What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 502 added, 342 removed, 407 unchanged (67% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Looking Statements

statements other than statements of historical facts contained in this report, including statements regarding future operations, are

following discussion and analysis should be read together with our consolidated financial statements and the notes to those statements

included elsewhere in this Quarterly Report on Form 10-Q.

This report contains forward-looking statements within the meaning of Section

27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended,

or the Exchange Act.

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

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.

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.

involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be

materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

discuss these risks in greater detail in the sections entitled “Risk Factors” and elsewhere in this Quarterly Report on Form

10-Q and in our Annual Report on Form 10-K filed with the SEC.

Given these uncertainties, you should not place undue reliance on these

forward-looking statements.

Moreover, we operate in a very competitive and rapidly changing environment.

New risks emerge from time to

It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which

any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements

In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on

Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking

The forward-looking statements

made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made.

Except as required by

law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially

from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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.

in 2015 by PCCU (please see “Business Reorganization” below for a description of SHF’s organization), SHF’s mission

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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

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.

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.

ensure access to consistent and dependable banking access to CRBs, we provide our compliance, validation and monitoring services to financial

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Reorganization

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.

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

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.

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,

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.

addition, effective July 1, 2021, the entity entered into an Account Servicing Agreement and Support Servicing Agreement which were

subsequently amended and restated and then superseded and replaced in March 2023 by a Commercial Alliance Agreement.

February 11, 2022, SHF, LLC and SHF Holding Co., LLC, the sole member of SHF, LLC, and Partner Colorado Credit Union (“PCCU”),

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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.

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 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.

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.

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

Company’s lending services program currently depends on PCCU as its largest funding source for new loans to CRBs.

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purpose of the $56,949,800 deferral is to provide the Company with additional cash to support its post-closing activities.

the third amendment to the Unit Purchase Agreement, the deferred consideration shall be paid in one payment of $21,949,801 on or before

the third amendment to the Unit Purchase Agreement, the deferred consideration was to 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

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related events in connection with the Business Combination are summarized below:

2,875,000 of Class B Common Stock converted at the closing to an equal number of shares of

Class A Common stock.

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.

2,875,000 of Class B Common Stock converted at the closing to an equal number of shares of Class A Common stock.

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.

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

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Approximately

$56.9 million of the $70.0 million of cash proceeds due to PCCU was deferred and is due to

Approximately $21.9 million of the amount was due to PCCU beginning December

The residual $35.0 million is due in six quarterly installments of $6.4 million

$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%.

1,200,000 shares of Class A Common Stock were escrowed until the amount is paid in full.

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.

● 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.

A sum of 1,200,000 shares of Class A Common

Stock were escrowed until the amount is paid in full.

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.

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

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.

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.

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.

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.

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.

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 June 30, 2023, there

were 4,221 preferred shares issued or outstanding and 14,616 preferred shares issued or outstanding on December 31, 2022.

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.

The Company is authorized to issue up to 130,000,000 shares of Class A Common Stock with a par value of $0.00001

Holders of the Company’s Class A Common Stock are entitled to one vote for each share.

As of June 30, 2023, and

December 31, 2022, there were 21,453,139 and 20,815,912 shares, respectively, of Class A Common Stock issued or outstanding.

June 30, 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.

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.

equity accounts are maintained for SHS, SHF or the Branches.

addition to the measures presented in our condensed consolidated financial statements, our management regularly monitors certain measures

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in the same manner as our management.

and Adjusted EBITDA have limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis

and Adjusted EBITDA have limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis

of our results as reported under GAAP.

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expenditure requirements;

and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital

and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

and Adjusted EBITDA do not reflect tax payments that may represent a reduction in cash available

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reconciliation of net income to non-GAAP EBITDA and Adjusted EBITDA is as follows:

Months Ended March 31,

(loss)/income

Three Months Ended June 30,

Six Months Ended June 30,

Net (loss)/income

$ (17,604,567 )

and amortization

adjustments –

Provision for credit losses

in the fair value of warrants

option conversion

origination fees and costs

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.

