements, reduce its concentration limit, or restrict its ability to make CRB loans, the size and composition of the loan portfolio from which we earn income could be materially reduced. We have no ability to compel PCCU to originate loans or to maintain its current regulatory posture, and changes in PCCU’s regulatory environment could restrict the loan program we depend on for a significant portion of our revenue.

The Second Amended CAA reinstates an indemnification obligation of up to 65% of loan loss.

Under the Second Amended CAA, we receive up to 65% of loan program income generated by PCCU’s CRB loan portfolio. In exchange, we are obligated to indemnify PCCU for up to 65% of net losses of a default on any loan covered by the Second Amended CAA. This obligation has no maximum dollar limit and covers principal, accrued interest, fees, legal costs, collection costs, and collateral disposition costs, net of any recoveries. As of the date the Second Amended CAA was entered into, the total loan portfolio was approximately $52.1 million, giving us a theoretical maximum indemnification exposure of approximately $33.8 million. If one or more significant loan defaults occur, our indemnification obligations could be substantial and could materially impair our financial condition and ability to operate. See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years ended December 31, 2025 and 2024––Relationship with PCCU.”

We are required to maintain sufficient balance sheet resources to support our indemnification obligations under the Second Amended CAA.

The Second Amended CAA requires us to certify monthly to PCCU that we maintain adequate liquidity to support our 65% indemnification obligation. While we currently meet this requirement, there is no assurance that we will continue to do so. Our cash position may decline as a result of operating losses, capital expenditures, debt service, or indemnification payments. If we are unable to certify adequate liquidity or if material indemnification claims are made against us, our ability to continue operating could be significantly impaired

Our indemnification obligation is unlimited in amount, and our actual losses could exceed our current estimates and our available cash.

The indemnification obligation under the Second Amended CAA has no dollar cap. Our ability to satisfy indemnification claims depends entirely on our maintaining sufficient cash and liquidity at the time a claim arises. As of December 31, 2025, we held cash of $6.8 million; however, our cash position may decline due to operating losses, working capital needs, or prior indemnification payments. If we are unable to fund an indemnification claim, PCCU would bear the full loss on the affected loan. Such a failure could severely damage our relationship with PCCU, result in a default under the Second Amended CAA, and jeopardize our ability to continue operating.

We are required to maintain sufficient cash and cash equivalents to support our indemnification obligations under the Second Amended CAA.

The Second Amended CAA requires us to certify monthly to PCCU that we maintain adequate liquidity to support our 65% indemnification obligation. While we currently meet this requirement, there is no assurance that we will continue to do so. Our cash position may decline as a result of operating losses, capital expenditures, debt service, or indemnification payments. If we are unable to certify adequate liquidity or if material indemnification claims are made against us, our ability to continue operating could be significantly impaired.

PCCU retains final loan approval authority and may decline loans that meet our underwriting standards, which could limit our revenue growth.

We control the loan origination process and assist with underwriting, risk rating, and credit analysis, for these loans and determine which loan applications are submitted to PCCU for funding. However, PCCU’s loan committee retains final approval authority and may reject loans that we have underwritten and recommended for funding. A pattern of rejections on loans we consider creditworthy could reduce the size of the loan portfolio, limit our loan program income, and constrain our ability to grow revenue under the Second Amended CAA. We cannot compel PCCU to approve any loan we originate, and disagreements over credit standards could adversely affect our relationship with PCCU and our financial results.

One borrower represents approximately 18% of the total loan portfolio and carries the second highest risk classification.

As of December 31, 2025, one borrower had an outstanding loan balance of approximately $9.3 million, representing approximately 18% of our total CRB loan portfolio. This loan carries the second highest risk rating under the risk rating classification system used in the loan program, and which indicates that collection or liquidation in full is highly questionable, doubtful and improbable, with anticipated losses ranging from 20% to 50% of the outstanding balance. Our 65% indemnification exposure on this single loan could result in a loss to us of between approximately $2.2 million, net of estimated collateral value and $6.1 million, uncollateralized. As of December 31, 2025, the Company has recorded provisions of $0.4 million and $0.3 million in the consolidated balance sheet for financial indemnification liability under ASC 326 and standby guarantee obligations under ASC 460, respectively. The realization of any portion of this loss could materially impair our liquidity and financial condition.

The CRB loan portfolio is concentrated entirely in the cannabis industry, and cannabis-specific collateral is subject to significant valuation discounts, legal uncertainties, and a limited buyer pool in a foreclosure or forced sale.

All loans in the portfolio we indemnify are made to CRBs. In the event of a default, the primary collateral securing these loans is typically real estate used in cannabis operations. PCCU eliminates the cannabis license premium (sometimes referred to as the “green tax”) from its collateral valuations and applies a further 60% reduction to estimate realizable value in a non-cannabis sale. As a result, the effective collateral value available to offset loan losses in a foreclosure or forced sale is significantly lower than for comparable conventional commercial real estate. This means our actual loss for a given default, and therefore our indemnification payments under the Second Amended CAA, may be materially higher than we currently estimate.

Certain provisions in the Second Amended CAA create a direct link between our listing compliance and our revenue.

The Second Amended CAA contains a provision that automatically reduces our loan program income share percentage if we determine that our indemnification percentage must be reduced in order to maintain our listing on The Nasdaq Stock Market (“Nasdaq”). In the event of such a determination, our income split percentage will be reduced to match our indemnification percentage, with a retroactive true-up to the immediately preceding quarter that will be settled within ten days of our next filing with the SEC. A reduction in the indemnity percentage would directly reduce our revenue and could signal financial distress to the market. This provision means that a Nasdaq compliance issue could simultaneously impair both our capital markets access and our operating income.

The initial fair value measurement of our stand-ready guarantee liability at inception under the Second Amended CAA involves significant estimates and judgment and is subject to material uncertainty.

We are required under ASC 460, Guarantees, to recognize the fair value of our stand-ready guarantee obligation at inception. We are finalizing this initial fair value measurement with the assistance of a third-party valuation specialist. This is a Level 3 measurement under the fair value hierarchy, meaning it relies on significant unobservable inputs, including assumed default probabilities, loss given default rates, cannabis-specific collateral discount assumptions, discount rates, and the timing of potential guarantee payments. The fair value of this liability is fixed at inception and released over the remaining term of the Second Amended CAA as we are released from risk. Because this measurement depends entirely on management assumptions and unobservable market inputs, actual results could differ materially from our estimates. Errors in this measurement, or changes in the assumptions used, could result in material charges to our income statement or require restatements of our financial statements.

Our ongoing expected financial indemnification liability under the Current Expected Credit Loss (“CECL”) standard (ASC 326) requires quarterly ongoing remeasurement and is subject to material uncertainty.

Pursuant to ASC 326, Financial Instruments – Credit Losses, using the CECL methodology, coinciding with the first period in which the Company held financial assets within the scope of the standard. Our financial indemnification liability represents our estimate of 65% of the expected credit losses on the covered loan portfolio under the Second Amended CAA. Unlike our ASC 460 stand-ready guarantee liability, which is fixed at inception, our financial indemnification liability is dynamic and remeasured every quarter to reflect current conditions, forward-looking economic forecasts, updated default probability assumptions, revised loss given default estimates, and changes in collateral values. Because the cannabis commercial real estate lending market has limited historical loss data for reliable statistical calibration, our estimates for financial indemnification liability involve a higher-than-normal degree of management judgment. Changes in these estimates in future periods, including as a result of borrower deterioration, collateral value declines, or changes in economic conditions, could result in material charges to credit loss expense in our income statement. Errors in these measurements could also require restatements of our financial statements.

We are dependent on third parties, including PCCU and other service providers, for certain critical services, and disruptions at PCCU would directly and immediately impair our operations.

PCCU provides the regulated banking infrastructure on which our entire service model depends. We do not hold a bank or credit union charter and cannot directly offer deposit, lending, or payment services to CRB clients. Operational disruptions at PCCU whether caused by a regulatory action, a cybersecurity incident, a financial stress event, or an operational failure would directly and immediately impair our ability to serve our clients and generate revenue. We have limited ability to transition our operations to an alternative financial institution partner on short notice, and the loss of PCCU’s operational infrastructure for any extended period could be fatal to our business.

We are almost entirely dependent on PCCU as our banking partner. Substantially all deposits from our CRB clients are held at PCCU, and substantially all of our revenue is generated through the services we provide under the Second Amended CAA. We currently have no other financial institution partner of comparable scope. The loss of our relationship with PCCU, or a material adverse change to the terms of the CAA, would have a material adverse effect on our business, revenues, and operations. Until we enter into agreements with one or more additional financial institution partners, our ability to grow our client base and diversify our revenue is significantly constrained

Loan program income (formerly loan interest income) could decline under the Second Amended CAA if the indemnity reserve would cause our shareholders’ equity to drop below the Nasdaq Listing Requirements to maintain compliance.

The Second Amended CAA contains a provision that automatically reduces our loan program income (formerly loan interest income) share percentage if we determine that our indemnification percentage must be reduced in order to maintain our Nasdaq listing. In the event of such a determination, our income split percentage will be reduced to match our indemnification percentage. Any such adjustment in our indemnification obligation would result in a corresponding decrease in the amount of loan program income generated by PCCU’s CRB loan portfolio that we receive pursuant to the Second Amended CAA. The current listing requirement is a minimum of $2.5 million of shareholders’ equity, and if Nasdaq were to increase this requirement such that it exceeded the Company’s balance sheet equity, or the Company’s balance sheet equity decreases below $2.5 million, our loan program income could decline. See “––Risks Related to the Second Amended CAA––Certain provisions in the Second Amended CAA create a direct link between our listing compliance and our revenue.”

Risks Related to the Cannabis Industry and Regulatory Environment

We have agreements with financial institutions that provide banking services to CRBs, which exposes us to additional liabilities, regulatory compliance costs, and reputational risk.

Our business is built on serving an industry that remains illegal under federal law. This creates unique risks that do not apply to service providers operating in conventional industries, including potential federal enforcement actions, heightened regulatory scrutiny of our financial institution partners, difficulty obtaining banking services and insurance, and reputational harm that could affect our ability to attract investors, employees, and customers. Any increase in federal enforcement activity targeting cannabis-related financial services could have an immediate and material adverse effect on our business.

Cannabis remains a Schedule I controlled substance under federal law, and changes in federal enforcement policy or the scheduling status of cannabis could affect our business in unpredictable ways.

Cannabis is classified as a Schedule I controlled substance under the CSA and is illegal under federal law. While some federal administrations have adopted policies of non-enforcement with respect to state-licensed cannabis operations, those policies can change at any time. Potential federal rescheduling of cannabis from Schedule I to Schedule III, while potentially reducing enforcement risk for CRBs, could also attract new competitors into the cannabis banking market, alter the regulatory framework governing financial institutions that serve CRBs, change the federal tax treatment of CRB operators, or otherwise disrupt the economics of the market we serve. We cannot predict the direction or timing of federal cannabis policy changes or their ultimate effect on our business.

The Company, our financial institution customers, and our CRB clients are subject to complex federal and state laws governing financial transactions related to cannabis, which could subject them to legal claims or restrict their activities.

Financial institutions that bank cannabis businesses must navigate a complex web of federal and state laws, including the BSA, anti-money laundering requirements, FinCEN guidance on marijuana banking, and various state cannabis regulatory frameworks. Changes in FinCEN guidance, BSA or AML examination standards, or the legal interpretation of applicable statutes could require us, or our financial institution partners, to modify or discontinue certain services to CRB clients. Any such change could materially reduce our revenues and disrupt our operations.

State-level regulatory changes, including market saturation, license non-renewals, and changes to cannabis program structures could impair borrower viability and increase the credit risk in the portfolio we indemnify.

The viability of CRB borrowers in our loan portfolio depends substantially on conditions in their respective state cannabis markets. Market saturation, the non-renewal of cannabis licenses, adverse changes to state cannabis program structures, or increased state regulation could impair CRB operators’ ability to generate sufficient revenue to service their debt obligations. An increase in default rates among portfolio borrowers would increase the probability that we would be required to fund indemnification payments to PCCU, which could materially impair our financial condition.

Because cannabis remains federally illegal, CRB borrowers generally cannot access bankruptcy protections but instead work through the receivership process, which complicates loan workouts and could increase our loss given default.

Under the applicable bankruptcy laws, debtors engaged in the cultivation, distribution, or sale of a federally illegal substance are generally ineligible for bankruptcy protection. This means that when a CRB borrower defaults, the workout and collateral recovery process must proceed entirely outside of bankruptcy court, typically through foreclosure, deed-in-lieu arrangements, or negotiated settlements. These processes typically take one to three years and yield lower net recovery proceeds than a bankruptcy-supervised liquidation. The result is that our actual loss for a given default on indemnified loans may be materially higher, and our indemnification payments may arise over a longer timeline with greater uncertainty than would be the case for conventional commercial real estate loans.

Service providers to cannabis businesses may be subject to unfavorable U.S. federal income tax treatment, including potential disallowance of ordinary business deductions under Section 280E.

Section 280E prohibits deductions for ordinary and necessary business expenses incurred by taxpayers who traffic in Schedule I or Schedule II controlled substances. This provision significantly increases the effective federal income tax rate for CRB operators, reducing their after-tax cash flow and their ability to service debt. Although Section 280E applies directly to CRBs rather than to service providers such as us, the financial burden it places on our borrowers affects their creditworthiness and the credit quality of the loan portfolio we indemnify. Any adverse change in federal tax policy applicable to cannabis-related businesses could further impair the financial condition of our CRB clients.

Cannabis businesses may be subject to civil asset forfeiture under federal law, which could result in the loss of collateral securing loans in our portfolio.

Federal law permits the seizure and forfeiture of assets used in connection with, or derived from, violations of the CSA. If federal authorities were to seize cannabis-related assets pledged as collateral for loans in the PCCU portfolio, the collateral available to secure repayment would be lost or materially impaired, increasing the risk that we would be required to fund indemnification payments. The risk of civil forfeiture is difficult to predict and is not fully reflected in our current collateral valuations.

We may have difficulty enforcing certain of our commercial agreements and contracts related to cannabis-adjacent services.

Because cannabis remains federally illegal, certain agreements relating to cannabis industry services may be challenged as unenforceable in federal courts or in states that do not recognize contracts related to federally illegal activities. If any of our material agreements were found to be unenforceable, we could lose the benefit of the relevant contract rights and suffer material financial harm.

Because we serve cannabis-related businesses, we may have difficulty obtaining certain insurance coverages, which could expose us to additional financial liability.

The cannabis industry’s federal legal status limits access to standard commercial insurance products. Many conventional insurers decline to provide coverage to cannabis-adjacent businesses, and the specialized insurance products that are available often carry higher premiums and more limited coverage terms. Gaps in our insurance program could leave us exposed to uninsured losses including those arising from indemnification claims, litigation, cybersecurity incidents, or errors and omissions that could materially impair our financial condition.

The conduct of third parties, including our CRB clients and their financial institution providers, may jeopardize our regulatory compliance and business relationships.

Our ability to maintain compliance with applicable laws depends in part on the conduct of the CRBs we serve and the financial institution partners through which we operate. If a CRB client engages in unlicensed activity, money laundering, or other regulatory violations, we could be exposed to regulatory sanctions, reputational harm, or legal liability even if we were unaware of the misconduct. We have what we believe to be effective compliance monitoring procedures in place, but we cannot guarantee that they will detect or prevent all violations by third parties.

The Company was founded in 2015 by PCCU and is headquartered in Golden, Colorado. We operate a proprietary compliance technology platform that enables financial institutions to provide banking and lending services to CRBs operating legally under applicable state law.

Because cannabis remains a federally controlled substance under the CSA, most financial institutions have historically been unwilling to serve CRBs, creating significant demand for the compliance infrastructure and risk management services we provide. We are not a bank or credit union and do not hold customer deposits. Instead, we provide compliance monitoring, onboarding, and reporting services that allow our financial institution clients to accept and maintain CRB deposit accounts in a manner consistent with BSA requirements, FinCEN guidance, and applicable anti-money laundering regulations.

Through our financial institution clients, we facilitate access to business checking and savings accounts, cash management, commercial lending, remote deposit, ACH payments, wire transfers, and courier services through third-party relationships. By enabling CRBs to deposit cash receipts through regulated financial institutions, our platform helps to reduce the safety risks associated with high cash volumes and gives CRBs access to financial tools that help them operate more efficiently. In select markets, we also license our Program to other financial institutions, providing them KYC due diligence tools, compliance monitoring, program management support, and regulatory exam assistance.

Relationship with PCCU

PCCU is our primary financial institution client and the source of a significant majority of our revenue. This relationship is governed by the Second Amended CAA, which replaced the First Amended CAA as of October 1, 2025.

The First Amended CAA introduced several significant changes to the CAA, including (i) the elimination of the Company’s indemnification obligations for loan-related losses, (ii) a reduction in the Company’s loan program income share to approximately 35% to reflect the incremental risk absorbed by PCCU in connection with the elimination of our indemnification obligations, (iii) the replacement of a multiple per-account fee structure with a single asset hosting fee equal to 1.00% of average daily CRB deposit balances that increased to 1.30% in the event balances exceeded $130 million, and (iv) us receiving 100% of investment income on CRB deposits.

The Second Amended CAA fundamentally restructured the economics of the PCCU relationship. The primary changes were that (i) the Company’s share of loan program income increased from approximately 35% to up to 65%, reflecting the completion the September 2025 Recapitalization; (ii) the Company now receives up to 65% of loan program income generated by PCCU’s CRB loan portfolio in exchange for being obligated to indemnify PCCU for up to 65% of net losses of a default on any loan covered by the Second Amended CAA, with no contractual cap on total exposure; and (iii) the asset hosting fee structure transitioned from a flat rate to a tiered marginal rate schedule based on average daily deposit balances, with rates ranging from 0.50% on the first $25 million to 1.25% on balances above $125 million, resulting in estimated annual savings of approximately $0.3 million compared to the rates contained in the First Amended CAA. See Part I, Item 1., “Business––Recent Developments––September 2025 Recapitalization.”

The concentration of our business with PCCU and the re-assumption of the indemnification obligation each represent material risks to the Company. Any loss of or material adverse change to the PCCU relationship, or any significant loan defaults in the CRB portfolio for which we are required to fund indemnification payments, could have a material adverse impact on our liquidity, financial condition, and results of operations. See “––Related Party Relationship with PCCU” as well as Part I, Item 1A., “Risk Factors––Risks Related to the Second Amended CAA” and Part III, Item 13., Certain Relationships and Related Party Transactions.”

Year Ended December 31, 2025 Performance Summary

Total revenue for the year ended December 31, 2025 was $7.7 million, a decrease of approximately 49.7% compared to $15.2 million for the year ended December 31, 2024.

The decline was primarily driven by a 63% reduction in loan program income resulting from revised interest allocation provisions under the First Amended CAA. This decrease was partially offset by approximately $0.4 million in incremental loan program income recognized following the execution of the Second Amended CAA, which had a retroactive effective date of October 1, 2025. Investment income also decreased by 45%, reflecting declining balances, lower prevailing interest rates that ranged from 3.65% to 4.40% in 2025 versus 4.40% to 5.40% in 2024 and the implementation of an interest-bearing deposit program for customers. Additionally, account fee income declined by 39%, which was attributable to a reduction in the number of active accounts following the conclusion of our relationship with Five Star Bank, as well as lower fees associated with merchant services.

Total operating expenses decreased by $9.3 million, or 42%, to $13.1 million for the year ended 2025, compared to $22.3 million in fiscal year 2024, due to the absence of $9.1 million in goodwill and intangible asset impairment charges recorded in 2024 and from ongoing cost reduction actions including workforce restructuring and reduced overhead. The Company reported a net loss of $2.2 million for the year ended December 31, 2025, compared to net loss of $48.3 million in year 2024. The net loss in 2024 was significantly influenced by a large, non-recurring deferred tax asset valuation adjustment of $43.9 million. Excluding that item, the underlying operating performance declined year-over-year consistent with the revenue trends described above.

Material Weaknesses in Internal Controls

Management identified material weaknesses in the Company’s internal control over financial reporting as of December 31, 2024. These weaknesses primarily related to the Company’s application of U.S. generally accepted accounting principles (“GAAP”) to complex transactions, including revenue recognition, accounting for financial instruments, forward purchase arrangements, and stock-based compensation, as well as deficiencies in the going concern evaluation process and information technology access controls. The Company has implemented a remediation plan, including hiring new senior financial leadership with public company experience, engaging external technical accounting advisors, implementing enhanced financial statement review procedures, and upgrading IT access controls.

As of December 31, 2025, management believes these remediation actions have addressed all previously identified material weaknesses; however, a material weakness was identified during the fourth quarter of 2025 related to the Company’s loan documentation and credit loss estimation process.

Additionally, while the material weakness related to the completeness and accuracy of account activity fee income has been remediated, sufficient time has not elapsed to conclude that the related controls are operating effectively. See “Internal Control Over Financial Reporting” below for further discussion.

Industry and Regulatory Environment

Cannabis remains a Schedule I controlled substance under federal law, which creates ongoing legal and compliance risks for us and for the financial institutions we serve. Proposed federal legislation, including the SAFER Banking Act, could expand the availability of banking services to CRBs and increase competition in our market. Conversely, changes in federal or state enforcement priorities could adversely affect our clients and, in turn, our business. We monitor legislative and regulatory developments closely, as they are a primary driver of both the demand for, and the risks associated with our services. See Part I, Item 1., “Business––Industry Overview” for further discussion of the current and evolving industry and regulatory landscape.

“EBITDA” is defined as net income (loss) before interest expense, income tax expense (benefit), and depreciation and amortization. “Adjusted EBITDA” is further adjusted to exclude non-cash, unusual, and infrequent items that management does not consider reflective of the Company’s core operating performance.

These measures have material limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our GAAP results. Specifically, although depreciation and amortization are non-cash charges, the underlying assets may require future replacement and neither EBITDA nor Adjusted EBITDA reflects the associated capital expenditure requirements. In addition, neither measure reflects changes in working capital needs or tax payments that may reduce cash available to the Company. Accordingly, these measures should be considered alongside net income (loss) and other GAAP results.

Discussion of Adjusted EBITDA Results

For the year ended December 31, 2025, EBITDA was $(1.5) million, compared to $(3.2) million for the year ended December 31, 2024. Adjusted EBITDA was $(3.9) million and $2.9 million for the years ended December 31, 2025 and December 31, 2024, respectively, a decline of $6.7 million. The decline was driven by three primary factors, each of which is directly connected to structural changes in the Company’s revenue arrangements and market conditions, rather than deterioration in the underlying business operations of the Company.

The most significant factor was the First Amended CAA. This agreement made two economically material changes to the Company’s revenue model.

Together, these two changes under the First Amended CAA represented the primary explanation for the decline in Adjusted EBITDA and should be understood as a deliberate restructuring of the economic relationship with PCCU rather than an operational shortfall. The revenue impact of these reductions was partially offset in the fourth quarter of 2025 by the Second Amended CAA, which increased the Company’s share of loan program income from approximately 35% up to 65% and has been recognized as a Type 1 subsequent event under ASC 855.

The second factor was a decline in investment income. The Federal Reserve reduced its IORB rate multiple times during 2024 and 2025, from 5.40% at the start of 2024 to 3.65% by the end of 2025. Because the Company’s investment income is directly tied to the IORB rate applied to CRB deposit balances held at PCCU, these rate reductions directly generated lower investment income. This decline was compounded by the full-year impact in 2025 of the Company’s money market account program, introduced in 2024, under which the Company effectively shares a portion of the IORB rate with CRB clients. Although this arrangement improved client retention and deposit growth, it did further reduce the Company’s net investment margin.

The third factor was a reduction in account fee income primarily driven by a decline in the weighted average fee per account during the year. This decline was driven by a shift in the client portfolio to newer accounts that generate fees at a lower rate given either lower initial balances, or large balances across multiple accounts.

Management has identified three primary causes that it believes elevated attrition in 2025.

EBITDA was also impacted by approximately $0.5 million in lost income from a strategic merchant services partner that renegotiated its revenue-sharing arrangement such that it resulted in less favorable terms for the Company in 2025. This is a discrete, identifiable reduction that management does not expect to recur at the same magnitude going forward.

Management’s focus for 2026 is on improving client retention through the Company’s expanding lending capability, enhanced client service technology, and continued new account development driven by new marketing and customer acquisition processes.

The significant non-cash and non-recurring items excluded from Adjusted EBITDA in 2025 include a $3.3 million gain on extinguishment of the FPA, a $1.0 million charge for costs incurred in connection with the September 2025 Recapitalization, a $1.5 million non-cash stock-based compensation charge, and a $1.3 million non-cash gain from the change in fair value of warrant and forward purchase derivative liabilities.

For the year ended December 31, 2024, GAAP net loss figure of $48.3 million in the reconciliation above reflects the impact of significant non-recurring items, including a large deferred tax valuation recognition and subsequent write-off. Management believes that for the year ended December 31, 2024 Adjusted EBITDA of $2.9 million is the more relevant basis for comparison, as it reflects the operating performance of the business under the CAA structure before the entrance into the First Amended CAA.

Management monitors the following operational metrics to assess the health and trajectory of the core banking services business.

Our ability to generate account fee income and investment income is directly tied to the number of active CRB accounts we manage and the total deposit balances maintained at our financial institution clients. We monitor account activity including daily deposits, withdrawals, and ending balances on an ongoing basis. Average account balances represent the average aggregate ending balance of onboarded and monitored CRB deposits held at financial institution clients over the revenue generating period. at period end. Average account balance is total account balances divided by total active accounts at period end. Trailing 14-day average balances represent the aggregate ending balance of onboarded and monitored CRB deposits held at financial institution clients over the 14 calendar days at the period end and represent a period end balance that smooths our clients’ two-week payroll cycles.

Account Fees per Average Active Account

Average active accounts increased by 16 or 2.1% in 2025, and the accounts lost carried higher average balances than the accounts won, resulting in a decline in average account balance and a net decline in account fee revenue despite positive account growth. Management’s primary retention and growth initiatives for 2026 are described in the section above.

The Company generates revenue through three primary streams. Account fee income consists of fees charged to financial institution clients based on the number of active CRB accounts managed, account-level transaction activity, and deposit balances. These fees compensate the Company for providing BSA compliance monitoring, onboarding, account management, and related regulatory reporting services. Loan program income represents the Company’s contractual share of interest earned on CRB loans originated and serviced by the Company on behalf of its financial institution clients, primarily PCCU. The Company’s share of loan program income is currently determined in accordance with the Second Amended CAA. Investment income represents interest earned on CRB deposit balances held at financial institution clients and is based on the prevailing market rates applied to those balances. In addition, the Company earns fees from licensing its proprietary Program to other financial institutions and from ancillary services provided to businesses serving the cannabis industry.

A new Nasdaq rule will delist companies whose market capitalization falls below $5 million for 30 or more consecutive trading days.

On July 22, 2026, the SEC approved a proposed Nasdaq rule (originally filed with the SEC on January 13, 2026) that would require Nasdaq-listed companies to maintain a minimum market value of listed securities (“MVLS”) of at least $5 million. As approved, the rule provides that if a company fails to maintain this minimum for a period of thirty consecutive business days, it will be immediately subject to suspension and delisting, without any cure or compliance period.

Subsequent to the SEC’s approval, on July 29, 2026, the SEC notified Nasdaq that it had received notices of intention to petition for review of the July 22, 2026 approval order and that, as a result, the order is stayed until the SEC orders otherwise. The new MVLS requirement is therefore not currently in effect, and we cannot predict whether or when the stay will be lifted, whether the rule will be modified or vacated as a result of the pending review, or when any such rule would become effective if approved.

If the stay is lifted and the rule becomes effective, and if we fail to satisfy its requirements, Nasdaq would commence delisting procedures against the Company. In that event, our Common Stock would likely then trade only in the over-the-counter market and the market liquidity of our Common Stock could be adversely affected and its market price could decrease. If our Common Stock was to trade on the over-the-counter market, selling our Common Stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and we could face significant material adverse consequences, including: a limited availability of market quotations for our securities; reduced liquidity with respect to our securities; a determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; a reduced amount of news and analyst coverage for the Company; and a decreased ability to issue additional securities or obtain additional financing in the future. These factors could result in lower prices and larger spreads in the bid and ask price for our Common Stock and would substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.

In the event of a delisting, we would expect to take actions to restore our compliance with the listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the minimum market value of listed securities, or prevent future non-compliance with the listing requirements.

Federal Regulatory Developments — Rescheduling to Schedule III The federal regulatory environment for cannabis continues to evolve in ways the Company believes are material to its industry.

In August 2023, the U.S. Department of Health and Human Services recommended that the Drug Enforcement Administration (“DEA”) reschedule cannabis from Schedule I to Schedule III of the CSA, and in May 2024 the U.S. Department of Justice (“DOJ”) issued a Notice of Proposed Rulemaking to that effect, although the rescheduling process was stayed and effectively stalled for much of 2025.

While medical cannabis produced and sold by state-licensed operators who have applied for DEA licenses is now Schedule III, all other cannabis remains a Schedule I controlled substance under federal law, which creates ongoing legal and compliance risks for us and for the financial institutions we serve. Proposed federal legislation, including the SAFER Banking Act, could expand the availability of banking services to CRBs and increase competition in our market. Conversely, changes in federal or state enforcement priorities could adversely affect our clients and, in turn, our business. We monitor legislative and regulatory developments closely, as they are a primary driver of both the demand for, and the risks associated with, our services.

The Company believes the most financially material consequence of rescheduling would be the elimination of Section 280E of the Internal Revenue Code, which currently prohibits cannabis businesses from deducting ordinary and necessary business expenses and results in effective federal tax rates materially higher than those of other industries, and its elimination could improve cash flows and profitability for state-legal cannabis operators.

On June 17, 2026, Nasdaq published Nasdaq listing library rule number 1877 that allows state-licensed medical marijuana companies that register with the DEA and operate in compliance with federal law are eligible to list on Nasdaq if they can provide an opinion of counsel from a law firm, acceptable to Nasdaq, with expertise in controlled substance regulatory compliance confirming that the company operates in compliance with the DOJ order and applicable requirements of the CSA. This potentially allows the Company to hold medical cannabis licenses without jeopardizing its Nasdaq listing.

For the three and six months ended June 30, 2026, the Company continued to grow its deposit base and expand the scale of its client relationships. Average deposit balances increased $7.0 million, or 6.8%, to $108.4 million for the three-month period, and $3.6 million, or 3.4%, to $107.3 million for the six-month period, each compared to the same periods last year. Active accounts grew 0.5% for the three-month period, while the six-month period reflected a modest 0.9% reduction in active accounts; in each case, average account balance increased, rising 6.3% to $0.1 million for the three-month period and 4.4% to $0.1 million for the six-month period. Average Account fee revenue was $0.2 million for both the three- and six-month periods, decreasing 17.1% and 17.6%, respectively, compared to the prior year periods, as average fees collected per account decreased 17.6% to $299 for the three-month period and 16.8% to $308 for the six-month period. This decline reflects a continued shift in the account portfolio toward larger, higher-balance relationships, which generate proportionately lower fee revenue relative to their deposit contribution but can support the Company’s growing deposit base and associated investment income.

Recent Events

Board of Directors and Executive Officers

On April 20, 2026, Sundie Seefried tendered her resignation as a member of the Board. Ms. Seefried’s departure was not the result of any disagreement with the Company on any matter relating to its operations, policies or practices.

On April 22, 2026, the Board appointed each of Sean Tonner and Tyler Klimas as directors, effective immediately, and the Board also approved an increase in the number of directorships on the Board from five to six.

On May 8, 2026, Richard Carleton informed the Board of Directors of his decision not to be considered for reelection to the Board at the Company’s 2026 annual meeting of stockholders (the “2026 Annual Meeting”).

On June 17, 2026, the Company’s stockholders elected Jonathon F. Niehaus and Sean Tonner to serve as Class II directors of the Company at the 2026 Annual Meeting.

On July 7, 2026, Douglas Beck informed the Company of his decision to resign from his roles at the Company effective July 31, 2026.

On July 15, 2026, Michael Regan was appointed as the Company’s Chief Operating Officer and Secretary.

Nasdaq Listing Compliance

As a condition of continued Nasdaq listing, the Company is required to maintain stockholders’ equity of at least $2.5 million under Nasdaq Listing Rule 5550(b)(1) and a minimum closing bid price of $1.00 per share for 30 consecutive business days under Nasdaq Listing Rule 5550(a)(2). On April 22, 2026, the Company received a letter from the listing qualifications department staff of Nasdaq notifying the Company that for the last 30 consecutive business days the Company did not maintain a minimum closing bid price of $1.00 per share for its Common Stock, as required by Nasdaq Marketplace Rule 5550(a)(2). The notice had no immediate effect on the listing of the Company’s Common Stock or warrants. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company was provided with a compliance period of 180 calendar days, or until October 19, 2026, to regain compliance with the minimum bid price requirement. The notice states that to regain compliance the closing bid price of the Company’s Common Stock must meet or exceed $1.00 for a minimum of 10 consecutive business days. If the Company does not regain compliance by October 19, 2026, the Company may be eligible for a second compliance period for up to an additional 180 days. At a special meeting held on November 6, 2025, stockholders approved authorization for the Board to effect, at its discretion, a reverse stock split at a ratio between 2-for-1 and 12-for-1; as of June 30, 2026, no reverse stock split had been effected. If the Company is ultimately unable to regain compliance, Nasdaq staff would notify the Company that its securities are subject to delisting, which determination the Company may appeal to a Hearings Panel. There can be no assurance the Company will regain or maintain compliance with this or other Nasdaq listing standards.

On July 22, 2026, the SEC approved a proposed Nasdaq rule (originally filed with the SEC on January 13, 2026) that would require Nasdaq-listed companies to maintain a minimum market value of listed securities (“MVLS”) of at least $5 million. As approved, the rule provides that if a company’s MVLS remains below $5 million for 30 consecutive business days, it would become immediately subject to suspension and delisting, without any cure or compliance period. Subsequent to the SEC’s approval, on July 29, 2026, the SEC notified Nasdaq that it had received notices of intention to petition for review of the July 22, 2026 approval order and that, as a result, the order is stayed until the SEC orders otherwise. Accordingly, the new MVLS requirement is not currently in effect, and there can be no assurance as to whether or when the stay will be lifted or the rule will become effective. See Part II, Item 1A. “Risk Factors–A new Nasdaq rule will delist companies whose market capitalization falls below $5 million for 30 or more consecutive trading days.”

There can be no assurance that the Company will maintain compliance with these or any other Nasdaq listing requirements in the future. Failure to do so could ultimately result in the delisting of the Company’s Common Stock, which would adversely affect stockholders’ ability to trade their shares and the Company’s ability to raise capital.

Voluntary Market Adjustment to Series B Preferred Stock and related Warrants

On May 6, 2026, the Company offered the holders of its Series B Convertible Preferred Stock and Series B Warrants a voluntary, time-limited inducement running from May 6, 2026, through July 31, 2026 (the “Offer Period”) to reduce the conversion price of the Preferred Stock and the cash exercise price of the Warrants from $1.5528 to $0.65 per share, a 20% discount to the closing price of the Company’s Common Stock on the day before the offer. The conversion price and exercise price will revert to $1.5528 on August 1, 2026. Warrants exercised during the Offer Period, subject to an effective registration statement, must be settled on a cash basis; the net share settlement alternative previously available is not permitted during this period. Participation is voluntary; holders who do not accept retain their Preferred Stock and Warrants on the original terms. On May 6, 2026, the Company filed a registration statement on Form S-1 to register, among other things, these additional shares. As of June 30, 2026, the aforementioned registration statement had not become effective.

Between May 6, 2026 and June 30, 2026, holders converted 3,198 shares of Series B Convertible Preferred Stock into 4,920,008 shares of Common Stock. No Series B Warrants have been exercised as of that date.

The Company accounts for the Preferred Stock conversions as an induced conversion under ASC 260-10-S99-2, applying the induced-conversion framework in ASC 470-20-40-13 through 40-16 by analogy, given that the reduced conversion price is available only for a limited period.

The voluntary market adjustment related to the Series B Preferred Stock gives rise to a deemed dividend, measured as the excess of the fair value of the consideration transferred to holders under the reduced terms over the fair value that would have been transferred under the original terms. The Company recognized a deemed dividend of $0.9 million in connection with the Preferred Stock conversions, measured on each respective conversion as of the May 6, 2026, modification date. The deemed dividends are entirely within permanent stockholders’ equity, and is reflected as an increase to net loss available to common stockholders in the calculation of basic and diluted loss per share for the three and six months ended June 30, 2026. The deemed dividend is considered a non-cash item and had no effect on the Company’s net loss, total stockholders’ equity, or cash flows from operations.

Account fee income decreased by $0.4 million, or 18.7%, for the six months ended June 30, 2026, compared to the same period in 2025. The decline was primarily due to lower revenue from a merchant service partner, which reduced account fee income by approximately $0.2 million year over year. In addition, lower average fees collected from PCCU-hosted accounts contributed approximately $0.1 million to the overall decrease.

For the six months ended June 30, 2026, investment income was $0.5 million, compared to $0.6 million for the six months ended June 30, 2025, a decrease of $0.1 million, or 10.0%. The average investable deposit base grew to $46.8 million from $35.1 million between those periods, but the benefit of that growth was more than offset by a decline in the IORB rate from 4.40% to 3.65%.

For the three months ended June 30, 2026, loan program income was $0.8 million, compared to $0.6 million for the three months ended June 30, 2025, an increase of $0.3 million, or 50.7%. For the six months ended June 30, 2026, loan program income was $1.7 million, compared to $1.1 million for the six months ended June 30, 2025, an increase of $0.6 million, or 53.1%.

The increase for both periods was primarily driven by the Second Amended CAA, which increased the Company’s share of loan program income to 65% from approximately 35% under the First Amended CAA, together with less than $0.02 million of additional loan origination fees collected on refinanced loans in the three-month period. This increase was partially offset by a decline in the average loan portfolio to $51.5 million for the six months ended June 30, 2026, from $53.1 million for the same period in 2025, reflecting fewer loans outstanding year over year, the impact of which was mitigated by improved retention of the Company’s share of loan program income under the Second Amended CAA.

For the three months ended June 30, 2026, total operating expenses increased by $0.2 million, or 5.1%, to $3.0 million, compared to $2.8 million for the same period in 2025. For the six months ended June 30, 2026, total operating expenses decreased $0.04 million, or 0.6%, to $6.7 million, compared to $6.7 million for the same period in 2025.

For the three-month period, the change was primarily driven by a credit benefit recognized during the period and lower compensation and employee benefits expense, partially offset by higher general and administrative expenses.

For the three months ended June 30, 2026, compensation and employee benefits expenses decreased by $0.1 million, or 6.7%, to $1.5 million, compared to $1.6 million for the same period in 2025. The decrease was primarily driven by savings from the departure of certain executive officers, partially offset by the impact of staff increases and salary adjustments to support strategic growth initiatives.

For the six months ended June 30, 2026, compensation and employee benefits expenses increased by $0.2 million, or 6.2%, to $3.1 million, compared to $3.0 million for the same period in 2025. The increase was primarily driven by investments in staff to support strategic growth initiatives, offset in part by savings from the departure of certain executive officers and a decrease in stock-based compensation expense, reflecting lower fair values of awards granted during 2026 and the completed vesting of certain prior-period grants.

For the three and six months ended June 30, 2026, general and administrative expenses increased $0.4 million and $0.5 million, or 93.7% and 35.0%, to $0.9 million and $2.0 million, compared to $0.5 million and $1.4 million for the same periods in 2025, respectively. The increase was primarily due to strategic investments in (i) investor related marketing intended to increase market awareness of the Company’s business developments, (ii) brand marketing intended to build awareness of the Company’s expanded capabilities, including its broader lending program, its expanded consulting support for CRBs under its Managed Services offering, and its efforts to onboard additional financial institution clients to its platform, (iii) marketing of the Company’s compliant and transparent pooled employer retirement plan, which has facilitated more in-depth conversations with multi-state operators that would not otherwise bank through the Company, and (iv) the development of infrastructure supporting the Company’s efforts to embed artificial intelligence capabilities into its operating environment resulting in higher subscription costs and, for the three-month period, higher franchise tax expense as described below. The Company partially recovered its investor relations marketing investment through issuances under its ELOC facility during the period. These increases were partially offset by lower PCCU account hosting fees under the Second Amended CAA.

General and administrative expenses for the three months ended June 30, 2026, also reflected a year-over-year franchise tax variance of $0.3 million. This variance was driven by a refund of a prior-year franchise tax overpayment recognized in the three months ended June 30, 2025, rather than any increase in the Company’s underlying franchise tax expense for the current period. Franchise tax expense is also affected by the number of the Company’s authorized shares, an increase in which is amortized over an annual period and was not material to the three-month period.

For the six months ended June 30, 2026, professional services expenses decreased $0.3 million, or 12.4%, to $1.9 million, compared to $2.2 million for the same period in 2025, driven primarily by lower litigation-related legal fees, the absence of a one-time litigation settlement expense recognized in 2025, and the absence of a stock-based compensation award granted in 2025, which reduced expense by approximately $0.6 million. These decreases were partially offset by higher director fees, reflecting a one-time bonus and an increase in the number of directors eligible for board fees.