What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-14 · 291 added, 291 removed, 618 unchanged (49% of the section changed)

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operations, objectives, and financial needs.

Forward-looking statements

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.

Forward-looking

statements 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.

We 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.

New risks emerge from

time to time.

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 we may make.

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

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

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.

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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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

leader with over ten 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.

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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,

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.

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 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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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.

As of September 30, 2023,

there were 3,811 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

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

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

As of June 30, 2023, and

As of September 30, 2023, and

December 31, 2022, there were 46,593,317 and 23,732,889 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

September 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.

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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

in the operation of our business.

For purposes of these unaudited 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.

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

measures in the operation of our business.

These key metrics are discussed below.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three months ended

September 30,

Nine months ended

September 30,

Net (loss) income

$ (19,766,081 )

$ (19,018,014 )

Interest expense

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$ (18,334,250 )

$ (18,293,835 )

Other adjustments –

Provision for credit losses

Provision for credit (benefit) losses

Change in the fair value of warrants

Change in the fair value of forward purchase derivatives

Stock option conversion

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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

change in our income on an EBITDA and Adjusted EBITDA basis for the three and nine months ended September 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;

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

Six months Ended June 30

Nine months ended September 30

Average monthly ending deposit balance

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$ 148,191,118

Average monthly account fees

Average active accounts

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Average fees per account

Three months Ended June 30

Three months ended September 30

Average monthly ending deposit balance

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$ 158,906,481

Average monthly account fees

Average active accounts

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the average of monthly ending account balances

account activity fee revenue

the average account activity fee revenue

the average of monthly ending active accounts

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

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.

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

ended September 30, 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.

are focused on enhancing and growing our lending platform.

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of our Results of Operations

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

In addition, the Company provides these similar services and outsourced support to other financial institutions providing banking

to the cannabis industry.

Company generates interest and fee income through providing a variety of services to PCCU and other financial institutions 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.

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and marketing, travel meals and entertainment and other office and operating expense.

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

Six Months Ended June 30,

of our Results of Operations —2023 Compared to 2022 (Nine months ended September 30)

Nine months ended September 30,

Deposit, activity, onboarding income

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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.

in deposit, activity and onboarding income was primarily attributable to the increase in the number of accounts related to the Abaca

Company provides similar account services and outsourced support to other financial institutions providing banking to the cannabis industry.

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

The reduction in Safe Harbor Program income is a

result of the reduction in the number of accounts.

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

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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.

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

in the balances maintained by the customers.

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

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as the Company increases its focus on lending.

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.

For the nine months ended September 30, 2023, SHF serviced fifteen loans, as compared

to seven loans in the nine months ended September 30, 2022.

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

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There is no impact on revenue as a result of implementing these

Six months Ended June 30,

Nine months ended September 30,

Compensation and employee benefits

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

and administrative expenses increased across various categories including:

i) approximately $746,080 in investment hosting fees as a

result of the reorganization, ii) approximately $93,393 in increased marketing expense as we focus on growth, iii) approximately $1,082,959

in amortization and depreciation, and iv) approximately $533,630 in business insurance.

services expense increased primarily due to the increase in the legal fees, audit fees, and consulting fees towards SEC filing and other

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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 $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,

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

Three Months Ended September 30,

Deposit, activity, onboarding income

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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.

in deposit, activity and onboarding income was primarily attributable to the increase in the number of accounts related to the Abaca

Company provides similar account services and outsourced support to other financial institutions providing banking to the cannabis industry.

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

The reduction in Safe Harbor Program income is a

result of the reduction in the number of accounts.

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

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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.

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

in the balances maintained by the customers.

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

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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,

For the nine months ended September 30, 2023, SHF serviced fifteen loans, as compared

to ten loans in the nine months ended September 30, 2022.

Three months ended September 30,

Compensation and employee benefits

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Professional services

Impairment of goodwill

Impairment of finite lived intangible assets

Provision for credit losses

Provision (benefit) 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.

and administrative expenses increased across various categories including:

i) approximately $134,699 in investment hosting fees as a

result of the reorganization, ii) approximately $92,123 in increased marketing expense as we focus on growth, iii) approximately $287,246

in amortization and depreciation, and iv) approximately $100,023 in business insurance.

services expense increased primarily due to the increase in the legal fees, audit fees, and consulting fees towards SEC filing and other

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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 $8,239,095 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.

and cash equivalents totaled $8,948,644 and $8,390,195 as of September 30, 2023, December 31, 2022, respectively.

the nine months ended September 30, 2023, the Company’s cash used in operations was $225,031 compared to cash provided by operations

of $1,972,803, for the nine months ended September 30, 2022.

This was mainly due to increase in the operating expenses and payments of

the liabilities pertaining to the reverse acquisition along with an additional amount resulting from changes in working capital.

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 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,

As of September 30, 2023, SHF reported a

contract asset and liability of $2,115 and $63,402 and on December 31, 2022, SHF reported a contract asset and liability of $21,170 and

$996, respectively.

and going concern

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

of September 30, 2023, the Company had $8,948,644 cash and net working capital deficit of $9,381,113, 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.

Included in the working capital deficit at September 30, 2023 and

December 31, 2022 are $12,011,163 and $11,622,831, respectively, which represent the equity consideration payable towards the Abaca acquisition.

The Company has also incurred an operating loss of $19,002,987 for the nine-months period ended September 30, 2023.

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 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

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.

to continue as a going concern for a period of at least twelve months from the date these unaudited condensed consolidated financial

statements have been issued.

December 31, 2022, a significant component of the working capital deficit was $25,973,017 representing the current portion of due to

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 September 30, 2023, the working capital deficit substantially includes an equity commitment towards the Abaca

acquisition, which is a non-cash liability amounting to $12,011,163.

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

accompanying unaudited 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.

Accounting Policies and Estimates

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.

unaudited condensed consolidated financial statements and accompanying notes are prepared in accordance with GAAP.

Preparing unaudited

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.

recognized revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers

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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:

In conjunction with the 2022 Plan, as of September 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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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.

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

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.

Stock Units / Restricted Stock Awards

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.

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

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.

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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

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

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 September 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 flows.

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 nine months ended September 30, 2023.

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

6 unchanged sentences

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:

change in the carrying amount of goodwill from December 31, 2022, to September 30, 2023, is as follows:

December 31, 2022

1 unchanged sentence

(13,208,276 )

June 30, 2023

As of June 30, 2023, our accumulated goodwill impairment

was $13,208,276.

September 30, 2023

of September 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

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 September 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.

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.

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 $0 and $3.68 million in the unaudited condensed consolidated statements

of operations for the three and six months ended September 30, 2023.

There was no impairment recognized for developed technologies as

the fair value was in excess of the carrying value on the September 30, 2023, reporting date.

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

Remaining Useful life in Years

December 31, 2022

Acquired in Acquisition

Market 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

Developed technology

Total intangible assets

is a summary of the Company’s finite-lived intangible assets as of December 31, 2022:

Remaining Useful life in Years

December 31, 2021

Acquired in Acquisition

December 31, 2022

Market related intangible assets

Customer relationships

intangible assets

Developed technology

Total intangible assets

Growth Company Status

7 unchanged sentences

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.

Act relief, these combined and unaudited 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.

Control Over Financial Reporting

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

connection with our management assessment of internal control over financial reporting as of and for the nine months ended September

30, 2023, the Company has identified three material weaknesses within our internal controls over financial reporting related to its Revenue

1 unchanged sentence

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

Related Party Relationships

Party Relationships

Servicing Agreement

1 unchanged sentence

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 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.

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.

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.

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.

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.

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

1 unchanged sentence

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

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

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

PCCU receives 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.

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

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

March 29, 2023, the Company and PCCU entered into the Commercial Alliance Agreement.

This Agreement sets forth the terms and conditions

of the lending 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 aforementioned parties:

the Amended and

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

the Second Amended and Restated

Account Servicing Agreement (“the “Account Servicing Agreement,” dated May 23, 2022, effective February 11, 2022) and

the Second Amended and Restated Support Services Agreement (the “Support Agreement,” dated May 23, 2022, effective February

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 September 30, 2023 and December

CRB related balance

$ 149,214,676

9 unchanged sentences

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

September 30, 2023, and September 30, 2022:

September 30, 2023

Nine 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:

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

30, 2023, and September 30, 2022:

Support services agreement

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis