Note 16 - Commitments and Contingencies

Contractual Commitments

The Company has an employment agreement with its Chief Executive Officer. Under the terms of the agreement, if the contract is not renewed or is terminated without cause, the Company is obligated to pay severance equal to the CEO’s then-current annual base salary. The agreement also provides for an annual cash bonus opportunity of up to 100% of base salary, based on performance criteria established by the Board of Directors, and for long-term incentive compensation, the terms of which are to be determined by the Board of Directors.

The Company is party to contractual obligations, including lease liabilities related to operating leases, and stipulated cash bonus arrangements with employees. These obligations are time-based and are reflected in the accompanying consolidated financial statements. The Company expects to meet these commitments in the ordinary course of business.

In addition, the Company has entered into deferred bonus agreements with certain non-executive employees. These agreements provide for cash bonus payments upon the employee’s continued employment through specified payment dates as set forth in each individual arrangement. As of June 30, 2026, the aggregate amount of deferred bonuses outstanding under these agreements was approximately $0.1 million. The Company expects to fund these obligations from operating cash flows in the ordinary course of business.

Acquisition of 420 IT Solutions

On December 19, 2025, Safe Harbor Managed Services LLC, a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement with LBMW LLC (d/b/a 420 IT Solutions) and its founders. The Company accounted for this transaction as an asset purchase pursuant to ASC 805, Business Combinations.

The aggregate purchase price consisted of 125,000 shares of Common Stock (“Earnout Shares”), plus the assumption of certain identified liabilities under contracts assigned to the Company. The Earnout Shares are subject to performance-based vesting over a two-year earnout period ended December 31, 2027. Intangible assets and contingent consideration are recognized as the performance conditions become probable of achievement. The Company evaluated the achievement of the performance obligation and deemed this unlikely to be reached. Therefore, the intangible assets and contingent liability were not recorded as of June 30, 2026 and December 31, 2025. If circumstances change when the revenue target is probable, then the intangible assets and a contingent liability will be recorded. The Company will continue to evaluate the achievability of the earnout performance conditions through the earnout period ending December 31, 2027.

Legal and Related Matters

The Company is involved in, or has been involved in, arbitrations or various other legal proceedings that arise from the normal course of its business. The ultimate outcome of any litigation is uncertain, and either an unfavorable or favorable outcome could have a material impact on the Company’s results of operations, balance sheets, and cash flows due to defense costs, and could divert management resources. The Company cannot predict the timing or outcome of these claims and other proceedings. With respect to the cases described below, the Company evaluates associated developments on a regular basis and accrues a liability when it believes a loss is probable and the amount can be reasonably estimated.

Abaca - Denver County District Court

On October 17, 2024, the Company filed a complaint in the District Court, captioned SHF Holdings, Inc. v. Daniel Roda, Gregory W. Ellis, and James R. Carroll, Case No. 2024CV33187. The lawsuit arises from a dispute over the terms of the Company’s October 2022 acquisition of Abaca pursuant to a merger agreement (the “Merger Agreement”) that was subsequently amended in November 2022 and in October 2023 (the “Second Amendment”).

The Second Amendment restructured certain merger consideration, including introducing warrants and modifying payment timing. The defendants contend the Second Amendment is invalid under Delaware law and seek to have it set aside, which would reinstate the original payment terms and potentially increase the Company’s obligations. The Company maintains that the Second Amendment was validly executed and is binding.

On November 21, 2024, at the Company’s request, the disputed merger payment of $3.0 million was deposited into the Denver County, Colorado District Court’s registry pending resolution of the dispute. This amount has been reflected in the Company’s consolidated balance sheet.

On December 19, 2024, the defendants filed an answer and counterclaims against the Company. On April 18, 2025, the District Court issued an order denying the Company’s motion to dismiss most of the counterclaims, but the District Court did dismiss claims against the Company’s Chairman, Fred Niehaus, with prejudice. The District Court also clarified that the Delaware statutes cited by the defendants govern pre-closing amendments and do not authorize post-merger amendments altering consideration, a finding that is consistent with the Company’s legal position.

On April 23, 2026, the District Court issued an omnibus order on cross-motions for summary judgment in the matter.

The Court denied the Company’s motion for summary judgment in its entirety. The Court granted the counterclaim plaintiffs’ cross-motion in part, primarily ruling that the Second Amendment to the Merger Agreement is void ab initio under Section 251(d) of the Delaware General Corporation Law, and because of that ruling, that the Company breached the original Merger Agreement with respect to the first anniversary parent shares. Damages on this counterclaim are set for trial on August 10-11, 2026. The Court also denied both parties’ motions on the counterclaim concerning the second anniversary cash consideration payment of $3.0 million and denied the counterclaim plaintiffs’ motion on the Company’s declaratory judgment claim; those claims are also set for trial on August 10–11, 2026. The Court’s order is not final, it is an appealable order under C.R.C.P. 54(b).

The $3.0 million previously deposited into the Court’s registry in November 2024 remains reflected in the Company’s condensed unaudited consolidated financial statements. The Company intends to continue defending its positions vigorously. The range of loss is $0 to $7.8 million. An adverse resolution could have a material adverse effect on the Company’s financial position, results of operations, and cash flows.

The Company currently assesses a loss as reasonably possible but not probable. No damages have been determined by the Court; the Omnibus Order expressly reserves the damages methodology, standard, and quantum for a future hearing. The defendants’ sole designated damages expert has not been qualified, and the Company’s motion to exclude that expert remains pending. Because the amount of any potential loss cannot be reasonably estimated at this time, no accrual has been recorded for this contingency beyond the $3.0 million already reflected in the financial statements.

Nasdaq Listing Compliance

As a condition of continued listing, the Company is required to maintain (i) a minimum of $2.5 million in stockholders’ equity under Nasdaq Listing Rule 5550(b)(1), and (ii) a minimum closing bid price of $1.00 per share for 30 consecutive business days under Nasdaq Listing Rule 5550(a)(2).

The Company continuously monitors its compliance with these requirements. As of June 30, 2026, the Company’s stockholders’ equity was approximately $6.1 million, which exceeds the $2.5 million minimum.

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 Listing Rule 5550(a)(2).

The notice has no immediate effect on the listing of the Company’s Common Stock or warrants, and the Company’s Common Stock and warrants continue to trade on Nasdaq under the symbols “SHFS” and “SHFSW,” respectively. Pursuant to Nasdaq Listing 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.

At a special meeting held on November 6, 2025, stockholders approved authorization for the Board to effect a reverse stock split at a ratio between 2-for-1 and 12-for-1 at its discretion. As of June 30, 2026, no reverse stock split had been effected.

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. In connection with any extension period, if it appears that the Company will not be able to regain compliance with Nasdaq Listing Rule 5550(a)(2), or if the Company is not otherwise eligible, the Nasdaq staff will provide notice to the Company that its securities will be subject to delisting. At that time, the Company may appeal any such delisting determination to a Hearings Panel.

The Company intends to actively monitor the bid price and may evaluate other available options to resolve the deficiency and regain compliance with the Nasdaq Listing Rules. While the Company is exercising diligent efforts to maintain the listing of its Common Stock and warrants on Nasdaq, there can be no assurance that the Company will be able to regain or maintain compliance with the foregoing or other Nasdaq listing standards.

On July 22, 2026, the SEC approved a proposed Nasdaq rule change (SR-NASDAQ-2026-004), originally filed with the SEC on January 13, 2026, that would establish a new continued listing requirement based on a minimum Market Value of Listed Securities (“MVLS”) of $5.0 million for companies listed on the Nasdaq Global Select Market, Nasdaq Global Market, and Nasdaq Capital Market. As approved, the rule would not provide for a compliance or cure period; a company whose MVLS remains below $5.0 million for thirty consecutive business days would receive a Staff Delisting Determination and would become immediately subject to suspension and delisting, subject to the right to appeal to a Nasdaq Hearings Panel.

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. The SEC may lift the stay at any time, and there can be no assurance as to the ultimate outcome of the petition for review or the timing of any further SEC action.

If the stay is lifted and the rule becomes effective, based on the Company’s current stock price and number of shares outstanding as of the date of this filing, the Company may not be in compliance with this requirement and could become subject to immediate suspension and delisting proceedings as soon as thirty consecutive business days after the rule takes effect, without the benefit of a compliance period.