$ (19,018,014 )

Interest expense

Depreciation and amortization

$ (17,501,628 )

$ (18,293,835 )

Other adjustments –

include estimated future credit losses not yet realized, including amounts indemnified to PCCU for loans funded by them.

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.

accounting purposes, the cash received for loan origination fees and costs is initially deferred and recognized as interest income

utilizing the interest method.

Provision for credit losses

Change in the fair value of warrants

Stock option conversion

Impairment of goodwill and finite-lived intangible assets

Loan origination fees and costs

Adjusted EBITDA

decrease in our income on an EBITDA and Adjusted EBITDA basis for the three and six months ended June 30, 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.

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.

our business operations, we monitor the following key metrics.

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fees and therefore review account fees per average number of active accounts managed.

months Ended March 31

Six months Ended June 30

Average monthly ending deposit balance

$ 226,798,931

$ 142,833,436

Average active accounts

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Average fees per account

Three months Ended June 30

Average monthly ending deposit balance

$ 230,740,605

$ 143,825,988

Average active accounts

Average account balance

Average fees per account

the average of monthly ending account balances

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to the below section – Discussion of Results of our Operations for additional discussion of trends.

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.

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.

the average number of accounts increased for the three and six months ended June 30, 2023 as compared to the three and six months ended

June 30, 2022, the average account size and account fees decreased as we experienced some churn of larger clients replaced by smaller

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.

are focused on enhancing and growing our lending platform.

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and benefits consist of employee wages and associated benefits while professional services consist of legal, general consulting and accounting

Company reports a provision for credit losses both as it relates to loans funded internally and those carried by PCCU or other

financial institutions.

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.

Company anticipates comparable arrangements with other financial institutions that fund loans to borrowers sourced by the

The Company anticipates

comparable arrangements with other financial institutions that fund loans to borrowers sourced by the Company.

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.

of our Results of Operations —2023 Compared to 2022 (Three Months Ended March 31)

Three Months Ended March 31,

of our Results of Operations —2023 Compared to 2022 (Six Months Ended June 30)

Six Months Ended June 30,

Deposit, activity, onboarding income

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and states we allow under this program and instead focus on servicing CRBs directly.

have an investment servicing agreement with PCCU (related party) where our financial institution clients invest their customer deposits

have a commercial alliance agreement with PCCU (related party) where our financial institution clients invest their customer deposits

into short term US treasury instruments.

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Investment income earned on deposits with the Federal Reserve Bank increased as a result of recent interest rate increases.

have a Loan Servicing Agreement with PCCU (related party) where our financial institution carries the loan balances on their financial

had a Loan Servicing Agreement with PCCU (related party) where our financial institution carries the loan balances on their financial

the Loan Servicing Agreement has since been superseded by the Commercial Alliance Agreement.

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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.

discussed in the reverse recapitalization section above, PCCU allocations were discontinued effective July 1, 2022, and SHF entered

For the six months ended June 30, 2023, SHF serviced fifteen loans, as compared to seven

loans in the six months ended June 30, 2022.

discussed in the business reorganization 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

Three months Ended March 31,

Six months Ended June 30,

Compensation and employee benefits

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Professional services

Impairment of goodwill

Impairment of finite lived intangible assets

Provision for credit losses

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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.

ancillary reporting.

of goodwill and finite-lived intangible assets has increased on account of termination of the Master Services and Revenue Sharing Agreement

with Central Bank under which the Company provided expertise and intellectual property to cannabis related businesses primarily located

for credit losses has increased due to increase in the loss rate and with increase in the absolute value of the loans.

