SHF Holdings, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to_______ Commission File Number: 001-40524 SHF Holdings, Inc. (Exact name of registrant as specified in its charter) Delaware 86-2409612 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 1526 Cole Blvd. , Suite 250 Golden , Colorado 80410 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (303) 431-3435 (Former name or former address, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Class A Common Stock, $0.0001 par value per share SHFS The Nasdaq Stock Market LLC Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share SHFSW The Nasdaq Stock Market LLC As of May 14, 2023, there were outstanding 46,225,317 shares of the Company’s Class A Common Stock, $0.0001 par value per share. SHF HOLDINGS, INC. TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION: 1 Item 1. Financial Statements: 1 Condensed Consolidated Balance Sheets as at March 31, 2023 (Unaudited) and December 31, 2022. 1 Condensed Unaudited Consolidated Statements of Operations for the three-months ended March 31, 2023, and March 31, 2022. 2 Condensed Unaudited Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity for the three-months ended March 31, 2023, and March 31, 2022. 3-4 Condensed Unaudited Consolidated Statements of Cash Flows for the three-months ended March 31, 2023, and March 31, 2022. 5 Notes to Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 42 Item 3. Quantitative and Qualitative Disclosures About Market Risk 57 Item 4. Controls and Procedures 57 PART II - OTHER INFORMATION: 59 Item 1. Legal Proceedings 59 Item 1A. Risk Factors 59 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 59 Item 3. Defaults Upon Senior Securities 59 Item 4. Mine Safety Disclosures 59 Item 5. Other Information 59 Item 6. Exhibits 60 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SHF Holdings, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2023 (Unaudited) 2022 ASSETS Current Assets: Cash and cash equivalents $ 8,628,752 $ 8,390,195 Accounts receivable – trade 1,249,731 1,401,839 Contract assets 34,189 21,170 Prepaid expenses – current portion 135,649 175,585 Accrued interest receivable 186,371 40,266 Short-term loans receivable, net 11,728 51,300 Other current assets - 150,817 Total Current Assets 10,246,420 10,231,172 Long-term loans receivable, net 277,010 1,250,691 Property, plant and equipment, net 201,971 49,614 Operating lease right to use assets 977,113 1,016,198 Goodwill 19,266,276 19,266,276 Intangible assets, net 10,266,176 10,621,087 Deferred tax asset 42,608,596 51,593,302 Prepaid expenses – long term position 675,000 712,500 Forward purchase receivable 4,584,221 4,584,221 Security deposit 17,795 17,795 Total Assets $ 89,120,578 $ 99,342,856 LIABILITIES AND PARENT-ENTITY NET INVESTMENT AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 2,252,224 $ 2,851,457 Accrued expenses 1,197,298 6,354,485 Contract liabilities 79,612 996 Lease liabilities – current 66,726 20,124 Senior secured promissory note – current portion 1,229,376 - Deferred consideration – current portion 14,333,773 14,359,822 Due to seller - current portion - 25,973,017 Other current liabilities 86,291 11,291 Total Current Liabilities 19,245,300 49,571,192 Warrant liability 233,362 666,510 Deferred consideration – long term portion 2,938,535 2,747,592 Forward purchase derivative liability 7,309,580 7,309,580 Due to seller – long term portion - 30,976,783 Senior secured promissory note—long term portion 13,270,624 - Lease liabilities – long term 979,269 1,008,109 Deferred underwriter fee - 1,450,500 Indemnity liability 1,147,862 499,465 Total Liabilities 45,124,532 94,229,731 Commitment and Contingencies (Note 15) - Parent-Entity Net Investment and Stockholders’ Equity Convertible preferred stock, $ .0001 par value, 1,250,000 shares authorized, 10,896 shares issued and outstanding on March 31, 2023, and Convertible preferred stock, $ .0001 par value, 1,250,000 shares authorized, 14,616 shares issued and outstanding on December 31, 2022, respectively 1 1 Class A common stock, $ .0001 par value, 130,000,000 shares authorized 40,288,817 issued and outstanding on March 31, 2023, and Class A common stock, $ .0001 par value, 130,000,000 shares authorized, 23,732,889 issued and outstanding on December 31, 2022, respectively 4,029 2,374 Additional paid in capital 90,687,265 44,806,031 Retained earnings ( 46,695,249 ) ( 39,695,281 ) Total Parent-Entity Net Investment and Stockholders’ Equity 43,996,046 5,113,125 Total Liabilities and Parent-Entity Net Investment and Stockholders’ Equity $ 89,120,578 $ 99,342,856 The accompanying notes are an integral part of the condensed consolidated financial statements. 1 SHF Holdings, Inc. CONDENSED CONOLDIATED STATEMENTS OF OPERATIONS (Unaudited) 2023 2022 For the three months ended March 31, 2023 2022 Revenue $ 4,180,379 $ 1,671,110 Operating Expenses Compensation and employee benefits $ 3,659,520 $ 722,525 General and administrative expenses 1,538,874 222,953 Professional services 449,246 130,816 Rent expense 87,742 25,025 Provision for credit losses 66,666 68,191 Total operating expenses $ 5,802,048 $ 1,169,510 Operating (loss)/ income ( 1,621,669 ) 501,600 Other (income) expenses Interest expense 834,203 - Change in fair value of warrant liability ( 433,148 ) - Total other expenses $ 401,055 $ - Net (loss) / income before income tax ( 2,022,724 ) 501,600 Income tax benefit $ ( 609,277 ) $ - Net (loss)/income ( 1,413,447 ) 501,600 Weighted average shares outstanding, basic 25,670,730 - Basic net loss per share $ ( 0.06 ) $ - Weighted average shares outstanding, diluted 25,670,730 - Diluted loss per share $ ( 0.06 ) $ - The accompanying notes are an integral part of the condensed consolidated financial statements. 2 SHF Holdings, Inc. Condensed Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2023 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, 2022 14,616 $ 1 23,732,889 $ 2,374 $ 44,806,031 $ - $ ( 39,695,281 ) $ 5,113,125 Cumulative effect from adoption of CECL - - - - - - ( 581,321 ) ( 581,321 ) Conversion of PIPE shares ( 3,720 ) - 4,726,200 473 5,004,727 - ( 5,005,200 ) - Stock option conversion - - 629,728 62 1,570,719 - - 1,570,781 Issuance of shares to PCCU (net of tax) - - 11,200,000 1,120 38,405,288 - - 38,406,408 Reversal of deferred underwriting cost - - - - 900,500 - - 900,500 Net loss - - - - - - ( 1,413,447 ) ( 1,413,447 ) Balance, March 31, 2023 10,896 $ 1 40,288,817 $ 4,029 $ 90,687,265 $ - $ ( 46,695,249 ) $ 43,996,046 3 SHF Holdings, Inc. Condensed Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 2022 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, 2021 - $ - - $ - $ - $ 7,339,101 $ - $ 7,339,101 Contribution from parent - - - - - 59,999 - 59,999 Net profit - - - - - 501,600 - 501,600 Net profit (loss) - - - - - 501,600 - 501,600 Balance, March 31, 2022 - $ - - $ - $ - $ 7,900,700 $ - $ 7,900,700 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 SHF Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 2023 2022 For the three months ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) / income $ ( 1,413,447 ) $ 501,600 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 751,225 817 Stock compensation expense 1,570,781 - Interest expense 1,064,232 - Provision for credit losses 66,666 68,191 Lease expense 17,762 - Income tax benefit ( 609,277 ) - Change in fair value of warrant ( 433,148 ) - Changes in operating assets and liabilities: Accounts receivable 152,108 ( 43,276 ) Contract assets ( 13,019 ) ( 8,611 ) Prepaid expenses 77,436 ( 32,297 ) Accrued interest receivable ( 146,106 ) 67 Deferred underwriting payable ( 550,000 ) - Other current assets 150,817 - Accounts payable ( 524,233 ) 19,717 Accrued expenses ( 466,849 ) 10,446 Contract liabilities 78,616 ( 8,333 ) Security deposit - ( 1,867 ) Net cash provided by (used in) operating activities ( 226,436 ) 506,454 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment ( 548,671 ) ( 4,416 ) Issuance of new loans (net of repayment) 1,013,664 12,820 Net cash provided by investing activities 464,993 8,404 CASH FLOWS USED IN FINANCING ACTIVITIES: Net change in parent funding, allocations, and distributions to parent - 59,999 Net cash provided by financing activities - 59,999 Net increase in cash and cash equivalents 238,557 574,857 Cash and cash equivalents – beginning of period 8,390,195 5,495,905 Cash and cash equivalents – end of period $ 8,628,752 $ 6,070,762 Non-Cash transactions: Shares issued for the settlement of PCCU debt obligation $ 38,406,408 $ - Cumulative effect from adoption of CECL $ 581,321 - The accompanying notes are an integral part of the condensed consolidated financial statements. 5 SHF Holdings, Inc. Notes to Unaudited Condensed Consolidated Financial Statements Note 1. Organization and Business Operations Business Description The Company originated as business operations conducted through Partner Colorado Credit Union (“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, 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 quarterly report on Form 10-Q (the “Quarterly 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 Condensed 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 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 Condensed 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 Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q. As a result of the Business Combination, PCCU is the Company’s largest stockholder, owning 55.92 % 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. 6 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, the origination, onboarding, and servicing of cannabis-related deposit business for and on behalf of those partner institutions; Bank Secrecy Act and other regulatory compliance and reporting related to these accounts; onboarding these accounts and responding to account and customer service inquiries; and sourcing, underwriting, and servicing, and administering loans issued to cannabis businesses and related entities. 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 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 together with its proprietary financial technology platform 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. On March 29, 2023, the Company and PCCU entered into a definitive transaction 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. The Company and PCCU also entered into the 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 and supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement. Note 2. Basis of Presentation and Summary of Significant Accounting Policies i. Use of Estimates The preparation of the condensed 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 condensed 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 credit losses, indemnification liabilities, useful lives of intangibles and the fair value of financial instruments. Actual results could differ from the estimates. 7 ii. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, statements of shareholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the current year ending December 31, 2023. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2022, and 2021 included in the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q. iii. Liquidity and Going Concern As of March 31, 2023, the Company had $ 8,628,752 in cash and net working capital deficit of $ 8,998,880 , as compared to $ 8,390,195 in cash and net working capital deficit of $ 39,340,020 at December 31, 2022. Included in the working capital deficit at March 31, 2023 and December 31, 2022 are $ 11,685,419 and $ 11,622,831 , respectively, which represent the equity consideration payable towards the Abaca acquisition. The Company has also incurred an operating loss of $ 1,621,669 for the period ended March 31, 2023. 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 condensed consolidated financial statements have been issued. At December 31, 2022, a significant component of the working capital deficit was $ 25,973,017 representing the current portion of due to PCCU. As outlined above, the Company restructured the due to PCCU issuing equity and a long-term payable. As a result, this risk factor that the Company may not be able to continue as a going concern which existed at December 31, 2022 was alleviated. Despite the restructuring of the due to PCCU, at March 31, 2023, the working capital deficit substantially includes an equity commitment towards the Abaca acquisition, which is a non-cash liability amounting to $ 11,685,419 . 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. 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 condensed 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. 8 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 substantially 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 only one loan on its balance sheet as of March 31, 2023, which comprises 100 % of the total loan balance. The Company also indemnified six loans as of March 31, 2023; three 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 March 31, 2023, and December 31, 2022, 81 % and 85 % of the Accounts Receivable, respectively is due from PCCU. 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 March 31, 2023 and December 31, 2022, there were no recorded allowances for doubtful accounts on accounts receivables. 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 credit 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. 9 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 Credit Losses (ACL) In 2023, the Company adopted Accounting Standards Codification Topic 326 - Financial Instruments - Credit Losses (ASC Topic 326), which replaced the incurred loss methodology for estimated probable credit losses with an expected credit loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The ACL is a valuation account that is deducted from the amortized cost basis of financial assets carried at their amortized cost, including loans held for investment, to present the net amount that is expected to be collected throughout the life of the financial asset. The estimated ACL is recorded through a provision for credit losses charged against operations. Management periodically evaluates the adequacy of the ACL to maintain it at a level it believes to be reasonable. The Company uses the same methods used to determine the ACL to assess any reserves needed for off-balance sheet credit risks such as unfunded loan commitments including Indemnified loans to PCCU. These reserves for off-balance sheet credit risks are presented in the liabilities section in the condensed consolidated balance sheets as an “Indemnity liability.” The ACL consists of two components: an asset-specific component for estimating credit losses for individual loans that do not share similar risk characteristics with other loans; and a pooled component for estimating credit losses for pools of loans that share similar risk characteristics. The ACL for the pooled component is derived from an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters such as probability of default (“PD”) and loss given default (“LGD”) which are derived from various vendor models and/or internally developed model estimation approaches for smaller homogenous loans. PD is projected in these models or estimation approaches using economic scenarios, whose outcomes are weighted based on the Company’s economic outlook and are developed to incorporate relevant information about past events, current conditions, and reasonable and supportable forecasts. The Company considers relevant current conditions and reasonable and supportable forecasts that relate to its lending practices and environment and the specific borrower and determines that the significant factor affecting the loan’s performance is the fact that these borrowers are involved in the cannabis business. Despite being legal at the state level in certain jurisdictions, cannabis remains federally illegal in the United States as of the date of this filing. As cannabis related lending is a new practice in the United States, there is very little historical or industry data on which to base a loss forecast. Therefore, significant judgement is required in creating a reasonable loss estimate, using similar non-MRB loans as a baseline and adjusting for the inherent risks in the cannabis industry. While the Company considers other qualitative factors, including national macroeconomic conditions, in its overall risk analysis, it has determined that they are not significant inputs to the overall loss estimate calculations. The ACL estimation process also applies an economic forecast scenario, or a composite of scenarios based on management’s judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term of a loan excludes expected extensions, renewals, and modification under certain conditions. Recoveries on loans represent collections received on amounts that were previously charged off against the ACL. Recoveries are credited to the ACL when received, to the extent of the amount previously charged off against the ACL on the related loan. Any amounts collected in excess of this limit are first recognized as interest income, then as a reduction of collection costs, and then as other income. 10 ix. Allowance for Loan Losses Prior to the adoption of CECL in 2023, the Company recognized an 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 originates are 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. x. 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. 11 xi. Indemnity Liability 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, the Company has agreed to indemnify PCCU from all claims related to Company’s cannabis-related business, including but not limited to default-related credit losses as defined in the Loan Servicing Agreement. The indemnification component of the Loan Servicing Agreement (refer to Note 9 to the condensed consolidated financial statements) is accounted for in accordance with accounting standards codification (“ ASC”) 460 Guarantees . In determining the applicability of ASC 460, 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 credit losses. In the lending industry, it is inherently anticipated future credit losses will result from currently issued debt. The Company’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 Company 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 460, 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 credit 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 credit losses, the Company 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. On March 29, 2023, The Company and PCCU entered into the 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 and supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement. xii. 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. 12 xiii. 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 analyzed 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. xiv. 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 three months ended March 31, 2023, and the year ended December 31, 2022. xv. 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. 13 xvi. 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 Nasdaq 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. xvii. 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. xviii. 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. 14 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 of America. xix. 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. As of March 31, 2023, the Company reported contract assets and contract liabilities of $ 34,189 and $ 79,612 , respectively, from contracts with customers. As of December 31, 2022, the Company reported a contract asset and liability of $ 21,170 and $ 996 , 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 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 condensed 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 derivatives as liabilities carried at their fair value and adjusts the forward purchase derivatives 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 condensed consolidated statement of operations. 15 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 17). 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. 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 30.13 % and 0 % for the three months ended March 31, 2023 and March 31, 2022, respectively. The effective tax rate differs from the statutory tax rate of 21 % for the three months ended March 31, 2023 and March 31, 2022 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 March 31, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. 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. 16 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 early adopted the new standard during fiscal year 2021. Current Expected 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 deficit. The Company has adopted ASU 2016-13 as of January 1, 2023, utilizing the modified retrospective method. CECL Transition Impact: The table below provides details on the transition impacts of adopting CECL. Other balance sheet lines not presented were not affected by CECL. CECL Transition Impact: Schedule of Current Expected Credit Losses Transition Impact Assets December 31, 2022 Transition Adjustment January 1, 2023 Loans receivable, gross $ 1,323,479 $ - $ 1,323,479 Less: Allowance for credit loss ( 21,488 ) ( 14,980 ) ( 36,468 ) $ 1,301,991 $ ( 14,980 ) $ 1,287,011 Liabilities & Equity December 31, 2022 Transition Adjustment January 1, 2023 Indemnity liability $ 499,465 $ 566,341 $ 1,065,806 Retained deficit ( 39,695,281 ) ( 581,321 ) ( 40,276,602 ) $ ( 39,195,816 ) $ ( 14,980 ) $ ( 39,210,796 ) 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 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. 17 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 did not adopt 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 condensed consolidated financial statements. Standards Pending to be Adopted 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 condensed 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 condensed consolidated financial statements. Note 3. Business Combination During the year 2022, 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 was treated as the acquired company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of SHF issuing shares for the net assets of NLIT, accompanied by a recapitalization. The net assets of NLIT were 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. 18 ● 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. The holders of 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, 100days, 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. ● 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, there were 23,732,889 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. 19 ● 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 condensed 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. On March 29, 2023, the Company and PCCU entered into a definitive transaction 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. (Refer to Note 9 to the financial statements below.) 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. 20 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”). The Company measures the deferred cash consideration and future stock consideration at fair value on the acquisition date based on a report received from an 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. 21 Intangible assets were 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 of 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. 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 three months ended March 31, 2022. Acquisition costs of $ 236,200 were incurred and recognized in acquisition related costs in the year of acquisition. 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 were 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, 2022, to March 31, 2023, is as follows: Schedule of Carrying Amount of Goodwill December 31, 2022 $ 19,266,276 Acquisition of Abaca - March 31, 2023 $ 19,266,276 The Company has elected November 15 as the date for annual impairment testing or as necessary for triggering events. The management believes that there has been no change in the circumstances which could cause any indicators to impairment hence no impairment was recognized during the three months ended March 31, 2023. The Company’s finite lived intangible assets are amortized on a straight-line basis over their estimated useful lives. The following is a summary of the Company’s finite-lived intangible assets as of March 31, 2023: Schedule of Finite Lived Intangible Assets Finite-lived intangible assets, net Acquired in acquisition Amortization Finite-lived intangible assets, net Remaining Useful life in Years December 31, 2022 Acquired in acquisition Amortization March 31, 2023 Market related intangible assets 8 2,066,918 - 65,625 2,001,293 Customer relationships 10 1,974,795 - 50,000 1,924,795 Developed technology 7 6,579,374 - 239,286 6,340,088 Total intangible assets 10,621,087 - 354,911 10,266,176 Following is a summary of the Company’s finite-lived intangible assets as of December 31, 2022. 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 22 Note 6. Loans Receivable Commercial real estate loans receivable, net consist of the following: Schedule of Commercial Real Estate Loans Receivable March 31, 2023 December 31, 2022 Commercial real estate loans receivable, gross $ 413,292 $ 1,432,560 Less: loan origination charges ( 103,476 ) ( 109,081 ) Commercial real estate loans receivable, net 309,816 1,323,479 Allowance for credit losses ( 21,078 ) ( 21,488 ) Commercial real estate loans receivable, net 288,738 1,301,991 Current portion ( 11,728 ) ( 51,300 ) Noncurrent portion $ 277,010 $ 1,250,691 Allowance for Credit Losses The allowance for credit losses is maintained at a level believed to be sufficient to provide for estimated credit 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. The allowance for credit losses consist of the following activity for the three months ended March 31, 2023 and year ended March 31, 2022: Schedule of Allowance For Loan Losses March 31, 2023 March 31, 2022 Allowance for credit losses Beginning balance $ 21,488 $ 14,741 Cumulative effect from adoption of CECL 14,980 - Charge-offs - - Recoveries ( 15,390 ) - Provision - 9,805 Ending balance $ 21,078 $ 24,546 Loans receivable: Individually evaluated for impairment $ - $ - Collectively evaluated for impairment 413,292 1,465,482 $ 413,292 $ 1,465,482 Allowance for credit losses: Individually evaluated for impairment $ - $ - Collectively evaluated for impairment 21,078 24,546 $ 21,078 $ 24,546 23 At March 31, 2023 and December 31, 2022, 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 March 31, 2023, 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 condensed 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. Schedule of Outstanding Amounts March 31, 2023 December 31, 2022 Secured term loans $ 16,300,000 $ 15,300,000 Unsecured loans and lines of credit 3,791,428 3,598,042 Total loans funded by Parent $ 20,091,428 $ 18,898,042 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 $ 875,000 and $ 996,958 at March 31, 2023 and December 31, 2022. SHF has agreed to indemnify PCCU for losses on certain PCCU loans. The indemnity liability reflects SHF management’s estimate of probable credit 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 are as follows: Schedule of Indemnity Liability Three Months ended March 31, 2023 Three Months ended March 31, 2022 Beginning balance $ 499,465 $ - Cumulative effect from adoption of CECL 566,341 - Charge-offs - - Recoveries - - Provision 82,026 58,386 Ending balance $ 1,147,832 $ 58,386 All loans were current and considered performing at March 31, 2023 except one loan which was identified pursuant to potential default on January 5, 2023. The Company’s management was informed that an indemnified loan, having an outstanding balance of $3.1MM, was past due pursuant to its December 2022 payment. 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. The Company is discussing workout options with the borrower. In addition, further to the aforementioned attempt to sell, the loan has sufficient collateral. The above-mentioned loan is now greater than 120 days delinquent and considered impaired. The Company’s CECL methodology has reserved management’s best estimate of credit losses in relation to this loan and the overall loan portfolio on a collective basis. 24 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 March 31,2023 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 credit losses, no other circumstances were identified meeting the requirements of a loss contingency. The provision for credit losses on the statement of operations consists of the following activity for the three months ended March 31, 2023 and year ended December 31, 2022: Schedule of Provision for Loan Losses Commercial real estate loans Indemnity liability Total Commercial real estate loans Indemnity liability Total March 31, 2023 March 31, 2022 Commercial real estate loans Indemnity liability Total Commercial real estate loans Indemnity liability Total Provision (benefit) $ ( 15,390 ) $ 82,056 $ 66,666 $ 9,805 $ 58,386 $ 68,191 Note 8. Property and equipment, net Property and equipment consist of the following: Schedule of Property and Equipment, Net March 31, 2023 December 31, 2022 Equipment $ 45,397 $ 45,397 Software 51,692 51,692 Improvement 71,635 71,635 Office furniture 200,831 7,070 Property and equipment, gross 369,555 175,794 Less: accumulated depreciation ( 167,584 ) ( 126,180 ) Property and equipment, net $ 201,971 $ 49,614 25 Note 9. Related party transactions Account Servicing Agreement The Company had 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 Business Combination with substantially similar terms. Pursuant to this agreement, SHF reported revenue of $ 3,261,284 and $ 1,628,091 for the three months ended March 31, 2023 and March 31, 2022, respectively. 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. Pursuant to these agreements and as amended and restated, the Company reported expenses of $ 378,730 and $ 83,807 for the three months ended March 31, 2023 and March 31, 2022, respectively. 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 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 March 31, 2023 and December 31, 2022. 26 Schedule of Demonstrated Deposit Capacity March 31, 2023 December 31, 2022 PCCU total assets $ 699,228,293 $ 695,072,554 Capacity at 65% 454,498,390 451,797,160 CRB related deposits 213,645,529 161,138,975 Incremental capacity $ 240,852,861 $ 290,658,185 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. 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 receives 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 credit 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 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 60 % 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 March 31, 2023 and December 31, 2022. Schedule of Demonstrated Deposit Capacity March 31, 2023 December 31, 2022 CRB related deposits $ 213,645,529 $ 161,138,975 Capacity at 60% 128,187,317 96,683,385 PCCU net worth 92,411,928 133,231,565 Capacity at 1.3125 121,290,656 174,866,429 Limiting capacity 121,290,656 174,866,429 PCCU loans funded 20,091,428 18,898,042 Amounts available under lines of credit 846,958 996,958 Incremental capacity $ 100,352,270 $ 154,971,429 27 Pursuant to this agreement, the Company reported expenses of $ 11,929 and $ 1,373 for the three months ended March 31, 2023 and March 31, 2022. Issuance of shares to PCCU 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 issued 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 which supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement. 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 provided a non-interest-bearing advance (the “Advance”) amounting to $ 1,150,000 to fund the operation of NLIT. The amount remains outstanding at March 31, 2023 and December 31, 2022 and is presented within “accounts payable” in the condensed consolidated balance sheets. Note 10. Due to Seller Amounts due to seller were as follows: Schedule of Amounts Due to Seller March 31, 2023 December 31, 2022 Due to Seller-Current (Unsecured) $ - $ 25,973,017 Due to Seller-long term (Unsecured) - 30,976,783 Total loans funded by Parent $ - $ 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 was to 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 instalments 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 included 5 % interest annualized using the simple interest method and an approximate 4.71 % effective interest rate. On March 29, 2023, the Company and PCCU entered into a definitive transaction 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 issued 11,200,000 shares of the Company’s Class A Common Stock to PCCU. The breakdown of the liabilities settled under this transaction are as follows: Schedule of Breakdown of Liabilities Settled Due to Seller $ 56,949,800 Cash payment obligation under business combination 3,143,389 Business combination expense payable to seller 1,069,359 Interest accrued but not paid 1,337,843 Total deferred obligation 62,500,391 Less: Senior secured promissory note 14,500,000 Less: Change in deferred tax 9,593,983 Amount charged to Stockholders’ Equity towards issuance of common stock $ 38,406,408 28 Note 11. Senior Secured Promissory Note Schedule of Senior Secured Promissory Note March 31, 2023 December 31, 2022 Senior Secured Promissory Note (Current) $ 1,229,376 $ - Senior Secured Promissory Note (long term) 13,270,624 - Total $ 14,500,000 $ - On March 29, 2023, the Company and PCCU entered into definitive transaction documents to settle and restructure the deferred obligation related to business Combination (Refer to Note 3) under which the Company has issued the 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. The Note amount will be paid in 54 equal installments of $ 295,487 each starting from November 5, 2023 and for the period between March 29, 2023, to October 05, 2023, the Company is expected to pay only interest portion. The repayment schedule of the outstanding amount on March 31, 2023 is as follows: Schedule of Outstanding Amount on Debt Year of payment 2023 $ 488,834 2024 3,006,992 2025 3,138,932 2026 3,274,966 2027 3,416,896 2028 1,173,380 Grand total $ 14,500,000 Note 12. 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 March 31, 2023, and December 31, 2022, net assets recorded under operating leases were $ 977,113 and $ 1,016,198 on, respectively, and net lease liabilities were $ 1,045,995 and $ 1,028,233 , respectively. 29 The Company analyzes 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 three months ended March 31, 2023 and for the year ended December 31, 2022, included in Condensed Consolidated Statements of Operations, is detailed in the table below: Schedule of Lease Cost Three months ended March 31, 2023 (Unaudited) Year ended December 31, 2022 (Audited) Three months ended March 31, 2023 Year ended December 31, 2022 Operating lease cost $ - $ - Short-term lease cost 87,742 99,246 Total Lease Cost $ 87,742 $ 99,246 Schedule of Right Of Use Assets ROU assets that are related to lease properties are presented as follows: Beginning balance $ 1,016,198 $ - Additions to right-of-use assets - 1,029,226 Amortization charge for the period ( 39,085 ) ( 13,028 ) Lease modifications - - Ending balance $ 977,113 $ 1,016,198 Further information related to leases is as follows: Weighted-average remaining lease term 4.29 Years 4.42 Years Weighted-average discount rate 6.87 % 6.87 % Future minimum lease payments as of March 31, 2023, and December 31, 2022, are as follows: Schedule of Future Minimum Lease Payments Year 2023 $ 91,303 $ 91,303 2024 197,520 197,520 2025 217,925 217,925 2026 222,275 222,275 2027 226,705 226,705 Thereafter 348,926 348,926 Total future minimum lease payments $ 1,304,654 $ 1,304,654 Less: Imputed interest 258,659 276,421 Operating lease liabilities 1,045,995 1,028,233 Less: Current portion 66,726 20,124 Non-current portion of lease liabilities $ 979,269 $ 1,008,109 Note 13. Revenue Disaggregated revenue Revenue by type are as follows: Schedule of Disaggregated Revenue 2023 2022 Three months ended March 31 2023 2022 Deposit, activity, onboarding income $ 2,245,831 $ 1,466,869 Safe Harbor Program income 51,103 43,019 Investment income 1,417,152 93,986 Loan interest income 466,293 67,236 Total Revenue $ 4,180,379 $ 1,671,110 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 outsourced 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 Commercial Alliance Agreement with PCCU. 30 Note 14. Deferred underwriter fee In connection with the business combination (refer to Note 3), the Company executed a note on September 28, 2022 with EF Hutton related to PIPE financing under which the Company was obligated to pay 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 Company made the payment of its first installment of $ 715,750 and defaulted on the remaining outstanding amounts. The outstanding balance of the note on December 31, 2022 was $ 1,450,500 . 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 and the difference of $ 900,500 has been accounted for in the “Condensed Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity.” Note 15. Commitments and contingencies ● The Company has issued an 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. 31 ● 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 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)I(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 16. 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 Three months ended March 31, 2023 Net loss $ ( 1,413,447 ) Weighted average shares outstanding – basic 25,670,730 Basic net loss per share $ ( 0.06 ) Weighted average shares outstanding – diluted 25,670,730 Diluted net loss per share $ ( 0.06 ) Weighted average shares calculation As on March 31, 2023 Company public shares 3,926,598 Company initial stockholders 3,403,175 PCCU stockholders 11,759,472 Shares issued for abaca acquisition 2,099,977 Restricted stock units issued 566,755 Conversion of preferred stock 3,914,753 Weighted average shares outstanding 25,670,730 32 Certain share-based equity awards 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 March 31, 2023 Warrants 7,036,588 Share based payments 2,775,655 Shares to be issued to Abaca acquisition 6,433,839 Conversion of preferred stock 10,896,000 Total 27,142,082 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 2022, before the date of business combination, SHF was a single member limited liability company with no shareholders hence the disclosure related to earning per share is not applicable. Note 17. 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. 33 ● 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 has recognized a reset price under the terms of the FPA of $ 1.25 /share. These events significantly reduced the FPA receivable to approximately $ 4.6 million, from approximately $ 37.9 million reported at the end of the September 2022 quarter. The loss in value resulted not only in a compression of the balance sheet, but also $ 42.3 million charge to other expense on the statement of operations in the fourth quarter of 2022. ● The reconciliation statement of the common stock held by the parties are as follows: Schedule of Forward Purchase Agreement 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 As at December 31, 2022 Share sold during the three months As at March 31, 2023 Opening Shares Shares Shares Rest price Amount S.no Name of the party (a) Amount (b) Amount (c=a-b) (iii) (c x iii) 1 Vellar 971,204 $ 1,214,005 - - 971,204 1.25 $ 1,214,005 2 Midtown East 1,517,924 1,897,405 - - 1,517,924 1.25 1,897,405 3 Verdun 1,178,249 1,472,811 - - 1,178,249 1.25 1,472,811 Grand total 3,667,377 $ 4,584,221 - - 3,667,377 $ 4,584,221 Note 18. Warrant Liability Public and Private Placement Warrants As of March 31, 2023, and December 31, 2022, the Company has 5,750,000 Public warrants and 264,088 Private Placement Warrants. 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. 34 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. 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 March 31, 2023 and December 31, 2022, the Company has 1,022,500 PIPE Warrants. 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. 35 Note 19. 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. 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 March 31, 2023 and December 31,2022: Schedule of Fair Value Assets and Liabilities Measured on Recurring Basis March 31, 2023: Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Unobservable Inputs (Level 3) Description Liabilities: Public warrants $ 150,650 150,650 - Private placement warrants 7,953 - 7,953 PIPE Warrants 74,762 - 74,762 Forward purchase option derivative 7,309,580 - 7,309,580 Liabilities,fair value 7,309,580 - 7,309,580 December 31, 2022: 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 Liabilities, fair value 7,309,580 - 7,309,580 36 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 three months periods ended March 31, 2023 and for the year ended as on December 31, 2022, respectively. 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 Level 1 Level 2 Level 3 As on March 31, 2023 Carrying amount Fair value Fair value measurement using Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 8,628,752 $ 8,628,752 $ 8,628,752 - - Forward purchase receivables 4,584,221 4,584,221 4,584,221 - - Loans 413,292 365,781 - - 365,781 Liabilities Deferred consideration 17,272,308 17,272,308 17,272,308 - - Senior Secured Promissory note 14,500,000 14,500,000 14,500,000 - - Indemnity liability 1,147,832 1,147,832 1,147,832 - - Public warrants 150,650 150,650 150,650 - - Private placement warrants 7,953 7,953 - - 7,953 PIPE Warrants 74,762 74,762 - - 74,762 Forward purchase derivative 7,309,580 7,309,580 - - 7,309,580 37 Level 1 Level 2 Level 3 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 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 For the three months ended March 31, 2023 PIPE Warrants Private Placement Warrants Forward purchase derivative Balance at the beginning of the period $ 286,300 19,110 7,309,580 Fair value adjustment ( 211,538 ) ( 11,157 ) - Balance at the end of the period $ 74,762 7,953 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 March 31, 2023, these warrants were valued based on third party reports for Level 3 inputs. Level 3 inputs, based on observable data to value these derivatives. 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 March 31, 2023 PIPE Warrants Private placement warrants Exercise price $ 5.00 $ 11.50 Share Price $ 0.51 $ 0.51 Expected term (years) 4.49 4.49 Volatility 73.2 % 73.2 % Risk-free rate 3.62 % 3.62 % 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 % 38 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 on March 31,2023 and December 31,2022: Schedule of Level 3 Fair Value Measurements Inputs March 31, 2023 Reset Price $ 5.00 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 % December 31, 2022 Reset Price $ 5.00 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 % Note 20. Tax For the three months ended March 31, 2023, the Company recorded income tax benefit of $ 609,277 for continuing operations. The effective tax rate of 30.12 % for the three months ended March 31, 2023, varied from the statutory United States federal income tax rate of 21.0 % primarily because of state income taxes, net of the federal benefit, and adjustments to the fair market value of warrant liabilities. The Company has net deferred tax assets of $ 51,593,302 and $ 42,608,596 as of December 31, 2022, and March 31, 2023, respectively. 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 recognizes income tax benefits from uncertain tax positions where the realization of the ultimate benefit is uncertain. As of both March 31, 2023, and December 31, 2022, the Company has no unrecognized income tax benefits. Note 21. 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 for the three months ended on March 31, 2023, and March 31, 2022, amounting to $ 20,663 and $ 3,942 , respectively. 39 Note 22. Share based compensation 2022 Equity Incentive Plan Share-based compensation expense recognized for the three months ended March 31, 2023 and March 31, 2022 totaled $ 1.6 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, stock bonus awards, or performance compensation awards in the three months ended March 31, 2023 and March 31, 2022. In conjunction with the 2023 Plan, as of March 31, 2023, the Company had granted stock options and restricted stock units 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. The assumptions used to determine the fair value of options granted in the three months ended March 31, 2023, 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 period. 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. A summary of the Company’s stock option activities and related information for the three months ended March 31, 2023 is as follows: Schedule of Stock Option and Related Information Stock Option No. of Stock Option Weighted- Average Grant Date Fair Value Per Stock Option Aggregate Fair Value December 31, 2022 2,170,000 3.53 7,665,707 Granted 336,730 $ 1.03 345,835 Exercised - - - Expired - - - Cancelled / Forfeited ( 64,875 ) 3.13 ( 202,851 ) March 31, 2023 2,441,855 $ 3.20 7,808,691 On March 31, 2023, 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 three months ended March 31, 2023 or year ended December 31, 2022. 40 Restricted Stock Units (“RSUs”) A summary of the Company’s RSU activities and related information for the three months ended March 31, 2023 is as follows: Schedule of Restricted Stock Units Restricted Stock Units No. of RSU Weighted- Average Grant Date Fair Value Per RSU Aggregate Fair Value December 31, 2022 - - - Granted 963,528 $ 1.31 1,262,222 Exercised - - - Expired - - - Cancelled / Forfeited - - - March 31, 2023 963,528 $ 1.31 1,262,222 The fair value as of the respective vesting dates of RSUs that vested during the three months ended March 31, 2023 and 2022 was $ 857,530 and $ 0 . As of March 31, 2023, there is $ 404,692 of unrecognized share-based compensation expense related to RSU awards. Note 23. Subsequent events There were not any material subsequent events that occurred after the balance sheet date of March 31, 2023 through the date of this report. 41 Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS References in this section to “we,” “us,” or “our” refer to SHF Holdings, Inc (herein referred to as the “Company”). References to “management” refer to our officers and board of managers. The following discussion and analysis of our financial performance and results of operations should be read in conjunction with our condensed consolidated financial statements. Forward Looking Statements All statements other than statements of historical facts contained in this report, including statements regarding future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “expect,” “objective,” “plan,” “potential,” “seek,” “grow,” “target,” “if,” and similar expressions intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, objectives, and financial needs. Overview Founded in 2015 by PCCU (please see “Business Reorganization” below for a description of SHF’s organization), SHF’s mission is to provide access to reliable and compliant financial services for the legal cannabis industry. Through that mission and as an early leader with over seven years of experience, SHF is a leading provider of access to reliable and compliance driven banking, lending and other financial services to financial institutions desiring to provide those services to the cannabis industry. Through our proprietary platform and on a multi-state level, SHF provides access to the following banking related services through PCCU and other financial institutions: ● Business checking and savings accounts ● Cash management accounts ● Savings and investment options ● Commercial lending ● Courier services (via third party relationships) ● Remote deposit services ● Automated Clearing House (ACH) payments and origination ● Wire payments Our services allow Cannabis Related Businesses (herein referred to as “CRBs”) to obtain services from financial institutions that allow them to run their business more efficiently and effectively with improved financial insight into their business and access to resources to help them grow. Due to limited availability of payment and other banking solutions for the cannabis industry, most businesses transact with high volumes of cash. Our fintech platform benefits CRBs and financial institutions by providing CRBs with access to financial institutions and financial institutions access to increased deposits with the comfort of knowing that those deposits have been compliantly monitored and validated. By facilitating the daily deposits of cash receipts between CRBs and financial institutions, the risks associated with high cash on hand are mitigated, creating a safer atmosphere for the CRB’s employees and the financial institutions at which the deposit accounts are held. Because SHF is not a financial institution, SHF does not hold customer deposits. All deposit accounts are held by SHF’s financial institution clients and all transmissions of funds to and from deposit accounts are handled directly by the financial institutions. In an industry with limited capital and financing options, we offer access to loan options at what we believe to be competitive rates, often with less punitive terms than the current industry average. Our financial institution clients offer loan options including senior secured debt and operating lines of debt. Collateral types include real estate, equipment, and other business assets. We also provide access to lending options for ancillary service providers serving the cannabis industry as these businesses also can have difficulty finding reliable financial services. 42 To ensure access to consistent and dependable banking access to CRBs, we provide our compliance, validation and monitoring services to financial institutions in a compliance driven environment ensuring strict adherence to the Bank Secrecy Act/FinCEN guidance and related anti money laundering provisions. Since inception, SHF has assisted PCCU in processing more than $12 billion in cannabis related funds and, through its relationship with PCCU and other financial institutions, SHF has successfully navigated 16 state and federal banking exams. In strategically selected geographic areas, SHF licenses to other financial institutions its proprietary software and Safe Harbor Program (the “Program”) to provide compliance-related services to CRBs. As part of the Program, we provide the following to financial institutions interested in licensing the Program to assist in compliant cannabis banking: ● Initial customer due diligence – Know Your Customer ● Customer application management ● Program management support ● Compliance monitoring ● Regulatory exam assistance Business Reorganization PCCU’s Board of Directors approved the contribution of certain assets and operating activities associated with operations from both the Branches and Safe Harbor Services (“SHS” or “Oldco”), 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, LLC with PCCU’s investment in SHF, LLC maintained at the SHF Holding, Co., LLC level (the “reorganization”). The reorganization effectively occurred July 1, 2021. In conjunction with the reorganization, all of Branches’ employees and certain PCCU employees were terminated from PCCU and hired as SHF, LLC employees. Collectively, Oldco, the Branches and SHF, LLC represent the “Carved-Out Operations.” After the reorganization, SHF, LLC contains the entirety of the Carved-Out Operations and Oldco was dissolved. In addition, effective July 1, 2021, the entity entered into an Account Servicing Agreement and Support Servicing Agreement which were subsequently amended and restated. On February 11, 2022, SHF, LLC and SHF Holding Co., LLC, the sole member of SHF, LLC, and Partner Colorado Credit Union (“PCCU”), the sole member of SHF Holding, Co., LLC, entered into a definitive Unit Purchase Agreement (herein referred to as the “Business Combination”) with Northern Lights Acquisition Corp. (“NLIT”), a special purpose acquisition company, and its sponsor, 5AK, LLC. Subsequent to the completion of the transaction, NLIT changed its name to “SHF Holdings, Inc.” (herein referred to as the “Company”). On September 19, 2022, the parties entered into the first amendment to the Unit Purchase Agreement to extend the date by which the closing had to occur from August 31, 2022 until September 28, 2022 and provide for the deferral of $30 million of the $70 million in cash due at the closing. On September 22, 2022, the parties entered into the second amendment to the Unit Purchase Agreement to provide for the deferral of a total of $50 million of the $70 million due at the closing. On September 28, 2022, the parties entered into the third amendment to the Unit Purchase Agreement to provide for the deferral of a total of $56,949,800 of the $70,000,000 due at the closing. Pursuant to the Unit Purchase Agreement, upon the closing of the transaction, NLIT purchased 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 entity’s Class A common stock with an aggregate value equal to $115,000,000 and (ii) $70,000,000 in cash. At transaction close, 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 paid to PCCU at the final transaction close. 43 Effective February 11, 2022, the Company 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 the Company. For the loans subject to this agreement, the Company underwrites 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. PCCU receives a monthly servicing fee at an annual rate of 0.25% of the then-outstanding principal balance of each loan funded by PCCU. Under the Loan Servicing Agreement, the Company has agreed to indemnify PCCU from all claims related to default-related credit 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. Pursuant to this agreement, the Company reported expenses of $378,730 for the three months ended March 31, 2023, and $83,807 for the three months ended March 31, 2022. On March 29, 2023, the Company and PCCU entered into the 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 and supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement. The Company’s lending services program currently depends on PCCU as its 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 60% 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. On September 28, 2022, the parties consummated the Business Combination, resulting in NLIT, consistent with the aforementioned parameters, purchasing 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. Subsequent to the completion of the business combination, the status of PCCU has changed from Parent to majority shareholder of the Company pursuant to its ownership of 60.8% of the Company. 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. Pursuant to the Unit Purchase Agreement, the Company entered into the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement under similar terms as the July 2021 agreements. In addition, in conjunction with the Unit Purchase Agreement, the Company and PCCU entered into a Loan Servicing Agreement. On March 29, 2023, the Company and PCCU entered into the 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 and supersedes the Amended and Restated Support Services Agreement, the Amended and Restated Account Servicing Agreement, and the Loan Servicing Agreement. 44 The purpose of the $56,949,800 deferral is to provide the Company with additional cash to support its post-closing activities. Pursuant to the third amendment to the Unit Purchase Agreement, the deferred consideration shall be paid in one payment of $21,949,801 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, including interest of $3,500,002. Furthermore, PCCU agreed to defer $3,143,388, representing certain excess cash of SHF, LLC due to the Seller under the definitive unit purchase agreement, and the reimbursement of certain reimbursable expenses under the definitive unit purchase agreement. On October 26, 2022, the Company 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 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”). On March 29, 2023, the Company and PCCU entered into a definitive transaction 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 has granted, 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 has issued 11,200,000 shares of the Company’s Class A Common Stock to PCCU Purchase Agreement and Public Company Costs The Business Combination detailed 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 was 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 is expected to be 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 Class B Common Stock converted at the closing to an equal number of shares of Class A Common stock. ● Upon closing of the Business Combination, 11,386,139 shares of Class A Common Stock were issued to PCCU as set forth in and pursuant to the terms of the Purchase Agreement. PCCU 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. ● 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 installments of $6.4 million thereafter. Interest accrues at an effective annual rate of approximately 4.71%. A sum of 1,200,000 shares of Class A Common Stock were escrowed until the amount is paid in full. ● The Parent-Entity Net Investment appearing in the balance sheet of the Company amounting to $9,124,297 on the date of business combination was transferred to additional paid in capital. 45 ● 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 Common Stock at a purchase price of $10.00 per share of Class A Common 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 the registration statement 10 calendar days subsequent to closing, 17.5% of the escrow amount was released with the remaining amount once all securities were 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 $0.00001 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 March 31, 2023, there were 10,896 preferred shares issued or outstanding and 14,616 preferred shares issued or outstanding on December 31, 2022. ● 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 $0.00001 per share. Holders of the Company’s Class A Common Stock are entitled to one vote for each share. As of March 31, 2023, and December 31, 2022, there were 39,659,089 and 20,815,912 shares, respectively, of Class A Common Stock issued or outstanding. As of March 31, 2023, and December 31, 2022, 3,669,504 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. ● 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 condensed 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. Key Metrics In addition to the measures presented in our condensed consolidated financial statements, our management regularly monitors certain measures in the operation of our business. These key metrics are discussed below. Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) and Adjusted EBITDA To provide investors with additional information regarding our financial results, we have disclosed EBITDA and Adjusted EBITDA, both of which are non-GAAP financial measures that we calculate as net income before taxes and depreciation and amortization expense in the case of EBITDA and further adjusted to exclude non-cash, unusual and/or infrequent costs in the case of Adjusted EBITDA. Below we have provided a reconciliation of net income (the most directly comparable GAAP financial measure) to EBITDA and from EBITDA to Adjusted EBITDA. We present EBITDA and Adjusted EBITDA because these metrics are a key measure used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of investment capacity. Accordingly, we believe that EBITDA and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management. 46 EBITDA and Adjusted EBITDA have limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows: ● although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and both EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; ● EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; and ● EBITDA and Adjusted EBITDA do not reflect tax payments that may represent a reduction in cash available to us. Because of these limitations, you should consider EBITDA and Adjusted EBITDA alongside other financial performance measures, including net loss and our other GAAP results. A reconciliation of net income to non-GAAP EBITDA and Adjusted EBITDA is as follows: Three Months Ended March 31, 2023 2022 Net (loss)/income $ (1,413,447 ) $ 501,600 Interest expense 834,203 - Depreciation and amortization 396,314 817 Taxes (609,277 ) - EBITDA $ (792,207 ) $ 502,417 Other adjustments – Provision for credit losses 66,666 68,191 Change in the fair value of warrants (433,148 ) - Stock option conversion 1,570,782 - Loan origination fees and costs (2,175 ) 1,373 Adjusted EBITDA $ 409,918 $ 571,981 The decrease in our income on an EBITDA and Adjusted EBITDA basis for the three months ended March 31, 2023, is due to increase in professional fees on account increase in compliances as well as increases in compensation, employee benefits, marketing, insurance, and additional items, as discussed under “ Discussion of our Results of Operations ” below. Other adjustments include estimated future credit losses not yet realized, including amounts indemnified to PCCU for loans funded by them. The Company had entered into a Loan Servicing Agreement with PCCU, pursuant to which the Company agreed to indemnify PCCU for claims associated with CRB activities including any loan default related losses for loans funded by PCCU; the Loan Servicing Agreement has since been superseded by the Commercial Alliance Agreement. Deferred loan origination fees and costs represent the change in net deferred loan origination fees and costs. When included with a new loan origination, we receive an upfront loan origination fee in conjunction with new loans funded by our financial institution partners and incur costs associated with originating a specific loan. For accounting purposes, the cash received for loan origination fees and costs is initially deferred and recognized as interest income utilizing the interest method. 47 Other Metrics For our business operations, we monitor the following key metrics. Total account balances, number of accounts and average account balances Our lending capacity is dependent on the size of our managed deposit base and number of active accounts. In addition, fees are generated based on open accounts and account activity. We monitor account activity including deposits, withdrawals and ending account balance daily. Total account balances represent the balance of onboarded and monitored deposits on hand at financial institution clients at period end. Average account balance represents the total account balance divided by the number of accounts at the period end. Account fees per average active accounts managed Currently a significant amount of our fees is generated from account openings, active accounts and account activity. As a result, we monitor account openings and closings on a daily, weekly and monthly basis. We strive to meet the appropriate balance between depository balances and fees and therefore review account fees per average number of active accounts managed. Three months Ended March 31 2023 2022 Change ($) Change (%) Average monthly ending deposit balance (1) $ 222,857,256 141,840,884 81,016,372 57.12 % Account fees (2) $ 2,120,187 1,427,487 692,700 48.53 % Average active accounts (3) 1,018 581 437 75.22 % Average account balance (4) $ 218,917 244,132 (25,215 ) (10.33 %) Average fees per account (4) $ 2,083 2,457 (374 ) (15.23 %) (1) Represents the average of monthly ending account balances (2) Reported account activity fee revenue (3) Represents the average of monthly ending active accounts (4) Refer to the below section – Discussion of Results of our Operations for additional discussion of trends. While the average number of accounts increased for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, the average account size and account fees decreased as we experienced some churn of larger clients replaced by smaller business. We expect this trend to shift as we lead with our lending program typically requiring borrowers to place deposits with financial institutions with which we have relationships. We are focused on enhancing and growing our lending platform. Incremental lending key metrics will be monitored as this portion of our business grows in volume. Metrics will include average loan balance, average life to repayment, average effective interest rate and loan status, amongst others. Components of our Results of Operations Revenue The Company generates interest and fee income through providing a variety of services to PCCU to facilitate its banking services to CRBs 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 deposit accounts held at financial institution clients, and sourcing and originating loans. In addition, the Company provides these similar services and outsourced support to other financial institutions providing banking to the cannabis industry. These services are provided under the Safe Harbor Master Program Agreement. 48 Operating expenses Operating expenses consist of compensation and benefits, professional services, rent expense, parent allocations, provisions for credit losses and other general and administrative expenses. Compensation and benefits consist of employee wages and associated benefits while professional services consist of legal, general consulting and accounting fees. The Company reports a provision for credit losses both as it relates to loans funded internally and those carried by PCCU or other financial institutions. The Company indemnifies PCCU for losses on loans to borrowers sourced by the Company and funded by PCCU. The Company anticipates comparable arrangements with other financial institutions that fund loans to borrowers sourced by the Company. Other general and administrative expenses consist of various miscellaneous items including account hosting fees, insurance expense, advertising and marketing, travel meals and entertainment and other office and operating expense. Discussion of our Results of Operations —2023 Compared to 2022 (Three Months Ended March 31) Revenue Three Months Ended March 31, 2023 2022 Change ($) Change (%) Deposit, activity, onboarding income $ 2,245,831 $ 1,466,869 778,962 53.10 % Safe Harbor Program income 51,103 43,019 8,084 18.79 % Investment income 1,417,152 93,986 1,323,166 1407.83 % Loan interest income 466,293 67,236 399,057 593.52 % Total Revenue $ 4,180,379 $ 1,671,110 2,509,269 150.16 % Account fee income consists of deposit account fees, activity fees and onboarding income. Historically, the Company has charged fees based on cannabis related deposit account activity. During 2023, we reduced our fee percentage for cannabis specific accounts in order to ensure we were competitive with the market and for many accounts implemented a flat fee structure for certain CRB accounts based on historical and anticipated deposit levels. In addition, we receive a flat fee and lower rates for ancillary accounts, which are accounts provided to businesses servicing the cannabis industry in general but do not manufacture, possess, distribute or transport cannabis. The ratio of ancillary accounts to cannabis specific accounts increased during 2023. The Company provides similar account services and outsourced support to other financial institutions providing banking to the cannabis industry. These services are provided under the Safe Harbor Master Program Agreement. Revenue has decreased as we narrow the financial institutions and states we allow under this program and instead focus on servicing CRBs directly. We have an investment servicing agreement with PCCU (related party) where our financial institution clients invest their customer deposits into short term US treasury instruments. The investment income in our income statement reflects our share of that investment income. Investment income earned on deposits with the Federal Reserve Bank increased as a result of recent interest rate increases. We have a Loan Servicing Agreement with PCCU (related party) where our financial institution carries the loan balances on their financial statement; the Loan Servicing Agreement has since been superseded by the Commercial Alliance Agreement. The loan interest income reflects our share of loan interest on issued credit. Loan interest earned on the Company’s direct loans and the indemnified loans increased as the Company increases its focus on lending. For the three months ended March 31, 2023, SHF serviced eight loans, as compared to seven loans in the three months ended March 31, 2022. 49 Operating expenses As discussed in the reverse recapitalization section above, PCCU allocations were discontinued effective July 1, 2022, and SHF entered into both an account servicing agreement and support service agreement. There is no impact on revenue as a result of implementing these agreements. Three months Ended March 31, 2023 2022 Change ($) Change (%) Compensation and employee benefits $ 3,659,520 $ 722,525 $ 2,936,995 406.49 % General and administrative expenses 1,538,874 222,953 1,315,921 590.22 % Professional services 449,246 130,816 318,430 243.42 % Rent expense 87,742 25,025 62,717 250.62 % Provision for credit losses 66,666 68,191 (1,525 ) (2.24 )% Total operating expenses $ 5,802,048 $ 1,169,510 $ 4,632,538 396.11 % Compensation and employee benefits increased on account of stock-based compensation and also the increase in the head count in anticipation of growth. Professional services expense increased primarily due to the increase in the legal fees, audit fees, and consulting fees towards SEC filing and other ancillary reporting’s. Provision for credit losses has increased due to increase in the loss rate and with increase in the absolute value of the loans. General and administrative expenses increased across various categories including: i) approximately $390,659 in account and hosting fees as a result of the reorganization, ii) approximately $76,879 in increased advertising and marketing as we focus on growth, iii) $387,132 in amortization and depreciation, and iv) $208,813 in business insurance. Financial Condition Cash and cash equivalents Cash and cash equivalents totaled $8,628,752 and $8,390,195 as of March 31, 2023, December 31, 2022, respectively. Cash flows For the three months ended March 31, 2023, the Company’s cash used in operations was ($210,737) compared to cash provided by $506,455, for the three months ended March 31, 2022. This was mainly due to reduced net income from operations with an additional amount resulting from changes across operating assets and liabilities. See discussion under “ Discussion of our Results of Operations ” above for more information. Contract assets and liabilities Deferred revenue is primarily related to contract liabilities associated with the Company agreements. As of March 31, 2023, SHF reported a contract asset and liability of $34,189 and $79,612 and on December 31, 2022, SHF reported a contract asset and liability of $21,170 and $996, respectively. 50 Liquidity and going concern As of March 31, 2023, the Company had $8,628,752 in cash and net working capital of deficit of $8,998,880, as compared to $8,390,195 in cash and net working capital deficit of $39,340,020 at December 31, 2022. Included in the working capital deficit at March 31, 2023 and December 31, 2022 are $11,685,419 and $11,622,831, respectively, which represent the equity consideration payable towards the Abaca acquisition. The Company has also incurred an operating loss of $1,621,669 for the period ended March 31, 2023. At December 31, 2022, a significant component of the working capital deficit was $25,973,017 as current portion of due to PCCU. As outlined above, the Company restructured the due to PCCU issuing equity and a long-term payable. As a result, this risk factor that the Company may not be able to continue as a going concern which existed at December 31, 2022 was alleviated. Despite the restructuring of the due to PCCU, at March 31, 2023, the working capital deficit substantially includes an equity commitment equity commitment towards the Abaca acquisition, which is a non-cash liability amounting to $11,685,419. 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 condensed consolidated financial statements have been issued. 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 condensed 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. Critical Accounting Policies and Estimates Our condensed consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as disclosure of contingent assets and liabilities. An appreciation of our critical accounting policies is necessary to understand our financial results. In some cases, we could reasonably use different accounting policies and estimates, and changes in our estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates, and our financial condition or results of operations could be affected. We base our estimates on our experience and other assumptions that we believe are reasonable, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. Revenue recognition SHF recognized revenue in accordance with Accounting Standards Codification (“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. 51 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. Indemnity liability The indemnification component of the Loan Servicing Agreement is accounted for in accordance with ASC 460 Guarantees. In determining the applicability of ASC 460, 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 credit losses. In the lending industry, it is inherently anticipated future credit 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 460, 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 credit 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 credit 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. Stock-based compensation The 2022 Plan (“Equity Incentive 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, stock bonus awards, or performance compensation awards in years 2023 and 2022. In conjunction with the 2022 Plan, as of March 31, 2023, the Company had granted stock options and restricted stock units 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. 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. 52 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. 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 business combination, 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 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. ● 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. ● 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. These events significantly reduced the FPA receivable to approximately $4.6 million, from approximately $37.9 million reported at the end of the September 2022 quarter. The loss in value resulted not only in a compression of the balance sheet, but also $42.3 million charge to other expense on the statement of operations. 53 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 derivatives as liabilities carried at their fair value and adjusts the forward purchase derivatives 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 condensed consolidated statement of operations. 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. Lastly, 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 March 31, 2023, 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. Allowance for Credit Losses (ACL) In 2023, the Company adopted Accounting Standards Codification Topic 326 - Financial Instruments - Credit Losses (ASC Topic 326), which replaced the incurred loss methodology for estimated probable credit losses with an expected credit loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The ACL is a valuation account that is deducted from the amortized cost basis of financial assets carried at their amortized cost, including loans held for investment, to present the net amount that is expected to be collected throughout the life of the financial asset. The estimated ACL is recorded through a provision for credit losses charged against operations. Management periodically evaluates the adequacy of the ACL to maintain it at a level it believes to be reasonable. The Company uses the same methods used to determine the ACL to assess any reserves needed for off-balance sheet credit risks such as unfunded loan commitments including Indemnified loans to PCCU. These reserves for off-balance sheet credit risks are presented in the liabilities section in the consolidated balance sheets as an “Indemnity liability.” The ACL consists of two components: an asset-specific component for estimating credit losses for individual loans that do not share similar risk characteristics with other loans; and a pooled component for estimating credit losses for pools of loans that share similar risk characteristics. The ACL for the pooled component is derived from an estimate of expected credit losses primarily using an expected loss methodology that incorporates risk parameters such as probability of default (“PD”) and loss given default (“LGD”) which are derived from various vendor models and/or internally developed model estimation approaches for smaller homogenous loans. PD is projected in these models or estimation approaches using economic scenarios, whose outcomes are weighted based on the Company’s economic outlook and are developed to incorporate relevant information about past events, current conditions, and reasonable and supportable forecasts. The Company considers relevant current conditions and reasonable and supportable forecasts that relate to its lending practices and environment and the specific borrower and determines that the significant factor affecting the loan’s performance is the fact that these borrowers are involved in the cannabis business. Despite being legal at the state level in certain jurisdictions, cannabis remains federally illegal in the United States as of the date of this memorandum. As cannabis related lending is a new practice in the United States, there is very little historical or industry data on which to base a loss forecast. Therefore, significant judgement is required in creating a reasonable loss estimate, using similar non-MRB loans as a baseline and adjusting for the inherent risks in the cannabis industry. While the Company considers other qualitative factors, including national macroeconomic conditions, in its overall risk analysis, it has determined that they are not significant inputs to the overall loss estimate calculations. The ACL estimation process applies an economic forecast scenario, or a composite of scenarios based on management’s judgment and expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term of a loan excludes expected extensions, renewals, and modification under certain conditions. 54 Recoveries on loans represent collections received on amounts that were previously charged off against the ACL. Recoveries are credited to the ACL when received, to the extent of the amount previously charged off against the ACL on the related loan. Any amounts collected in excess of this limit are first recognized as interest income, then as a reduction of collection costs, and then as other income. Emerging Growth Company Status SHF is an emerging growth company (“EGC”), as defined in the JOBS Act. Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued until such time as those standards apply to private companies. In electing this relief, the JOBS Act does not preclude an EGC from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. SHF has elected to use this relief and will do so until the earlier of the date that it (a) is no longer an emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result of the elected JOBS Act relief, these combined and condensed consolidated financial statements may not be comparable to companies that do not elect JOBS Act relief or choose to early adopt different accounting pronouncements than SHF. Internal Control Over Financial Reporting In connection with our management assessment of internal control over financial reporting as of and for the three months ended March 31, 2023, the Company has identified Four (4) material weaknesses within our internal controls over financial reporting related to its Deferred Tax Asset, Revenue Recognition, Complex Financial Instruments and Credit Losses. Refer to Item 9A of this document for additional details. Related Party Relationships Account Servicing Agreement Effective July 1, 2021, 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. Pursuant to this agreement, SHF reported revenue of $3,261,284 for the three months ended March 31, 2023, and $1,628,091 for the three months ended March 31, 2022. As described elsewhere in this document, on February 11, 2022, SHF and PCCU entered into the Amended and Restated Account Servicing Agreement, pursuant to which SHF provides services including, among other things, Bank Secrecy Act compliance and reporting, onboarding, responding to account inquiries, and responding to customer service inquiries relating to accounts at PCCU held for cannabis-related businesses (“CRBs”). Pursuant to the Amended and Restated Account Servicing Agreement, SHF’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 Amended and Restated Account Servicing 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, provided that PCCU may not provide notice of non-renewal until 30 months following the signing date. The Amended and Restated Account Servicing Agreement initially provided that the agreement would terminate within 60 days of SHF no longer qualifying as a “credit union service organization” or within 60 days of the assumption by a third party of all CRB-related accounts; however, on May 23, 2022, SHF and PCCU entered into the Second Amended and Restated Account Servicing Agreement, which agreement amended and restated the Amended and Restated Account Servicing Agreement to remove the provision providing for the termination of the agreement within 60 days of SHF no longer qualifying as a “credit union service organization,” as SHF will cease to qualify as a CUSO following the closing of the Business Combination. 55 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. Pursuant to these agreements and as amended and restated on February 11, 2022, the Company reported expenses of $378,730 for the three months ended March 31, 2023, and $83,807 for the three months ended March 31, 2022. As described elsewhere in this document, on February 11, 2022, SHF and PCCU entered into the Amended and Restated Support Services Agreement, pursuant to which PCCU will continue to provide to SHF certain operational and administrative services relating to, among other things, human resources, employee benefits, IT and systems, accounting and marketing for a monthly fee equal to $30.96 per account in 2022 and $25.32 per account in 2023 and 2024. In addition, as it pertains to CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) will be shared 25% to PCCU and 75% to SHF. SHF will also reimburse PCCU for any of its out-of-pocket expenses relating to the services provided to SHF. 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 and to allow its ratio of CRB-related deposits to total assets to equal at least 65% unless otherwise dictated by regulatory, regulator or policy requirements. The Amended and Restated Support Services Agreement has the same term and termination provisions as the Amended and Restated Account Servicing Agreement, including a provision providing for the termination of the agreement within 60 days of SHF no longer qualifying as a “credit union service organization.” On May 23, 2022, SHF and PCCU entered into the Second Amended and Restated Support Services Agreement, which agreement amended and restated the Amended and Restated Support Services Agreement to remove the provision providing for the termination of the agreement within 60 days of SHF no longer qualifying as a “credit union service organization,” as SHF will cease to qualify as a CUSO following the closing of the Business Combination. 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 credit 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. Pursuant to this agreement, the Company reported expenses of $ 11,929 for the three months ended March 31, 2023, and $1,373 for the three months ended March 31, 2022. On March 29, 2023, The Company and PCCU entered into the 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 and supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement. Operating leases Effective July 1, 2021, SHF entered into a one-year gross lease with the Parent 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. Issuance of shares to PCCU 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 which supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement. 56 Item 3. Quantitative and Qualitative Disclosures About Market Risk SHF Holdings, Inc. is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information otherwise required with respect to market risk. Item 4. Controls and Procedures 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. 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 our disclosure controls and procedures were not effective as of March 31, 2023 due to the material weaknesses described below. In light of these material weaknesses, we performed additional analysis as deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented. Evaluation of Disclosure Controls and Procedures 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. 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. 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 below-mentioned 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 March 31, 2023. 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. As of September 30, 2022, the Company had failed to document an analysis to identify the substantial doubt about the ability to continue as a going concern; evaluate whether the substantial doubt was alleviated by management’s plans; and disclose the going concern in the September 30, 2022 10-Q. To remediate this material weakness, the Company 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 and first quarter of 2023 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. As such, the Company has remediated this material weakness as of March 31, 2023. 57 We consider the following material weaknesses as of March 31, 2023: 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. 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. 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 and the three months ending March 31, 2023, 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. Credit Losses: During the three months ending March 31, 2023, the Company identified a material weakness with regard to the initial implementation of CECL. This included initially not having supporting documentation of the model aligning to the calculations recorded, and incorrectly applying the modified retrospective adoption through the Condensed Unaudited Consolidated Statements of Operations only, as opposed to the Condensed Unaudited Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity on January 1, 2023. To alleviate this material weakness, the Company enhanced the allowance model documentation prior to the March 31, 2023, 10-Q filing, and will implement a quarterly process with enhanced management review controls to perform and review CECL. The analysis and disclosures are then assessed by senior management of the Company performing review of the documentation and disclosures. Changes in Internal Control over Financial Reporting Other than as noted above in the March 31, 2023 material weaknesses, there was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2023 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, with the exception of the below. The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation of the material weaknesses and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards. 58 PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 1A. Risk Factors As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our final prospectus dated June 23, 2021 filed with the SEC, the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company’s Form 8-K/A filed with the SEC on April 15, 2022, the Company’s definitive proxy statement filed with the SEC on June 10, 2022, and the Company’s Current Report on Form 8-K filed with the SEC on September 19, 2022, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. Item 2. Unregistered Sale of Equity Securities and Use of Proceeds. (a) Unregistered Sales of Equity Securities None, except as previously disclosed in the Company’s Current Reports on Form 8-K. (b) Use of Proceeds from the Public Offering None. (c) Purchase of Equity Securities by the Issuer and Affiliated Purchasers None. Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not Applicable Item 5. Other Information None. 59 Item 6. Exhibits The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q. 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). 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). 10.1 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). 10.2 † 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). 10.3 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). 10.4 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). 10.5 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). 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. ** 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. 60 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. Signature Title Date /s/ Sundie Seefried Chief Executive Officer May 15, 2023 Sundie Seefried /s/ James H. Dennedy Chief Financial Officer May 15, 2023 James H. Dennedy 61