SHF Holdings, Inc. 10-K

Item 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with GAAP. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has identified four (4) material weaknesses, as described below. Each deficiency was concluded to be a “material weakness”, which is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. Based on these material weaknesses identified in the management evaluation of internal controls over financial reporting, management has concluded that our internal control over financial reporting was not effective as of December 31, 2022. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Management’s Report on Internal Control over Financial Reporting Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, solely due to the following Material Weaknesses, the Company’s disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of December 31, 2022. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Deferred Tax Asset: A deferred tax asset was created as a result of the business combination occurring on September 28, 2022. The deferred tax asset was initially calculated prior to consummation of the business combination using projected amounts. The Company had failed to update the calculation as of September 30, 2022 using actual amounts from the business combination due to ineffective management review controls over the income tax provision. 50 Table of Contents To alleviate this material weakness, the Company has implemented a quarterly control to calculate and review the deferred tax asset, evaluate the necessity for any valuation allowance, and reconcile it to the general ledger. The Company proceeded to collectively perform these tasks during the fourth quarter of 2022 by retaining a Top 50 CPA firm in the United States to assist in the preparation of the tax provision and tax compliance work along with management’s independent review of the quarterly income tax provision and valuation of deferred tax assets. Going Concern: As of September 30, 2022, the Company had negative net working capital. The working capital deficit was largely driven by the current portion of the long-term payable owed to PCCU. In accordance with ASC 205-40, in preparing financial statements for each annual and interim reporting period, management must evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Substantial doubt was raised at September 30, 2022 and the Company failed to document a going concern analysis to identify the substantial doubt, evaluate whether the substantial doubt was alleviated by management’s plans, and disclose the going concern in the September 30, 2022 10-Q. To alleviate this material weakness, the Company has implemented a quarterly process with enhanced management review controls to perform and review a going concern analysis and the adequacy of disclosures within the consolidated financial statements, as applicable based on the results. The Company proceeded to collectively perform these tasks during the fourth quarter of 2022 by continuing to retain a CPA firm (onboarded during the latter part of the third quarter of 2022) to assist with the preparation of the analysis pursuant to the Company’s ability to continue as a going concern and prepare applicable disclosures. The analysis and disclosures are then assessed by senior management of the Company performing review of the documentation and disclosures. Revenue Recognition : During fiscal year 2022, the Company’s revenue was primarily earned through certain related party contracts with PCCU that define contractually the revenue earned by the Company from PCCU for account servicing. The Company has identified a material weakness in our internal control over financial reporting related to the need to enhance the design and operating effectiveness of internal controls over the review of revenue recognition from allocations that occurs on a monthly basis between the Company and PCCU. To alleviate this material weakness, the Company will implement a monthly process with enhanced management review controls to perform and review revenue recognition. The analysis and disclosures are then assessed by senior management of the Company performing review of the documentation and disclosures. Complex Financial Instruments: During fiscal year 2022, the Company had a material weakness with regard to the ineffectiveness in management review controls of the accounting and valuation of complex financial instruments (warrants, Forward Purchase Agreement, and stock-based compensation). To alleviate this material weakness, the Company will implement a quarterly process with enhanced management review controls to perform and review complex financial instruments. The analysis and disclosures are then assessed by senior management of the Company performing review of the documentation and disclosures. With the implementation of our remediation plans for each material weakness, we believe, in subsequent periods, these material weaknesses can be remediated. We plan to continue to assess and improve our internal controls and procedures and to take further action as necessary or appropriate to address any other matters we identify. See also the section titled “Risk Factors — Risks Related to the Company Business Following the Business Combination.” Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly. A failure to maintain effective internal controls over financial reporting could result in errors in its financial statements that could require the Company to restate past financial statements, cause the Company to fail to meet its reporting obligations and cause investors to lose confidence in the Company’s reported financial information, all of which could materially and adversely affect the Company. Changes in Internal Control over Financial Reporting Other than as noted above in the December 31, 2022 material weaknesses, there was no changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2022 covered by this Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, with the exception of the below. During the quarter ended September 30, 2022, the Company identified two of the four material weaknesses above pertaining to going concern and deferred tax asset accounting. For the quarter ended December 31, 2022, the Company changes in internal controls to address remediation of these two material weaknesses included: The Company has implemented a quarterly process with enhanced management review controls to perform and review a going concern analysis and the adequacy of disclosures within the consolidated financial statements, as applicable based on the results. The Company proceeded to collectively perform these tasks during the fourth quarter of 2022 by continuing to retain a CPA firm (onboarded during the latter part of the third quarter of 2022) to assist with the preparation of the analysis pursuant to the Company’s ability to continue as a going concern and prepare applicable disclosures. The analysis and disclosures are then assessed by senior management of the Company performing review of the documentation and disclosures. The Company has implemented a quarterly control to calculate and review the deferred tax asset, evaluate the necessity for any valuation allowance, and reconcile it to the general ledger. The Company proceeded to collectively perform these tasks during the fourth quarter of 2022 by retaining a Top 50 CPA firm in the United States to assist in the preparation of the tax provision and tax compliance work along with management’s independent review of the quarterly income tax provision and valuation of deferred tax assets. Item 9B. OTHER INFORMATION On January 10, 2023, the Company entered into executive employment agreements with James H. Dennedy, its Chief Financial Officer, and Donnie Emmi, its Chief Legal Officer, which memorialized the previously disclosed terms of their employment with the Company. The agreements are each for terms of two years and provide for annual base salaries of $285,000. The agreements provide for benefits comparable to the other executive officers of the Company, and for annual bonuses of up to 100% of base salary based on performance criteria established by the Compensation Committee of the Company’s Board of Directors. The agreements provide that if the executive’s employment is terminated as a result of the executive’s death or disability, or if terminated by the Company for cause (as defined in the agreements) or by the executive without good reason (as defined in the agreements), he will be entitled to receive all unpaid base salary through the date of termination, reimbursement for unreimbursed business expenses through the date of termination, and all other accrued and vested payments or benefits payable under the applicable plan or by law (collectively, the “Accrued Benefits”). If the executive’s employment is terminated by the Company without cause or by the executive for good reason, the executive is entitled to receive, upon execution and delivery to the Company of a customary release, the Accrued Benefits, severance in a lump sum payment equal to one year of base salary at the executive’s then-current annual base salary rate, and Company-paid continued health insurance for one year. The agreements also provide for customary non-solicitation, nondisclosure and non-competition covenants applicable to each executive. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 51 Table of Contents PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Certain information relating to the Executive Officers of the Company appears in Part I of this Form 10-K under the heading “Information about our Executive Officers” and is incorporated by reference in this section. The information required under this Item will be contained in the Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2022 (the “Proxy Statement”) under the captions “Directors and Nominees,” “Corporate Governance” and “Delinquent Section 16 (a) Reports,” which information is incorporated by reference herein. We have adopted a Code of Conduct and Ethics applicable to all officers, directors and employees. Item 11. EXECUTIVE COMPENSATION The information required under this Item will be contained in the Company’s Proxy Statement under the caption “Compensation Committee Report,” “Director Compensation,” “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation,” which information is incorporated by reference herein. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required under this Item will be contained in the Company’s Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners” and “Equity Compensation Plan Information,” which information is incorporated by reference herein. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required under this Item will be contained in the Company’s Proxy Statement under the caption “Certain Relationships and Related Party Transactions” and “Corporate Governance,” which information is incorporated by reference herein. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required under this Item will be contained in the Company’s Proxy Statement under the caption “Ratification of the Appointment of Independent Registered Public Accounting Firm,” which information is incorporated by reference herein. 52 Table of Contents PART IV Item 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES (a) List of documents filed as part of this report 1) Consolidated Financial Statements and 2) Consolidated Financial Statements Schedules: The consolidated financial statements required by this item are contained under the section entitled “Index to Consolidated Financial Statements” (and the Consolidated financial statements and related notes referenced therein) included beginning on page F-1 of this Form 10-K. 3) List of Exhibits The exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of this report. EXHIBIT INDEX The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. No. Description of Exhibit 2.1 † Unit Purchase Agreement dated February 11, 2022 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 14, 2022). 2.2 First Amendment to Unit Purchase Agreement dated September 19, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 19, 2022). 2.3 Second Amendment to Unit Purchase Agreement dated September 22, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 23, 2022). 2.4 Third Amendment to Unit Purchase Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 29, 2022). 2.5† Agreement and Plan of Merger, dated October 31, 2022, by and among SHF Holdings, Inc., a Delaware corporation, Merger Sub I, a Delaware corporation, Merger Sub II, a Delaware limited liability corporation, Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of the Company Security Holders (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on October 31, 2022). 2.6 Amendment to Agreement and Plan of Merger, dated November 11, 2022 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on November 15, 2022). 3.1 Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed on September 29, 2022). 3.2 Certificate of Designation (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed on September 29, 2022). 4.1 Warrant Agreement, dated June 23, 2021, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 25, 2021). 4.2 Description of Registered Securities 10.1 Letter Agreement, dated June 23, 2021, among the Company, its officers and directors and 5AK, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 25, 2021). 10.2 † Registration Rights Agreement, dated June 23, 2021, by and among the Company and certain securityholders (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 25, 2021). 10.3 Form of Indemnity Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 filed on June 2, 2021). 10.4 Forward Purchase Agreement dated June 16, 2022 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on June 17, 2022). 10.5 Registration Rights Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on October 4, 2022). 10.6† Lock-Up Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on October 4, 2022). 10.7 Non-Competition Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed on October 4, 2022). 53 Table of Contents 10.8† Form of Amended and Restated Securities Purchase Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on September 29, 2022). 10.9 SHF Holdings, Inc. 2022 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K, filed on October 4, 2022). 10.10 Forbearance Agreement, dated as of October 27, 2022 by and between SHF Holdings, Inc., Partner Colorado Credit Union and Luminous Capital USA Inc. (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K, filed on November 1, 2022). 10.11 Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on November 15, 2022). 10.12*** Executive Employment Agreement, dated January 10, 2023, by and between the Company and Donnie Emmi 10.13*** Executive Employment Agreement, dated January 10, 2023, by and between the Company and James H. Dennedy 21.1* Subsidiaries of the Company 31.1* Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* Inline XBRL Instance Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Labels Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Executive Employment Agreement, dated January 10, 2023, by and between the Company and James H. Dennedy *** Furnished. † Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. Item 16. FORM 10-K SUMMARY None. 54 Table of Contents SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHF HOLDINGS INC . Date: April 14, 2023 /s/ Sundie Seefried Name: Sundie Seefried Title: Chief Executive Officer (Principal Executive Officer) Date: April 14, 2023 /s/ James H. Dennedy Name: James H. Dennedy Title: Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Signature Title Date /s/ Sundie Seefried Chief Executive Officer April 14, 2023 Sundie Seefried /s/ James H. Dennedy Chief Financial Officer April 14, 2023 James H. Dennedy /s/ Jonathon F. Niehaus Director April 14, 2023 Jonathon F. Niehaus /s/ John Darwin Director April 14, 2023 John Darwin /s/ Jennifer Meyers Director April 14, 2023 Jennifer Meyers /s/ Jonathan Summers Director April 14, 2023 Jonathan Summers /s/ Karl Racine Director April 14, 2023 Karl Racine /s/ Richard Carleton Director April 14, 2023 Richard Carleton 55 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS. SHF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INDEX Page Report of Independent Registered Public Accounting Firm ( Marcum, LLP ) (PCAOB ID 688 ) F-2 Report of Independent Registered Public Accounting Firm (Elliott Davis, PLLC) (PCAOB ID 149 ) F-3 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-3 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 F-4 Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity for the years ended December 31, 2022, and 2021 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2022, and 2021 F-6 Consolidated Notes to the Consolidated Financial Statements for the years ended December 2022 and 2021 F-7 F- 1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of SHF Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of SHF Holdings, Inc. and subsidiary (the “Company”) as of December 31, 2022, the related consolidated statements of operations, parent-entity net investment and stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America . Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2022. Hartford, Connecticut April 14, 2023 F- 2 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of SHF Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of SHF Holdings, Inc. (formerly Eagle Legacy Services, PLLC D/B/A Safeharbor Services and Branches 52 and 53 Carved Out of Partner Colorado Credit Union) (the “Company”) as of December 31, 2021, the related consolidated statements of operations, parent-entity net investment and stockholders’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Elliott Davis, PLLC We have served as the Company’s auditor from 2020 to 2021. Franklin, Tennessee April 15, 2022 F- 3 Table of Contents SHF Holdings, Inc. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2022 2021 ASSETS Current Assets: Cash and cash equivalents $ 8,390,195 $ 5,495,905 Accounts receivable – trade 1,401,839 522,896 Contract assets 21,170 18,317 Prepaid expenses – current portion 175,585 6,021 Accrued interest receivable 40,266 7,556 Short-term loans receivable, net 51,300 52,833 Other Current Assets 150,817 - Total Current Assets 10,231,172 6,103,528 Long-term loans receivable, net 1,250,691 1,410,727 Property, plant and equipment, net 49,614 6,351 Operating lease right to use assets 1,016,198 - Goodwill 19,266,276 - Intangible assets, net 10,621,087 - Deferred tax asset 51,593,302 - Prepaid expenses – long term position 712,500 - Forward purchase receivable 4,584,221 - Security deposit 17,795 - Total Assets $ 99,342,856 $ 7,520,606 LIABILITIES AND PARENT-ENTITY NET INVESTMENT AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 2,851,457 $ 43,626 Accrued expenses 6,354,485 129,546 Contract liabilities 996 8,333 Lease liabilities – current 20,124 - Deferred Consideration – current portion 14,359,822 - Due to seller - current portion 25,973,017 - Other current liabilities 11,291 - Total Current Liabilities 49,571,192 181,505 Warrant liability 666,510 - Deferred Consideration – long term portion 2,747,592 - Forward purchase derivative liability 7,309,580 - Due to seller – long-term portion 30,976,783 - Lease liabilities – long term 1,008,109 - Deferred underwriter fee payable 1,450,500 - Indemnity liability 499,465 - Total Liabilities 94,229,731 181,505 Commitment and Contingencies (Note 14) - - Parent-Entity Net Investment and Stockholders’ Equity Convertible preferred stock, $ .0001 par value, 1,250,000 shares authorized, 14,616 shares issued and outstanding on December 31, 2022, and no shares issued and outstanding on December 31, 2021, respectively 1 - Class A common stock, $ .0001 par value, 130,000,000 shares authorized, 23,732,889 issued and outstanding on December 31, 2022, and no shares issued and outstanding on December 31, 2021, respectively 2,374 - Additional paid in capital 44,806,031 - Retained earnings ( 39,695,281 ) - Parent-Entity Net Investment - 7,339,101 Total Parent-Entity Net Investment and Stockholders’ Equity 5,113,125 7,339,101 Total Liabilities and Parent-Entity Net Investment and Stockholders’ Equity $ 99,342,856 $ 7,520,606 See accompanying notes to consolidated financial statements F- 4 Table of Contents SHF Holdings, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS 2022 2021 For the year ended December 31, 2022 2021 Revenue $ 9,478,819 $ 7,005,579 Operating Expenses Compensation and employee benefits $ 6,695,319 $ 2,135,243 General and administrative expenses 2,390,539 567,892 Professional services 1,985,343 292,143 Rent expense 99,246 73,482 Provision for loan losses 506,212 1,399 Corporate allocations - 648,533 Total operating expenses $ 11,676,659 $ 3,718,692 Operating (loss)/ income ( 2,197,840 ) 3,286,887 Other (income) expenses Interest expense 802,797 - Change in fair value of warrant liability ( 939,019 ) - Change in fair value of forward purchase agreement 33,322,248 - Change in fair value of forward purchase option derivative 8,997,110 - Total other (income) expenses $ 42,183,136 $ - Net (loss) / income before income tax ( 44,380,976 ) 3,286,887 Provision for income taxes $ ( 9,252,893 ) $ - Net (loss)/income $ ( 35,128,083 ) $ 3,286,887 Weighted average shares outstanding, basic 18,988,558 - Basic net loss per share $ ( 1.85 ) $ - Weighted average shares outstanding, diluted 18,988,558 - Diluted net loss per share $ ( 1.85 ) $ - See accompanying notes to consolidated financial statements F- 5 Table of Contents SHF Holdings, Inc. Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Shares Amount Shares Amount Capital Investment Earnings Equity Preferred Stock Class A Common Stock Additional Paid-in Parent-Entity Net Retained Total Shareholders’ Shares Amount Shares Amount Capital Investment Earnings Equity Balance, December 31, 2020 - $ - - $ - $ - $ 4,354,021 $ - $ 4,354,021 Net income - - - - - 3,286,887 - 3,286,887 Contribution of loan receivable from Parent - - - - - 1,185,691 - 1,185,691 Net change due to allocations and distributions to Parent - - - - - ( 1,487,498 ) - ( 1,487,498 ) Balance, December 31, 2021 - $ - - $ - $ - $ 7,339,101 $ - $ 7,339,101 Beginning balance value - $ - - $ - $ - $ 7,339,101 $ - $ 7,339,101 Issuance of shares in connection with Business Combination and PIPE offering, net of issuance costs 20,450 2 18,715,912 1,872 29,327,087 ( 7,339,101 ) - 21,989,860 Acquisition of Abaca - - 2,099,977 210 8,105,701 - - 8,105,911 Conversion of PIPE Shares ( 5,834 ) ( 1 ) 2,917,000 292 2,916,709 - ( 2,917,000 ) - Stock option conversion - - - - 2,806,336 - - 2,806,336 Net loss - - - - 1,650,198 - ( 36,778,281 ) ( 35,128,083 ) Net income (loss) - - - - 1,650,198 - ( 36,778,281 ) ( 35,128,083 ) Balance, December 31, 2022 14,616 $ 1 23,732,889 $ 2,374 $ 44,806,031 $ - $ ( 39,695,281 ) $ 5,113,125 Ending balance value 14,616 $ 1 23,732,889 $ 2,374 $ 44,806,031 $ - $ ( 39,695,281 ) $ 5,113,125 See accompanying notes to consolidated financial statements F- 6 Table of Contents SHF Holdings, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS 2022 2021 Year ended December 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) / income $ ( 35,128,083 ) $ 3,286,887 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 189,274 1,921 Stock compensation expense 2,806,336 - Interest expense 802,797 - Provision for loan loss 506,212 1,399 Deferred tax credit ( 9,252,893 ) - Change in fair value of warrant and forward purchase option derivative liabilities 41,380,339 - Changes in operating assets and liabilities: Accounts receivable ( 653,425 ) ( 293,355 ) Contract assets ( 2,853 ) - Prepaid expenses 55,997 ( 3,468 ) Forward purchase receivables 1,379,285 - Accrued interest receivable ( 32,711 ) ( 7,556 ) Deferred underwriting payable ( 715,750 ) - Other current assets ( 150,817 ) - Accounts payable 508,544 ( 64,900 ) Accrued expenses 17,550 37,742 Contract Liabilities ( 7,337 ) - Security deposit ( 5,085 ) - Deferred revenue - ( 12,287 ) Net cash provided by operating activities 1,697,380 2,946,383 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment ( 17,318 ) ( 5,920 ) Change in loan receivable, net 161,569 1,041,577 Acquisition of Abaca ( 3,041,680 ) - Net cash provided by (used in) investing activities ( 2,897,429 ) 1,035,657 CASH FLOWS USED IN FINANCING ACTIVITIES: Proceeds from reverse capitalization, net of transaction costs 4,094,339 - Net change in parent funding, allocations, and distributions to parent - ( 1,487,498 ) Net cash provided by (used in) financing activities 4,094,339 ( 1,487,498 ) Net increase in cash and cash equivalents 2,894,290 2,494,542 Cash and cash equivalents - beginning of period 5,495,905 3,001,363 Cash and cash equivalents - end of period $ 8,390,195 $ 5,495,905 Non-Cash transactions: Shares issued for the settlement of abaca acquisition $ 8,105,911 $ - Operating lease right of use assets recognized 1,029,227 - Operating lease liabilities recognized 1,022,380 - Contribution of loan receivable from Parent - 1,185,691 See accompanying notes to consolidated financial statements F- 7 Table of Contents Note 1. Organization and Business Operations Business Description The Company originated as business operations conducted through PCCU, which were transferred to SHF. LLC (“SHF”), then an indirect wholly owned subsidiary of PCCU. SHF Holdings, Inc. (the “Company”), formerly known as Northern Lights Acquisition Corp. (“NLIT”), acquired all of the outstanding membership interests of SHF in a transaction that closed on September 28, 2022 (the “Business Combination”). The Business Combination was consummated pursuant to a Unit Purchase Agreement dated February 11, 2022 (the “Business Combination Agreement”) among SHF, SHF Holding Co., LLC (the direct parent of SHF and a wholly owned subsidiary of PCCU), PCCU and NLIT, a special purpose acquisition company, and its sponsor, 5AK, LLC. Subsequent to the completion of the Business Combination, NLIT changed its name to “SHF Holdings, Inc.” In this Annual Report on Form 10-K (the “Annual Report”), we use the terms “we,” “us,” “our” and the “Company” to refer to the business and operations of SHF Holdings, Inc. following the closing of the Business Combination. (Refer to Note 3 to the Consolidated Financial Statements.) SHF was formed by PCCU following the approval of the contribution of certain assets and operating activities associated with operations from both certain branches and Safe Harbor Services, a wholly-owned subsidiary of PCCU, to SHF Holding, Co., LLC. SHF Holding, Co., LLC then contributed the same assets and related operations to SHF, with PCCU’s investment in SHF maintained at the SHF Holding, Co., LLC level (the “reorganization”). The reorganization effectively occurred July 1, 2021. In conjunction with the reorganization, all of the employees engaged in the operations contributed and certain PCCU employees were terminated from PCCU and hired as SHF employees. Collectively, oldco, the relevant operations of the PCCU branches, and SHF, represent the “Carved-Out Operations.” After the reorganization, the entirety of the Carved-Out Operations were owned by SHF and oldco was dissolved. In addition, effective July 1, 2021, SHF entered into an Account Servicing Agreement and Support Services Agreement with PCCU, which memorialized the operational relationship between SHF and PCCU and which were subsequently amended and restated and are discussed in Note 9 to the Consolidated Financial Statements. On September 28, 2022, the parties consummated the Business Combination, resulting in NLIT acquiring all of the issued and outstanding membership interests of SHF in exchange for an aggregate of $ 185,000,000 , consisting of (i) 11,386,139 shares of the Company’s Class A common stock with an aggregate value equal to $ 115,000,000 and (ii) $ 70,000,000 in cash, $ 56,949,801 of which will be paid on a deferred basis. At the closing, 1,831,683 shares of the Class A Common Stock were deposited with an escrow agent to be held in escrow for a period of 12 months following the closing date to satisfy potential indemnification claims of the parties. In addition, $ 3,143,388 in cash and cash equivalents representing the amount of cash on hand at July 31, 2021, less accrued but unpaid liabilities, were also paid to PCCU at the closing. For more information about the Business Combination, refer to Note 3 to the Consolidated Financial Statements included elsewhere in this Form 10-K. As a result of the Business Combination, PCCU is now the Company’s largest stockholder, owning 43.2 % of the Company’s outstanding Class A Common Stock. The Business Combination Agreement was amended to provide for the deferral of a portion of the cash due to PCCU at the closing of the Business Combination. The purpose of this deferral was to provide the Company with additional cash to support its post-closing activities. Furthermore, PCCU also agreed to defer $ 3,143,388 , representing certain excess cash of SHF due to PCCU under the Business Combination Agreement, and the reimbursement of certain reimbursable expenses under the Business Combination Agreement. On October 26, 2022, SHF Holdings, Inc., entered into a Forbearance Agreement (the “Forbearance Agreement”) with PCCU and Luminous Capital USA Inc. (“Luminous”), an affiliate of the sponsor of NLIT. Under the Forbearance Agreement, PCCU has agreed to defer all payments owed by the Company pursuant to the Business Combination Agreement for a period of six months from the date of the Forbearance Agreement while the parties engage in good faith efforts to renegotiate the payment terms of the deferred obligations. The Company generates both interest income and fee income through providing a variety of services to financial institutions desiring to service the cannabis industry including, among other things, Bank Secrecy Act and other regulatory compliance and reporting, onboarding, responding to account inquiries, responding to customer service inquiries relating to CRB depository accounts held at PCCU, and sourcing and managing loans. In addition to PCCU, the Company provides these similar services and outsourced support to other financial institutions providing banking to the cannabis industry. These services are provided to other financial institutions under the Safe Harbor Master Program Agreement. On March 29, 2023, the Company and PCCU entered into a definitive transaction (Refer to Note 22, “Subsequent Events,” of the consolidated financial statements) to settle and restructure the deferred obligations, including $ 56,949,800 into a five-year Senior Secured Promissory Note (the “Note”) in the principal amount of $ 14,500,000 bearing interest at the rate of 4.25 %; a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security interest in substantially all of the assets of the Company; and a Securities Issuance Agreement, pursuant to which the Company will issue 11,200,000 shares of the Company’s Class A Common Stock to PCCU. F- 8 Table of Contents On October 31, 2022, the Company entered into an Agreement and Plan of Merger (the “Abaca Merger Agreement”) by and among the Company, SHF Merger Sub I, a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Merger Sub I”), SHF Merger Sub II, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of the Company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca (“Abaca”) and Dan Roda, solely in such individual’s capacity as the representative of the security holders of Abaca (the “Abaca Stockholders’ Representative”). On November 11, 2022, the parties to the Abaca Merger Agreement entered into an amendment to the Abaca Merger Agreement to modify the number of shares of the Company’s Class A Common Stock to be issued as consideration thereunder. On November 15, 2022, the parties consummated the transactions contemplated by the Abaca Merger Agreement, as amended. Pursuant to the Abaca Merger Agreement, as amended, (a) Merger Sub I merged with and into Abaca, with Abaca surviving as a direct wholly-owned subsidiary of the Company (“Merger I”) and (b) immediately following the effective time of the Merger I, Abaca merged with and into Merger Sub II (“Merger II” and, collectively with Merger I, the “Mergers”), with Merger Sub II surviving Merger II as a direct wholly-owned subsidiary of the Company. Pursuant to the Abaca Merger Agreement, as amended, the Company acquired Abaca in exchange for $ 30,000,000 , paid in a combination of cash and shares of the Company as follows: (a) cash consideration in an amount equal to (i) $ 9,000,000 ($ 3,000,000 was payable at the closing of the Mergers (the “Merger Closing”), with an additional $ 3,000,000 payable at each of the one-year and two-year anniversaries of the Merger Closing), (collectively, the “Cash Consideration”); and (b) 2,100,000 shares of Class A Common Stock at the Closing Date and $ 12,600,000 (minus an outstanding note balance of $ 500,000 , plus accrued interest) in shares of Class A Common Stock at the one-year anniversary of the Merger Closing based on a 10-day VWAP (collectively, the “Share Consideration”). Each of the Company, the Merger Subs, and Abaca provided customary representations, warranties and covenants in the Agreement. Note 2. Basis of Presentation and Summary of Significant Accounting Policies i. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Material estimates that are particularly subject to change in the near term include the determination of the allowance for loan losses, indemnification liabilities, useful lives of intangibles and the fair value of financial instruments. Actual results could differ from the estimates. ii. Basis of Presentation Consolidated Financial statements have not historically been prepared for the Carved-Out Operations. For the year ended December 31, 2021, the Consolidated financial statements consist of the balances of SHS and SHF as prepared on a stand-alone basis and the balances of the Branches on a “carve-out” basis. For the year ended December 31, 2022, the consolidated financial statements represent SHF on a stand-alone basis as the period is post reorganization, and wholly owned subsidiary Abaca. All intercompany transactions have been eliminated for all periods presented. These consolidated financial statements reflect the Company’s historical financial position, results of operations and cash flows as they have been historically managed in conformity with GAAP. All depository asset accounts and liabilities are retained by PCCU as the Carved-Out Operations are not organized as a chartered financial institution. Accordingly, none of the cash of PCCU has been attributed to these consolidated financial statements. Asset and liabilities maintained by SHS and SHF have been included in these consolidated financial statements along with any specific assets and liabilities associated with the Branches. Revenue and expenses for the Branches were included based on specific identification as they relate to customer deposits, professional services, compensation and employee benefits, rent expense, provision for loan losses and other general and administrative expenses. Corporate allocations such as information technology, customer support, marketing, executive compensation and other general and administrative expenses are attributed to the Branches proportionately based on the size of the specifically identifiable CRB’s deposit balances, deposit activity and accounts relative to the totals of the consolidated PCCU entity. This allocation method was consistent for all periods prior to July 2021. Beginning in July 2021, a services agreement was entered into between SHF LLC and PCCU (see Note 9 to the consolidated financial statements). In exchange for services provided to PCCU via the Carved-Out Operations, SHF LLC receives 100% of CRB related revenue. PCCU receives (and SHF LLC pays) a monthly per account fee, split loan servicing fees and split investment income associated with Carved-Out Operations depository accounts. The fees are meant to represent PCCU’s cost for hosting depository accounts and funding related loans and providing certain limited infrastructure support. Management has considered the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefits received by the Branches during the periods presented. All revenue and expenses of SHS and SHF are specific to the entity. Corporate allocations were attributed for year ended December 2021. F- 9 Table of Contents iii. Liquidity and Going Concern As of December 31, 2022, the Company had $ 8,390,195 in cash and net working capital of ($ 39,340,020 ), as compared to $ 5,495,905 in cash and net working capital of $ 5,922,023 at December 31, 2021. Included in the working capital deficit at December 31, 2022 is $ 25,973,017 current portion of the long-term payable owed to the seller, PCCU, from the aforementioned business combination, and $ 14,359,822 deferred consideration current portion related to the Abaca acquisition. The Company has also incurred a significant cumulative consolidated operating loss for the year ended December 31, 2022. Based upon these factors, management of the Company has determined that there is a risk of substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the date these consolidated financial statements have been issued. Management mitigated the going concern risk by renegotiating its aforementioned payable with PCCU (refer to the “Subsequent Events” disclosure within Note 22 of the consolidated financial statements herein), thus reducing the working capital deficit and certain other liabilities. The Company also hired an experienced Chief Financial Officer in October 2022, who has immediately begun to institute certain cost-cutting measures across the Company, including expense reduction measures and negotiating reduced amounts and extended terms for certain payables. These factors, however, do not fully remove substantial doubt regarding the Company’s ability to continue as a going concern that has been identified. If the Company is not able to sustain its present level of operations, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned expansion programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. The accompanying audited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result should the Company not continue as a going concern as a result of this uncertainty. iv. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, amounts due from financial institutions, and investments with maturities of three months or less. v. Concentrations of Risk The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. Cash balances are maintained principally in accounts at PCCU which is insured by the National Credit Union Share Insurance Fund (“NCUSIF”) up to regulatory limits. From time to time, cash balances may exceed the NCUSIF insurance limit. The Company has not experienced any credit losses associated with its cash balances in the past. Currently the Company only services the cannabis industry. Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan. Currently the Company substantially relies on PCCU to hold customer deposits and fund its originated loans. As of this time, substantially all of the Company’s revenue is generated by deposits and loans hosted by its PCCU pursuant to various services agreements. The Company had 4 loans on its balance sheet as of December 31, 2022; each of these loans is in excess of 10 % of the total loan balance. The Company also indemnified 5 loans as of December 31, 2022; 3 of these indemnified loans were in excess of 10 % of the total balance. vi. Accounts Receivable-PCCU and Allowance for Doubtful Accounts Accounts receivable are recorded based on account fee schedules. While fees are generated from individual CRB related accounts, amounts are initially collected by the financial institutional partners and remitted in the subsequent month. As of December 31, 2022, and December 31, 2021, 85 % and 100 % of the Accounts Receivable, respectively is due from PCCU. Effective January 2021 through June 2021, PCCU elected to transfer account servicing from SHS to the Branches. In accordance with this change, a policy was adopted wherein substantially all cash was collected by PCCU and retained by PCCU outside of the Branches and SHS. This policy was eliminated in conjunction with the July 2021 reorganization and execution of the Account Servicing Agreement and Support Servicing Agreement discussed at Note 9 to the consolidated financial statements. The Company maintains allowances for doubtful accounts for estimated losses as a result of a customers’ inability to make required payments. The Company estimates anticipated losses from doubtful accounts based on days past due as measured from the contractual due date and historical collection history. The Company also takes into consideration changes in economic conditions that may not be reflected in historical trends, for example customers in bankruptcy, liquidation or reorganization. Receivables are written-off against the allowance for doubtful accounts when they are determined uncollectible. Such determination includes analysis and consideration of the particular conditions of the account, including time intervals since last collection, customer performance against agreed upon payment plans, solvency of customer and any bankruptcy proceedings. At December 31, 2022 and December 31, 2021, there were no recorded allowances for doubtful accounts on accounts receivables. F- 10 Table of Contents vii. Loans Receivable PCCU underwrites mortgage, commercial and consumer loans to members and other businesses. Commercial CRB loans originated by the Company and funded by PCCU are typically managed by the Company, inclusive of originated and funded loans that are on the PCCU balance sheet only. Certain CRB Loans were contributed to the Carved-out Operations. Such loans where the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at principal balance outstanding, net of an allowance for loan losses and net deferred loan origination fees and costs when applicable. Interest income on loans is recognized over the term of the loan and is calculated using the simple-interest method on principal amounts outstanding. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired, or payments are past due ninety days or more. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts are satisfied to where the loan is less than ninety days past due and future payments are reasonably assured. Loans are evaluated for charge-off on a case-by-case basis and are typically charged off at the time of foreclosure. Past-due status is based on the contractual terms of the loans. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if the collection of principal and interest is considered doubtful. viii. Allowance for Loan Losses The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the required allowance for loan losses balance using past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance for loan losses may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. Due to the nature of uncertainties related to any estimation process, management’s estimate of loan losses inherent in the loan portfolio may change in the near term. However, the amount of the change that is reasonably possible cannot be estimated. A loan is considered impaired when, based on current information and events, full payment under the loan terms is not expected. Impairment is generally evaluated in total for smaller-balance loans of similar nature such as commercial lines of credit, but may be evaluated on an individual loan basis if deemed necessary. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. The loans SHF intends to originate will be secured by various types of assets of the borrowers, including real property and certain personal property, including value associated with other assets to the extent permitted by applicable laws and the regulations governing the borrowers. The documents governing the loans also include a variety of provisions intended to provide remedies against the value associated with licenses. Collection procedures are designed to ensure that neither SHF nor its financial institution clients who provide funding for a loan, nor a third-party agent engaged to assist with the liquidation or foreclosure process, will take possession of cannabis inventory, cannabis paraphernalia, or other cannabis-related assets, nor will they take title to real estate used in cannabis-related businesses. Upon default of a loan, a third-party agent will be engaged to work with the borrower to have the borrower sell collateral securing the loan to a third party or to institute a foreclosure proceeding to have such collateral sold to generate funds towards the payoff of the loan. Applicable regulations under state law that govern CRBs generally do not permit the taking of title to real estate involved in commercial sales of cannabis, whether through foreclosure or otherwise, without prior regulatory approval. The sale of a license or other realization of the value of licenses also requires the approval of state and local regulatory authorities. A defaulted loan may also be sold if such a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while yielding proceeds comparable to what would be expected from a foreclosure sale. Such sale of the loan would be conducted through a third-party administrative agent. However, SHF can provide no assurances that a sale of such loans would be possible or that the sales price of such loans would be sufficient to recover the outstanding principal balance, accrued interest, and fees. ix. Net Deferred Loan Origination Fees and Cost When included with a new loan origination, the Company receives loan origination fees in conjunction with new loans funded and any indemnified liabilities which are not recorded on the balance sheet from our financial institution partners. Where applicable, the loan origination fee is netted with loan origination costs associated with originating a specific loan. These loan origination costs are typically incremental direct costs (non-reimbursed) paid to third parties. Net loan origination fees are initially deferred and recognized as interest income utilizing the interest method. F- 11 Table of Contents x. Indemnity Liability Effective February 11, 2022, SHF entered into a Loan Servicing Agreement with PCCU. Under the Loan Servicing Agreement, PCCU, in exchange for a fee at an annual rate of 0.25 % of the outstanding principal balance, funds certain loans. Under the Loan Servicing Agreement, SHF has agreed to indemnify PCCU from all claims related to SHF’s cannabis-related business, including but not limited to default-related loan losses as defined in the Loan Servicing Agreement. The indemnification component of the Loan Servicing Agreement (refer to Note 9 to the consolidated financial statements) is accounted for in accordance with accounting standards codification (“ ASC”) 450-20 Loss Contingencies . In determining the applicability of ASC 450-20, we considered that the agreement outlines a broad indemnification of all claims related to the cannabis-related business. The most immediate and potentially significant of these are potential default-related loan losses. In the lending industry, it is inherently anticipated future loan losses will result from currently issued debt. SHF’s indemnity obligation is subordinate to PCCU’s and other financial institution clients’ other means of collecting on the loans including foreclosure of the collateral, recourse against personal and/or corporate guarantors and other default remedies available in the loan agreements. Since borrowers are not party to the agreement between SHF and PCCU, any indemnity payments do not relieve borrowers of their obligation to PCCU nor would such payments preclude PCCU’s right to future recoveries from the debtor. Therefore, as defined in ASC 450-20, the indemnification clause represents a general loss contingency in that it is an existing condition, situation or set of circumstances involving uncertainty as to possible loss to the Company that will ultimately be resolved when one or more future events occur or fail to occur. SHF’s indemnity liability reflects SHF management’s estimate of probable loan losses inherent under the agreement at the balance sheet date. Management uses a disciplined process and methodology to establish the liability, and the estimates are sensitive to risk ratings assigned to individual loans covered by the agreement as well as economic assumptions driving the estimation model. Individual loan risk ratings are evaluated quarterly by SHF management based on each situation. In addition to default-related loan losses, SHF continuously monitors all other circumstances pursuant to the agreement and identifies events that may necessitate a loss contingency under the Loan Servicing Agreement. A loss contingency is reported when it is both probable that a future event will confirm that a loss had been incurred on or before the related balance sheet date and the loss is reasonably estimable. xi. Property and Equipment, net Property and equipment are recorded at historical cost, net of accumulated depreciation. Depreciation is provided over the assets’ useful lives on a straight-line basis - 4 - 5 years for equipment and furniture and fixtures. Repairs and maintenance costs are expensed as incurred. Management periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life. The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the period of disposal and the resulting gains and losses are included in the results of operations during the same period. We capitalize certain costs related to software developed for internal-use, primarily associated with the ongoing development and enhancement of our technology platform. Costs incurred in the preliminary development and post-development stages are expensed. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally five years. xii. Right of use assets and lease liability The Company has entered into lease agreements for a certain facility and certain items of equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. At inception of the lease agreement, the Company assesses whether the agreement conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified as a lease. Each lease is further analysed to check whether it meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated balance sheet with a corresponding lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. The Company has elected not to recognize lease assets and lease liabilities for short-term leases (leases with a term of 12 months or less) and leases of low-value assets. Lease right-of-use assets, net and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available as of the lease commencement date. Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Finance lease interest expense is recognized based on an effective interest method and depreciation of assets is recorded on a straight-line basis over the shorter of the lease term and useful life of the asset. Both operating and finance lease right of use assets are reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a right of use asset is impaired, any remaining balance of the asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life. xiii. Impairment of Long-Lived Assets The Company evaluates the recoverability of tangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. There were no impairments for the years ended December 31, 2022, and 2021. xiv. Goodwill and Other Intangible Assets The Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts. F- 12 Table of Contents xv. Stock-based Compensation The Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock Compensation. The Company’s stock-based compensation cost is measured based on the fair value at the grant date of the stock-based award. It is recognized as expense on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized as they occur. The Company estimates the fair value of each stock-based award on its measurement date using either the current market price of the stock or Black-Scholes option valuation model, whichever is most appropriate. The Black-Scholes valuation model incorporates assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s experience with similar instruments. Changes in assumptions used to estimate fair value could result in materially different results. The shares of the Company were listed on the stock exchange for a limited period of the time and also the stock price has dropped significantly from the date of listing, based on which the Company has considered the expected volatility at 100 % for the purpose of stock compensation . The risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the awards’ expected lives. The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period the awards. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future. xvi. Fair Value Measurements The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below: Level 1 — Quoted prices for identical assets or liabilities in active markets. Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable. xvii. Revenue Recognition SHF recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which SHF expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Revenue is recorded at a point in time when the performance obligation is satisfied, and no contingencies exist. Revenue consists primarily of fees earned on deposit accounts held at PCCU but serviced by SHF such as bank account charges, onboarding income, account activity fee income and other miscellaneous fees. In addition, SHF recognizes revenue from the Master Program Agreement. The Master Program Agreement is a non-exclusive and non-transferable right to implement and utilize the Safe Harbor Program. The Safe Harbor Program has two performance obligations; an implementation fee recognized when the contract is effective and a service fee recognized ratable over the contract term as the compliance program is executed. Lastly, SHF also records revenue for interest on loans and investment income allocated by PCCU based on specific customer balances. Amounts received in advance of the service being provided is recorded as a liability under deferred revenue on the consolidated balance sheets. Typical Safe Harbor Program contracts are three-year contracts with amounts due monthly, quarterly or annually based on contract terms. Customers consist of financial institutions providing services to CRBs. Revenues are concentrated in the United States. xviii. Contract Assets / Contract Liabilities A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. Conversely, the Company recognizes a contract liability if the customer’s payment of consideration precedes the reporting entity’s performance. F- 13 Table of Contents As of December 31, 2022, the Company reported contract assets and contract liabilities of $ 21,170 and $ 996 , respectively, from contracts with customers. As of December 31, 2021, the Company reported a contract asset and liability of $ 18,317 and $ 8,333 , respectively. During the year ended December 31, 2022, the Company recognized revenue $ 8,333 related to the contract liability outstanding at December 31, 2021. xix. Advertising/Marketing Costs Advertising/marketing costs are expensed as incurred. For the years ended December 31, 2022, and December 31, 2021, advertising/marketing costs were $ 380,669 and $ 74,282 , respectively. xx. Warrants Liability The Company accounts for the warrants assumed in the business combination in accordance with the guidance contained in ASC Topic 815, “Derivatives and Hedging” (“ASC 815”), under which warrants that do not meet the criteria for equity classification and must be recorded as derivative liabilities. Accordingly, the Company classifies the warrants as liabilities carried at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized in the consolidated statement of operations. xxi. Forward purchase derivative The Company accounts for the forward purchase derivative assumed in the business combination in accordance with the guidance contained in ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company classifies the forward purchase derivative as an asset or liability carried at fair value and adjusts the forward purchase derivative to fair value at each reporting period. This derivative asset or liability is subject to re-measurement at each balance sheet date until the conditions under the forward purchase agreement are exercised or expire, and any change in fair value is recognized in the consolidated statement of operations. xxii. Earnings Per Share Basic and diluted earnings per share are computed and disclosed in accordance with ASC Topic 260, Earnings Per Shares. The Company utilizes the two-class method to compute earnings available to common shareholders. Under the two-class method, earnings are adjusted by accretion amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance, to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other common shareholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders (Refer to Note 16). Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards. xxiii. Income Tax Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are adjusted through the provision for income taxes as changes in tax laws or rates are enacted. Prior to the merger, the Company was a pass-through entity for tax purposes. Effective September 28, 2022, the Company complies with the accounting and reporting requirements of ASC Topic 740, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. PCCU was exempt from most federal, state, and local taxes under the provisions of the Internal Revenue Code and state tax laws. However, PCCU was subject to unrelated business income tax. The Carved-Out Operations were wholly owned by PCCU and therefore, were exempt from most federal and state income taxes. The ASC Topic 740, “Income Taxes,” under US GAAP clarifies accounting for uncertainty in income taxes reported in the financial statements. The interpretation provides criteria for assessment of individual tax positions and a process for recognition and measurement of uncertain tax positions. Tax positions are evaluated on whether they meet the “more likely than not” standard for sustainability on examination by tax authorities. The Company’s Management has determined there are no material uncertain tax positions. ASC 740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods. If management is unable to estimate a portion of its ordinary income, but is otherwise able to reliably estimate the remainder, ASC 740-270-25-3 provides that the tax applicable to that item be reported in the interim period in which the item occurs. The tax (or benefit) related to ordinary income (or loss) shall be computed at an estimated annual effective tax rate and the tax (or benefit) related to all other items shall be individually computed and recognized when the items occur. Management is unable to estimate a portion of its ordinary income and as a result had computed the company’s tax provision in accordance with ASC 740-270-25-3. The Company’s effective tax rate was 20.85 % and 0.00 % for the year ended December 31, 2022 and December 31, 2021, respectively. The effective tax rate differs from the statutory tax rate of 21 % for the year ended December 31, 2022 and 2021 primarily due to the aforementioned tax exemption available to PCCU. ASC Topic 740 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. F- 14 Table of Contents xxiv. Offering Costs Offering costs consisted of legal, accounting, underwriting fees and other costs incurred that were directly related to the PIPE offering. Offering costs are allocated to the separable financial instruments issued based on a relative fair value basis, compared to total proceeds received. Offering costs associated with warrant liabilities are expensed as incurred, presented as offering costs allocated to warrants in the statements of operations. Offering costs associated with the Public Shares were charged to Parent-Entity Net Investment and Stockholders’ Equity upon the completion of the Initial Public Offering. xxv. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations upon adoption. Adopted Standards Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity In August 2020, the FASB issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from U.S. GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. ASU 2020-06 was effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020. The Company adopted the new standard during fiscal year 2022 with no material impact. Lease Accounting FASB ASU 2016-02, Leases, (“ASC 842”) and related amendments, require lessees to recognize a right-of-use asset and a lease liability for substantially all leases and to disclose key information about leasing arrangements and aligns certain underlying principles of the lessor model with the revenue standard. The Company adopted this guidance during fiscal year 2022 using the optional transition method, which allows entities to apply the guidance at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, if any, in the period of adoption with no restatement of comparative periods. At the January 1, 2022 adoption date, there were no leases outstanding that met criteria for recognition. The Company has since recognized any leases in accordance with ASC 842 by recording right-of-use assets and operating lease liabilities on the balance sheet. Standards Pending to be Adopted Financial Instruments—Credit Losses In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a model based on expected losses to estimate credit losses for most financial assets and certain other instruments. In November 2019, the FASB issued ASU No. 2019-10 Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The update allows the extension of the initial effective date for entities which have not yet adopted ASU No. 2016-02. The standard is effective for annual reporting periods beginning after December 15, 2022 for private companies and SEC filers classified as smaller reporting entities, with early adoption permitted. Entities apply the standard’s provisions by recording a cumulative effect adjustment to retained earnings. The Company has not adopted ASU 2016-13 as of December 31, 2022; however, it has adopted this standard as of January 1, 2023 and the ASU has not had a material impact on the Company’s financial statements. Troubled Debt Restructurings and Vintage Disclosures This Accounting Standard Update (ASU 2022-02) eliminates the recognition and measurement guidance on troubled debt restructurings for creditors that have adopted ASC 326 and requires them to make enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The new guidance also requires public business entities to present current period gross write-offs (on a current year-to-date basis for interim-period disclosures) by year of origination in their vintage disclosures. For entities that have adopted ASU 2016-13, this ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has not adopted ASU 2022-02 as of December 31, 2022; however, it has adopted this standard as of January 1, 2023 and the ASU has not had a material impact on the Company’s financial statements. Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions This Accounting Standard Update (ASU 2022-03) clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual restriction on the sale of an equity security as a separate unit of account is not permitted. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect this ASU to have a material impact on its consolidated financial statements. Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 This Accounting Standard Update (ASU 2022-06) defers the Sunset Date of ASC Topic 848, Reference Rate Reform (Topic 848), which provides temporary optional relief in accounting for the impact of Reference Rate Reform. This ASU is effective upon issuance (December 21, 2022) and generally can be applied through December 31, 2024. The Company does not expect this ASU to have a material impact on its consolidated financial statements. F- 15 Table of Contents Note 3. Business Combination The Business Combination detailed in Note 1 above was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, NLIT is treated as the acquired company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of SHF issuing shares for the net assets of NLIT, accompanied by a recapitalization. The net assets of NLIT are recognized at fair value (which was consistent with carrying value), with no goodwill or other intangible assets recorded. Other related events in connection with the Business Combination are summarized below: ● The 2,875,000 of Founder Class B Stock converted at the closing to an equal number of shares of Class A stock. ● Upon closing of the Business Combination, 11,386,139 shares of Class A Stock were issued to the seller as set forth in and pursuant to the terms of the Purchase Agreement. The seller was due to receive a cash payment of $ 3.1 million at the consummation of the Business Combination, which represented the amount of SHF’s cash on hand at July 31, 2021, less accrued but unpaid liabilities. In addition, pursuant to the terms of the purchase agreement, the Company is responsible for reimbursing the seller for its transaction expenses. ● Offering costs consisted of legal, accounting, underwriting fees and other costs incurred that were directly related to the business combination was approximately $ 10.85 million. ● Approximately $ 56.9 million of the $ 70.0 million of cash proceeds due to PCCU was deferred and is due to the seller. Approximately $ 21.9 million of the amount was due to PCCU beginning December 15, 2022. The residual $ 35.0 million is due in six quarterly instalments of $ 6.4 million thereafter. Interest accrues at an effective annual rate of approximately 4.71 %. A sum of 1,200,000 founder shares were escrowed until the amount is paid in full. ● The Parent-Entity Net Investment appearing in the balance sheet of SHF amounting to $ 9,124,297 on the date of business combination was transferred to additional paid in capital. ● Immediately prior to the Closing, 20,450 shares of Series A Convertible Preferred were purchased by the PIPE Investors pursuant to the PIPE Securities Purchase Agreements for an aggregate value of $ 20,450,000 . The shares of Series A Convertible Preferred were converted into 2,045,000 shares of Class A Stock at a purchase price of $ 10.00 per share of Class A Stock. Twenty (20) percent of the aggregate value was deposited into a third party escrow account for purposes of paying the PIPE Investors any required Registration Delay Payments. Upon the filing of registration statement 10 calendar days subsequent to closing, 17.5% of the escrow amount was released with the remaining amount once all securities are included in an effective registration statement. ● For tax purposes, the transaction is treated as a taxable asset acquisition, resulting in an estimated tax basis Goodwill balance of $ 44,102,572 , creating a deferred tax asset reported as Additional Paid-in Capital in the equity section of the balance sheet as of the date of the business combination. There is not any goodwill for book reporting purposes as no goodwill or other intangible assets are to be recorded in accordance with GAAP. ● Preferred Stock: The Company is authorized to issue 1,250,000 preferred shares with a par value of $ 0.0001 per share with such designation rights and preferences as may be determined from time to time by the Company’s Board of Directors. As of December 31, 2022, there were 14,616 preferred shares issued or outstanding and no preferred shares outstanding on December 31, 2021. The holders preferred stock shall be entitled to receive, and the Company shall pay, dividends on shares of preferred stock equal (on an as-if-converted-to-Class-A-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Class A Common Stock when, as and if such dividends are paid on shares of the Class A Common Stock. No other dividends shall be paid on the preferred stock. The terms of the preferred stock provide for an initial conversion price of $ 10.00 per share of Class A Common Stock, which conversion price is subject to downward adjustment on each of the dates that are 10 days, 55 days, 100 days, 145 days and 190 days after the effectiveness of a registration statement registering the shares of Class A Common Stock issuable upon conversion of the preferred stock to the lower of the Conversion Price and the greater of (i) 80% of the volume weighted average price of the Class A Common Stock for the prior five trading days and (ii) $2.00 (the “Floor Price”), provided that, so long as a preferred stock holders continues to hold any preferred shares, such preferred stock holder will be entitled to receive the aggregate shares of Class A Common Stock that would be issuable based upon its initial purchase of preferred stock at the adjusted Conversion Price . Additionally, on January 25, 2023, at a special meeting of the Company’s stockholders the reduction in the floor conversion price of the outstanding preferred stock from $ 2.00 per share to $ 1.25 per share. The approval was obtained to comply with the Nasdaq listing rules requiring stockholder approval for issuances of voting stock exceeding 20 % of the voting stock outstanding at the time of the vote. ● Class A Common Stock: The Company is authorized to issue up to 130,000,000 shares of Class A Common Stock with a par value of $ 0.0001 per share. Holders of the Company’s Class A Common Stock are entitled to one vote for each share. As of December 31, 2022, and December 31, 2021, there were 23,732,889 and 0 shares, respectively, of Class A Common Stock issued or outstanding. As of December 31, 2022, 3,667,377 Class A Common Stock are held by the purchasers under forward purchase agreement dated June 16, 2022, by and among the Company and such purchasers. F- 16 Table of Contents ● The fair value of net assets on September 28,2022 in the books of NLIT are as follows: Schedule of Fair Value Net Assets Cash & Cash Equivalents $ 2,879 Prepaid Expense 15,000 Cash held in Trust 118,738,861 Deferred offering cost 266,240 Accounts Payable ( 1,374,021 ) Accrued Expense ( 1,202,164 ) Advance from sponsor ( 1,150,000 ) Deferred underwriter payable ( 4,025,000 ) Forward purchase derivative ( 795,942 ) Warrant Liability ( 1,394,453 ) Class A Common Stock subject to possible redemption ( 79,259,819 ) Fair value of net assets acquired $ 29,821,581 ● The following table summarizes the total fair value of consideration: Schedule of Fair Value Consideration Company’s Class A common stock comprises of 11,386,139 shares $ 115,000,000 Cash consideration 13,050,199 Deferred cash consideration 56,949,801 Total fair value of consideration $ 185,000,000 ● Parent-Entity Net Investment: Parent-Entity Net Investment balance in the consolidated balance sheets represents PCCU’s historical net investment in the Carved-Out Operations. For purposes of these consolidated financial statements, investing requirements have been summarized as “Parent-Entity Net Investment” and represent equity as no cash settlement with PCCU is required. No separate equity accounts are maintained for SHS, SHF or the Branches. Note 4. Acquisition On November 15, 2022, the Company and its subsidiary entered into a series of merger and acquisition transactions resulting in the acquisition of 100.00 % control of Rockview Digital Solutions Inc. d/b/a/ ABACA (collectively “Abaca”). This acquisition was completed in exchange for a combination of cash and the Company’s shares. As part of the acquisition, the Company’s Notes of $ 500,000 along with interest accrued until the date of acquisition were redeemed. The acquisition increases the Company’s customer base to include more than 1,000 unique depository accounts across 40 states and U.S. territories; adds Abaca’s fintech platform to the Company’s existing technology; increases the Company’s financial institution client relationships and access to balance sheet capacity to five unique financial institutions strategically located across the United States; increases the Company’s lending capacity; and nearly doubles the Company’s team, adding to the existing talent pool of the cannabis industry’s foremost financial services and financial technology experts. Pursuant to the Abaca merger agreement, as amended, the Company acquired Abaca in exchange for $ 30,000,000 , paid in a combination of cash and shares of the Company as follows: (a) cash consideration in an amount equal to (i) $ 9,000,000 ($ 3,000,000 was payable at the closing of the Mergers (the “Merger Closing”), with an additional $ 3,000,000 payable at each of the one-year and two-year anniversaries of the Merger Closing), (collectively, the “Deferred Cash Consideration”); and (b) Common Stock equal to the lesser of (1) 2,100,000 shares or (2) a number of shares equal to (i) $8,400,000, divided by (ii) the Closing Parent Trading Price and $ 12,600,000 (minus an outstanding note balance of $ 500,000 , plus accrued interest) in shares of Class A Common Stock at the one-year anniversary of the Merger Closing based on a 10-day VWAP (collectively, the “Future stock consideration”). F- 17 Table of Contents The Company measures the deferred cash consideration and future stock consideration at fair value on the acquisition date based on report received from independent valuation firm. The following table summarizes the purchase price allocation: Schedule of Purchase Price Allocation Property, plant & equipment $ 27,117 Software 9,189 Cash & cash equivalents 245,524 Prepaid expense 23,061 Security deposit 675 Accounts receivables 232,265 Accounts Payable ( 206,508 ) Accrued Expense ( 235,894 ) Fair value of net assets acquired $ 95,429 Other intangibles 10,800,000 Goodwill 19,266,276 Deferred tax liabilities ( 1,758,769 ) Total purchase consideration $ 28,402,936 The following table summarizes the total fair value of consideration: Schedule of Fair Value Consideration Cash paid $ 2,763,800 Deferred cash payment 5,452,424 Share issued – common stock ( 2,099,977 shares) 8,105,911 Settlement of pre-existing notes along with accrued interest 523,404 Future consideration settled in common stock 11,557,397 Fair value of consideration $ 28,402,936 At the date of acquisition, management allocated the initial purchase price based on the estimated fair value of the identifiable assets and liabilities assumed on the acquisition date. The pre-existing relationships settled were the Company’s notes and related accrued interest with Abaca. Subsequently, the Company finalized the purchase price allocation and has adjusted the provisional values retrospectively to reflect changes to the assets and liabilities at the acquisition date. For the fair value of the identifiable intangible assets acquired, the Company used an income-based approach, which involves estimating the future net cash flows and applies an appropriate discount rate to those future cash flows. The following table summarizes the final adjustments made to the provisional purchase price allocation. Intangible assets are recorded at estimated fair value, as determined by management based on available information which includes a valuation prepared by an independent third party. The fair values assigned to identifiable intangible assets were determined through the use of the income approach and multi-period excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future cash flows, discounted at an appropriate rate of return which is based on the weighted average cost of capital for both the company and other market participants. The useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. The estimated fair value of intangible assets and related useful lives as included in the purchase price allocation include: Schedule of Intangible Assets and Related Useful Lives as Included in Purchase Price Allocation Amount Useful life in Years Market related intangible assets $ 2,100,000 8 Customer relationships 2,000,000 10 Developed technology 6,700,000 10 Fair value of consideration $ 10,800,000 Goodwill has been recognized as a result of the specialized assembled workforce at Abaca. Sales revenues of $ 491,149 and net losses before tax of $ 257,967 from the acquired operations are included in the consolidated statement of operations from the date of acquisition for the year ended December 31, 2022. Had the acquisition of Abaca occurred on January 1, 2022, there would not have been a significant impact on the consolidated operating sales revenues and net earnings for the year ended December 31, 2022. Acquisition costs of $ 236,200 were incurred and recognized in acquisition related costs in the consolidated statement of operations for the year ended December 31, 2022. F- 18 Table of Contents Unaudited Supplemental Pro Forma Information The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2022, the earliest period presented herein: Schedule of Proforma Information of Operations For the Year Ended December 31, 2022 2021 Revenue $ 12,565,608 $ 10,606,011 Net Income (Loss) ( 37,720,687 ) 2,922,213 Note 5. Goodwill and other intangibles Goodwill acquired in connection with the acquisition on November 16, 2022, is not amortized, but instead evaluated for impairment on an annual basis at the end of the fiscal year, or more frequently if events or circumstances indicate that impairment may be more likely than not. During the year ended December 31, 2022, no impairment charges have been taken against the company’s goodwill. The carrying amount of goodwill arose from the acquisition described in Note 4, “Acquisition.” The change in the carrying amount of goodwill from December 31, 2021, to December 31, 2022, is as follows: Schedule of Carrying Amount of Goodwill December 31, 2021 $ - Acquisition of Abaca 19,266,276 December 31, 2022 $ 19,266,276 The Company has elected November 15 as the date for annual impairment testing or as necessary for triggering events. No impairment was recognized during the years ended December 31, 2022 and 2021. The Company’s finite lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Following is a summary of the Company’s finite-lived intangible assets as of December 31, 2022. Schedule of Finite Lived Intangible Assets Acquired in acquisition Amortization Finite-lived intangible assets, net Remaining Useful life in Years December 31, 2021 Acquired in acquisition Amortization December 31, 2022 Market related intangible assets 8 - $ 2,100,000 $ 33,082 $ 2,066,918 Customer relationships 10 - 2,000,000 25,205 1,974,795 Developed technology 7 - 6,700,000 120,626 6,579,374 Total intangible assets $ 10,800,000 $ 178,913 $ 10,621,087 Note 6. Loans Receivable Commercial real estate loans receivable, net consist of the following: Schedule of Commercial Real Estate Loans Receivable December 31, 2022 December 31, 2021 Commercial real estate loans receivable, gross $ 1,432,560 $ 1,478,301 Less: loan origination charges ( 109,081 ) - Commercial real estate loans receivable, net 1,323,479 1,478,301 Allowance for loan losses ( 21,488 ) ( 14,741 ) Commercial real estate loans receivable, net 1,301,991 1,463,560 Current portion ( 51,300 ) ( 52,833 ) Noncurrent portion $ 1,250,691 $ 1,410,727 Allowance for Loan Losses The allowance for loan losses is maintained at a level believed to be sufficient to provide for estimated loan losses based on evaluating known and inherent risks in the loan portfolio. The allowance is provided based upon management’s analysis of the pertinent factors underlying the quality of the loan portfolio. These factors include changes in the amount and composition of the loan portfolio, delinquency levels, actual loss experience, current economic conditions, and detailed analysis of individual loans for which the full collectability may not be assured. The detailed analysis includes methods to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. The allowance may consist of specific and general components. While the allowance may consist of general and specific components, the allowance is general in nature and is available for the loan portfolio in its entirety. F- 19 Table of Contents The allowance for loan losses consists of the following activity for the year ended December 31, 2022 and 2021: Schedule of Allowance For Loan Losses December 31, 2022 December 31, 2021 Allowance for loan losses Beginning balance $ 14,741 $ 13,342 Charge-offs - - Recoveries - - Provision 6,747 1,399 Ending balance $ 21,488 $ 14,741 Loans receivable: Individually evaluated for impairment $ - $ - Collectively evaluated for impairment 1,432,560 1,478,301 $ 1,432,560 $ 1,478,301 Allowance for loan losses: Individually evaluated for impairment $ - $ - Collectively evaluated for impairment 21,488 14,741 $ 21,488 $ 14,741 At December 31, 2022 and December 31, 2021, no loans were past due, classified as non-accrual or considered impaired. Credit quality of loans: As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks credit quality indicators based on the loan payment status on monthly basis. All the loans outstanding on December 31,2022 are evaluated based on their payment status, which is considered as the most meaningful indicator of credit quality. Note 7. Indemnification liability As discussed at Note 9 to the consolidated financial statements, and pursuant to PCCU Agreements, PCCU funds loans through a third-party vendor. SHF earns the associated interest and pays PCCU a loan hosting payment at an annual rate of 0.25% of the outstanding loan principal. The below schedule details outstanding amounts funded by PCCU and categorized as either collateralized loans or unsecured loans and lines of credit. No loans were funded by PCCU prior to January 1, 2022. Schedule of Outstanding Amounts December 31, 2022 Secured term loans $ 18,400,000 Unsecured loans and lines of credit 498,042 Total loans funded by Parent $ 18,898,042 All amounts were performing at December 31, 2022. (Refer to Note 22, “Subsequent Events,” below for loan information subsequent to December 31, 2022.) Secured loans contained an interest rate ranging from 5.90 % to 12.00 % . Unsecured loans and lines of credit contain variable rates ranging from Prime + 1.50 % to Prime + 6.00 % . Unsecured lines of credit had incremental availability of $ 996,958 and $ 225,000 at December 31, 2022 and December 31, 2021. SHF has agreed to indemnify PCCU for losses on certain PCCU loans. The indemnity liability reflects SHF management’s estimate of probable loan losses inherent under the agreement at the balance sheet date. Management uses a disciplined process and methodology to establish the liability, and the estimates are sensitive to risk ratings assigned to individual loans covered by the agreement as well as economic assumptions driving the estimation model. Individual loan risk ratings are evaluated at least a quarterly based on each situation by SHF management. Given the Company’s limited lending history, the estimate is based on risk adjusted national charge off rates as published by the US Federal Reserve. The indemnity liability activity on December 31, 2022, is as follows: Schedule of Indemnity Liability Year ended December 31, 2022 Beginning balance $ - Charge-offs - Recoveries - Provision 499,465 Ending balance $ 499,465 All loans were current and considered performing at December 31, 2022. One loan was identified pursuant to potential default on January 5, 2023. (Refer to Note 22, “Subsequent Events,” below.) F- 20 Table of Contents Credit quality of indemnified loans: As part of the on-going monitoring of the credit quality of the Company’s indemnified loan portfolio, management tracks credit quality indicators based on the loan payment status on monthly basis. All the indemnified loans outstanding on December 31,2022 are evaluated based on their payment status, which is considered as the most meaningful indicator of credit quality. SHF has agreed to indemnify PCCU from all claims related to SHF’s cannabis-related business. Other than potential loan losses, no other circumstances were identified meeting the requirements of a loss contingency. The provision for loan losses on the statement of operations consists of the following activity for the year ended December 31, 2022 and December 31, 2021: Schedule of Provision for Loan Losses Commercial real estate loans Indemnity liability Total Commercial real estate loans Indemnity liability Total December 31, 2022 December 31, 2021 Commercial real estate loans Indemnity liability Total Commercial real estate loans Indemnity liability Total Provision (benefit) $ 6,747 499,465 $ 506,212 $ 1,399 - $ 1,399 Note 8. Property and equipment, net Property and equipment consist of the following: Schedule of Property and Equipment, Net December 31, 2022 December 31, 2021 Equipment $ 45,397 $ 28,080 Software 51,692 - Improvement 71,635 - Office furniture 7,070 7,070 Property and equipment, gross 175,794 35,150 Less: accumulated depreciation ( 126,180 ) ( 28,799 ) Property and equipment, net $ 49,614 $ 6,351 Depreciation expense was $ 10,361 and $ 1,921 for the year ended December 31, 2022, and December 31, 2021, respectively. Note 9. Related party transactions Account Servicing Agreement Effective July 1, 2021, SHF, LLC (“SHF”) entered into an Account Servicing Agreement with PCCU. SHF provides services as per the agreement to CRB accounts at PCCU. In addition to providing the services, SHF assumes the costs associated with the CRB accounts. These costs include employees to manage account onboarding, monitoring and compliance, rent and office expense, insurance and other operating expenses necessary to service these accounts. Under the agreement, PCCU agrees to pay SHF all revenue generated from CRB accounts. Amounts due to SHF are due monthly in arrears and upon receipt of invoice. The agreement is for an initial term of 3 years from the effective date. It shall renew thereafter for 1-year terms until either SHF or PCCU provide sixty days prior written notice. The agreement was amended and restated in conjunction with the contemplated Business Combination with substantially similar terms. Pursuant to this agreement, SHF reported revenue of $ 8,823,608 for the year ended December 31, 2022, and $ 3,168,243 for the period July 1, 2021 to December 31, 2021. As of December 31, 2022, and December 31, 2021, 85 % and 100 % of the Accounts Receivable, respectively is due from PCCU. Corporate allocations Corporate allocations in 2021 include overhead expenses such as information technology, customer support, marketing, executive compensation and other general and administrative expenses that are attributed to the Branches proportionately based on the relative size of the specific identifiable customer deposits to the consolidated Parent. Support Services Agreement Effective July 1, 2021, SHF entered into a Support Services Agreement with PCCU. In connection with PCCU hosting the depository accounts and the related loans and providing certain infrastructure support, PCCU receives (and SHF pays) a monthly fee per depository account. In addition, 25 % of any investment income associated with CRB deposits is paid to PCCU. The respective duties and obligations as per the agreement commenced on the effective date and continue unless terminated by either SHF or PCCU upon giving sixty days prior written notice. The agreement was amended and restated in conjunction with the contemplated Business Combination with substantially similar terms. F- 21 Table of Contents Pursuant to these agreements and as amended and restated, the Company reported expenses of $ 775,259 for the year ended December 31, 2022, and $ 190,908 for the year ended December 31, 2021. Furthermore, the outstanding amount payable to PCCU included in “Accounts payable” in the consolidated balance sheet is $ 196,968 for the year ended December 31, 2022, and $ 43,626 for the year ended December 31, 2021. Significant terms of the Amended and Restated Accounting Servicing Agreement and Support Services Agreement are as follows: ● Pursuant to the Account Servicing Agreement, the Company’s fees for such services will equal all cannabis-related income, including all lending-related income (such as loan origination fees, interest income on CRB-related loans, participation fees and servicing fees), investment income, interest income, account activity fees, processing fees, flat fees, and other revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system. The Account Servicing Agreement and Support Services Agreement are for an initial term of three years and will renew for additional one-year terms unless a party provides 120 days’ notice of non-renewal, provided that PCCU may not provide notice of non-renewal until 30 months following the signing date. The Account Servicing Agreement will also terminate within 60 days of the Company no longer qualifying as a “credit union service organization” (a “CUSO”) or within 60 days of the assumption by a third party of all CRB-related accounts. On May 23, 2022, the Company and PCCU entered into the Second Amended and Restated Account Servicing Agreement and Support Services Agreement, which agreement amended and restated the Amended and Restated Account Servicing and Support Services Agreements to remove the provision providing for the termination of the agreements within 60 days of the Company no longer qualifying as a “credit union service organization,” as the Company will cease to qualify as a CUSO following the closing of the Business Combination. ● Pursuant to the Support Services Agreement, as amended, PCCU will continue to provide to the Company certain operational and administrative services relating to, among other things, human resources, employee benefits, IT and systems, accounting and marketing and capacity for CRB depository accounts for a monthly fee equal to $ 30.96 per account in 2022 and $ 25.32 per account in 2023 and 2024. In addition, investment income from CRB-related cash and investments (excluding loans) will be shared 25% to PCCU and 75% to the Company and the Company will reimburse PCCU for any of its out-of-pocket expenses relating to the services provided to the Company . The Amended and Restated Support Services Agreement also sets forth certain agreements of PCCU to limit bonus distributions to its members to $ 30,000,000 during any 12-month period following the effective date of the agreement. Finally, under the Support Services Agreement PCCU will continue to allow its ratio of CRB-related deposits to total assets up to 65% unless otherwise dictated by regulatory, regulator or policy requirements. The below schedule demonstrates unaudited PCCU’s deposit capacity at December 31, 2022 and December 31, 2021. Schedule of Demonstrates Deposit Capacity December 31, 2022 (Unaudited) December 31, 2021 (Unaudited) PCCU total assets $ 695,072,554 $ 575,170,939 Capacity at 65% 451,797,160 373,861,110 CRB related deposits 161,138,975 146,267,976 Incremental capacity $ 290,658,185 $ 227,593,134 PCCU policy also requires they maintain an internal ratio of net worth to total assets of at least 10 %. CRB related deposit capacity maybe limited if PCCU ratio declines below this threshold. F- 22 Table of Contents Loan Servicing Agreement Effective February 11, 2022, SHF entered into a Loan Servicing Agreement with PCCU. The agreement sets forth the application, underwriting and approval process for loans from PCCU to CRB customers and the loan servicing and monitoring responsibilities provided by both PCCU and SHF. PCCU will receive a monthly servicing fee at the annual rate of 0.25 % of the then-outstanding principal balance of each loan funded by PCCU. For the loans that are subject to this agreement, SHF originates the loans and performs all compliance analysis, credit analysis of the potential borrower, due diligence and underwriting and all administration, including hiring and incurring the costs of all related personnel or third-party vendors necessary to perform these services. Under the Loan Servicing Agreement, SHF has agreed to indemnify PCCU from all claims related to default-related loan losses as defined in the Loan Servicing Agreement. The agreement is for an initial term of three years and will renew for additional one-year terms unless a party provides 120 days’ notice of non-renewal or there is a termination for cause, provided that PCCU may not provide notice of non-renewal until 30 months following the signing date. The agreement was amended and restated in conjunction with the contemplated Business Combination with substantially similar terms. SHF’s loan program currently depends on PCCU as SHF’s largest funding source for new loans to CRBs. Under PCCU’s loan policy for loans to CRBs, PCCU’s Board of Directors has approved aggregate lending limits at the lessor of 1.3125 times PCCU’s net worth or 65 % of total CRB deposits. Concentration limits for the deployment of loans are further categorized as i) real estate secured, ii) construction, iii) unsecured and iv) mixed collateral with each category limited to a percentage of PCCU’s net worth. In addition, loans to any one borrower or group of associated borrowers are limited by applicable National Credit Union Association regulations to the greater of $100,000 or 15% of PCCU’s net worth . The below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits at December 31, 2022. No amounts were funded prior to January 1, 2022. Schedule of Demonstrates Deposit Capacity December 31, 2022 (Unaudited) December 31, 2021 (Unaudited) CRB related deposits $ 161,138,975 $ 146,267,976 Capacity at 65% 104,740,334 95,074,184 PCCU net worth 133,231,565 61,925,336 Capacity at 1.3125 174,866,429 81,277,004 Limiting capacity 174,866,429 81,277,004 PCCU loans funded 18,898,042 - Amounts available under lines of credit 996,958 225,000 Incremental capacity $ 154,971,429 $ 81,052,004 Pursuant to this agreement, the Company reported expenses of $ 26,088 for the year ended December 31, 2022 and $ 0 for the year ended December 31, 2021. Collectively the Account Servicing Agreement, Support Servicing Agreement and Loan Servicing Agreement are referred to as the “Parent Agreements.” Operating leases Effective July 1, 2021, SHF entered into a one-year gross lease with PCCU to lease space in its existing office at a monthly rent of $ 5,400 . Effective July 1, 2022, the Company amended its existing lease to a month-to-month lease and therefore no asset or liability amounts are reported pursuant to ASC 842. Advance from Sponsor On June 27, 2022, Luminous Capital Inc., an affiliate of the Sponsor has provided a non-interest-bearing advance (the “Advance”) amounting to $ 1,150,000 to fund the operation of NLIT. The outstanding amount is appearing under the head “accounts payable” in the consolidated balance sheet. F- 23 Table of Contents Note 10. Due to Seller At December 31, 2022 amounts due to seller were as follows: Schedule of Amounts Due to Seller Due to Seller-Current (Unsecured) $ 25,973,017 Due to Seller-Non-Current (Unsecured) 30,976,783 $ 56,949,800 As contemplated by the Unit Purchase Agreement, related to reverse acquisition of NLIT, the consideration paid to the seller parent (PCCU) in connection with the Business Combination consisted of an aggregate of $ 185,000,000 , consisting of (i) 11,386,139 shares of the Company’s Class A Common Stock with an aggregate value equal to$ 115,000,000 and (ii) $ 70,000,000 in cash, $ 56,949,800 of which will be paid on a deferred basis (the “Deferred Cash Consideration”). The Deferred Cash Consideration was to be paid in one payment of $ 21,949,800 on or before December 15, 2022, and the $ 35,000,000 balance in six equal installments of $ 6,416,667 , payable beginning on the first business day following April 1,2023 and on the first business day of each of the following five fiscal quarters, for a total of $ 38,500,002 . On October 26, 2022, SHF Holdings, Inc., entered into a Forbearance Agreement (the “Forbearance Agreement”) with PCCU and Luminous Capital USA Inc. (“Luminous”). As per the terms of the agreement, PCCU has agreed to defer all payments owed by the Company pursuant to the Purchase Agreement for a period of six (6) months from the date hereof while the Parties engage in good faith efforts to renegotiate the payment terms applicable to the Deferred Obligation (the “Forbearance Period”). The loan includes 5% interest annualized using the simple interest method and an approximate 4.71% effective interest rate. Repayment schedule of the amount outstanding on December 31,2022 are as follows: Schedule of Repayment of the Amount Outstanding Date of payment June 13, 2023 $ 21,949,801 October 1, 2023 4,023,216 January 1, 2024 6,048,819 April 1, 2024 6,123,866 July 1, 2024 6,195,796 October 1, 2024 6,266,944 January 1, 2025 6,341,358 Grand total $ 56,949,800 On March 29, 2023, the Company and PCCU entered into a definitive transaction (Refer to Note 22, “Subsequent Events,” of the consolidated financial statements) to settle and restructure the deferred obligations, including $ 56,949,800 into a five-year Senior Secured Promissory Note (the “Note”) in the principal amount of $ 14,500,000 bearing interest at the rate of 4.25 %; a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security interest in substantially all of the assets of the Company; and a Securities Issuance Agreement, pursuant to which the Company will issue 11,200,000 shares of the Company’s Class A Common Stock to PCCU. Note 11. Leases The Company has non-cancellable operating leases for facility space with varying terms. All of the active leases for facility space qualified for capitalization under FASB ASC 842, Leases. These leases have remaining lease terms between one to 7 years and may include options to extend the leases for up to ten years . The extension terms are not recognized as part of the right-of-use assets. The Company has elected not to capitalize leases with terms equal to, or less than, one year. As of December 31, 2022, and 2021, net assets recorded under operating leases were $ 1,016,198 on and $ 0 , respectively, and net lease liabilities were $ 1,028,233 and $ 0 , respectively. The Company analyses contracts above certain thresholds to identify leases and lease components. Lease and non-lease components are not separated for facility space leases. The Company uses its contractual borrowing rate to determine lease discount rates when an implicit rate is not available. Total lease cost for the years ended December 31, 2022 and 2021, included in Consolidated Statements of Operations, is detailed in the table below: Schedule of Lease Cost,Right of Use Assets Related to Lease and Future Minimum Lease Payments Year ended December 31, 2022 Year ended December 31, 2021 Operating lease cost $ - $ - Short-term lease cost 99,246 - Total Lease Cost $ 99,246 - ROU assets that are related to lease properties are presented as follows: Beginning balance $ - $ - Additions to right-of-use assets 1,029,226 - Amortization charge for the year ( 13,028 ) - Lease modifications - - Ending balance $ 1,016,198 $ - Further information related to leases is as follows: Weighted-average remaining lease term 4.42 Years - Weighted-average discount rate 6.87 % - Future minimum lease payments as of December 31, 2022 are as follows: Year 2023 $ 91,303 $ - 2024 197,520 - 2025 217,925 - 2026 222,275 - 2027 226,705 - Thereafter 348,926 - Total future minimum lease payments $ 1,304,654 $ - Less: Imputed interest 276,421 - Operating lease liabilities $ 1,028,233 $ - Less: Current portion 20,124 - Non-current portion of lease liabilities $ 1,008,109 $ - F- 24 Table of Contents Note 12. Revenue Disaggregated revenue Revenue by type are as follows: Schedule of Disaggregated Revenue Year Ended December 31, 2022 2021 Deposit, activity, onboarding income $ 6,063,939 $ 6,039,358 Safe Harbor Program income 164,062 478,041 Investment income 2,120,640 376,918 Loan interest income 1,130,178 102,961 Miscellaneous fee income - 8,301 Total Revenue $ 9,478,819 $ 7,005,579 Account fee income consists of deposit account fees, activity fees and onboarding income, which are recognized on periodic basis as per the fee schedule pursuant to deposit servicing agreement with PCCU. Safe Harbor Program income consists of o utsourced support to other financial institutions providing banking to the cannabis industry whose income is recognized on the basis of usage as per the agreements. Investment income consist of interest earned on deposits with the Federal Reserve Bank pursuant to an investment servicing agreement with PCCU. Loan interest income consist of interest earned on both direct and indemnified loans pursuant to a loan servicing agreement with PCCU. Note 13. Other Current Assets Schedule of Other Current Assets Year Ended December 31, 2022 Advance to capital supplier $ 93,517 Advance to other 57,300 Total $ 150,817 Note 14. Commitments and contingencies ● The Company has issued irrevocable Letter of Credit in favor of AFCO Credit Corporation (“AFCO”), for an aggregate amount of US $ 750,000 , which can be drawn in the case of following events: ○ The Company continues to be in default, after 10 days’ written notice, in the payment of any sums due to AFCO under a premium finance agreement dated on or about October 20, 2022, or ○ A case concerning the Company has been filed under title 11 of the United States Code and that, not more than 95 days before that case commenced, AFCO received loan payments amounting to not less than (total of payments received in the 95-day period prior to filing of the bankruptcy case), and AFCO is drawing an amount equal to the stated sum of the loan payments so received. ● 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 unfavorable or favorable outcomes could have a material impact on the Company’s results of operations, balance sheets and cash flows due to defense costs, and divert management resources. The Company cannot predict the timing or outcome of these claims and other proceedings. F- 25 Table of Contents ● In connection with the Company’s initial public offering (“IPO”), the Company entered into a registration rights agreement dated June 23, 2021 with the Sponsor and the individuals serving as directors and executive officers of the Company at the time of the IPO. Pursuant to this registration rights agreement, the Company has agreed to register for resale upon the expiration of the applicable lock-up period the Company securities acquired by the Sponsor and such individuals in connection with the organization of the Company and the IPO. ● For a period beginning on June 28, 2021 and ending 12 months from the closing of a the Business Combination, the Company has granted the underwriters a right of first refusal to act as lead-left book running manager and lead left manager for any and all future private or public equity, convertible and debt offerings during such period. In accordance with FINRA Rule 5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more than three years from the effective date of our Registration Statement. Note 15. Earnings Per Share Basic net income (loss) per common share is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period. For the Company’s diluted earnings per share calculation, the Company uses the “if-converted” method for preferred stock and convertible debt and the “treasury stock” method for Warrants and Options. As the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the shares issued in connection with the Business Combination have been outstanding for the entire period presented. Schedule Of Earning Per Shares, Basic And Diluted For year Ended December 31 2022 Net loss $ ( 35,128,083 ) Weighted average shares outstanding – basic 18,988,558 Basic net earnings per share $ ( 1.85 ) Weighted average shares outstanding – diluted 18,988,558 Diluted net earnings (loss) per share $ ( 1.85 ) Weighted average shares calculation December 31, 2022 Company public shares 3,926,598 Company initial stockholders 3,403,175 PCCU stockholders 11,386,139 Shares issued for Abaca acquisition 264,654 Conversion of Preferred stock 7,992 Weighted average shares outstanding 18,988,558 Certain share-based equity awards and conversion of preferred shares were excluded from the computation of dilutive loss per share because inclusion of these awards would have had an anti-dilutive effect. The following table reflects the awards excluded. Schedule of Awards Excluded December 31, 2022 Warrants 7,036,588 Share based payments 2,170,000 Shares to be issued to Abaca acquisition 6,433,839 Conversion of Preferred stock 13,443,000 Total 29,083,427 The holders of Series A Convertible Preferred Stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series A Convertible Preferred Stock equal (on an as-if-converted-to-Class-A-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Class A Common Stock when, as and if such dividends are paid on shares of the Class A Common Stock. No other dividends shall be paid on shares of Series A Convertible Preferred Stock. In the 2021, SHF was a single member limited liability company with no shareholders hence the disclosure related to earning per share is not applicable. F- 26 Table of Contents Note 16. Forward Purchase Agreement On June 16, 2022, NLIT entered into a Forward Purchase Agreement with Midtown East Management NL, LLC (“Midtown East”). Subsequent to entering into the Forward Purchase Agreement, the Company, NLIT, and Midtown East entered into assignment and novation agreements with Verdun Investments LLC (“Verdun”) and Vellar Opportunity Fund SPV LLC – Series 1 (“Vellar”), pursuant to which Midtown East assigned its obligations as to 1,666,666 shares of the shares of Class A Stock to be purchased under the Forward Purchase Agreement to each of Verdun and Vellar. As contemplated by the Forward Purchase Agreement: ● Prior to the closing, Midtown East, Verdun and Vellar purchased approximately 3.8 million shares of NLIT Class A common stock directly from investors at market price in the public market. Midtown East and other counter parties waived their redemption rights with respect to the acquired shares; ● One business day following the closing, NLIT paid approximately $ 39.3 million from the cash held in its trust account to Midtown East; Verdun and Vellar for the shares purchased and approximately $ 0.3 million in related expense amounts. ● At the Maturity Date, Midtown East, Verdun and Vellar shall be entitled to (1) the product of the shares then held by them multiplied by the Forward Price, and (2) an amount, in cash or shares at the sole discretion of NLIT, equal to (a) in the case of cash, the product of (i)(x) 3.8 million shares less (y) the number of Terminated Shares and (ii) $2.00 (the “Maturity Cash Consideration”) and (b) in the case of shares, (i) the Maturity Cash Consideration divided by (ii) the VWAP Price for the 30 Scheduled Trading Days prior to the Maturity Date. ● At any time prior to the Maturity Date (defined as the earlier of i) the third anniversary of the Closing of the Business Combination, ii) the shares are delisted from The Nasdaq Stock Market or (iii) during any 30 consecutive Scheduled Trading Day-period following the closing of the Business Combination, the Volume Weighted Average Share Price (VWAP) Price for 20 Scheduled Trading Days during such period shall be less than $ 3.00 per share), Midtown East, Verdun and Vellar may elect an optional early termination to sell some or all of the shares (the “Terminated Shares”) of Class A Stock in the open market. If Midtown East, Verdun and Vellar sell any shares prior to the Maturity Date, the pro-rata portion of the Reset Price will be released from the escrow account and paid to SHF. Midtown East, Verdun and Vellar shall retain any proceeds in excess of the Reset Price that is paid to SHF. ● The trading value of the common stock combined with preferred shareholders electing to convert their preferred shares to common stock triggered a lower reset price embedded in the forward purchase agreement, or FPA. As of December 31, 2022, the Company had already called a special meeting to lower the make-whole price under the preferred share purchase agreement to $ 1.25 /share. The Company, majority common shareholders and the preferred investors had entered into a voting agreement whereby the vote to approve the $ 1.25 /share make-whole price was secured. Knowing the Company would ultimately be issuing shares to the preferred stockholders with a make whole issuance at $ 1.25 /share compelled the company to recognize a reset price under the terms of the FPA of $ 1.25 /share. The reconciliation statement of the common stock held by the parties are as follows: Schedule of Forward Purchase Agreeement On the date of acquisition (September 28, 2022) Share sold during the period September 29, 2022 to December 31, 2022 As at December 31, 2022 S.no Name of the party Opening Shares (a) Amount Shares (b) Amount Shares (c=a-b) Rest price (iii) Amount (c x iii) 1 Vellar 1,025,000 $ 10,583,246 53,796 $ 524,472 971,204 1.25 $ 1,214,005 2 Midtown East 1,599,496 16,514,986 81,572 832,850 1,517,924 1.25 1,897,405 3 Verdun 1,180,376 12,187,522 2,127 21,962 1,178,249 1.25 1,472,811 Grand total 3,804,872 $ 39,285,754 137,495 $ 1,379,284 3,667,377 $ 4,584,221 Note 17. Warrant Liability Public and Private Placement Warrants As of December 31, 2022, the Company has 5,750,000 Public Warrants and 264,088 Private Placement Warrants; there are no warrants as of December 31, 2021. The Public and Private Placement Warrants may only be exercised for a whole number of shares. The Public and Private Placement Warrants became exercisable on September 28, 2022, the date of the Business Combination and will expire on September 28,2027, or earlier upon redemption or liquidation . No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available. F- 27 Table of Contents Redemption of warrants become exercisable when the price per Class A Common Stock equals or exceeds $18.00. Once the warrants become exercisable, the Company may redeem the warrants: ● in whole and not in part; ● at a price of $ 0.01 per warrant; ● upon not less than 30 days’ prior written notice of redemption to each warrant holder; and ● if, and only if, the reported last sale price of the Class A Common Stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like and certain issuances of Class A Common Stock and equity-linked securities) for any 20 trading days within a 30-trading day period commencing no earlier than the date the warrants become exercisable and ending on the third business day before the date on which the Company sends the notice of redemption to the warrant holders. If and when the warrants become redeemable by the Company, the Company may exercise its redemption rights; this is also the case if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws. If the Company calls the warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Window and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless. The private placement warrants are identical to the public warrants, except that the private placement warrants and the Class A Common Stock issuable upon the exercise of the private placement warrants were not transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the private placement warrants are exercisable on a cashless basis and non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants. PIPE Warrants As of December 31, 2022, the Company has 1,022,500 PIPE Warrants; there are no PIPE warrants as of December 31, 2021. The PIPE Warrants have an exercise price of $ 11.50 per share of Class A Common Stock to be paid in cash (except if the shares underlying the warrants are not covered by an effective registration statement after the six-month anniversary of the closing date, in which case cashless exercise is permitted), subject to adjustment to a price equal to the greater of (i)125% of the conversion price if at any time there is an adjustment to the Conversion Price and the exercise price after such adjustment is greater than 125% of the Conversion Price as adjusted and (ii) $5.00. The PIPE Warrants are also subject to adjustment for other customary adjustments for stock dividends, stock splits and similar corporate actions. The PIPE Warrants are exercisable for a period of five years following the Closing, or September 28, 2027. After exercise of a PIPE Warrant, the Company may be required to pay certain penalties if it fails to deliver the Class A Common Stock within a specified period of time. Note 18. Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows: ○ Level 1 – Observable, unadjusted quoted prices in active markets ○ Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability ○ Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period. F- 28 Table of Contents Assets and Liabilities Reported at Fair Value on a Recurring Basis Public Warrants: Public warrants are recorded at fair value on a recurring basis. The Company obtains dealer quotes, of Level 1 inputs, based on observable data to value these warrants. Private Placement Warrants Private Placement Warrants are recorded at fair value on a recurring basis. The Company value these derivatives based on third party reports for Level 3 inputs. Level 3 inputs, based on observable data to value these derivatives. PIPE Warrants PIPE Warrants are recorded at fair value on a recurring basis. The Company value these derivatives based on third party reports for Level 3 inputs. Level 3 inputs, based on observable data to value these derivatives. Forward purchase option derivatives: Forward purchase option derivatives are recorded at fair value on a recurring basis. The Company values these derivatives based on third party reports for Level 3 inputs. Level 3 inputs, based on observable data to value these derivatives. The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy on December 31, 2022: Schedule of Fair Value Assets and Liabilities Measured on Recurring Basis Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Unobservable Inputs (Level 3) Description Liabilities: Public warrants $ 361,100 361,100 - Private placement warrants 19,110 - 19,110 PIPE Warrants 286,300 - 286,300 Forward purchase option derivative 7,309,580 - 7,309,580 Assets Measured at Fair Value on a Nonrecurring Basis There were no assets or liabilities recorded at fair value on a nonrecurring basis for the periods ended December 31, 2022, and December 31, 2021. Fair Value of Financial Instruments The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. With the exceptions of loans receivable, warrants and forward purchase option derivatives, the Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments. The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated: Schedule of Carrying Amounts and Fair Values of Financial Instruments by the Level of Valuation Inputs in the Fair Value Hierarchy As on December 31, 2022 Carrying amount Fair value Fair value measurement using Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 8,390,195 $ 8,390,195 $ 8,390,195 - - Forward purchase receivables 4,584,221 4,584,221 4,584,221 - Loans 1,301,991 1,241,761 - - 1,241,761 Liabilities Deferred consideration 14,359,822 14,359,822 14,359,822 - - Due to seller - current portion 25,973,017 25,973,017 25,973,017 - - Due to seller - long term position 30,976,783 30,976,783 30,976,783 - - Deferred underwriter fee payable 1,450,500 1,450,500 1,450,500 - - Indemnity liability 499,465 499,465 499,465 - - Public warrants 361,100 361,100 361,100 - - Private placement warrants 19,110 19,110 - - 19,110 PIPE Warrants 286,300 286,300 - - 286,300 Forward purchase derivative 7,309,580 7,309,580 - - 7,309,580 F- 29 Table of Contents As on December 31, 2021 Carrying amount Fair value Fair value measurement using Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 5,495,905 $ 5,495,905 $ 5,495,905 - - Loans 1,463,560 1,417,637 - - 1,417,637 The change in the assets measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value are presented in the following table: Schedule of Fair Value Assets Measured on Recurring Basis PIPE Warrants Private Placement Warrants Forward purchase derivative As on December 31, 2022 PIPE Warrants Private Placement Warrants Forward purchase derivative Balance at the beginning of the period $ - - - Acquired under business combination - 203,112 ( 1,687,530 ) Fair value adjustment 286,300 ( 184,002 ) 8,997,110 Balance at the end of the period $ 286,300 19,110 7,309,580 The private placement warrants and PIPE warrants are measured at fair value using a Black-Scholes model and Black-Scholes-Merton model, respectively. As of December 31, 2022, these warrants were valued based on third party reports for Level 3 inputs. The fair value of the forward purchase derivative was estimated using a Monte-Carlo Simulation in a risk-neutral framework (a special case of the Income Approach). Specifically, the future stock price is simulated assuming a Geometric Brownian Motion (“GBM”). For each simulated path, the forward purchase value is calculated based on the contractual terms and then discounted at the term-matched risk-free rate. Finally, the value of the forward is calculated as the average present value over all simulated paths. The Company measured the fair value of the forward purchase option derivative upon execution of the Forward Purchase Agreement and as of December 31, 2022, with the respective fair value adjustments recorded within its Statements of Operations. The Company will continue to monitor the fair value of the forward option derivative each reporting period with subsequent revisions to be recorded in the Statements of Operations. The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the private placement warrants and public warrants as of their measurement dates: Schedule of Level 3 Fair Value Measurement Inputs As on December 31,2022 PIPE Warrants Private placement warrants Exercise price $ 5.00 $ 11.50 Share Price $ 1.78 $ 1.78 Expected term (years) 4.74 4.74 Volatility 46.00 % 46.00 % Risk-free rate 4.00 % 3.98 % The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase derivatives as of their measurement dates: December 31, 2022 Reset Price $ 1.25 Expected term (years) 2.74 Additional maturity consideration per share $ 2.00 Volatility 46 % Risk-free rate 4.2 % Risk-adjusted discount rate 13.4 % F- 30 Table of Contents Note 19. Tax Income tax The major components of income tax for the year ended December 31, 2022, are as follows: Schedule of Major Components of Income tax For year ended December 31, 2022 Current income Tax: Current tax on profits $ ( 3,394 ) Tax regarding prior years - Deferred tax: Deferred taxation - current year ( 9,249,499 ) Deferred taxation - prior years - Income tax benefit reported in the income statement $ ( 9,252,893 ) A reconciliation follows between tax benefit and the product of accounting profit multiplied by the United States domestic tax rate for the years ended December 31, 2022: Schedule of Effective Income Tax Rate Reconciliation For year ended December 31, 2022 Accounting loss before tax from continuing operations $ ( 44,380,976 ) Accounting loss before income tax ( 44,380,976 ) At federal statutory income tax rate of 21% ( 9,320,005 ) State income tax benefit, net of federal benefit ( 1,304,510 ) Remeasurement of deferred taxes due to US tax legislative changes - Permanent differences, net 1,787,471 UTP withholding - Other ( 415,849 ) Valuation allowance charges affecting the provision for income taxes - Total $ ( 9,252,893 ) Deferred tax: Deferred taxes are comprised of the following: Schedule of Deferred Tax Assets and Liabilities December 31, 2022 Loan loss reserve $ 127,508 Stock option conversion 686,879 Deferred revenue 251 Transaction costs 817,322 Change in value of forward purchase contract 8,155,953 Goodwill on Abaca 42,551,111 NOL carryforward 1,862,394 Lease liabilities 251,670 Deferred tax assets $ 54,453,088 Property, plant and equipment, net $ ( 11,444 ) Operating lease right to use assets ( 248,725 ) Intangible Assets ( 2,599,617 ) Deferred tax liabilities $ ( 2,859,786 ) Net deferred tax assets / (liabilities) $ 51,593,302 Reflected in the statement of financial position as follows: Deferred tax assets 54,453,088 Deferred tax liabilities ( 2,859,786 ) Deferred tax assets net 51,593,302 The Company offsets tax assets and liabilities only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. The Company has US federal tax losses totaling $ 7.5 million which have an unlimited carryover period. The Company offsets tax assets and liabilities only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. The Company considers their deferred tax assets to be realizable and has not established a valuation allowance, as it is considered more likely than not that the Company will utilize deferred tax assets in future periods through future taxable income. The Company has US federal tax loss carryovers totaling $ 7.5 million arising from 2020 through 2022 which have an unlimited carryover period. The Company has State of Colorado loss carryovers arising in 2022 of $ 4.1 million which expire in 2042 and State of Arkansas loss carryovers arising in 2020 through 2022 of $ 3.4 million which expire in 2028 through 2032. The Company currently has no tax examinations in progress. The Company has open years for examination from Federal and State of Arkansas for the years ending December 31, 2019, forward and from State of Colorado from December 31, 2022. The Company does not have any uncertain tax positions as of December 31, 2022. F- 31 Table of Contents Note 20. 401(k) Plan The Company offers to all employees a tax-qualified retirement contribution plan, with the Company’s 100 % matching contribution up to 4 % of a participant’s eligible compensation, The total benefits package supports the employees’ well-being to achieve a healthy and financial lifestyle goal. The Company’s consolidated matching contributions in the years ended December 31, 2022, and 2021 amounting to $ 47,806 and $ 44,158 respectively. Note 21. Share based compensation 2022 Equity Incentive Plan Share-based compensation expense recognized for the years ended December 31, 2022, and 2021 totaled $ 2.81 million and $ 0 respectively. The 2022 Plan was approved by the Company’s stockholders on June 28, 2022. The 2022 Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, and performance compensation awards. The Company has not issued stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, and performance compensation awards in year 2022 and 2021. In conjunction with the 2022 Plan, as of December 31, 2022, the Company had granted stock options which are described in more detail below. Stock options Stock options are awarded to encourage ownership of the Company’s common stock by employees and to provide increased incentive for employees to render services and to exert maximum effort for the success of the Company. The Company’s incentive stock options generally permit net-share settlement upon exercise. The option exercise price, vesting schedule and exercise period are determined for each grant by the administrator (person appointed by board to administer the stock plans) of the applicable plan. The Company’s stock options generally have a 10 -year contractual term and vest over 3 - 4 years period from the grant date. The assumptions used to determine the fair value of options granted in the year ended December 31, 2022, using the Black-Scholes-Merton model are as follows: Schedule of Fair Value of Options Granted Black-Scholes-Merton Model Dividend yield 0 % Risk-free interest rate 3.62 % to 4.23 % Expected volatility (weighted-average and range, if applicable) 100 % Expected term 6 to 6.5 years The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period the awards. The shares of the Company were listed on the stock exchange for a limited period of the time and the share price has also dropped significantly from the date of listing, based on these factors the Management has considered the expected volatility at 100 % for the current year. The risk-free interest rate used is the current yield on US Treasury notes with a term equal to the expected term of the options at the grant date. The expected dividend yield is based on annualized dividends on the underlying share during the expected term of the option. The summary of stock option activity as of and for the year ended December 31, 2022 is presented below: Schedule of Stock Options Stock Options Shares Weighted Average Exercise Price Weighted-Average Remaining Contractual Life (in Years) December 31, 2021 - - - Granted 2,170,000 5.29 2.02 Exercised - - - Expired - - - Cancelled / Forfeited - - - December 31, 2022 2,170,000 5.29 2.02 At December 31, 2022, the following options were outstanding at their respective exercise price: Schedule of Exercise Price Options Exercise price options outstanding $ 1.56 87,500 $ 2.58 350,000 $ 4.00 482,500 $ 6.67 1,250,000 Total 2,170,000 On December 31, 2022, there were no unrecognized compensation costs related to non-vested stock options to be recognized. Share based compensation did not impact on Company’s cash flow in financial year ended December 31, 2022, or December 31, 2021. F- 32 Table of Contents Note 22. Subsequent events Subsequent events are events or transactions that occur after the balance sheet date but before the consolidated financial statements are issued. The Company noted the following subsequent events that occurred after the balance sheet date of December 31, 2022: ● On January 5, 2023, the Company’s management was informed that an indemnified loan, having an outstanding balance of $ 3.1 MM was past due pursuant to its December 2022 payment. Management expects the subsequent payments in year 2023 to be delayed. The guarantor on the loan stated to management that the borrower is out of money due to business losses. The guarantor noted that the borrower is attempting to sell the building prior to the end of Q2 of 2023. In addition, further to the aforementioned attempt to sell, the loan is well collateralized by a building currently listed for sale at $ 5.25 MM. The collateral value is based on 90 % of such. There is also a personal guarantee on this loan. Management does believe that the available provision balance as of December 31, 2022 is sufficient and does not warrant revision pursuant to the aforementioned transaction. Furthermore, Management will continue to monitor this loan during Q2 of 2023 for any and all developments. ● On January 25, 2023, at a special meeting of the Company’s stockholders the reduction in the floor conversion price of the outstanding Series A Preferred Stock from $ 2.00 per share to $ 1.25 per share. The approval was obtained to comply with the Nasdaq listing rules requiring stockholder approval for issuances of voting stock exceeding 20% of the voting stock outstanding at the time of the vote . As of February 6, 2023, 7,764 shares of Series A Preferred Stock have been converted into shares of Class A Common Stock, resulting in there being 27,027,089 shares of Class A Common Stock issued and outstanding and 12,686 shares of Series A Preferred Stock issued and outstanding. ● On November 2, 2022, EF Hutton, a division of Benchmark Investments, LLC (“EF Hutton”) issued a notice of default to the Company towards a promissory note (the “Note”) entered with the company on September 28, 2022, amounting to $ 2,166,250 . The Note provides that the Company was obligated to pay EF Hutton the principal sum of $ 2,166,250 on the following schedule: (i) $ 715,750 on October 14, 2022, and (ii) $ 362,625 on each of October 31, 2022, November 30, 2022, December 31, 2022, and January 31, 2023. The legal notice indicates that the principal balance of the $ 1,450,500 (reported as “deferred underwriter fee payable” in the balance sheet) is immediately due and payable with default interest of 24 % per annum, and that EF Hutton intended to pursue legal action if full payment was not received by November 7, 2022. EF Hutton claimed that SHF defaulted on the Note by failing to pay the $ 362,625 instalment payment due on October 31, 2022. On March 13, 2023, the Company and EF Hutton entered into a settlement agreement pursuant to which the Company paid $ 550,000 to EF Hutton in full settlement of the amount due. ● As per Note 3 above, the Company entered into a forbearance agreement with PCCU and Luminous on October 26, 2022. As per the terms of the agreement, PCCU has agreed to defer all payments owed by the Company pursuant to the Purchase Agreement for a period of six (6) months from the date hereof while the parties engage in good faith efforts to renegotiate the payment terms applicable to the deferred obligation. On March 29, 2023, the Company and PCCU entered into the following definitive transaction documents to settle and restructure the deferred obligation: ● A five -year Senior Secured Promissory Note (the “Note”) in the principal amount of $ 14,500,000 bearing interest at the rate of 4.25 % and a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security interest in substantially all of the assets of the Company. ● A Securities Issuance Agreement, pursuant to which the Company will issue 11,200,000 shares of the Company’s Class A Common Stock to PCCU. Following the issuance of the Shares, PCCU will own 54.93 % of the outstanding Class A Common Stock. In connection with the Securities Issuance Agreement, the parties also entered into a Registration Rights Agreement and a Lock-Up Agreement. ● The Registration Rights Agreement requires the Company to register the Shares for resale pursuant to the Securities Act of 1933, as amended (the “Securities Act”); and the Lock-Up Agreement restricts PCCU from transferring the Shares until the earlier of (i) six (6) months after the date of the Securities Issuance Documents or (ii) the consummation of a transaction with an unaffiliated third party in which all of the Company’s stockholders have the right to exchange their shares of Class A Common Stock for cash, securities, or other property; and ● A Commercial Alliance Agreement that sets forth the terms and conditions of the lending-related and account-related services governing the relationship between the Company and PCCU from and after the date of the transactions, which agreement superseded the amended and restated support services agreement, the amended and restated account servicing agreement, and the loan servicing agreement. 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