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.

i) approximately $611,381 in investment hosting fees as a

result of the reorganization, ii) approximately $997,364 in increased Professional & Consultancy expense as we focus on growth, iii)

approximately $795,713 in amortization and depreciation, and iv) approximately $329,881 in business insurance.

of our Results of Operations —2023 Compared to 2022 (Three Months Ended June 30)

Three Months Ended June 30,

Deposit, activity, onboarding income

Safe Harbor Program income

Investment income

Loan interest income

Total Revenue

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.

of ancillary accounts to cannabis specific accounts increased during 2023.

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.

have a commercial alliance 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.

had a Loan Servicing Agreement with PCCU (related party) where our financial institution carries the loan balances on their financial

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 June 30, 2023, SHF serviced thirteen loans, as compared to

seven loans in the three months ended June 30, 2022.

Three months Ended June 30,

Compensation and employee benefits

General and administrative expenses

Professional services

Impairment of goodwill

Impairment of finite lived intangible assets

Provision for credit losses

Total operating expenses

and employee benefits increased on account of stock-based compensation and also the increase in the head count in anticipation of growth.

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.

for credit losses has decreased due to decrease in the loss rate and with increase in the absolute value of the loans.

of goodwill and finite lived intangible assets has increased on account of termination of the Master Services and Revenue Sharing Agreement

with Central Bank under which the Company provided expertise and intellectual property to cannabis related businesses primarily located

and administrative expenses increased across various categories including:

i) approximately $311,109 in investment hosting fees as a

result of the reorganization, ii) approximately $534,142 in increased Professional & Consultancy expense as we focus on growth, iii)

approximately $400,533 in amortization and depreciation, and iv) approximately $193,122 in business insurance.

and cash equivalents

and cash equivalents totaled $8,628,752 and $8,390,195 as of March 31, 2023, December 31, 2022, respectively.

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.

and cash equivalents totaled $8,239,095 and $8,390,195 as of June 30, 2023, December 31, 2022, respectively.

For the six months ended June

30, 2023, the Company’s cash used in operations was $945,363 compared to cash provided by $1,235,414, for the six months ended June

This was mainly due to increase in the operating expenses and payments of the liabilities pertaining to the reverse acquisition

along with an additional amounts resulting from changes in working capital.

See discussion under “ Discussion of our Results of

Operations ” above for more information.

assets and liabilities

revenue is primarily related to contract liabilities associated with the Company agreements.

As of March 31, 2023, SHF reported a contract

As of June 30, 2023, SHF reported a contract

asset and liability of $1,980 and $60,382 and on December 31, 2022, SHF reported a contract asset and liability of $21,170 and $996,

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and going concern

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

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.

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.

of June 30, 2023, the Company had $8,239,095 in cash and net working capital deficit of $9,423,796, 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 June 30, 2023 and December

31, 2022 are $11,880,296 and $11,622,831, respectively, which represent the equity consideration payable towards the Abaca acquisition.

The Company has also incurred an operating loss of $19,534,436 for the six-months period ended June 30, 2023.

upon these factors, management of the Company has determined that there is a risk of substantial doubt about the Company’s ability

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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.

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 June 30,

2023, the working capital deficit substantially includes an equity commitment towards the Abaca acquisition, which is a non-cash liability

amounting to $11,880,296..

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.

accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which

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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

In determining the

applicability of ASC 460, we considered that the agreement outlines a broad indemnification of all claims related to the cannabis-related

The most immediate and potentially significant of these are potential default-related credit losses.

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ratings are evaluated quarterly by SHF management based on each situation.

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.

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;

the Loan Servicing Agreement has since been superseded

by the Commercial Alliance 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.

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

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 June 30, 2023, the

Company had granted stock options and restricted stock units which are described in more detail below:

options are awarded to encourage ownership of the Company’s common stock by employees and to provide increased incentive for employees

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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.

by the administrator (committee appointed by board to administer the stock plans) of the applicable plan.

The Company’s stock options

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Changes in assumptions used to estimate fair value could result in materially different results.

The shares of the Company have

been 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.

Restricted Stock Units / Restricted Stock Awards

Restricted Stock Units / Restricted

Stock Awards 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 option exercise price, vesting schedule and

exercise period are determined for each grant by the administrator (committee appointed by board to administer the stock plans) of the

applicable plan.

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.

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.

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.

from the date of listing, based on which the Company has considered the expected volatility at 100% for the purpose of fair value calculation.

The risk-free interest rates are based on quoted U.S.

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As contemplated by the Forward Purchase Agreement:

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;

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.

any time prior to the Maturity Date (defined as the earlier of i) the third anniversary of

the Closing of the Business Combination, ii) the shares are delisted from The Nasdaq Stock

Market or (iii) during any 30 consecutive Scheduled Trading Day-period following the closing

of the Business Combination, the Volume Weighted Average share Price (VWAP) Price for 20

Scheduled Trading Days during such period shall be less than $3.00 per share), Midtown East,

Verdun and Vellar may elect an optional early termination to sell some or all of the shares

(the “Terminated Shares”) of Class A Stock in the open market.

If Midtown East,

Verdun and Vellar sell any shares prior to the Maturity Date, the pro-rata portion of the

Reset Price will be released from the escrow account and paid to SHF.

Midtown East, Verdun

and Vellar shall retain any proceeds in excess of the Reset Price that is paid to SHF.

the 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.

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

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;

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.

any time prior to the Maturity Date (defined as the earlier of i) the third anniversary of the Closing of the Business Combination,

ii) the shares are delisted from The Nasdaq Stock Market or (iii) during any 30 consecutive Scheduled Trading Day-period following

the closing of the Business Combination, the Volume Weighted Average share Price (VWAP) Price for 20 Scheduled Trading Days during

such period shall be less than $3.00 per share), Midtown East, Verdun and Vellar may elect an optional early termination to sell

some or all of the shares (the “Terminated Shares”) of Class A Stock in the open market.

If Midtown East, Verdun and

Vellar sell any shares prior to the Maturity Date, the pro-rata portion of the Reset Price will be released from the escrow account

and paid to SHF.

Midtown East, Verdun and Vellar shall retain any proceeds in excess of the Reset Price that is paid to SHF.

the 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.

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.

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.

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.

purchase derivative

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.

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.

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.

for Credit Losses (ACL)

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.

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.

ACL is a valuation account that is deducted from the amortized cost basis of financial assets carried at their amortized cost, including

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of this limit are first recognized as interest income, then as a reduction of collection costs, and then as other income.

of Goodwill and Finite-lived intangible assets

Company’s goodwill was derived from the transaction discussed in note 4, where the purchase price exceeded the fair value of the

net identifiable assets acquired.

Goodwill is tested for impairment at least annually on November 15 th unless any events or

circumstances indicate it is more likely than not that the fair value of the goodwill is less than its carrying value.

July 20, 2023, the Company agreed to terminate the Master Services and Revenue Sharing Agreement with Central Bank.

Under the agreement,

the Company provided expertise and intellectual property that allowed the Company and Central Bank to jointly serve the deposit banking

needs of cannabis related businesses primarily located in Arkansas.

agreement was originally executed by Rockview Digital Solutions, LLC, which was acquired by the Company in October 2022.

have agreed that termination will be effective as of October 1, 2023, allowing for an orderly transition that will have minimal impact

on customer operations.

The agreement, originally executed in 2018, was renewable on an annual basis and did not include any material

early termination penalties.

Company assessed several events and circumstances that could affect the significant inputs used to determine the fair value of the goodwill,

including the significance of the amount of excess fair value over carrying value, consistency of operating margins and cash flows, budgeted-to-actual

performance from prior year, overall change in economic climate, changes in the industry and competitive environment, and earnings quality

and sustainability.

The Company considered the decline in the operating margins and cash flow being goodwill impairment indicators and

determined it appropriate to perform a quantitative assessment of the goodwill as of June 30, 2023.

The Company engaged a third-party valuation specialist

to assist in the performance of the impairment analysis of the goodwill.

For the interim quantitative goodwill impairment analysis performed

as of June 30, 2023, the Company utilized an equally weighted combination of both an income and market approach to determine the fair

value of the goodwill.

The income approach utilizes a discounted cash flow method which is based on the present value of projected cash

The discounted cash flow models reflect company’s assumptions regarding revenue growth rates, risk-adjusted discount rate,

terminal period growth rate, economic and market trends and other expectations about the anticipated operating results of the goodwill.

Under the market approach, the Company estimates the fair value based on market multiples of revenues derived from comparable publicly

traded companies with operating characteristics similar to the Company.

As a result of the interim goodwill impairment analysis, the goodwill

was determined to have a carrying value that exceeded its fair value and therefore, a $13.21 million noncash goodwill impairment charge

was recognized in the Company’s unaudited condensed consolidated statements of operations for the three and six months ended June

value determination of the goodwill requires considerable judgment and is sensitive to changes in underlying assumptions and factors.

As a result, there can be no assurance that the estimates and assumptions made for purposes of the quantitative goodwill impairment tests

will prove to be an accurate prediction of future results.

Examples of events or circumstances that could reasonably be expected to negatively

affect the underlying key assumptions and ultimately impact the estimated fair value of the goodwill may include such items as:

increase in the weighted-average cost of capital due to further increases in interest rates, (ii) timing and success of estimated future

income, it is possible that an additional impairment charge may be recorded in the future, which could be material.

of December 31, 2022, there were no negative indicators in the goodwill impairment that would impact the fair value of the goodwill.

The change in the carrying amount of goodwill from

December 31, 2022, to June 30, 2023, is as follows:

December 31, 2022

Goodwill impairment

(13,208,276 )

June 30, 2023

As of June 30, 2023, our accumulated goodwill impairment

was $13,208,276.

intangible assets

The Company reviews its finite-lived intangible assets

when there is a triggering event.

The Company perform impairment test by comparing the fair value of finite lived intangible assets to

the carrying value.

In the event the carrying value exceeds the fair value of the assets, the assets are written down to their fair value.

of June 30, 2023, on account of the triggering event discussed in the goodwill analysis above, the Company performed a quantitative assessment

of finite-lived intangible assets comprise of market related intangible, customer relationships and developed technologies.

In order to evaluate the fair value of the finite-lived

intangible assets, a royalty method was applied for market related intangibles, a discounted cash flow method applied for customer relationships

and a cost to re-create method for developed technologies.

As a result, the Company determined that the fair value of market related intangibles

and developed technologies were less than the carrying value on the reporting date.

The Company recognized an impairment charge of $3.68

million in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2023.

impairment recognized for developed technologies as the fair value was in excess of the carrying value on the June 30, 2023, reporting

is the summary of the Company’s finite-lived intangible assets as of June 30, 2023:

Useful life in Years

in Acquisition

related intangible assets

Customer relationships

intangible assets

Following is a summary of the Company’s finite-lived

intangible assets as of December 31, 2022:

Useful life in Years

in Acquisition

related intangible assets

Customer relationships

intangible assets

Growth Company Status

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Control Over Financial Reporting

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

Party Relationships

connection with our management assessment of internal control over financial reporting as of and for the six months ended June 30, 2023,

the Company has identified three material weaknesses within our internal controls over financial reporting related to its Revenue

Recognition, Complex Financial Instruments and Credit Losses.

Refer to Item 9A of this document for additional details.

Related Party Relationships

Servicing Agreement

July 1, 2021, SHF entered into an Account Servicing Agreement with PCCU.

SHF provides services as per the agreement to CRB accounts at

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

Company had an Account Servicing Agreement with PCCU.

SHF provides services as per the agreement to CRB accounts at PCCU.

addition to providing the services, SHF assumed 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.

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

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.

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.

Under the agreement, PCCU agreed to pay SHF all revenue generated from CRB accounts.

Amounts due to SHF were due

monthly in arrears and upon receipt of invoice.

This agreement was replaced and superseded in its entirety by Commercial Alliance

Agreement entered on March 29, 2023, between PCCU and the Company.

Services Agreement

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.

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.

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.

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.

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.

This agreement was replaced and superseded

in its entirety by Commercial Alliance Agreement entered on March 29, 2023, between PCCU and the Company.

Servicing Agreement

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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

PCCU will receive a monthly servicing fee at the annual rate of 0.25% of the then-outstanding principal balance of each loan funded

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.

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.

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.

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.

of shares to PCCU

March 29, 2023, the Company and PCCU entered into the following definitive transaction documents to settle and restructure the deferred

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.

Securities Issuance Agreement, pursuant to which the Company will issue 11,200,000 shares of the Company’s Class A Common Stock

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.

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;

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.

approval process for loans from PCCU to CRB customers and the loan servicing and monitoring responsibilities provided by both PCCU

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.

This agreement was replaced and superseded in its entirety by Commercial Alliance Agreement entered on March 29, 2023, between

PCCU and the Company.

Alliance 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.

The Commercial Alliance Agreement replaces and supersedes in their entirety

the following agreements entered into between the Company and PCCU:

the Amended and Restated Loan Servicing Agreement dated September

21, 2022 (the “Loan Servicing Agreement”);

the Second Amended and Restated Account Servicing Agreement dated May 23, 2022,

effective February 11, 2022 (“the “Account Servicing Agreement”);

and the Second Amended and Restated Support Services

Agreement dated May 23, 2022, effective February 11, 2022 (the “Support Agreement”).

The Commercial Alliance Agreement sets forth the

application, underwriting, loan approval, and foreclosure process for loans from PCCU to borrowers that are cannabis-related businesses

and the loan servicing and monitoring responsibilities provided by the Company and PCCU.

In particular, the Commercial Alliance Agreement

provides for procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU will take title to or possession

of any cannabis-related assets, including real property, that may be collateral for a loan funded by PCCU pursuant to the Commercial

Alliance Agreement.

Under the Commercial Alliance Agreement, PCCU receives a servicing fee at the annual rate of 0.25% of the then-outstanding

principal balance of each loan funded by PCCU and serviced by the Company, and a servicing fee at the annual rate of 0.35% of the then

outstanding principal balance of each loan presented by the Company and both funded and serviced by PCCU.

In addition, the Company’s

is obligated by the Commercial Alliance Agreement to indemnify PCCU from certain default-related loan losses (as fully defined in the

Commercial Alliance Agreement).

addition, the Commercial Alliance Agreement provides for certain fees to be paid to the Company for certain identified account

related services to include:

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

for a monthly fee equal to $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 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 the Company.

Finally, under the Commercial Alliance Agreement, PCCU will continue

to allow its ratio of CRB-related deposits to total assets to equal at least 60% unless otherwise dictated by regulatory, regulator or

policy requirements.

The initial term of the Commercial Alliance Agreement is for a period of two years, with a one-year automatic renewal

unless a party provides one hundred twenty days’ written notice prior to the end of the term.

below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits at June 30, 2023 and December

CRB related deposits

$ 287,445,745

$ 161,138,975

Capacity at 60%

PCCU net worth

Capacity at 1.3125

Limiting capacity

PCCU loans funded

Amounts available under lines of credit

Incremental capacity

$ 154,971,429

revenue from operation on the statement of operations consists of the following agreement mentioned above for the three months ended

June 30, 2023, and June 30, 2022:

June 30, 2023

Six months ended

Account servicing agreement

Commercial alliance agreement

operating expense on the statement of operations consists of the following agreement mentioned above for the three months ended June

30, 2023, and June 30, 2022:

Support services agreement

Loan servicing agreement

Commercial alliance agreement

Quantitative and Qualitative Disclosures About Market Risk

3 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis