SHFSW filing — read by section

UNITED
STATES 

 SECURITIES
AND EXCHANGE COMMISSION 

 Washington,
D.C. 20549 

 FORM
 10-K 

 ☒ 
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 For
the fiscal year ended December 31 , 2023 OR 

 ☐ 
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 For
the transition period from _________to _________ 

 Commission
File Number 001-40524 

 SHF
Holdings, Inc. 

 (Exact
Name of Registrant as Specified in Its Charter) 

 Delaware 
 
 86-2409612 

 (State
 or other jurisdiction 

 of
 incorporation or organization) 
 
 (I.R.S.
 Employer 

 Identification
 Number) 
 
 1526
 Cole Blvd. , Suite 250 

 Golden ,
 Colorado 
 
 80401 

 (Address
 of principal executive offices) 
 
 (Zip
 Code) 

 Registrant’s
telephone number, including area code: (303) 431-3435 

 Securities
registered pursuant to Section 12(b) of the Act: 

 Title
 of each class 
 
 Trading
 Symbol(s) 
 
 Name
 of each exchange on which registered 

 Class
 A Common Stock, $0.0001 par value per share 
 
 SHFS 
 
 The
 Nasdaq Stock Market LLC 

 Redeemable
 Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share 
 
 SHFSW 
 
 The
 Nasdaq Stock Market LLC 

 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ 

 Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 

 Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ 

 Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐ 

 Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act. 

 Large
 accelerated filer 
 ☐ 
 
 Accelerated
 filer 
 ☐ 

 Non-accelerated
filer 
 ☒ 
 
 Smaller
 reporting company 
 ☒ 

 Emerging
 growth company 
 ☒ 

 If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐ 

 If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐ 

 Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ 

 Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ 

 The
aggregate market value of the Class A Common Stock held by non-affiliates of the registrant, based on the closing price of a share of
the registrant’s Common Stock on June 30, 2023 as reported by The Nasdaq Capital Market on such date, was approximately $ 24.52 
million. 

 As
of March 28, 2024, there were outstanding 55,430,976 shares of the Company’s Class A Common Stock, $0.0001 par value per share 

 DOCUMENTS
INCORPORATED BY REFERENCE 

 Portions
of the registrant’s definitive proxy statement pursuant to Regulation 14A for the registrant’s 2024 Annual Meeting of
Shareholders, to be filed within 120 days of the registrant’s fiscal year end, are incorporated by reference into Part III
hereof . 

 SHF
HOLDINGS, INC. 

 FORM
10-K 

 December
31, 2023 

 TABLE OF CONTENTS 

 Page 

 PART I 
 
 Item
 1. 
 Business 
 4 

 Item
 1A. 
 Risk Factors 
 17 

 Item
 1B. 
 Unresolved Staff Comments 
 17 

 Item
 1C. 
 Cybersecurity 
 17 

 Item
 2. 
 Properties 
 18 

 Item
 3. 
 Legal Proceedings 
 18 

 Item
 4. 
 Mine Safety Disclosures 
 18 

 PART II 
 
 Item
 5. 
 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
 19 

 Item
 6. 
 [Reserved] 
 19 

 Item
 7. 
 Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 20 

 Item
 7A. 
 Quantitative and Qualitative Disclosures about Market Risk 
 31 

 Item
 8. 
 Financial Statements and Supplementary Data 
 31 

 Item
 9. 
 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
 31 

 Item
 9A. 
 Controls and Procedures 
 31 

 Item
 9B. 
 Other Information 
 32 

 Item
 9C. 
 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 
 32 

 PART III 
 
 Item
 10. 
 Directors, Executive Officers and Corporate Governance 
 33 

 Item
 11. 
 Executive Compensation 
 33 

 Item
 12. 
 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
 33 

 Item
 13. 
 Certain Relationships and Related Transactions, and Director Independence 
 33 

 Item
 14. 
 Principal Accountant Fees and Services 
 33 

 PART IV 
 
 Item
 15. 
 Exhibit and Financial Statement Schedules 
 34 

 Item
 16. 
 Form 10-K Summary 
 35 

 Signatures 
 36 

 1 

 Table of Contents 

 USE
OF MARKET AND INDUSTRY DATA 

 This
Annual Report on Form 10-K includes market and industry data that we have obtained from third-party sources, including industry publications,
as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate
(including our management’s estimates and assumptions relating to such industries based on that knowledge). Management has developed
its knowledge of such industries through its experience and participation in these industries. While our management believes the third-party
sources referred to in this Annual Report on Form 10-K are reliable, neither we nor our management have independently verified any of
the data from such sources referred to in this Annual Report on Form 10-K or ascertained the underlying economic assumptions relied upon
by such sources. Furthermore, internally prepared and third-party market prospective information, in particular, are estimates only and
there will usually be differences between the prospective and actual results, because events and circumstances frequently do not occur
as expected, and those differences may be material. Also, references in this Annual Report on Form 10-K to any publications, reports,
surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report,
survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this Annual
Report on Form 10-K. 

 TRADEMARKS,
TRADE NAMES AND SERVICE MARKS 

 “SHF
Holdings”, “Safe Harbor,” “Safe Harbor Financial,” and other trademarks or service marks of SHF Holdings,
Inc. (the “Company”) appearing in this Annual Report on Form 10-K are the property of the Company. The other trademarks,
trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience,
the trademarks and trade names in this Annual Report on Form 10-K are referred to without the ® and ™ symbols, but such references
should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their
rights thereto. 

 OTHER
PERTINENT INFORMATION 

 Unless
the context otherwise indicates, when used in this Annual Report on Form 10-K, the terms “SHF Holdings,” “Safe Harbor,”
“we,” “us,” “our,” the “Company” and similar terms refer to the Company, a Delaware corporation
and its wholly-owned subsidiaries, SHF, LLC and SHFxAbaca, LLC. 

 CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS 

 Various
of the statements made in this Form 10-K, including information incorporated herein by reference to other documents, are “forward-looking
statements” within the meaning of, and subject to, the protections of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 

 Forward-looking
statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates,
intentions and future performance and condition, and involve known and unknown risks, uncertainties and other factors, which may be beyond
our control, and which may cause the actual results, performance, achievements, or financial condition of the Company to be materially
different from future results, performance, achievements, or financial condition expressed or implied by such forward-looking statements.
You should not expect us to update any forward-looking statements. These forward- looking statements should be read together with the discussion of the Company’s risks and uncertainties included
under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed
with the Securities and Exchange Commission (“SEC”) on April 14, 2023, as well as the limitation factors included in the forward-looking
statement in this Form 10-K for the year ended December 31, 2023. 

 All
statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking
statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “seek,”
“should,” “indicate,” “would,” “believe,” “contemplate,” “consider,”
“expect,” “estimate,” “continue,” “plan,” “point to,” “project,”
“could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking
statements may not be realized due to a variety of factors, including, without limitation: 

 ● Our
 profitability is subject to interest rate risk; 

 ● Volatility
 and uncertainty in the financial markets and banking industry may adversely impact our clients
 and our ability to obtain additional financial institution clients; 

 ● We
 may be adversely affected by the transition of LIBOR as a reference rate; 

 ● Our
 concentration of loans could result in increased loan losses, and adversely affect our business,
 earnings and financial condition; 

 ● All
 of our loans are to commercial borrowers, which have unique risks compared to other types
 of loans; 

 ● Our
 allowance for loan losses may prove inadequate or we may be negatively affected by credit
 risk exposures; 

 ● The
 collateral securing our loans may not be sufficient to protect us from a partial or complete
 loss if we are required to foreclose; 

 ● Liquidity
 risks could affect our operations and jeopardize our financial condition and certain funding
 sources could increase our interest rate expense including our ability to operate as a going
 concern and also remaining in compliance with debt covenants; 

 ● The
 industry in which we operate is considered federally illegal, which may pose risk if actions
 were taken against those customers or our Company; 

 ● Our
 strategic plan and growth strategy may not be achieved as quickly or as fully as we seek; 

 ● Nonperforming
 and similar assets take significant time to resolve and may adversely affect our results
 of operations and financial condition; 

 2 

 Table of Contents 

 ● We
 could be required to further write down our goodwill and other intangible assets; 

 ● Our
 success depends on our ability to compete effectively in highly competitive markets; 

 ● Potential
 gaps in our risk management policies and internal audit procedures may leave us exposed to
 unidentified or unanticipated risk, which could negatively affect our business; 

 ● We
 have identified and we may identify additional deficiencies in our internal controls, which
 may have an impact on our business operations; 

 ● Technological
 changes affect our business including potentially impacting the revenue stream of traditional
 products and services, and we may have fewer resources than many competitors to invest in
 technological improvements; 

 ● Our
 information systems may experience interruptions and security breaches, and are exposed to
 cybersecurity threats; 

 ● Many
 of our major systems depend on and are operated by third-party vendors, and any systems failures
 or interruptions could adversely affect our operations and the services we provide to our
 customers; 

 ● Any
 failure to protect the confidentiality of customer information could adversely affect our
 reputation and subject us to financial sanctions and other costs that could have a material
 adverse effect on our business, financial condition and results of operations; 

 ● Future
 acquisitions and expansion activities may disrupt our business, dilute shareholder value
 and adversely affect our operating results; 

 ● We
 may not be able to generate sufficient cash to service all of our debt; 

 ● We
 may incur a substantial level of debt that could materially adversely affect our ability
 to generate sufficient cash to fulfill our obligations; 

 ● Our
 business may be adversely affected by economic conditions in general and by conditions in
 the financial markets; 

 ● We
 are subject to extensive regulation that could limit or restrict our activities and adversely
 affect our earnings; 

 ● Litigation
 and regulatory investigations are increasingly common in our businesses and may result in
 significant financial losses and/or harm to our reputation; 

 ● We
 are subject to capital adequacy and liquidity standards, and if we fail to meet these standards,
 whether due to losses, growth opportunities or an inability to raise additional capital or
 otherwise, our financial condition and results of operations would be adversely affected; 

 ● We
 may face higher risks of noncompliance with the Bank Secrecy Act and other anti-money laundering
 statutes and regulations than other financial institutions; 

 ● Failures
 to comply with the fair lending laws, CFPB regulations or the Community Reinvestment Act,
 or CRA, could adversely affect us; 

 ● Certain
 of our existing shareholders could exert significant control over the Company; 

 ● If
 securities or industry analysts do not publish research or publish inaccurate or unfavorable
 research about our business, the price of our Common Stock and trading volume could decline; 

 ● We
 have the ability to issue additional equity securities, which would lead to dilution of our
 issued and outstanding Common Stock; 

 ● We
 are an “emerging growth company,” and, as a result of the reduced disclosure
 and governance requirements applicable to emerging growth companies, our Common Stock may
 be less attractive to investors; 

 ● We
 may be unable to attract and retain key people to support our business; 

 ● In
 certain circumstances, we assume the risk of fraud loss and negative balances for accounts
 maintained at our financial institution partners; 

 ● Unless
 extended, the Commercial Alliance Agreement with PCCU has an agreed end date of March 31,
 2025, which could impact our ability to maintain client deposits and generate revenue from
 client accounts domiciled at PCCU; 

 ● Severe
 weather, natural disasters, global pandemics, acts of war or terrorism, theft, civil unrest,
 government expropriation or other external events could have significant effects on our business;
 and 

 ● Other
 factors and information in this Form 10-K and other filings that we make with the SEC under
 the Exchange Act and Securities Act. 

 The
foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in
this Form 10-K. Because of these risks and other uncertainties, our actual future financial condition, results, performance or achievements,
or industry results, may be materially different from the results indicated by the forward-looking statements in this Form 10-K. In addition,
our past results of operations are not necessarily indicative of our future results of operations. You should not rely on any forward-looking
statements as predictions of future events. 

 All
written or oral forward-looking statements that are made by us or are attributable to us are expressly qualified in their entirety by
this cautionary note. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation
to update, revise or correct any forward-looking statement, whether as a result of new information, future developments or otherwise,
except as required by law. 

 3 

 Table of Contents 

 PART
I 

 Item
1. Business. 

 Overview 

 We
provide services to a variety of cannabis-industry participants in 41 states, including financial institutions desiring to provide business
banking, private banking and commercial banking services to their customers, particularly those customers conducting business in or adjacent
to the cannabis industry. Our services include, among other things: 

 ● regulatory
 compliance consulting and software for maintaining “Know Your Customer” (“KYC”)
 and Bank Secrecy Act (“BSA”) compliance to financial institutions, principally
 conducted vis-à-vis our proprietary financial services platform; 

 ● the
 origination, onboarding, verification, and servicing of cannabis-related deposit business
 for and on behalf of our partner financial institutions; and 

 ● sourcing,
 underwriting, servicing, and administering loans issued to cannabis businesses and related
 entities, which are often also our customers, as well as being customers of our partner financial
 institutions. 

 Financial
Services Platform 

 The
Company has developed and commercialized a fully compliant financial services platform for financial institutions providing banking services
to cannabis-related businesses (“CRBs”) to access and maintain reliable financial services as long as both the financial
institution client and the CRB meet regulatory requirements. Our platform has been streamlined and finetuned for the past nine years
which enables the Company’s staff to efficiently guide financial institution clients and the CRBs desiring banking services through
the onboarding, validation and monitoring process. Our automated platform provides for an efficient and effective management tool allowing
our employees to provide continuity of service while enabling compliance staff to monitor BSA activities. 

 Through
the Company’s platform, our financial institution clients have the ability to provide CRBs with access to traditional financial
services including wires, debit, ACH, remote deposit capture, business checking and savings accounts, courier and vaulting services,
cash management accounts and commercial lending. We believe our services have been implemented consistent with applicable law and regulations,
ensuring our financial institution clients will be able to provide CRBs with reliable access to these services. We feel our history of
developing processes that satisfy regulatory standards has resulted in a solid reputation with related authorities and solidifies our
ability to continue to grow existing services and reduces barriers in expanding into new service offerings. 

 CRB
Deposits 

 The
Company maintains relationships with Partner Colorado Credit Union (“PCCU”) and other financial institutions in which the
CRB funds are deposited and monetary transactions are performed. The Company’s agreements with the financial institution allow
the Company’s platform to interface with the financial institution’s core banking systems and extract data necessary to monitor
the deposit accounts onboarded by the Company’s transactions, such as funds transmissions to or from the accounts, occur through
PCCU’s and other financial institution client’s infrastructure. 

 When
a CRB or ancillary service provider approaches PCCU or other financial institution for which the Company provides its onboarding services,
an initial onboarding fee is assessed based on the type and complexity of the business. Onboarding is an important part of the KYC requirements
set forth in federal guidance. The onboarding process can require a great deal of time depending on the business complexity and the fee
we assess is based upon the complexity and required time to complete the process. Additionally, the Company assesses monthly deposit
and activity fees, which have historically been the majority of our revenue. These fees are also based on business type and size. Monitoring
and validating deposit activity is paramount to the success of the Company’s platform. We believe our compliance-first focus reassures
regulators and law enforcement that the Company continues to focus on the safety and soundness of the financial system. 

 Investment income is also generated when PCCU or other financial institution
clients invest CRB deposits. Under our Commercial Alliance Agreement with PCCU, the Company pays 25% of the investment income as a hosting
fee to PCCU based on this income. Through its relationship with PCCU, depository amounts invested are typically restricted to low-risk
assets with high liquidity and low returns. The investment income is significantly influenced by the levels of CRB deposits and the prevailing
interest rate environment for cash and similar assets. We believe that fees based on deposits that we onboard and interest on the daily
balance less cash used to collateralize our loan portfolios maintained with financial institutions will represent a significant portion
of our revenue by 2024. 

 Commercial
Lending Program 

 The
level of CRB deposits onboarded by the Company and held at PCCU allows for robust lending capacity. During 2020, the Company implemented
a commercial lending program, which will be a strong pillar for future revenue and profit growth. The focus will primarily include senior
secured lending with smaller loans considered for unsecured lending. Collateral types would include real estate, equipment, and other
business assets. The Company’s commercial lending program is built on: 

 ●
stringent collateral package requirements with ample loan to value coverage; 

 ●
strong underwriting of collateral and creditworthiness of borrower; and 

 ●
a deep knowledge and understanding of the industry, borrowers’ operations and the cannabis industry business cycle. 

 Currently,
lending is primarily funded through PCCU using the funds from CRB deposit accounts onboarded by the Company. The Company is currently
seeking relationships with additional financial institutions that would fund the Company’s loans and other sources of working capital
with which the Company could fund the loans directly. The Company has created a lending program tailored specifically to the unique needs
of CRBs while also achieving strong returns on quality loans. While third parties are presently used to provide loan underwriting and
servicing, the Company plans on building out a full-service internal lending function to improve the efficiency of our lending process
and to increase future profitability. 

 4 

 Table of Contents 

 We
feel we have taken a creative and methodical approach in building the Company’s platform, which has allowed us to nationally scale
our business. The platform’s policies, training, monitoring and other processes are well established with talented and expert level
knowledge. We also plan to further expand the officer level suite with talent that we believe will further our success. We anticipate
this combination will provide a competitive advantage for us as we focus on continued growth. 

 Our
Mission 

 Our
mission is to become the United States cannabis industry’s leading financial services provider, by creating a one-stop financial
service center upon which cannabis businesses can rely. 

 We
intend to support our mission by providing unparalleled customer service while offering a unique array of innovative technology-based
products and services. We believe that our unique banking relationships, reputation of reliability in the cannabis industry, as well
as our deep expertise and experience in the industry will position us to serve a broad range of cannabis industry participants, including
cannabis cultivators, cannabis processors, dispensaries, multi-state operators, as well as the financial institutions that wish to bank
cannabis industry participants. Since 2015, we have facilitated more than $21.5 billion in deposit activity across a footprint of 41
states. 

 Through
a combination of organic growth, increased commercial lending, and further development of our fintech platform, we believe we are all
well-positioned to service the cannabis industry, including through the industry’s recent spate of large-scale consolidations. 

 Industry
Overview 

 The Company provides a variety of onboarding, compliance, and monitoring
services to financial institutions and other financial services providers to the large and quickly expanding U.S. cannabis industry. The
cannabis industry is one of the fastest emerging consumer end markets in the U.S. According to the 2023 MjBizDaily Research the industry
is expected to grow from a $33.6 billion in 2023 to $56.9 billion in 2028 Presently, 38 states plus the District of Columbia and Puerto
Rico have legalized medical cannabis, and 24 states plus the District of Columbia, the Virgin Islands, Guam and the Northern Mariana Islands
have legalized adult-use cannabis. 

 The
Company’s management is well positioned to assist growing markets; having created a reliable reputation and network over the past
nine years. The team is often called upon to work with state and federal officials, regulators, law enforcement and financial service
providers to share experience and knowledge on navigating access to financial services. We believe this expertise will allow us to enter
new markets with greater ease. 

 We
believe there is currently a small subset of the financial services industry willing to provide a full suite of financial services
to CRBs and these providers are extremely fragmented. The Company has been a front runner in assisting financial institutions that desire
to provide reliable financial services to the cannabis industry and is well known amongst the leaders in the cannabis financial services
arena. Going forward, we feel this positions the Company well to further optimize market position and become the leading provider of
access to financial services focused on the cannabis industry. 

 Business
Strategy 

 We
believe that stable long-term growth and profitability are the result of developing comprehensive, strong relationships with our customers
by offering a wide range of products and services, delivering unparalleled customer service, maintaining disciplined credit evaluation
standards. and building out service components with other single service providers now serving the cannabis industry with similar reliability. 

 The Company’s strategy is to be a first-mover in future new legal
markets through its platform offering CRBs in multiple states access to financial services, through financial institutions that already
offer their services to such CRBs. We are primarily focused on providing onboarding, monitoring and compliance services to financial institutions
through our fintech platform. Secondarily, we aim to achieve significant growth in domestic onboarded deposits, which we believe will
also lead to increases our loan-related activity. Finally, we intend to expand our customer base, both domestically and internationally.
We believe that this approach will assist us in gaining greater market share in terms of users of our fintech platform, growing our partner
loan portfolio responsibly, and managing our deposit sources to appropriately fund growth in our earning assets, maintaining favorable
asset quality compared to industry averages, all of which we intend to sustain our reliable profitability. 

 As
we are not an insured depository institution, nor are we subject to regulation by any state or federal banking regulator, we rely on
our partner financial institutions to carry out a significant portion of our operating activities. As such, we enter into a Commercial
Alliance Agreement (“CAA”) with each partner financial institution that sets forth the terms and conditions of the lending-related
and account-related services governing the relationship between the Company and each partner financial institution with regard to the
CRB deposit accounts. 

 5 

 Table of Contents 

 For example, we entered into a Commercial Alliance Agreement with PCCU, which sets forth the application,
underwriting and approval process for loans from PCCU to their CRB customers, as well as the loan servicing and monitoring responsibilities
provided by both PCCU and us. For the loans subject to our CAA with PCCU, we perform a significant portion of the underwriting activities
for each loan, including all compliance analysis, credit analysis of the potential borrower, due diligence, and all administration, including
hiring and incurring the costs of all related personnel or third-party vendors necessary to perform these services. We receive all interest
income on such loans, minus a monthly fee at an annual rate of 0.25% of the then-outstanding principal balance of each loan (0.35% for
loans funded and serviced by PCCU). Under the CAA, we agree to indemnify PCCU from all claims related to default-related credit losses
as defined in the CAA. The CAA is presently set to expire on March 29, 2025, which may automatically be renewed for additional one-year
terms unless a party provides 120 days’ notice of non-renewal or there is a termination for cause, provided that a notice of non-renewal
is not provided until 30 months following the signing date. 

 Our
key strategic initiatives include: 

 ● Compliance
 First Philosophy: Due to the fact that we are providing services to financial institutions
 that desire to provide banking services to CRBs, thereby allowing funds derived from cannabis-related
 businesses to flow through the financial system, we must ensure the system is protected from
 illicit activities by monitoring and validating funds along with “knowing our customer.”
 Our close partnerships with financial institutions demand that we understand the regulatory
 pressure they face with high risk, cash intensive businesses. 

 ● Other
 Products and Services . We offer products and services to financial institutions that we believe are
attractively priced with a focus on convenience and accessibility to the financial institutions’ customers. We offer to our financial
institutions clients a means to offer their CRB customers a full suite of online banking services, including access to account balances,
statements and other documents, online transfers, online bill payment and electronic delivery of customer statements, as well as automated
teller machines (“ATMs”), and banking by mobile devices, telephone and mail. We continuously look for ways of improving our
products, services and delivery channels; we accomplish this by upgrading our offerings and technology as the market expands and demands
more sophisticated products and services. We have built the present business over the past nine years listening to the needs of the cannabis
industry and rising to the occasion to expand our business model with their needs in mind. We will continue to evolve with the industry
and lead on this level. 

 ● Deposits
 A Primary Focus upon which to grow relationships. Our focus on growing deposits is twofold
 on a strategic level. First, we must KYC in order to assist with facilitating the movement
 of their funds into the financial system with safe and sound practices. We have the benefit
 of knowing every operational dollar moving in and out of the accounts; this secures a great
 understanding of the business, operations, cashflow, and continuity. The second most strategic
 factor of growing deposits is that it is critical to our near and long-term success on our
 lending strategy. Utilizing our deposit balances on which to lend will allow us to reduce
 our use of alternative funding sources and the use of core deposits to fund our growth; this,
 in turn, will improve our mix of deposits and enable us to achieve a lower cost of funds. 

 ● Lending
 to solidify a long-term relationship: The loans issued by our partner financial institutions
 provides us not only increased profit margins over the long term, but a solid long-term relationship
 with the client; this ensures reduced client attrition. This is the relationship we will
 strive for from the KYC competitive advantage we presently hold, with over 720 accounts from
 which to select the most credit worthy opportunities and understand the business to whom
 our partner financial institutions lend. 

 ● Internal
 Lending Function: To optimize control of the lending process, facilitate servicing, and
 grow a participation network of financial institutions interested in securing portions of
 larger loans. This has enabled us to speed up our processes and scale the lending portfolio
 in line with our depository growth. 

 ● Financial
 Institution Relationships to scale: It will be important to have the right financial
 institutions partnering with the Company as we scale our business nationally. So often, financial
 institutions wish to enter the market only to exit due to the complexities of serving the
 cannabis industry. We seek out financial institutions that can provide reliable access to
 additional functionality and balance sheet access for growth. We narrow our partnerships
 to those providing optimal financial positioning for both our clients and the Company; willing
 to build as we build. 

 ● A
 Superior Customer Experience to Make Banking with Us Easy. We have already taken steps
 to better target and attract core deposits and accelerate our digital transformation by making
 investments in technology and developing fintech partnerships. We have been focused on evaluating
 digital solutions in a number of areas. This includes investments made to automate our process
 for opening accounts, small business lending, and the ability to offer our wealth management
 customers a leading digital platform. Furthermore, our business model allows us to cultivate
 close relationships between service representatives and clients; this ensures that we know
 their needs while increasing our knowledge of their operations. 

 ● Rationalize
 Existing and Evaluate New Lines of Businesses. Our strategy and expectations for
 growth also includes rationalizing existing and evaluating new lines of businesses, to further
 grow our revenue streams and fee income opportunities. Our plan includes the expansion of
 our treasury management and wealth management functions, as well as to build our private
 banking and specialty finance capabilities. This initiative will incorporate a merger and
 acquisition strategy that allows us to expand more rapidly than new entrants into the market
 trying to compete. 

 ● Significantly
 Improve Operational Efficiency. Our goal is to improve our efficiency. While we
 believe there are opportunities to reduce our costs, we also need to identify and automate
 manual processes that are currently being performed. The additional technology expertise
 resulting from our acquisition of Rockview Digital Solutions, Inc., a Delaware corporation,
 d/b/a Abaca will enable us to assess and automate faster. 

 6 

 Table of Contents 

 ● Improve
 Brand Awareness. Building brand awareness in the communities
we serve will be key for both growing our presence in these markets as well as laying a strong foundation for future expansion. Recently
we have placed a significant focus on marketing and business development as we work toward building a greater national brand awareness.
Many initiatives are underway including improved signage and promotions, evaluating affinity relationships, and greater community involvement.
We will continue to work with state officials, regulators, and legislators to familiarize them with the manner financial services can
be available in a safe and sound way for their state; this will ensure their community safety. This multi-prong approach utilizing internal
expertise and networks forged over the past nine years will allow us to dominate the financial arena moving forward . 

 ● Attract,
 Retain, Develop and Reward the Best Team Members to Execute our Strategy. We believe that one of o ur primary
 differentiator is our culture and the quality of our people delivering our products and services
 in such a manner that customers receive the best knowledge, expertise, advice, and service
 when and where they need it. We will continue to attract, retain, develop, and reward the
 best team members to execute our strategy. In doing so, we will implement development programs
 that enable employees to pursue career aspirations, expand their depth of knowledge and improve
 their skill set. 

 Recent
Updates 

 Satisfaction
and Release of EF Hutton Note 

 On
November 2, 2022, EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”), notified the Company that it was in default
on a promissory note in the total amount of $2,166,250 executed on September 28, 2022. On March 10, 2023, the Company and EF Hutton agreed
to fully resolve the balance due, as well as all obligations set forth in the promissory note, for the total sum of $550,000, which was
paid on March 10, 2023. On March 13, 2023, the Company was provided with a fully executed Satisfaction and Release of Promissory Note. 

 Nasdaq
Bid Price Compliance 

 On March 16, 2023, the Company received
a letter from the listing qualifications department staff of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that
for a period 30 consecutive business days, the Company did not maintain a minimum closing bid price of $1 per share for its common stock,
as required by Nasdaq listing rule 5550(a)(2). The compliance deadline was extended by Nasdaq on September 13, 2023 for an additional
180-day period, expiring on March 11, 2024. On January 5, 2024, prior to the expiration, Nasdaq notified the Company that it has regained
compliance with Listing Rule 5550(a)(2) and closed the matter. As of March 28 th , 2024,
the Company’s closing bid price was $0.96. If the Company does not maintain a minimum closing bid price above $1 per share for its
Common Stock for a period of 30 consecutive business days, Nasdaq may re-open this matter. 

 PCCU
Note and Commercial Alliance Agreement 

 On March 29, 2023, the Company and PCCU entered into a definitive transaction
to settle and restructure the deferred obligations stemming from the September 28, 2022 business combination, including $56,949,800 into
a five-year Senior Secured Promissory Note in the principal amount of $14,500,000 bearing interest at the rate of 4.25% (the “Note”);
a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security interest in substantially
all of the assets of the Company; and a Securities Issuance Agreement, pursuant to which the Company will issue 11,200,000 shares of the
Company’s Class A Common Stock to PCCU. The Company and PCCU also entered into the CAA that sets forth the terms and conditions
of the lending-related and account-related services governing the relationship between the Company and PCCU. 

 Central
Bank Agreement Termination 

 On
July 20, 2023, we agreed to terminate the Master Services and Revenue Sharing Agreement with Central Bank. Under the agreement, Company
provided expertise and intellectual property that allowed Company and Central Bank to jointly serve the deposit banking needs of cannabis
related businesses primarily located in Arkansas. The agreement was originally executed by Rockview Digital Solutions, LLC, which was
acquired by the Company in October 2022. The termination was effective as of October 1, 2023, allowing for an orderly transition and
reduced 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. 

 Second
Amendment to Agreement and Plan of Merger 

 On
October 26, 2023, we entered into: (1) a Second Amendment to Agreement and Plan of Merger (the “Second Amendment”) with SHF
Merger Sub I, a Delaware corporation and a direct wholly-owned subsidiary of Parent (“Merger Sub I”), SHF Merger Sub II,
LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Parent (“Merger Sub II” and, together with
Merger Sub I, the “Merger Subs”), Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca ( “Abaca”),
and Dan Roda, solely in such individual’s capacity as the representative of the Company Securityholders (the “Abaca Stockholders’
Representative”), and (2) a Warrant Agreement with Continental Stock Transfer & Trust Company (solely as warrant agent to the
Warrant Agreement). 

 The
First Amendment modified, among other things, the First Anniversary Parent Shares to be issued as consideration so that the First Anniversary
Parent Shares equal $12,600,000 minus the note balance of $500,000, plus accrued interest, divided by the 10-day VWAP of the Parent Common
Stock for the 10 days immediately preceding the first anniversary of the Closing Date. The Second Amendment modified, among other things,
the First Anniversary Parent Shares to be issued as consideration so that the First Anniversary Parent Shares equal $12,600,000 less
the Closing Note Balance and Working Capital Adjustment, collectively in the amount of $928,356.16, divided by $2.00 per share. As a
result, 5,835,822 shares of Parent Common Stock will be issued as the First Anniversary Parent Shares. The Second Amendment also added
a Third Anniversary Consideration Payment of $1,500,000 which will be payable in cash, stock, or a combination of both at the Company’s
 discretion. If the Company decides to pay with shares, their value will be determined by the 10-day NASDAQ average before
the anniversary, with prices ranging between $2.00 and $4.36. Shares given purely for payment won’t be restricted by the Lock-Up
Agreement. However, if the Lock-Up Agreement is in effect, the payment will be split into $750,000 cash and an equivalent $750,000 in
shares. The lock-up duration for any shares will adhere to the legal minimum. In the event of a company stock consolidation or similar
activity, the number of shares to be issued for the payment will be adjusted to reflect the decreased total of outstanding shares. No
changes were made to the cash payments of $3,000,000 payable at each of the one-year and two-year anniversaries of the original closing.
The Company has also granted the Abaca Stockholders’ Representative the right to nominate three qualified candidates for the Company’s
Board of Directors to the Company’s Nominating and Corporate Governance Committee (“NCG Committee”) of which the NCG
Committee shall select and recommend one candidate for service on the Company’s Board of Directors in the Company’s 2024
annual proxy statement. 

 7 

 Table of Contents 

 In
addition, pursuant to the Warrant Agreement the Company agreed to deliver the Company Securityholders warrants to purchase up to an aggregate
of 5,000,000 shares of Parent Common Stock at an initial exercise price of $2.00 per share. 

 On
February 27, 2024, The Company and the Abaca Stockholders’ Representative entered into the First Amendment to Second Amendment
to Agreement and Plan of Merger Warrant Agreement and Lock-up Agreement, revising the Second Amendment to their Merger Agreement.
This revision modifies the Common Stock’s registration requirements and timelines, updates the warrant agreement by changing
warrant durations and eliminating the redemption clause, and adjusts the Lock-Up Agreement to shorten the lock-up period to match
the amendment’s effective date. These modifications were mutually agreed upon to ensure both compliance and clarity in the
ongoing agreements. 

 Our
Board has unanimously determined that the Second Amendment, First Amendment to Second Amendment and Warrant Agreement are advisable and
in the best interests of the Company’s Stockholders. The Board has approved the Second Amendment and Warrant Agreement on the terms
and subject to the conditions set forth therein. The foregoing description of the Second Amendment, First Amendment to Second Amendment
and the Warrant Agreement, along with the supporting documents, and the transactions contemplated thereby does not purport to be complete
and is subject to, and qualified in its entirety by, the full text of the Second Amendment, First Amendment to Second Amendment and the
Warrant Agreement, copies of which are attached hereto as ( Exhibits 2.1 and 2.2) and are incorporated herein by reference. 

 Sales
and Marketing 

 In
2023, we formally produced our first marketing plan and will be focusing on the following activities to ensure greater exposure and brand
awareness: 

 ● 
 utilization
 of a well-known public relations and investor relations firm, 

 ● 
 new
 website to optimize search engine optimization, 

 ● 
 referral
 relationships and success fees, 

 ● 
 multiple
 conference participation and speaking engagements, 

 ● 
 customer
 retention promotions, and 

 ● 
 email
 and e-blast campaigns along with more traditional direct mail marketing activities. 

 Competition 

 The
banking and financial services industry is highly competitive, and we compete with a wide range of lenders and other financial institutions
entering the cannabis market, mostly composed of local and regional banks or credit unions. However, a number of our competitors are
much larger financial institutions that have greater financial resources than we do and compete aggressively for market share. These
competitors attempt to gain market share through their financial product mix, pricing strategies, and larger banking center networks.
However, due to the high-risk nature of providing cannabis services, they find they must create specialized compliance programs to meet
the expectations of their regulators, which puts the entire financial institution at risk for enforcement actions. They are realizing
that a specialized external program that separates and monitors cannabis activities is a much safer approach; providing the Company another
opportunity to work side by side with larger banks. 

 We
also have limited competition with brokerage firms, trust service providers, consumer finance companies, mutual funds, securities firms,
insurance companies, third-party payment processors, and other financial intermediaries on various elements of our products and services.
While many initially enter the market with rigor, they find themselves exiting the market due to the complexity and demands of serving
the cannabis industry. Some of our competitors are not subject to the regulatory restrictions and the level of regulatory supervision
applicable to us. Interest rates on loans and deposits, as well as prices on fee-based services, are typically significant competitive
factors within the banking and financial services industry. 

 While
we seek to remain competitive with respect to fees charged, interest rates, and pricing, we believe that our broad and sophisticated
suite of services relating to commercial banking, our high-quality customer service culture, our positive reputation, and long-standing
community relationships enable us to compete successfully within our markets and enhance our ability to attract and retain customers. 

 Intellectual
Property 

 As
we do not have any registered intellectual property, we currently rely on confidentiality, and non-disclosure agreements with our
employees and others to protect our proprietary rights. Despite these efforts to protect ourselves from infringement or misappropriation
of our intellectual property rights, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual property in
violation of our rights. In the event of a successful claim of infringement against us, or our failure or inability to develop non-infringing intellectual
property or license the infringed or similar intellectual property on a timely basis, our business could be harmed. 

 Seasonality 

 Most
loan production, generally, is subject to seasonality, with the lowest volume typically in the first quarter of each year. This does
not necessarily apply to us as we serve the cannabis industry with demand for access to capital at reasonable rates. We expect, based
upon our pipeline of demand, a methodical and consistent growth in the lending portfolio. 

 Loans
are extended to cannabis related businesses, including both cannabis licensed and unlicensed ancillary service providers to the cannabis
industry. While credit markets are generally tightening due to market conditions, the cannabis industry continues to grow and expand
at a rapid pace in light of on-going opening of legalized cannabis markets at the state level. This provides an opportunity for lending,
unlike the normal commercial market. 

 8 

 Table of Contents 

 Due
to the federally illegal status of cannabis, most cannabis-related businesses, licensed or unlicensed, have faced years of inability
to access capital at reasonable rates; these circumstances force them to purchase properties and fund their businesses from personal
investment of operational cash, potentially limiting their own growth. This provides for a robust opportunity to lend to established
entities with real estate assets free of debt. Businesses are taking the opportunity to leverage such assets to expand and grow their
operations while we build a senior secured portfolio ostensibly collateralized with a real estate base. 

 Furthermore,
the industry has been subject to ‘hard money’ lending with annual rates available between 18-36%. This is yet another opportunity
for us to offer refinancing of real estate debts at more favorable interest rates; since the depository relationship is necessary as
part of the compliance monitoring for credit, we benefit from servicing, monitoring, and validating compliance of depository relationships,
earning fees on deposits. This results in a lower cost of capital when considering that we earn on both the depository and lending relationships.
 
 Investments 

 Our
investment policy requires that investment decisions be made based on, but not limited to, the following four principles: investment
quality, liquidity requirements, interest-rate risk sensitivity and estimated return on investment. These characteristics are pillars
of our investment decision-making process, which seeks to minimize exposure to risks while providing a reasonable yield and liquidity. 

 Regulations
and Legislation 

 The
Company has capitalized on the opportunity to do what financial institutions would not do directly – provide access to financial
services to the underserved cannabis industry. Among the factors preventing most financial institutions from providing similar services
are: 

 ●
conflicting state and federal laws regarding legalization; 

 ●
the high-risk nature of cannabis due to its black-market history and undocumented, illegally earned legacy funds; 

 ●
the high risk of an existing black-market operating among legal entities; creating additional compliance pressures; 

 ●
FinCEN guidance issued in 2014 (the “2014 FinCen Guidance”) explaining how financial institutions might serve the cannabis
industry, creating potential for differing interpretations and inconsistent standards; 

 ●
under-the-radar operations of CRBs and the complex nature of the corporate structures created to separate and protect assets, which creates
steep learning curves necessitating the specialized cannabis sector training, onboarding, monitoring and funds validation; 

 ●
BSA obligations to which few financial institutions are willing to dedicate the significant necessary resources, and fear of non-compliance,
which can result in millions of dollars in fines assessed against the financial institution. 

 ●
the lack of a “safe harbor” regulatory provision that would protect officers and directors from prosecution for providing
financial services to companies that produce and sell cannabis products provides the business opportunity that we have sought to fulfill. 

 During
April 2021, the United States House of Representatives passed the SAFE Banking Act of 2021 (the “SAFE Act”). The SAFE Act
would prohibit federal regulators from fining and penalizing financial institutions and their management/executive team who service legitimate
businesses including those in the cannabis industry (i.e. those legal operating in states that have approved cannabis for medicinal and/or
adult use). More recently, the SAFER Banking Act updates the Secure and Fair Enforcement (SAFE) Banking Act and has successfully passed
the Senate Banking Committee as of September 2023. Neither Act has been brought to or passed by the Senate and therefore is not law.
Even with the passage of the SAFE Act, we do not believe the above barriers to entry would be significantly reduced. We feel due to the
high cash nature of the business, which we believe will persist in the near and mid-term, and the illicit history of cannabis, many potential
competitors will remain hesitant to serve the industry, resulting in an outsized opportunity for the Company. 

 Additional
significant changes involve the Department of Health and Human Services recommendation to reschedule cannabis from a ‘schedule
1’ drug to a ‘schedule 3’ drug classification. This recommendation has been provided to the Drug Enforcement Administration
(the “DEA”) and is pending further comment or action from the DEA, if any. The rescheduling of cannabis could impact 280E
IRS Tax code presently applied to cannabis licensees; increasing the potential for greater cash flow, increase deposit activity and balances,
and ability to service debt. 

 Since
inception (including as a wholly owned subsidiary asset of PCCU), the Company has onboarded over $21.5 billion in cannabis related funds
into the financial system with what we believe to be the highest level of monitoring and validation. In conjunction with its financial
institution clients, the Company has successfully completed 16 state and federal exams without interruption resulting in reliable financial
services. The Company’s onboarded deposits currently consist of over 720 accounts that were onboarded and validated in a methodical
manner to ensure continuity of service while under significant regulatory scrutiny. The Company’s services started with only 10
test CRBs resulting in current onboarded accounts representing approximately 70 times growth since the Company began operations. The
Company has successfully grown its onboarded deposits at a rapid pace, with a compound annual growth rate (“CAGR”) of 53%
from 2015 to 2023. Onboarded deposits processed in 2022 were approximately $3.6 billion and grew to approximately $4.2 billion in 2023. 

 The
Company’s onboarding process for CRBs desiring banking services through PCCU or another financial institution is a multi-step process
that is designed to fulfill the financial institution’s “know your customer” requirements and the diligence expectations
set forth in the 2014 FinCEN Guidance related to providing services to CRBs, particularly developing an understanding of the normal and
expected activity for the business. 

 ●
The account opening process begins with an application and supporting documentation provided by the CRB, which are uploaded and logged
so that, following a quality control review, open items and questions are flagged for follow up. All account-related documentation is
stored in a secure database that allows the Company’s oversight, audit and exam functions to have access to all of the CRB’s
documents. 

 ●
As part of the Company’s diligence process, background checks are performed on all business owners, with the need for additional
background checks of indirect owners or investors determined in the application review stage. 

 ●
Other diligence includes, among other things, as applicable, confirmation of licensure, on-site visits and regular audits to review business
processes and inspect business locations, verification of sources of funds, review of business and inventory records, and review of other
information necessary for a full understanding of the prospective customer’s business and historical operations. 

 ●
The account opening process is completed with the assistance of a financial institution staff member.

 9 

 Table of Contents 

 Currently,
substantially all deposits are maintained at PCCU, and all transmissions of funds to or from these deposit accounts are handled directly
by PCCU. We have expanded, and intend to continue to expand, our relationships with other financial institutions that similarly hold
the CRB deposit accounts and handle transmissions of funds to and from the accounts. Although we do not directly hold the deposit accounts,
we believe that account retention is a measure of our ability to efficiently and compliantly onboard, validate and monitor CRB accounts.
The largest 10 CRB accounts held at PCCU for the period ended December 31, 2023 represented less than 5% of fee income from onboarded
deposits, which is currently our largest source of revenue. Building upon the existing foundation, we believe the Company has the ability
to continue to grow the financial institution clients for which it onboards deposits and related fee income at a strong pace. In addition,
we plan to add access to additional financial services to the Company’s platform, such as merchant processing, custodial relationships,
insurance products, broker/dealer services, payment processing services and investment services, although in each case these services
would be provided by a third party holding necessary licenses. 

 The
Company had one loan on its balance sheet as of December 31, 2023. The Company also indemnified twenty loans as of December 31, 2023;
of which three of these indemnified loans were in excess of 10% of the total balance. 

 Key
Regulatory Challenges 

 Legal
Environment 

 Cannabis
remains a controlled substance under the CSA. The conflict between federal and state laws allows for prosecution at the federal level,
assets remain subject to seizure, and there are potential punitive actions by third parties (including regulated) against financial institutions
and financial services providers for entering the business. The uncertainty of the legal landscape has increased with the previous Attorney
General’s January 2018 rescission of the Cole Memorandum, which was guidance issued in August 2013 from then Deputy Attorney General
James M. Cole to federal prosecutors that de-prioritized the enforcement of federal marijuana prohibitions. Although, in our opinion,
the authority to prosecute cannabis related violations appears to remain vested in each state’s Attorney General, we believe that
the 2014 FinCEN Guidance provide an important framework for compliance to parties providing services to CRBs. We also believe that the
successful completion of 16 regulatory examinations of PCCU, our largest financial institutional client, for which we provide onboarding
services demonstrates that it is possible to structure onboarding, validation and monitoring services in a compliant manner. 

 Pending
Legislation 

 Legislation
pending at the federal level such as the SAFER Banking Act described above will provide limited protection to financial institutions
banking the industry and other financial services providers in as much as the companies and their officers will not be prosecuted or
fined simply for servicing the cannabis industry. However, legislation will not protect financial institutions from breaches of BSA regulations,
which may lead to significant penalties, often resulting in substantial fines assessed by FinCEN. Given inherent risks associated with
the cannabis industry such as the remaining illicit market and illegal past, the need to bank the industry at an elevated level of compliance
will not change if the legislation passes at the federal level unless BSA changes, which is unlikely. 

 Complexity
of Business 

 The
nature of the cannabis business is such that businesses utilize sophisticated business structures for asset protection and to create
ways to maximize tax efficiencies. This makes for very complex business structures with some companies having many related entities that
financial institutions must monitor for adherence to anti-money laundering (“AML”)/BSA regulations. This understanding, diligence
and underwriting is labor-intensive work requiring significant hands-on resources. 

 Regulatory
Uncertainty 

 Due
to the divergence between cannabis-related state and federal law, we believe venturing into providing access to banking and financial
services for CRBs remains “cutting edge.” We feel that the scrutiny and pressure under which financial institutions and financial
services providers must operate to maintain compliant while servicing CRBs, coupled with the pending status of further federal legislation,
causes most financial institutions and financial services providers to shy away from the industry. We, however, view this as an opportunity.
While the Company is not regulated as a subsidiary of a regulated financial institution, our agreements with our financial institution
partners and the nature of our services typically require we provide these services in a compliant manner. This primarily relates to
offering services that are compliant with the 2014 FinCEN Guidance and the BSA. In addition, given our history working with credit unions,
our services historically have been subject to regulatory oversight from the National Credit Union Administration (“NCUA”).
The Company will nevertheless continue to be subject to a range of laws, rules, and regulations, including those applicable to the Company
that is an SEC registrant. In order to ensure we provide our services in an appropriate manner, we maintain policies and procedures we
believe to be aligned with the requirements of 2014 FinCEN Guidance and the BSA. These policies and procedures are continuously assessed
by management and formally reviewed at least annually. All employees are provided ongoing and annual training to ensure our services
are delivered in an appropriate manner. An external audit firm is engaged to audit our compliance with certain policies on a quarterly
and annual basis. 

 BSA/AML
Regulations and Ramifications 

 BSA
penalties for non-compliance are significant. For example, during March 2022, FinCEN issued a consent order issuing a $140 million civil
penalty to a financial institution for failing to address previously identified AML program issues and other BSA compliance issues. This
fine was unrelated to CRBs, which we believe provides a higher risk industry. We believe that most institutions cannot withstand such
a penalty and will not take that risk. BSA experienced talent, particularly experience with cannabis businesses, is difficult to find
and delegating such legal risk to BSA staff takes a great deal of trust, training, and additional resources to monitor activities and
protect the financial institution. We believe our history and experience of providing compliant financial services and in conjunction
with our financial institution clients successfully completing regulatory examinations reduces our risk in this area and provides us
with a competitive advantage. We are committed to providing services in a compliance first fashion. 

 10 

 Table of Contents 

 Cannabis
Focused Fintech Competition 

 Financial
regulators have created a real or perceived barrier to entry for most financial institutions. This has created the utilization of fintech
models to provided financial services to the cannabis industry. Unregulated fintechs, i.e., those not formally regulated by federal agencies,
are not subject to the same restrictions as chartered financial institutions (i.e., concentration limits on the percentage of balance
sheet composed of higher risk cannabis deposits). Fintechs may enjoy this less restricted environment for a period of time, but we anticipate
these companies will become subject to increasing regulatory requirements. We believe competition at the fintech level remains limited,
as the emerging cannabis market requires the creation of sustainable fintech models that understand the regulatory environment, combining
technology and regulation. While not fully regulated, fintech models are responsible for moving funds through the financial system via
banking partners and must therefore be aware of regulations surrounding the movement of funds and implement BSA programs themselves. 

 How
the Company Addresses Regulatory Challenges 

 The
Company’s solutions are designed to address the key challenges faced by financial institutions desiring to provide banking services
to CRBs. Today’s industry participants lack sufficient and reliable access to traditional financial services. We believe our solutions
offer valuable services making communities safer, drive growth in local economies and foster long term partnerships. 

 The
Company serves financial institutions desiring to provide banking services to the regulated cannabis industry and maintains a high standard
of accountability, transparency, monitoring, reporting and risk mitigation measures while meeting BSA obligations in-line with the 2014
FinCEN Guidance relating to CRBs. BSA obligations vary depending on the growth and complexity of the CRB banking customers’ business,
resulting in financial service providers constantly adjusting activities to meet expectations as well as the size of the cannabis portfolio
maintained. The Company’s program has actual “hands-on” experience in the market since January 2015. We have increased
BSA activities every year to manage emerging market risks and growth of the portfolio. This experience has allowed for the formulation
of best practices and standardized processes that provide for a better understanding of these risks in order to mitigate them. We believe
that the Company’s brand has been optimized on a national level to include sound and recognized exposure with financial institutions,
legislators, governing officials, attorneys’ generals, regulators and the overall cannabis industry. 

 We
have developed proprietary software built specifically for the cannabis industry from input gathered from our experience handling the
onboarding of CRB accounts for PCCU. Our software enables our financial institution clients to manage the customer onboarding process,
including applications and intake, “know your customer” diligence, and ongoing compliance monitoring, coupled with financial
services relationship monitoring. Our software is continuously improved based on our experience and is updated to include new options
and functions associated with the emerging cannabis market. Our software is able to run on multiple core banking systems, so as a result
we are able to offer this software to financial institution clients who desire to use our software for diligence and monitoring purposes
for their own CRB customers without our assistance. Ultimately, we believe that our software can be updated to accommodate new industries
and to enhance existing processes for increased efficiencies. 

 Financial
institutions continue to shy away from banking the cannabis market due to cannabis remaining a Schedule 1 drug, thus illegal under federal
law. Because there is no “safe harbor” for financial institutions seeking to provide banking services to CRBs, it provides
us the opportunity to capitalize on our knowledge and position as a market leader. We believe most financial institutions will not enter
the market until federal legalization occurs — especially the large, multi-state financial institutions. Even then, the industry
will still be considered a higher-risk banking sector needing strong experience and vetted programs. The 2014 FinCEN Guidance issued
in February 2014 detailed the regulatory agency’s compliance and monitoring expectations for financial institutions servicing the
cannabis industry. In our opinion, this created a window of opportunity allowing for the ability to serve the cannabis industry. We believe
this window of opportunity, along with our proven track record, reduces the risk of negative consequences as a result of servicing the
cannabis industry. 

 It
is our opinion that many competitors will attempt to enter the financial services market without understanding the complexity or regulatory
demands and we believe many will quit once they assess required resources to maintain a compliant program. We have seen several financial
institutions divest their balance sheet of cannabis risk in the last year due to regulatory pressures and demands on BSA dedicated resources. 

 Banking,
or the lack of banking provided to the cannabis industry, remains a national issue due to the conflict in federal and state laws, reputational
risk, and AML/BSA regulatory requirements. CRBs have been unbanked or even banked secretly. Many financial institutions start serving
the industry only to quickly close down their cannabis focused operations due to i) lack of industry knowledge, ii) regulatory pressure,
iii) cash management volume, and iv) the labor-intensive monitoring and reporting requirements. 

 Traditional
fintech operations typically have difficulty obtaining banking relationships in which to conduct business as the financial institution
still remains liable for BSA obligations and yet the fintech retains control of all safety and soundness processes - a high and potentially
expensive financial institution risk without direct control. The Company, under the umbrella of our partner financial institution, PCCU,
methodically built its platform in a regulated manner under the supervision of financial regulators. This allows the Company to continue
to operate with attention and activities based upon required regulations and provide financial institution partners with whom we work
confidence in our ability to manage the higher-risk cannabis industry. Going forward, the Company will continue to operate in a manner
to ensure a smooth transition once regulations are standardized for businesses providing financial services under a fintech model. 

 Future
Legislative Developments 

 Congress
may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact
legislation from time to time affecting the regulation of financial institutions chartered by or operating in their states. Federal and
state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations
are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted,
although any change could impact the regulatory structure under which we or our competitors operate and may significantly increase costs,
impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to our business
strategy, and limit our ability to pursue business opportunities in an efficient manner. It could also affect our competitors differently
than us, including in a manner that would make them more competitive. A change in statutes, regulations or regulatory policies applicable
to us or any of our affiliates could have a material, adverse effect on our business, financial condition and results of operations. 

 11 

 Table of Contents 

 Employees 

 As
of December 31, 2023, we had forty three full time employees, and two part time employees. None of our employees are represented by a
union or parties to a Collective Bargaining Agreement. 

 Human
Capital Management 

 The
Company’s key human capital management objectives are to attract, retain and develop the highest quality talent. To support these
objectives, the Company’s human resources programs are designed to continuously develop talent; reward and support our team members
through competitive pay and benefits; enhance the Company’s culture through efforts aimed at making the workplace more engaging
and inclusive; and engage team members as brand ambassadors of our products and experiences. 

 Our
corporate culture and core values (focus on the customer, innovative and forward thinking, sound financial management, doing what is
right, collaborative thinking, developing our people and strengthening our communities) reflect our commitments to our customers, investors,
team members, and the communities in which we do business. These values serve as guiding principles to provide a safe and positive work
environment for our team members and delivering on our goals to our customers, investors, stakeholders and communities we serve. We believe
we have a strong workforce, with a good mix of professional credentials, experience, tenure and diversity, that coupled with their commitment
to uncompromising values, provide the foundation for our Company’s success. 

 The
Company’s Human Capital Management includes the following areas of focus: 

 Experience.
 Due to the high risk and complex nature of serving cannabis businesses, we strive to build a workforce with experience with the cannabis
industry. We can more easily train compliance and financial services, but cannabis expertise is difficult to train. 

 Talent.
 Attracting, developing, and retaining the best talent with the right skills is central to our long-term strategy to drive our success. 

 Our workforce composition is aligned with our business needs. Management
trusts it has adequate human capital to operate its business successfully. The Company had 43 full-time equivalent employees, or FTEs,
at the end of 2023. Approximately 70% of our workforce is in Colorado and another 16% in Arkansas, with an expanding remote workforce
to cultivate new and existing cannabis relationships in multiple states. The others are spread around to six other states. 

 Talent
acquisition efforts focused on sales, business development and income generator roles. Our talent acquisition team uses internal and
external resources to recruit highly skilled and talented workers, and we encourage and reward employee referrals for open positions.
We hire the best person for the job without regard to gender, ethnicity or other protected traits and it is our policy to comply fully
with all federal and state laws relating to discrimination in the workplace. 

 Fair
and Consistent Practices. Employees want to know that if they are working hard and dedicated to the company, the person next to them
should be as well. All of our communications, evaluations, assessments, and monitoring ensure that our employees are treated with respect
and are able to trust that the company will ensure fair and consistent treatment. Performance evaluations done on a quarterly and annual
basis provide for competitive pay increases and access to the equity incentive plan. We work to make them feel part of the team no matter
what role they fill. Evaluations are used to build staff expertise, efficiencies and competencies; utilizing objective criteria on which
to base rewards. 

 Learning
and Development. Our team members are inspired to achieve their full potential through learning and development opportunities, recognition,
and motivation. We invest in creating opportunities to help them grow and build their careers, through a multitude of learning and development
programs. These include online instructor-led, cannabis industry focused conferences, and on-the-job learning assignments. Understanding
that all employees learn differently, we offer a variety of learning options including traditional classroom learning, virtual learning,
any time learning, mobile learning, and social collaboration. 

 Leadership
Development and Succession Planning. We focus on growing leadership internally and ensuring the continuity of business at all levels.
We do this with mentoring programs, delegating to train employees to the next level, and specific leadership training programs to encourage
staff to reach hire levels. Promoting from within is a solid strategy for long term success and loyalty. 

 Employee
engagement. To assess and improve employee retention and engagement, the Company regularly conducts anonymous surveys to seek feedback
from our employees on a variety of topics, including but not limited to, confidence in company leadership, competitiveness of our compensation
and benefits package, career growth opportunities, and improvements on how we could make our company an employer of choice. The Company
closely monitors the implementation of these surveys and results are shared with our employees and reviewed by senior leadership, who
analyze areas of progress or deterioration and prioritize actions and activities to drive meaningful improvements in employee engagement.
Management believes that the Company’s employee relations are favorable. 

 We
also hold regular strategic update meetings to review corporate strategies and financial successes to ensure they understand the underlying
reason for assigned tasks and goals. We establish regular functional area meetings at which employees are encouraged to provide client
and operational feedback, ensuring they contribute and demonstrate future potential talent. Cross functional meetings are also scheduled
regularly to ensure cross functional teamwork. 

 12 

 Table of Contents 

 Health
and Safety. Consistent with our operating principles, the health and safety of our employees is of top priority. Hazards in the workplace
are actively identified and management tracks incidents so remedial actions can be taken to improve workplace safety. The COVID-19 pandemic
has underscored for us the importance of keeping our employees safe and healthy. In response to the pandemic, the Company has continued
taking actions aligned with the World Health Organization and the Centers for Disease Control and Prevention to protect its workforce
so they can more safely and effectively perform their work. We implemented remote work options that have granted employees a combination
of working at the office or from home. We ensure further safety by encouraging any employee that might not feel well or have family members
that might be ill to work from home in order to protect the office environment. 

 Diversity
and Inclusion. Our diversity and inclusion goals are to build teams that reflect the communities we serve while hiring and supporting
a diverse array of talent. Over 45% of our workforce is female with over 45% of management also comprised of female employees. Likewise,
we have over 25% of the workforce represented as Latino, Hispanic or African American. 

 Our
diversity and inclusion pillars are also reflected in our employee learning programs, particularly with respect to our policies against
harassment and the elimination of bias in the workplace. Annual harassment training is done by all employees to ensure a workplace free
of any type of harassment. Any and all complaints are dealt with in the most professional and expedited manner, creating a level of trust
between management and staff. 

 Total
Rewards (Compensation and Benefits). As part of our compensation philosophy, we believe in a competitive, total rewards program aligned
with our business objectives and the interests of our stakeholders. We remain committed to delivering a compensation program with the
fundamental principles of fairness, transparency, efficiency, and compliance with laws and regulations. Based on specific job position
and market conditions, our total rewards program combines fixed and variable compensation: base salary, short-term incentive, equity-based
long-term incentive, and a broad range of benefits. This compensation approach plays a significant role in our ability to attract, retain
and motivate the quality of talent necessary to achieve our strategic business goals and drive sustained performance. Our compensation
model engages employees to contribute towards the achievement of shared corporate objectives, while differentiating pay on performance
based on individual contributions. 

 Wellness.
 The Company takes pride in providing excellent health and wellness benefits to our employees and their families. The benefits package
offered includes comprehensive medical, dental, vision, as well as supplemental short and long-term life and out of pocket costs insurance.
Along with these benefits, we also offer and fund a portion of employee Health Savings Accounts (HSA) monthly. 

 Medical
Plans. Our nationwide healthcare plans allow full-time and part time employees to select from multiple health plan options. The company
provides competitive medical premiums. The Company contributes a percentage of the employee premium depending upon tenure, with those
employed longest receiving full payment of premium for employee coverage. The Company also contributes monthly towards the HSA accounts. 

 Dental,
Vision and Legal Plans. Employees are eligible to participate in our dental, vision, and legal plan offerings. The Company contributes
up to 100% depending on the plan and chosen tier and provides access to numerous providers across the country. Employees can also choose
to purchase out-of-pocket insurance policies providing income protection and cash for services with different plans from accident, short-term
disability, long term disability, additional life insurance, and more. 

 401K
Retirement Plan. In addition to health insurance benefits, the Company also offers to all employees a tax-qualified retirement contribution
plan, with the Company’s 100% matching contribution up to 4% of a participant’s eligible compensation, and a non-tax qualified
retirement contribution plan to certain eligible highly-compensated employees. Our total benefits package supports our employees’
well-being to achieve a healthy and financial lifestyle goal. 

 PTO
Plan. Employees enjoy a solid paid time off (“PTO”) plan that allows for four weeks of personal time off their first
year. Employees are also allowed to sell back PTO weeks based upon their tenure, allowing for a benefit many take advantage of to fund
vacations, family situations, and even holiday shopping. They are allowed to carry over 80 hours into a new year and excess hours are
paid to the employee at that time. 

 Corporate
History 

 The
Company was founded in 2015 as a solution to a major problem that plagued the nascent legalized cannabis industry in Colorado - access
to reliable and compliant financial services. Cannabis related funds were already finding their way into the financial system, including
via hidden, misrepresented accounts and unlawful banking practices. Based upon our research, we determined that the appropriate step
was to protect the financial system from criminal activity and provide legitimacy to the legal state CRBs. From decades of regulatory
and banking experience, we created a detailed compliance program to assist financial institutions desiring to provide safe and sound
financial services that would accomplish industry accountability and protect the financial system. The compliance program provides onboarding,
validation and monitoring services to financial institutions desiring to provide traditional banking services to all types of marijuana,
hemp, and CBD businesses, and to ancillary businesses that provide services to the cannabis industry. These ancillary businesses include
payroll companies, payment processors, and professionals providing services to and receiving payment from CRBs. As the lawful cannabis
industry grew beyond Colorado, the Company evolved its business practices to build a national footprint and currently provides services
to financial institutions that provide banking services in 41 states where cannabis is either legal medicinally or for full adult use. 

 The
Company originated as business operations conducted through Partner Colorado Credit Union (“PCCU”), which were transferred
to SHF LLC (“SHF”), then an indirect wholly owned subsidiary of PCCU. 

 13 

 Table of Contents 

 SHF
Holdings, Inc. (the “Company”), formerly known as Northern Lights Acquisition Corp. (“NLIT”), acquired all of
the outstanding membership interests of SHF in a transaction that closed on September 28, 2022 (the “Business Combination”).
The Business Combination was consummated pursuant to a Unit Purchase Agreement dated February 11, 2022 (the “Business Combination
Agreement”) among SHF, SHF Holding Co., LLC (the direct parent of SHF and a wholly owned subsidiary of PCCU), PCCU, NLIT, a special
purpose acquisition company, and its sponsor, 5AK, LLC. Subsequent to the completion of the Business Combination, NLIT changed its name
to “SHF Holdings, Inc.” In this Annual Report on Form 10-K (the “Form 10-K”), we use the terms “we,”
“us,” “our,” “Safe Harbor” and the “Company” to refer to the business and operations
of SHF Holdings, Inc. following the closing of the Business Combination. (Refer to Note 3 to the Consolidated Financial Statements included
elsewhere in this Form 10-K for more information regarding the Business Combination.) 

 SHF
was formed by PCCU following the approval of the contribution of certain assets and operating activities associated with operations from
both certain branches and Safe Harbor Services, a wholly-owned subsidiary of PCCU, to SHF Holding, Co., LLC. SHF Holding, Co., LLC then
contributed the same assets and related operations to SHF, with PCCU’s investment in SHF maintained at the SHF Holding, Co., LLC
level (collectively the “Pre-Public Company”). The reorganization effectively occurred July 1, 2021. In conjunction with
the reorganization, all of the employees engaged in the operations and certain PCCU employees were terminated from PCCU and hired as
SHF employees. The relevant operations of the PCCU branches, and SHF, represent the “Carved-Out Operations.” After the reorganization,
the entirety of the Carved-Out Operations were owned by SHF and the Pre-Public Company was dissolved. In addition, effective July 1,
2021, SHF entered into an Account Servicing Agreement and Support Services Agreement with PCCU, which memorialized the operational relationship
between SHF and PCCU and which were subsequently amended and restated and are discussed in Note 10 to the Consolidated Financial Statements
included elsewhere in this Form 10-K. 

 On
September 28, 2022, the parties consummated the Business Combination, resulting in NLIT acquiring all of the issued and outstanding membership
interests of SHF upon exchange for an aggregate of $185,000,000, consisting of (i) 11,386,139 shares of the Company’s Class A Common
Stock with an aggregate value equal to $115,000,000 and (ii) $70,000,000 in cash, $56,949,801 of which will be paid on a deferred basis.
At the closing, 1,831,683 shares of the Class A Common Stock (the “Escrow Shares”) were deposited with an escrow agent to
be held in escrow for a period of 12 months following the closing date to satisfy potential indemnification claims of the parties. On
December 31, 2023, the 12-month period has expired, and the Company is in discussion with the escrow agent for the release of the Escrow
Shares. For more information about the Business Combination, refer to Note 3 to the Consolidated Financial Statements included elsewhere
in this Form 10-K. As a result of the Business Combination, PCCU is the Company’s largest stockholder, owning 39.62% of the Company’s
outstanding Class A Common Stock as of December 31, 2023. 

 The
Business Combination Agreement was amended to provide for the deferral of a portion of the cash due to PCCU at the closing of the Business
Combination. The purpose of this deferral was to provide the Company with additional cash to support its post-closing activities. Furthermore,
PCCU also agreed to defer $3,143,388, representing certain excess cash of SHF due to PCCU under the Business Combination Agreement, and
the reimbursement of certain reimbursable expenses under the Business Combination Agreement. 

 On
October 26, 2022, the Company, entered into a Forbearance Agreement (the “Forbearance Agreement”) with PCCU and Luminous
Capital USA Inc. (“Luminous”), an affiliate of the sponsor of NLIT. Under the Forbearance Agreement, PCCU agreed to defer
all payments owed by the Company pursuant to the Business Combination Agreement for a period of six months from the date of the Forbearance
Agreement. 

 On
October 31, 2022, the Company entered into an Agreement and Plan of Merger (the “Abaca Merger Agreement”) by and among the
Company, SHF Merger Sub I, a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Merger Sub I”), SHF
Merger Sub II, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of the Company (“Merger Sub II”
and, together with Merger Sub I, the “Merger Subs”), Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca
(“Abaca”) and Dan Roda, solely in such individual’s capacity as the representative of the security holders of Abaca
(the “Abaca Stockholders’ Representative”). On November 11, 2022, the parties to the Abaca Merger Agreement entered
into an amendment to the Abaca Merger Agreement to modify the number of shares of the Company’s Class A Common Stock to be issued
as consideration thereunder. On November 15, 2022, the parties consummated the transactions contemplated by the Abaca Merger Agreement,
as amended. Pursuant to the Abaca Merger Agreement, as amended, (a) Merger Sub I merged with and into Abaca, with Abaca surviving as
a direct wholly-owned subsidiary of the Company (“Merger I”) and (b) immediately following the effective time of the Merger
I, Abaca merged with and into Merger Sub II (“Merger II” and, collectively with Merger I, the “Mergers”), with
Merger Sub II surviving Merger II as a direct wholly-owned subsidiary of the Company. 

 Pursuant
to the Abaca Merger Agreement, as amended, the Company acquired Abaca together with its proprietary financial technology platform in
exchange for $30,000,000, paid in a combination of cash and shares of the Company as follows: (a) cash consideration in an amount equal
to (i) $9,000,000 ($3,000,000 was payable at the closing of the Mergers (the “Merger Closing”), with an additional $3,000,000
payable at each of the one-year and two-year anniversaries of the Merger Closing), (collectively, the “Cash Consideration”);
and (b) 2,100,000 shares of Class A Common Stock at the Merger Closing and $12,600,000 (minus an outstanding note balance of $500,000,
plus accrued interest) in shares of Class A Common Stock at the one-year anniversary of the Merger Closing based on a 10-day VWAP (collectively,
the “Share Consideration”). Each of the Company, the Merger Subs, and Abaca provided customary representations, warranties
and covenants in the Abaca Merger Agreement. 

 14 

 Table of Contents 

 On
March 29, 2023, the Company and PCCU entered into a definitive transaction to settle and restructure the deferred obligations, including
$56,949,800 into a five-year Senior Secured Promissory Note (the “Note”) in the principal amount of $14,500,000 bearing interest
at the rate of 4.25%; a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security
interest in substantially all of the assets of the Company; and a Securities Issuance Agreement, pursuant to which the Company will issue
11,200,000 shares of the Company’s Class A Common Stock to PCCU. The Company and PCCU also entered into the Commercial Alliance
Agreement that sets forth the terms and conditions of the lending-related and account-related services governing the relationship between
the Company and PCCU and supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and
the Amended and Restated Account Servicing Agreement. 

 On
October 26, 2023, we entered into: (1) a Second Amendment to Agreement and Plan of Merger (the “Second Amendment”) with SHF
Merger Sub I, a Delaware corporation and a direct wholly-owned subsidiary of Parent (“Merger Sub I”), SHF Merger Sub II,
LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Parent (“Merger Sub II” and, together with
Merger Sub I, the “Merger Subs”), Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca ( “Abaca”),
and Dan Roda, solely in such individual’s capacity as the representative of the Company Securityholders (the “Abaca Stockholders’
Representative”), and (2) a Warrant Agreement with Continental Stock Transfer & Trust Company (solely as warrant agent to the
Warrant Agreement). 

 The
First Amendment modified, among other things, the First Anniversary Parent Shares to be issued as consideration so that the First Anniversary
Parent Shares equal $12,600,000 minus the note balance of $500,000, plus accrued interest, divided by the 10-day VWAP of the Parent Common
Stock for the 10 days immediately preceding the first anniversary of the Closing Date. The Second Amendment modified, among other things,
the First Anniversary Parent Shares to be issued as consideration so that the First Anniversary Parent Shares equal $12,600,000 less
the Closing Note Balance and Working Capital Adjustment, collectively in the amount of $928,356.16, divided by $2.00 per share. As a
result, 5,835,822 shares of Parent Common Stock will be issued as the First Anniversary Parent Shares. The Second Amendment also added
a Third Anniversary Consideration Payment of $1,500,000 which will be payable in cash, stock, or a combination of both at Company’s
discretion. If the Company decides to pay with shares, their value will be determined by the 10-day NASDAQ average before the anniversary,
with prices ranging between $2.00 and $4.36. Shares given purely for payment won’t be restricted by the Lock-Up Agreement. However,
if the Lock-Up Agreement is in effect, the payment will be split into $750,000 cash and an equivalent $750,000 in shares. The lock-up
duration for any shares will adhere to the legal minimum. In the event of a company stock consolidation or similar activity, the number
of shares to be issued for the payment will be adjusted to reflect the decreased total of outstanding shares. No changes were made to
the cash payments of $3,000,000 payable at each of the one-year and two-year anniversaries of the original closing. The Company has agreed
to prepare and file a Registration Statement within 45 calendar days of the execution of the Second Amendment registering the resale
of all Registrable Securities. The Company has also granted the Abaca Stockholders’ Representative the right to nominate three
qualified candidates for the Company’s Board of Directors to the Company’s Nominating and Corporate Governance Committee
(“NCG Committee”) of which the NCG Committee shall select and recommend one candidate for service on the Company’s
Board of Directors in the Company’s 2024 annual proxy statement. 

 In
addition, pursuant to the Warrant Agreement the Company agreed to deliver the Company Securityholders warrants to purchase up to an aggregate
of 5,000,000 shares of Parent Common Stock at an initial exercise price of $2.00 per share. 

 On
February 27, 2024, The Company and the Abaca Stockholders’ Representative entered into First Amendment to Second Amendment to Agreement
and Plan of Merger Warrant Agreement and Lock-up Agreement, revising the Second Amendment to their Merger Agreement. This revision modifies
the Common Stock’s registration requirements and timelines, updates the warrant agreement by changing warrant durations and eliminating
the redemption clause, and adjusts the Lock-Up Agreement to shorten the lock-up period to match the amendment’s effective date.
These modifications were mutually agreed upon to ensure both compliance and clarity in the ongoing agreements. 

 Our
Board has unanimously determined that the Second Amendment, First Amendment to Second Amendment and Warrant Agreement are advisable and
in the best interests of the Company’s stockholders, has approved the Second Amendment and Warrant Agreement on the terms and subject
to the conditions set forth therein. The foregoing description of the Second Amendment, First Amendment to Second Amendment and the Warrant
Agreement, along with the supporting documents, and the transactions contemplated thereby does not purport to be complete and is subject
to, and qualified in its entirety by, the full text of the Second Amendment, First Amendment to Second Amendment and the Warrant Agreement,
copies of which are attached hereto as Exhibits 2.1 and 2.2 and are incorporated herein by reference 

 15 

 Table of Contents 

 Corporate
 Information 

 Our
mailing address is 1526 Cole Blvd., Suite 250, Golden, Colorado 80401. Our telephone number is (303) 431-3435. 

 Available
Information 

 We
maintain a website at the address https://shfinancial.org/. On our website, you can access, free of charge, our Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our annual proxy statement on Schedule 14A, and amendments to those
materials filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act. Materials are available online as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC. In addition, the SEC maintains a website at the
address www.sec.gov that contains the information we file or furnish electronically with the SEC. The information contained on our website
or on the SEC’s website is not incorporated by reference in, or considered part of, this Annual Report on Form 10-K. 

 Emerging
Growth Company Status 

 We
are an “emerging growth company,” or “EGC”, as defined in the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. 

 In
addition, Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an EGC can delay the adoption
of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the
benefits of this extended transition period, for as long as it is available. We will remain an EGC until the earlier of (1) the last
day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common equity securities pursuant to
an effective registration statement under the Securities Act and (b) in which we have total annual gross revenue of at least $1.07 billion,
(2) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by
non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (3) the date
on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References herein to “emerging
growth company” have the meaning provided in the JOBS Act. 

 16 

 Table of Contents 

 Item
1A. Risk Factors. 

 For a complete discussion of the Company’s risks and uncertainties, please refer to the risk factors included
under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2022, filed with the SEC on April 14, 2023, as well as the limitation factors included in the forward-looking
statement in this Form 10-K for the year ended December 31, 2023. 

 Item
1B. Unresolved Staff Comments. 

 None. 

 Item
1C. Cybersecurity. 

 The
Company employs internal resources and third-party service providers to manage, operate and administer our day-to-day operations, business
and affairs, subject to the direction and supervision of the Board. The Board recognizes the critical importance of maintaining the trust
and confidence of our business partners. The Board plays an active role in overseeing management of our risks, and cybersecurity represents
an important component of the Company’s overall approach to risk management and oversight. The Company and its management are committed
to protecting the confidentiality of all non-public information related to the Company’s clients, shareholders and their personnel. 

 Risk
Management and Strategy 

 The
Company relies on its Management and employees to execute its comprehensive cybersecurity program, and has adopted a written information
security program, which is designed to address applicable requirements under Regulation S-P and the FTC Safeguards Rule. Consequently,
the Company also relies on the processes for assessing, identifying, and managing material risks from cybersecurity threats. The processes
include, among other things, maintaining secure digital or physical access to information assets, using manual and automated detection
methods for malicious code, due diligence of third-party vendors, and engaging a leading provider of cybersecurity services to assess
and manage cybersecurity risk. For third-party service vendors that perform a variety of important functions for our business, we seek
to engage reliable, reputable service vendors that maintain cybersecurity programs. 

 All
of the Company’s officers and employees are subject to its policies and procedures. The Company utilizes both internal and third-party
cybersecurity services, including threat detection and response, vulnerability assessment and monitoring, security incident response
and recovery and general cybersecurity education and awareness. We engage in periodic assessment and training regarding the policies,
standards and practices designed to address cybersecurity threats and incidents. Our cybersecurity risk management is integrated into
our overall enterprise risk management and shares common methodologies, reporting channels and governance processes that apply across
our enterprise risk management. 

 To
date, we have not experienced any cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially
affected the Company and we are not aware of any cybersecurity threats that are reasonably likely to affect the Company, including its
business strategy, results of operations or financial condition. 

 Governance 

 Management
oversees the Company’s cybersecurity risk management process. Management has adopted a charter that provides to periodically review
and discuss with the Board the guidelines and policies with respect to risk assessment and risk management of cybersecurity and other
risk exposures relevant to the Company’s computerized information system controls and security. Management may receive additional
training in cybersecurity and data privacy matters to enable its oversight of such risks. Management will report to the Board on the
substance of such reviews and discussions and, as necessary, recommend to the Board such actions as the Management deems appropriate. 

 As
noted above, the Company relies on our internal Information Systems in connection with the Company’s day-to-day operations. The
Company relies on the internal processes for assessing, identifying, and managing material risks from cybersecurity threats. 

 The
Company’s Chief Financial Officer, Chief Legal Officer, and Head of IT work collaboratively with other employees of the Company
to ensure protection of the Company’s Information Systems from cybersecurity threats and to promptly respond to any cybersecurity
incidents. These members of the Company’s management team monitor the prevention, detection, mitigation and remediation of cybersecurity
threats and incidents and report such threats and incidents to the board when appropriate. They have gained relevant knowledge, skills
and experience in information technology and cybersecurity risk management, including overseeing third-party vendors in such areas, over
their careers at the Company or other organizations. 

 17 

 Table of Contents 

 Item
2. Properties. 

 The
Company leases approximately 8043 square feet of office space as its executive offices in Golden, Colorado at a cost of approximately
$15,470 per month, increasing annually to a maximum of $19,618 for the final six months of the term. The lease term expires July 31,
2029. In addition, the Company also leases approximately 2705 square feet of office space in Little Rock, Arkansas. The lease term continues
through and including July 31, 2026 at an expense of approximately $3,000 per month. 

 Item
3. Legal Proceedings. 

 We may, from time to time, in the ordinary course, be
 subject to various legal proceedings and disputes. In addition, as part of the ordinary course of business, we may be parties to
litigation involving claims relating to the ownership of funds in particular accounts, the collection of delinquent accounts, credit relationships,
challenges to security interests in collateral and foreclosure interests, which are incidental to our regular business activities. While
the ultimate liability with respect to these other litigation matters and claims cannot be determined at this time, we are
currently not aware of any such pending or threatened legal proceedings or claims that we believe will have or is likely to have,
individually or in the aggregate, a material adverse effect on our business, financial position, results of operations or cash flows.
Where appropriate, reserves for these various matters of litigation are established, under FASB ASC Topic 450, Contingencies, based in
part upon management’s judgment and the advice of legal counsel. 

 At
least quarterly, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information
available. For those matters where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we
record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant
developments based on our quarterly reviews. For other matters, where a loss is not probable or the amount of the loss cannot be estimated,
we have not accrued legal reserves, consistent with applicable accounting guidance. Based on information currently available to us, advice
of counsel, and available insurance coverage, we believe that our established reserves are adequate and the liabilities arising from
the legal proceedings will not have a material adverse effect on our consolidated financial condition. We note, however, that in light
of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution will not exceed established reserves.
As a result, the outcome of a particular matter or a combination of matters, if unfavorable, may be material to our financial position,
results of operations or cash flows for a particular period, depending upon the size of the loss or our income for that particular period. 

 Item
4. Mine Safety Disclosures. 

 Not
applicable. 

 18 

 Table of Contents 

 PART
II 

 Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 

 Market
Information 

 Our
Class A Common Stock and Public Warrants are currently listed on The Nasdaq Capital Market under the symbols “SHFS” and “SHFS,”
respectively. 

 Holders of Record 

 As of March 28,2023, there were 113 holders of our Class A Common Stock and 21 holders of our Public Warrants. The
actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose
shares are held in street name by brokers and other nominees.

 Dividend
Policy 

 We
have not paid any cash dividends on our Class A Common Stock to date. We may retain future earnings, if any, for future operations, expansion
and debt repayment and has no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends
in the future will be made at the discretion of the Board and will depend on, among other things, our results of operations, financial
condition, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, our ability to
pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. We do not
anticipate declaring any cash dividends to holders of the Class A Common Stock in the foreseeable future. 

 Recent Sales of Unregistered Securities 

 There have been no securities sold by the Company for the period covered by this Annual Report on Form 10-K which
were not registered under the Securities Act. Included are new issues, securities issued upon conversion from other share classes, and
securities issued in exchange for property, services, or other securities. 

 Issuer Purchases of Equity Securities 

 None 

 Item
6. [Reserved] 

 19 

 Table of Contents 

 Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

 References
in this section to “we,” “us,” “our,” “SHF” or the “Company” refer to SHF
Holdings, Inc. 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 consolidated financial statements and the
notes to those financial statements included elsewhere in this Form 10-K This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our
actual results may differ materially from those contained in or implied by any forward-looking statements. 

 Overview 

 Founded
in 2015 by Partner Colorado Credit Union (“PCCU”) (please see “Business Reorganization” below for a description
of SHF’s organization), SHF’s mission is to provide access to reliable and compliant financial services for the legal cannabis
industry. Through that mission and as an early leader with over nine years of experience, SHF is a leading provider of access to reliable
and compliance driven banking, lending and other financial services to financial institutions desiring to provide those services to the
cannabis industry. 

 Through
our proprietary platform and on a multi-state level, SHF provides access to the following banking related services through PCCU and other
financial institutions: 

 ● 
 Business
 checking and savings accounts; 

 ● 
 Cash
 management accounts; 

 ● 
 Savings
 and investment options; 

 ● 
 Commercial
 lending; 

 ● 
 Courier
 services (via third-party relationships); 

 ● 
 Remote
 deposit services; 

 ● 
 Automated
 Clearing House (ACH) payments and origination; and 

 ● 
 Wire
 payments. 

 Our
services allow Cannabis Related Businesses (herein referred to as “CRBs”) to obtain services from financial institutions
that allow them to run their business more efficiently and effectively with improved financial insight into their business and access
to resources to help them grow. Due to limited availability of payment and other banking solutions for the cannabis industry, most businesses
transact with high volumes of cash. Our fintech platform benefits CRBs and financial institutions by providing CRBs with access to financial
institutions and financial institutions access to increased deposits with the comfort of knowing that those deposits have been compliantly
monitored and validated. By facilitating the daily deposits of cash receipts between CRBs and financial institutions, the risks associated
with high cash on hand are mitigated, creating a safer atmosphere for the CRB’s employees and the financial institutions at which
the deposit accounts are held. Because the Company is not a financial institution, it does not hold customer deposits. All deposit accounts
are held by the Company’s financial institution clients and all transmissions of funds to and from deposit accounts are handled
directly by the financial institutions. In an industry with limited capital and financing options, we offer access to loan options at
what we believe to be competitive rates, often with less punitive terms than the current industry average. Our financial institution
clients offer loan options including senior secured debt and operating lines of debt. Collateral types include real estate, equipment,
and other business assets. We also provide access to lending options for ancillary service providers serving the cannabis industry as
these businesses also can have difficulty finding reliable financial services. 

 To
ensure access to consistent and dependable banking access to CRBs, we provide our compliance, validation and monitoring services to financial
institutions in a compliance driven environment ensuring strict adherence to the Bank Secrecy Act/FinCEN guidance and related anti money
laundering provisions. Since inception, the Company has assisted in the processing of more than $22 billion in cannabis related funds.
Through its relationship with its financial institution clients, the Company has successfully navigated 16 state and federal banking
exams. 

 20 

 Table of Contents 

 In
strategically selected geographic areas, the Company has licensed its proprietary software and Safe Harbor Program (the “Program”)
to other financial institutions to provide compliance-related services to CRBs. As part of the Program, we provide the following to financial
institutions interested in licensing the Program to assist in compliant cannabis banking: 

 ● 
 Initial
 customer due diligence – Know Your Customer; 

 ● 
 Customer
 application management; 

 ● 
 Program
 management support; 

 ● 
 Compliance
 monitoring; and 

 ● 
 Regulatory
 exam assistance. 

 Business
Reorganization 

 SHF
was formed by PCCU following the approval of the contribution of certain assets and operating activities associated with operations from
both certain branches and Safe Harbor Services, a wholly-owned subsidiary of PCCU, to SHF Holding, Co., LLC. SHF Holding, Co., LLC then
contributed the same assets and related operations to SHF, with PCCU’s investment in SHF maintained at the SHF Holding, Co., LLC
level. The reorganization effectively occurred July 1, 2021. In conjunction with the reorganization, all of the employees engaged in
the operations and certain PCCU employees were terminated from PCCU and hired as SHF employees. The relevant operations of the PCCU branches,
and SHF, represent the “Carved-Out Operations.” After the reorganization, the entirety of the Carved-Out Operations were
owned by SHF and the Pre-Public Company was dissolved. In addition, effective July 1, 2021, SHF entered into an Account Servicing Agreement
and Support Services Agreement with PCCU, which memorialized the operational relationship between SHF and PCCU and which were subsequently
amended and restated and are discussed in Note 10 to the Consolidated Financial Statements included elsewhere in this Form 10-K. 

 On
February 11, 2022, SHF and SHF Holding Co., LLC, the sole member of SHF, and PCCU, the sole member of SHF Holding, Co., LLC, entered
into a definitive Unit Purchase Agreement (herein referred to as the “Business Combination”) with Northern Lights Acquisition
Corp. (“NLIT”), a special purpose acquisition company, and its sponsor, 5AK, LLC. Subsequent to the completion of the transaction,
NLIT changed its name to “SHF Holdings, Inc.” (herein referred to as the “Company”). On September 19, 2022, the
parties entered into the First Amendment to the Unit Purchase Agreement to extend the date by which the closing had to occur from August
31, 2022 until September 28, 2022 and provide for the deferral of $30 million of the $70 million in cash due at the closing. On September
22, 2022, the parties entered into the second amendment to the Unit Purchase Agreement to provide for the deferral of a total of $50
million of the $70 million due at the closing. On September 28, 2022, the parties entered into the third amendment to the Unit Purchase
Agreement to provide for the deferral of a total of $56,949,800 of the $70,000,000 due at the closing. 

 Pursuant
to the Unit Purchase Agreement, upon the closing of the transaction, NLIT purchased all of the issued and outstanding membership interests
of SHF in exchange for an aggregate of $185,000,000, consisting of (i) 11,386,139 shares of the entity’s Class A common stock with
an aggregate value equal to $115,000,000 and (ii) $70,000,000 in cash. At transaction close, 1,831,683 shares of the Class A Common Stock
were deposited with an escrow agent to be held in escrow for a period of 12 months following the closing date to satisfy potential indemnification
claims of the parties. In addition, $3,143,388 in cash and cash equivalents representing the amount of cash on hand at July 31, 2021,
less accrued but unpaid liabilities, were paid to PCCU at the final transaction close. 

 The
Company’s lending services program currently depends on PCCU as its largest funding source for new loans to CRBs. Under PCCU’s
loan policy for loans to CRBs, PCCU’s board of directors has approved aggregate lending limits at the lessor of 1.3125 times PCCU’s
net worth or 60% of total CRB deposits. Concentration limits for the deployment of loans are further categorized as (i) real estate secured,
(ii) construction, (iii) unsecured and (iv) mixed collateral with each category limited to a percentage of PCCU’s net worth. In
addition, loans to any one borrower or group of associated borrowers are limited by applicable National Credit Union Association regulations
to the greater of $100,000 or 15% of PCCU’s net worth. 

 On
September 28, 2022, the parties consummated the Business Combination, resulting in NLIT, consistent with the aforementioned parameters,
purchasing all of the issued and outstanding membership interests of SHF in exchange for an aggregate of $185,000,000, consisting of
(i) 11,386,139 shares of the Company’s Class A Common Stock with an aggregate value equal to $115,000,000 and (ii) $70,000,000
in cash, $56,949,801 of which will be paid on a deferred basis. 

 The
purpose of the $56,949,800 deferral is to provide the Company with additional cash to support its post-closing activities. Pursuant to
the third amendment to the Unit Purchase Agreement, the deferred consideration 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
April 1, 2023, and on the first business day of each of the following five fiscal quarters, for a total of $38,500,002, including interest
of $3,500,002. Furthermore, PCCU agreed to defer $3,143,388, representing certain excess cash of SHF, LLC due to the Seller under the
Definitive Unit Purchase Agreement, and the reimbursement of certain reimbursable expenses under the Definitive Unit Purchase Agreement. 

 21 

 Table of Contents 

 Pursuant
to the Unit Purchase Agreement, the Company entered into the Amended and Restated Support Services Agreement and the Amended and Restated
Account Servicing Agreement under similar terms as the July 2021 agreements. In addition, in conjunction with the Unit Purchase Agreement,
the Company and PCCU entered into a Loan Servicing Agreement. On March 29, 2023, the Company and PCCU entered into the Commercial Alliance
Agreement that sets forth the terms and conditions of the lending-related and account-related services governing the relationship between
the Company and PCCU and supersedes the Amended and Restated Support Services Agreement, the Amended and Restated Account Servicing Agreement,
and the Loan Servicing Agreement. 

 On
October 26, 2022, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with PCCU and Luminous Capital
USA Inc. (“Luminous”). As per the terms of the agreement, PCCU has agreed to defer all payments owed pursuant to the Unit
Purchase Agreement for a period of six (6) months from the date hereof while the Parties engage in good faith efforts to renegotiate
the payment terms applicable to the Deferred Obligation (the “Forbearance Period”). 

 On
March 29, 2023, the Company and PCCU entered into a definitive transaction to settle and restructure the deferred obligations, including
$56,949,800 into a five-year Senior Secured Promissory Note (the “Note”) in the principal amount of $14,500,000 bearing interest
at the rate of 4.25%; a Security Agreement pursuant to which the Company has granted, as collateral for the Note, a first priority security
interest in substantially all of the assets of the Company; and a Securities Issuance Agreement, pursuant to which the Company has issued
11,200,000 shares of the Company’s Class A Common Stock to PCCU. 

 Purchase
Agreement and Public Company Costs 

 The
Business Combination detailed above was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded,
in accordance with GAAP. Under this method of accounting, NLIT was treated as the acquired company for financial reporting purposes.
Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of SHF issuing shares for the net assets
of NLIT, accompanied by a recapitalization. The net assets of NLIT are recognized at fair value (which is expected to be consistent with
carrying value), with no goodwill or other intangible assets recorded. 

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

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

 ● Upon
 closing of the Business Combination, 11,386,139 shares of Class A Common Stock were issued
 to PCCU as set forth in and pursuant to the terms of the Purchase Agreement. 

 PCCU
was due to receive a cash payment of $3.1 million at the consummation of the Business Combination, which represented the amount of SHF’s
cash on hand at July 31, 2021, less accrued but unpaid liabilities. In addition, pursuant to the terms of the Purchase Agreement, the
Company is responsible for reimbursing the Seller for its transaction expenses. 

 ● Approximately
 $56.9 million of the $70 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 million is due in six quarterly installments of $6.4 million thereafter.
 Interest accrues at an effective annual rate of approximately 4.71%. A sum of 1,200,000 shares
 of Class A Common Stock were escrowed until the amount is paid in full. 

 ● The
 Parent-Entity Net Investment appearing in the balance sheet of the Company amounting to $9,124,297
 on the date of business combination was transferred to additional paid in capital. 

 ● Immediately
 prior to the Closing, 20,450 shares of Series A Convertible Preferred were purchased by the
 PIPE Investors pursuant to the PIPE Securities Purchase Agreements for an aggregate value
 of $20,450,000. The shares of Series A Convertible Preferred were converted into 2,045,000
 shares of Class A Common Stock at a purchase price of $10.00 per share of Class A Common
 Stock. Twenty (20) percent of the aggregate value was deposited into a third party escrow
 account for purposes of paying the PIPE Investors any required Registration Delay Payments.
 Upon the filing of the registration statement 10 calendar days subsequent to closing, 17.5%
 of the escrow amount was released with the remaining amount once all securities were included
 in an effective registration statement. 

 ● For
 tax purposes, the transaction is treated as a taxable asset acquisition, resulting in an
 estimated tax basis Goodwill balance of $43,198,800, creating a deferred tax asset reported
 as Additional Paid-in Capital in the equity section of the balance sheet as of the date of
 the business combination. There is not any goodwill for book reporting purposes as no goodwill
 or other intangible assets are to be recorded in accordance with GAAP. 

 ● Preferred
 Stock: The Company is authorized to issue 1,250,000 preferred shares with a par value of
 $0.0001 per share with such designation rights and preferences as may be determined from
 time to time by the Company’s Board of Directors. As of December 31, 2023, there were
 1101 preferred shares issued or outstanding and 14,616 preferred shares issued or outstanding
 on December 31, 2022. 

 22 

 Table of Contents 

 ● Class
 A Common Stock: The Company is authorized to issue up to 130,000,000 shares of Class A Common
 Stock with a par value of $0.0001 per share. Holders of the Company’s Class A Common
 Stock are entitled to one vote for each share. As of December 31, 2023, and December 31,
 2022, there were 54,563,371 and 20,815,912 shares, respectively, of Class A Common Stock
 issued or outstanding. As of December 31, 2023, and December 31, 2022, 3,667,377 Class A
 Common Stock are held by the purchasers under the 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
 consolidated financial statements, investing requirements have been summarized as “Parent-Entity
 Net Investment” and represent equity as no cash settlement with PCCU is required. No
 separate equity accounts are maintained for SHS, SHF or the Branches. 

 Key
Metrics 

 In
addition to the measures presented in our consolidated financial statements, our management regularly monitors certain measures in the
operation of our business. These key metrics are discussed below. 

 Earnings
Before Interest Taxes Depreciation and Amortization (EBITDA) and Adjusted EBITDA 

 To
provide investors with additional information regarding our financial results, we have disclosed EBITDA and Adjusted EBITDA, both of
which are non-GAAP financial measures that we calculate as net income before taxes and depreciation and amortization expense in the case
of EBITDA and further adjusted to exclude non-cash, unusual and/or infrequent costs in the case of Adjusted EBITDA. Below we have provided
a reconciliation of net income (the most directly comparable GAAP financial measure) to EBITDA and from EBITDA to Adjusted EBITDA. 

 We
present EBITDA and Adjusted EBITDA because these metrics are a key measure used by our management to evaluate our operating performance,
generate future operating plans, and make strategic decisions regarding the allocation of investment capacity. Accordingly, we believe
that EBITDA and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results
in the same manner as our management. 

 EBITDA
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. Some of these limitations are as follows: 

 ●
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in
the future, and both EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for
new capital expenditure requirements; 

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

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

 Because
of these limitations, you should consider EBITDA and Adjusted EBITDA alongside other financial performance measures, including net loss
and our other GAAP results. 

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

 Year Ended December 31, 

 2023 
 2022 

 Net loss 
 $ (17,279,847 ) 
 $ (35,128,083 ) 

 Interest expense 
 1,113,466 
 705,204 

 Depreciation and amortization 
 1,373,707 
 189,275 

 Taxes 
 (1,829,701 ) 
 (9,252,893 ) 

 EBITDA 
 (16,622,375 ) 
 (43,486,497 ) 

 Other adjustments – 
 
 Provision for credit losses 
 290,857 
 506,212 

 Change in the fair value of warrants and forward purchase derivatives 
 1,853,920 
 8,058,091 

 Change in fair value of Forward Purchase Agreement 
 - 
 33,322,248 

 Change in the fair value of deferred consideration 
 (4,570,157 ) 
 97,593 

 Deferred loan origination fees and costs 
 27,271 
 (1,890 ) 

 Stock based compensation 
 3,739,156 
 2,806,336 

 Goodwill and long-lived intangible assets impairment 
 18,907,739 
 - 

 Adjusted EBITDA 
 $ 3,626,411 
 $ 1,302,093 

 23 

 Table of Contents 

 The
increase in our income on both an EBITDA and Adjusted EBITDA basis for the fiscal year ending December 31, 2023, can be attributed to
several key factors. These include a rise in deposits and activity income, which was significantly influenced by the growth in account
numbers following the Abaca acquisition. Additionally, there was an increase in employee benefits and general and administrative expenses,
coupled with a decrease in professional expenses, as detailed in the ‘Discussion of our Results of Operations’ section below.
Other adjustments include estimated future credit losses not yet realized, including amounts indemnified to PCCU for loans funded by
them, change in the fair value of warrants and forward purchase derivates, Change in fair value of Forward Purchase Agreement, Stock
based compensation and Goodwill and long-lived intangible assets impairment. The Company had entered into a Loan Servicing Agreement
with PCCU, pursuant to which the Company agreed to indemnify PCCU for claims associated with CRB activities including any loan default
related losses for loans funded by PCCU; the Loan Servicing Agreement has since been superseded by the Commercial Alliance Agreement.
Deferred loan origination fees and costs represent the change in net deferred loan origination fees and costs. When included with a new
loan origination, we receive an upfront loan origination fee in conjunction with new loans funded by our financial institution partners
and incur costs associated with originating a specific loan. For accounting purposes, the cash received for loan origination fees and
costs is initially deferred and recognized as interest income utilizing the interest method. 

 Other
Metrics 

 For
our business operations, we monitor the following key metrics. 

 Total
account balances, number of accounts and average account balances 

 Our
lending capacity is dependent on the size of our managed deposit base and number of active accounts. In addition, fees are generated
based on open accounts and account activity. We monitor account activity including deposits, withdrawals and ending account balance daily.
Total account balances represent the balance of onboarded and monitored deposits on hand at financial institution clients at period end.
Average account balance represents the total account balance divided by the number of accounts at the period end. 

 Account
fees per average active accounts managed 

 Currently
a significant amount of our fees is generated from account openings, active accounts and account activity. As a result, we monitor account
openings and closings on a daily, weekly and monthly basis. We strive to meet the appropriate balance between depository balances and
fees and therefore review account fees per average number of active accounts managed. 

 Year Ended December 31, 
 
 2023 
 2022 
 Change ($) 
 Change (%) 

 Average monthly ending deposit balance 
 (1) 
 $ 204,923,090 
 208,155,596 
 (3,232,506 ) 
 (1.55 )% 

 Account fees 
 (2) 
 $ 7,735,582 
 5,951,337 
 1,784,245 
 29.98 % 

 Average active accounts 
 (3) 
 932 
 967 
 (35 ) 
 (3.62 )% 

 Average account balance 
 (4) 
 $ 219,835 
 215,259 
 4,576 
 2.13 % 

 Average fees per account 
 (4) 
 $ 8,298 
 6,154 
 2,144 
 34.84 % 

 (1) 
 Represents
 the average of monthly ending account balances 

 (2) 
 Reported
 account activity fee revenue 

 (3) 
 Represents
 the average of monthly ending active accounts 

 (4) 
 Refer
 to the below section – Discussion of Results of our Operations for additional discussion of trends. 

 For
the year ending December 31, 2023, there was a decline in the average number of accounts compared to the previous year, primarily due
to a decrease in clientele following the termination of an agreement with the Central Bank. Despite this, the average size and fees associated
with accounts saw an increase, largely attributed to the acquisition of Abaca. We anticipate this pattern to persist as our lending program,
which generally necessitates borrowers to make deposits at our affiliated financial institutions, remains a key focus. 

 We
are focused on enhancing and growing our lending platform. Incremental lending key metrics will be monitored as this portion of our business
grows in volume. Metrics will include average loan balance, average life to repayment, average effective interest rate and loan status,
amongst others. 

 Components
of our Results of Operations 

 Revenue 

 The
Company generates interest and fee income through providing a variety of services to PCCU 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. 

 Operating
expenses 

 Operating
expenses consist of compensation and benefits, professional services, rent expense, parent allocations, provisions for credit losses
and other general and administrative expenses. 

 24 

 Table of Contents 

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

 The
Company reports a provision for credit losses both as it relates to loans funded internally and those carried by PCCU or other financial
institutions. The Company indemnifies PCCU and other financial institutions for the losses on loans to borrowers sourced by the Company
and funded by PCCU and other financial institutions. The Company anticipates comparable arrangements with other financial institutions
that fund loans to borrowers sourced by the Company. 

 Other
general and administrative expenses consist of various miscellaneous items including account hosting fees, insurance expense, advertising
and marketing, travel meals and entertainment and other office and operating expense. 

 Discussion
of our Results of Operations —2023 Compared to 2022 (Year Ended December 31) 

 Revenue
 
 Year Ended December 31, 
 2023 
 2022 
 Change ($) 
 Change (%) 

 Deposit, activity, onboarding income 
 $ 8,614,945 
 $ 6,063,939 
 $ 2,551,006 
 42.07 % 

 Safe Harbor Program income 
 130,688 
 164,062 
 (33,374 ) 
 (20.34 )% 

 Investment income 
 5,844,836 
 2,120,640 
 3,724,196 
 175.62 % 

 Loan interest income 
 2,972,434 
 1,130,178 
 1,842,256 
 163.01 % 

 Total Revenue 
 $ 17,562,903 
 $ 9,478,819 
 $ 8,084,084 
 85.29 % 

 Account
fee income consists of deposit account fees, activity fees and onboarding income. Historically, the Company has charged fees based on
cannabis related deposit account activity. During 2023, we reduced our fee percentage for cannabis specific accounts in order to ensure
we were competitive with the market and for many accounts implemented a flat fee structure for certain CRB accounts based on client specific
activity levels. In addition, we receive a flat fee and lower rates for ancillary accounts, which are accounts provided to businesses
servicing the cannabis industry in general but do not manufacture, possess, distribute or transport cannabis. The increase in deposit,
activity and onboarding income was primarily attributable to the increase in the number of accounts related to the Abaca acquisition.
In 2023, PCCU accounted for $5,150,397 of the revenue generated from deposits, activities, and client onboarding. Related to this revenue,
the Company recognized $529,209 in account hosting expenses, in accordance with the Loan Servicing Agreement and the Commercial Alliance
Agreement. In 2022, PCCU contributed $5,554,922 to the revenue from similar sources, with account hosting expenses amounting to $255,853
as per the Loan Servicing Agreement provisions. These expenses were categorized under “General and administrative expenses”
in the Consolidated Statements of Operations. 

 The
Company provides similar account services and outsourced support to other financial institutions providing banking to the cannabis industry.
These services are provided under the Safe Harbor Master Program Agreement. Revenue has decreased as we narrow the financial institutions
and states we allow under this program and instead focus on servicing CRBs directly. The reduction in Safe Harbor Program income is a
result of the reduction in the number of accounts. 

 We
have agreements with PCCU (related party) and Five Star Bank (FSB) where our financial institution clients pay us interest on the daily
account balance as per the rates in the agreements. In fiscal 2022 and up to the third quarter of 2023, our investment earnings were
solely from interest on deposits at the Federal Reserve Bank, capped at the earnings accrued by PCCU from its reserves. However, a strategic
shift in the fourth quarter of 2023 led us to adopt Federal Reserve’s interest rates applied to the daily average balance of SHF
customer deposits, with certain exclusions. This method, applied retroactively from the beginning of 2023, resulted in incremental revenue
of $549,000 recognized in the fourth quarter. Under our Commercial Alliance Agreement, we pay 25% of the investment income as a hosting fee to PCCU based
on this income. In 2023, the income derived from investment income associated with PCCU totaled $5,803,114. In relation to this income,
the Company incurred $1,445,517 in investment hosting fees, consistent with the stipulations of the Loan Servicing Agreement and the Commercial
Alliance Agreement. In 2022, PCCU’s contribution to investment income amounted to $2,110,572, against which the Company recorded
investment hosting fees of $519,406, as governed by the terms of the Loan Servicing Agreement. These expenses were categorized under “General
and administrative expenses” in the Consolidated Statements of Operations. 

 We
had a Loan Servicing Agreement with PCCU (related party) where our financial institution carries the loan balances on their financial
statement; the Loan Servicing Agreement has since been superseded by the Commercial Alliance Agreement. The loan interest income reflects
our share of loan interest on issued loans. We are obligated to pay 0.35% on the total outstanding principal of each loan that is funded
and serviced by PCCU. Loan interest earned on the Company’s direct loans and the indemnified loans grew as the Company
increased its focus on lending. For the year ended December 31, 2023, SHF serviced 22 loans, as compared to 11 loans in the year ended
December 31, 2022. In 2023, the Company recognized $2,883,192 in loan interest income attributable to PCCU activities. Related expenses
for this income included $81,577 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the Commercial Alliance
Agreement. In the preceding year, 2022, loan interest income from PCCU operations amounted to $989,642, with associated loan servicing
fees totaling $26,088, pursuant to the same agreements. These expenses were categorized under “General and administrative expenses”
in the Consolidated Statements of Operations. 

 25 

 Table of Contents 

 Operating
expenses 

 Year Ended December 31, 
 2023 
 2022 
 Change ($) 
 Change (%) 

 Compensation and employee benefits 
 $ 10,334,212 
 $ 6,695,319 
 $ 3,638,893 
 55.35 % 

 General and administrative expenses 
 6,568,662 
 2,390,539 
 4,178,123 
 174.78 % 

 Impairment of goodwill 
 13,208,276 
 - 
 13,208,276 
 100.00 % 

 Impairment of long-lived intangible assets 
 5,699,463 
 - 
 5,699,463 
 100.00 % 

 Professional services 
 1,858,137 
 1,985,343 
 (127,206 ) 
 (6.41 )% 

 Rent expense 
 315,615 
 99,246 
 216,369 
 218.01 % 

 Provision for loan losses 
 290,857 
 506,212 
 (215,355 ) 
 (42.54 )% 

 Total Operating Expenses 
 $ 38,275,222 
 $ 11,676,659 
 $ 26,598,563 
 227.79 % 

 Compensation
and employee benefits expenses rose due to an increase in stock-based compensation and a higher headcount, in anticipation of business
expansion. 

 General
and administrative expenses increased across various categories including: i) $926,111 in investment hosting fees as a result of the
increase in investment income, ii) $715,771 in increased bank sharing fees due to the increase in the number of accounts related to the
Abaca acquisition, iii) $1,184,432 in amortization and depreciation, and iv) $343,187 in business insurance. 

 Professional
services expense reduced primarily due to the reduction in the legal fees and consulting fees associated with acquisition and SEC filing. 

 Impairment
of goodwill and finite-lived intangible assets arose from the annual impairment assessment conducted on December 31, 2023, and an interim
impairment assessment on June 30, 2023, triggered by the termination of the Master Services and Revenue Sharing Agreement with the Central
Bank. Under this agreement, the Company offered expertise and intellectual property to cannabis-related businesses primarily in Arkansas. 

 Provision
for credit losses has decreased due to the adoption of ASU 2016-13 as of January 1, 2023, utilizing the modified retrospective method. 

 Financial
Condition 

 Cash
and cash equivalents 

 Cash,
cash equivalents totaled $4,888,769 and $8,390,195 as of December 31, 2023 and 2022, respectively. 

 Cash
flows 

 For
the year ended December 31, 2023, the Company’s cash used in operations was $832,144 compared to cash provided by operations of
$1,697,380, for the year ended December 31, 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. See discussion under
“Discussion of our Results of Operations” above for more information. 

 Contract
assets and liabilities 

 Deferred
revenue is primarily related to contract liabilities associated with the Company agreements. As of December 31, 2023, SHF reported a
contract asset and liability of $0 and $21,922 respectively and on December 31, 2022, SHF reported a contract asset and liability of
$21,170 and $996, respectively. 

 Liquidity
and going concern 

 Liquidity refers to our capacity to fulfill anticipated cash demands, encompassing obligations to settle debt,
sustain assets and operations, distribute earnings to shareholders, and cover other typical business expenditures. Our cash outflows predominantly
settle towards repaying debt principal and interest, distributing dividends to shareholders, and financing our operational activities.
The main contributors to our liquidity are the cash inflows from our operational performance. As of the end of the fiscal year on December
31, 2023, the Company reports no significant commitments to capital investments. 

 As
of December 31, 2023, the Company had $4,888,769 cash and net working capital deficit of $135,355. The Company has also incurred an operating
loss of $20,712,319 for the year ended December 31, 2023, and cash flows used in operating activities of $832,144. 

 Based
upon these factors, management of the Company has determined that there is a risk of substantial doubt about the Company’s ability
to continue as a going concern for a period of at least twelve months from the date these consolidated financial statements have been
issued. 

 If
the Company is not able to sustain its present level of operations, it may be forced to make reductions in spending, extend payment terms
with suppliers, liquidate assets where possible, or suspend or curtail planned expansion programs. Any of these actions could materially
harm the Company’s business, results of operations and future prospects. 

 The
accompanying 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. 

 26 

 Table of Contents 

 Critical
Accounting Estimates 

 Our
consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing 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 the following accounting estimates as critical
accounting estimates, based on their importance to the financial reporting and potential for changes in future periods: 

 Revenue
recognition 

 The
company records revenue when it meets its service obligations, which include various fees charged for financial services such as account
maintenance and transaction fees, along with other miscellaneous fees. When determining transaction prices, the company considers potential
variations in these fees, which may fluctuate based on customer usage and specific contract terms. This is in line with ASC 606 standards,
which require the allocation of transaction prices to the specific services provided within a contract, such as setup and ongoing fees
for certain programs. The company also earns revenue from interest on loans, which includes those directly issued and those backed by
a partnership with PCCU under a commercial alliance agreement. Investment income consist of interest earned on the daily deposits balance
with financial institution. A strategic change in the fourth quarter of 2023 saw the company adopt a new method for calculating interest
on customer deposit balances, excluding certain amounts. This new approach, applied retroactively to the start of 2023, led to an additional
$549,000 in revenue for that quarter. The company’s customer base mainly consists of financial institutions that serve cannabis-related
businesses (CRBs), with revenue primarily generated in the United States. Under the terms of its Commercial Alliance Agreement with PCCU,
the company is obligated to pay PCCU various fees, including a loan servicing fee of 0.35% of the current loan balance, and monthly service
fees based on account balances, with rates varying for balances below and above $1 million. Additionally, the company must pass on 25%
of its investment hosting fees to PCCU, which are calculated from the returns on PCCU-related deposits. 

 Indemnity
liability 

 The
indemnification component of the Loan Servicing Agreement is accounted for in accordance with ASC 460 Guarantees, which follows guidance
in ASC 326 - Financial Instruments - Credit Losses (ASC Topic 326), for estimating expected credit losses under the current expected
credit loss (“CECL”) methodology, presented in the liabilities section in the consolidated balance sheets as an “Indemnity
liability”. The Company accounts for the indemnification component of the Commercial Alliance Agreement for claims related to cannabis-related
businesses, with a particular emphasis on default-related credit losses. The Company’s indemnity is secondary to other recovery
methods like foreclosure or guarantor recourse. Indemnity payments don’t absolve borrowers of their obligations, maintaining PCCU’s
rights to recoveries. The indemnification is considered a general loss contingency under ASC 460 due to uncertainties that could lead
to losses, resolved by future events. The Company’s liability for indemnity is based on management’s estimation of probable
credit losses at the balance sheet date, influenced by individual loan risk ratings and economic assumptions in the estimation model.
These risk ratings are re-evaluated quarterly. The indemnity liability for the pooled component is derived from an estimate
of expected credit losses primarily using an expected loss methodology that incorporates risk parameters such as probability of default
(“PD”) and loss given default (“LGD”) which are derived from internally developed model estimation approaches
for smaller homogenous loans. The PD is quantified by analyzing historical data to determine the rate at which loans have defaulted within
the portfolio, relative to the total outstanding loans as of the end of the reporting period. This rate is expressed as a percentage
and serves as a key indicator of the likelihood of default across the loan pool. LGD assessments are conducted to estimate the potential
loss amount in the event of a default, considering the recoverable value from the collateral liquidation against the remaining loan balance.
This involves a detailed analysis of two primary components: the loss on principal, which arises from the gap between the collateral’s
liquidation value and the unpaid principal balance of the loan; and the loss associated with various ancillary costs to recover, including,
but not limited to, foregone interest, transaction costs, legal and administrative fees, and expenses related to the maintenance and
renovation of the property. 

 Changes
in the PD and LGD directly affect the estimated indemnity liability. An increase in PD, indicating a higher likelihood of defaults, necessitates
a larger indemnity liability to cover potential losses, impacting the company’s financial reserves. Conversely, a decrease in PD
would lower the required indemnity liability, reflecting a more favorable risk outlook. Similarly, a rise in LGD, due to reduced collateral
values or higher recovery costs, increases the estimated loss per default, requiring a higher indemnity liability. Conversely, a reduction
in LGD suggests more loss recoveries, allowing for a decrease in the indemnity liability. 

 Stock-based
compensation 

 In
conjunction with the 2022 Plan, as of December 31, 2023, the Company had granted stock options and restricted stock units which are described
in more detail below: 

 Stock
options 

 The
Company awards stock options to incentivize employee ownership and performance, applying ASC 718 for equity-based payments. Options,
with a 10-year term with their fair value determined at the grant date, considering either market price or the Black-Scholes model. This
model factors in expected option term, stock price volatility (set at 100% due to significant price fluctuations since listing), risk-free
interest rates (aligned with U.S. Treasury rates), and an assumed zero dividend yield, given the Company’s history of not paying
dividends. The expected option term is derived using the simplified method, averaging the contractual term and vesting period. Compensation
cost is recognized over the service period on a straight-line basis, with immediate recognition of forfeitures. Changes in valuation
assumptions could significantly alter fair value estimates. 

 27 

 Table of Contents 

 Restricted
Stock Units / Restricted Stock Awards 

 The
Company values equity-based payments under ASC 718, using fair value at grant date for stock awards, recognizing expenses over the service
period. Fair value is estimated via the market price or Black-Scholes model, considering variables like expected term, stock volatility,
risk-free rates, and forfeiture rates. Given the stock’s limited listing period and significant price drop, volatility is presumed
at 100%. Risk-free rates align with U.S. Treasury rates matching the awards’ lifespans. The options’ expected term merges
the contractual and vesting durations. The Company assumes zero dividend, reflecting the Company’s history and future dividend
outlook, impacting the valuation of stock-based compensation. Changes in valuation assumptions could significantly alter fair value estimates. 

 Forward
Purchase Agreement 

 The
Company, under a Forward Purchase Agreement (FPA) with Midtown East, which was later reassigned to Verdun and Vellar, involved complex
transactions around Class A common stock. Initially, about 3.8 million shares were acquired from the market. Post-business combination,
the Company disbursed $39.6 million for these shares and associated costs. The FPA allows for an early termination sale of shares by
the assignees, with proceeds above the reset price going to them and the rest to the Company. The final settlement at the Maturity Date
includes a cash or share payment based on the Forward Price and a Maturity Cash Consideration. In 2022, the reset price adjustment, influenced
by the common stock’s trading value and preferred share conversions, significantly reduced the FPA receivable from $37.9 million
to $4.6 million. No further transactions or value changes were noted in the year end December 31, 2023, maintaining the FPA receivable’s
value. The value of the forward purchase agreement could diminish if the Company issues any securities at a price below the
reset price of $1.25 per share before the agreement expires. 

 Forward
Purchase Derivative 

 The
Company records the forward purchase derivative from a business combination as per ASC 815, marking it as an asset or liability at fair
value, adjusted each reporting period. Fair value adjustments are recognized in the consolidated statement of operations. The Monte-Carlo
Simulation, applying Geometric Brownian Motion for stock price projections, was utilized for valuation in the year ended December 31,
2022. In 2022, the company fully accounted for the maximum contractual liability. Throughout 2023, there were no notable shifts in risk
factors that would impact the values of FPA derivatives. As a result, the valuation established on December 31, 2022, was maintained
for the year ended December 31, 2023. 

 Impairment
of Goodwill and Finite-lived intangible assets 

 On
November 15, 2022, the company finalized a significant acquisition for $30 million, resulting in the recognition of $19,266,276 in goodwill
and $10,800,000 in amortizable intangible assets, which included market-related intangible assets valued at $2,100,000, customer relationships
at $2,000,000, and developed technology at $6,700,000. According to ASC 350 and 360, the company is required to perform impairment assessments
annually or more frequently if needed. An interim assessment conducted on June 30 utilized a hybrid approach, dividing emphasis between
the income approach (one-third) and the market approach (two-thirds) for evaluating goodwill’s fair value. Additionally, specific
methods were applied to the intangibles: the Royalty Method for market-related intangibles, the Discounted Cash Flow Method for customer
relationships, and the Cost to Re-create Method for developed technologies. This interim evaluation led to a goodwill impairment of $13.2
million, a $1,865,668 impairment for market-related intangible assets, and a $1,814,795 impairment for customer relationships. The annual
assessment on December 31, 2023, also adopted the hybrid approach for goodwill valuation and applied the Relief from Royalty Method for
market-related intangibles and developed technologies, along with the Multi-Period Excess Earnings Method for customer relationships,
resulting in a $2,019,000 impairment for developed technologies. 

 The
impairment determination process is inherently subjective, heavily reliant on assumptions about future conditions and events that might
affect asset values. For impairment testing under ASC 350 and ASC 360 regarding goodwill and other intangibles, critical assumptions
include future cash flow projections, appropriate discount rate determination reflective of asset-specific risks, the estimated useful
lives of intangible assets, and customer attrition rates for assets tied to customer relationships. These assumptions are affected by
wider market and economic factors, including interest rate fluctuations, inflation, and sector-specific developments. Due to these variables,
impairment test outcomes can significantly shift over time with changes in the company’s operational performance, market dynamics,
technological innovations, or strategic decisions like asset disposals or cessation of certain operations. This variability highlights
the complex and judgment-based nature of impairment testing, emphasizing the potential for notable fluctuations in impairment charges
across different periods. 

 Warrants
Liability 

 The
Company’s accounting for warrants, including Public, Private Placement, PIPE, and Abaca warrants, constitutes a critical accounting
estimate due to the significant judgments and assumptions involved in their valuation and the potential impact on our financial statements.
These warrants are recorded at fair value on a recurring basis, requiring the use of observable market data and valuation techniques
that involve significant estimates and assumptions. For Public warrants, the Company utilizes Level 1 inputs, relying on exchange-traded
prices which provide a transparent and observable market valuation. This approach minimizes the level of estimation uncertainty associated
with these warrants. Private Placement and PIPE Warrants valuation, as of 2023, has transitioned from third-party reports to internal
assessments by the Company, employing Level 3 inputs derived from unobservable inputs. This shift aims to enhance the precision of the
valuation process, allowing for adjustments reflective of the unique characteristics of these warrants and prevailing market conditions.
Key assumptions in this valuation include the expected volatility of our stock, the risk-free interest rate, the expected life of the
warrants, and the dividend yield. Variability in these assumptions could significantly impact the fair value estimates of these warrants.
For Abaca Warrants, the Company also utilizes an internal assessment approach with Level 3 inputs. The valuation assumptions include,
but are not limited to, the exercise price, the fair market value of the underlying Class A Common Stock, the expected term of the warrants,
and the risk-free interest rate. Future variations in these critical assumptions could arise from changes in market conditions, such
as fluctuations in the volatility of the Company’s stock, alterations in the risk-free interest rate reflecting broader economic
shifts, or adjustments in the expected life of the warrants due to changes in the holders’ exercise behavior. Additionally, regulatory
changes or shifts in the market perception of the Company could also necessitate adjustments to these assumptions. Changes in these assumptions
could lead to significant variations in the recorded fair value of the warrants, impacting the Company’s financial position and
results of operations. The Company closely monitors these assumptions and market conditions to ensure that the warrant valuations accurately
reflect their fair market value on reporting date. 

 28 

 Table of Contents 

 Deferred
consideration 

 The
Company’s accounting for the deferred consideration arising from the acquisition of Abaca represents a critical accounting estimate,
consistent with ASC Topic 815, “Derivatives and Hedging” (“ASC 815 “). This consideration, due to
its failure to meet the equity classification criteria under ASC 815, is accounted for as a derivative liability. This approach necessitates
the recognition of this obligation on the balance sheet at its fair value, with subsequent adjustments to fair value reflected at each
reporting period end. The determination of fair value involves significant judgments and assumptions, particularly in light of the complex
terms outlined in the Abaca merger agreement and its amendments. The deferred consideration includes cash payments scheduled at various
anniversaries of the merger closing, the issuance of common stock based on specified conditions, and the introduction of additional consideration
and stock warrants as per the latest amendments to the agreement. The fair value assessment of these components is influenced by several
factors, including the Company’s stock price, the volatility of the stock, the risk-free interest rate, and the specific terms
of the deferred and stock considerations as amended. Future variations in the fair value of this derivative liability could arise from
changes in the Company’s stock price, fluctuations in market volatility, alterations in the risk-free interest rate, or changes
in the terms of the agreement as negotiated with the Abaca stockholders. Such changes could be prompted by evolving business strategies,
market conditions, or regulatory environments that impact the financial and operational aspects of the agreement. These estimates and
assumptions are subject to inherent uncertainties and the exercise of management’s judgment. Changes in these critical assumptions
could lead to significant adjustments in the recorded fair value of the derivative liability associated with the Abaca acquisition’s
deferred consideration. These adjustments could materially impact the Company’s financial position and results of operations, emphasizing
the importance of the estimates and assumptions used in the valuation of this complex financial instrument. The Company closely monitors
related developments and market conditions to ensure the derivative liability is accurately valued, providing transparency and reliability
on the reporting date . 

 Emerging
Growth Company Status 

 SHF
is an emerging growth company (“EGC”), as defined in the JOBS Act. Under the JOBS Act, EGCs can delay adopting new or revised
accounting standards issued until such time as those standards apply to private companies. In electing this relief, the JOBS Act does
not preclude an EGC from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies.
SHF has elected to use this relief and will do so until the earlier of the date that it (a) is no longer an emerging growth company or
(b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result of the elected JOBS
Act relief, these combined and consolidated financial statements may not be comparable to companies that do not elect JOBS Act relief
or choose to early adopt different accounting pronouncements than SHF. 

 Internal
Control Over Financial Reporting 

 In
connection with our management assessment of internal control over financial reporting as of and for the year ended December 31, 2023,
the Company has identified three (3) material weaknesses within our internal controls associated with Revenue Recognition, Complex Financial
Instrument and Credit losses. Refer to Item 9A of this document for additional details. 

 Related
Party Relationships 

 Account
Servicing Agreement 

 The
Company had an Account Servicing Agreement with PCCU. SHF provides services as per the agreement to CRB accounts at PCCU. In addition
to providing the services, SHF 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. 

 Support
Services Agreement 

 On
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. 

 Loan
Servicing Agreement 

 Effective
February 11, 2022, SHF entered into a Loan Servicing Agreement with PCCU. The agreement sets forth the application, underwriting and
approval process for loans from PCCU to CRB customers and the loan servicing and monitoring responsibilities provided by both PCCU and
SHF. PCCU receives a monthly servicing fee at the annual rate of 0.25% of the then-outstanding principal balance of each loan funded
and serviced 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. 

 29 

 Table of Contents 

 Commercial
Alliance Agreement 

 On
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
11, 2022). 

 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, the PCCU has the right to receive monthly fees
for managing loans. For SHF-serviced loans, which are CRB loans provided by the PCCU but primarily handled by SHF, a yearly fee of 0.25%
of the remaining loan balance is applied. On the other hand, loans both financed and serviced by the PCCU are charged a yearly fee of
0.35% on their outstanding balance. These fees are calculated using the average daily balance of each loan for the preceding month. 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). 

 In
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. 

 In
fiscal 2022 and up to the third quarter of 2023, our investment earnings were solely from interest on deposits at the Federal Reserve
Bank, capped at the earnings accrued by PCCU from its reserves. However, a strategic shift in the fourth quarter of 2023 led us to adopt
Federal Reserve’s interest rates applied to the daily average balance of SHF customer deposits, with certain exclusions. This method,
applied retroactively from the beginning of 2023, resulted in incremental revenue of $549,000 recognized in the fourth quarter. Under
our Commercial Alliance Agreement, we are obligated to remit 25% of the investment hosting fees to PCCU based on this income. 

 The
below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits at December 31, 2023 and December
31, 2022. 

 December
31, 2023
 
 December
31, 2022
 
 CRB related deposits 
 $ 129,350,998 
 $ 161,138,975 

 Capacity at 60% 
 77,610,599 
 96,683,385 

 PCCU net worth 
 81,087,746 
 133,231,565 

 Capacity at 1.3125 
 106,670,306 
 174,866,429 

 Limiting capacity 
 77,610,599 
 174,866,429 

 PCCU loans funded 
 55,660,039 
 18,898,042 

 Amounts available under lines of credit 
 525,000 
 996,958 

 Incremental capacity 
 $ 21,425,560 
 $ 154,971,429 

 The
revenue from operation on the statement of operations consists of the following agreement mentioned above for the year ended December
31, 2023, and December 31, 2022: 

 Year ended 
 December 31, 2023 
 
 Year ended 
 December 31, 2022 
 
 Account Servicing Agreement 
 $ 3,075,458 
 $ 8,823,608 

 Commercial Alliance Agreement 
 10,761,245 
 - 

 Total 
 $ 13,836,703 
 $ 8,823,608 

 30 

 Table of Contents 

 The
operating expense on the statement of operations consists of the following agreement mentioned above for the year ended December 31,
2023, and December 31, 2022: 

 Year ended 
 December 31, 2023 
 
 Year ended 
 December 31, 2022 
 
 Support Services Agreement 
 $ 378,730 
 $ 775,259 

 Loan Servicing Agreement 
 11,929 
 26,088 

 Commercial Alliance Agreement 
 1,665,644 
 - 

 Total 
 $ 2,056,303 
 $ 801,347 

 Item
7A. Quantitative and Qualitative Disclosures About Market Risk. 

 The
Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information otherwise
required with respect to market risk. 

 Item
8. Financial Statements and Supplementary Data. 

 Consolidated
Financial Statements Information 

 The
consolidated financial statements information required by this item is contained under the section titled “Index to Consolidated
Financial Statements” (and the consolidated financial statements and related notes referenced therein) included beginning on page
F-1 of this Form 10-K. 

 Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 

 None. 

 Item
9A. Controls and Procedures. 

 Evaluation
of Disclosure Controls and Procedures 

 Management
is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with GAAP.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Our management has identified three (3) material weaknesses, as described below. Each deficiency was concluded to be a “material
weakness”, which is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected
on a timely basis. Based on these material weaknesses identified in the management evaluation of internal controls over financial reporting,
management has concluded that our internal control over financial reporting was not effective as of December 31, 2023. 

 We
do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and
procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there
are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure
controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all
our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. 

 Management’s
Report on Internal Control over Financial Reporting 

 Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated
to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. 

 31 

 Table of Contents 

 As
required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2023
due to the material weaknesses described below. In light of these material weaknesses, we performed additional analysis as deemed necessary
to ensure that our consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles.
Accordingly, management believes that the financial statements included in this Annual Report on Form 10-K present fairly in all material
respects our financial position, results of operations and cash flows for the periods presented. 

 A
material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented
or detected on a timely basis. We consider the following material weaknesses to be outstanding as of December 31, 2023: 

 Revenue
Recognition : During fiscal year 2022 and 2023, the Company’s revenue was earned through certain related party contracts
with PCCU that define contractually the revenue earned by the Company from PCCU for account servicing. The Company has identified a material
weakness in our internal control over financial reporting related to the need to enhance the design and operating effectiveness of internal
controls over the review of revenue recognition from allocations that occurs on a monthly basis between the Company and PCCU. 

 To
remediate this material weakness, the Company has implemented a monthly process with enhanced management review controls to perform and
review revenue recognition. The analysis and disclosures are assessed by senior management of the Company performing review of the documentation
and disclosures. 

 Complex
Financial Instruments: During fiscal year 2022 and 2023, the Company had a material weakness with regard to the ineffectiveness
in management review controls of the accounting, disclosure and valuation of complex financial instruments (warrants, Forward Purchase
Agreement, and stock-based compensation). 

 To
remediate this material weakness, the Company has implemented a quarterly process with enhanced management review controls to perform
and review complex financial instruments. The analysis and disclosures are assessed by senior management of the Company performing review
of the documentation and disclosures. 

 Credit
Losses: During the three months ending March 31, 2023, the Company identified a material weakness with regard to the initial
implementation of CECL. This included initially not having supporting documentation of the model aligning to the calculations recorded,
and incorrectly applying the modified retrospective adoption through the Consolidated Statements of Operations only, as opposed to the
Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity on January 1, 2023. 

 To
remediate this material weakness, the Company enhanced the allowance model documentation during the period from June 30, 2023, through
December 31, 2023, and has implemented a quarterly process with enhanced management review controls to perform and review CECL, however
remediation requires ensuring these controls are effective over time. The analysis and disclosures are assessed by senior management
of the Company performing review of the documentation and disclosures. 

 With
the implementation of our remediation plans for each material weakness, we believe, in subsequent periods, these material weaknesses
can be remediated. 

 We
plan to continue to assess and improve our internal controls and procedures and to take further action as necessary or appropriate to
address any other matters we identify. 

 Completion
of remediation does not provide assurance that our remediation or other controls will continue to operate properly. A failure to maintain
effective internal controls over financial reporting could result in errors in its financial statements that could require the Company
to restate past financial statements, cause the Company to fail to meet its reporting obligations and cause investors to lose confidence
in the Company’s reported financial information, all of which could materially and adversely affect the Company. 

 Changes
in Internal Control over Financial Reporting 

 Other
than as noted above in the December 31, 2023 material weaknesses, there was no changes in our internal control over financial reporting
that occurred during the fiscal year ended December 31, 2022 covered by this Report on Form 10-K that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting. 

 Item
9B. Other Information. 

 None. 

 Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 

 Not
applicable. 

 32 

 Table of Contents 

 PART
III 

 Item
10. Directors, Executive Officers and Corporate Governance. 

 Certain
information relating to the Executive Officers of the Company appears in Part I of this Form 10-K under the heading “Information
about Our Executive Officers” and is incorporated by reference in this section. 

 The
information required under this Item will be contained in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders
to be filed with the SEC within 120 days after the year ended December 31, 2023 (the “Proxy Statement”) under the captions
“Directors and Nominees,” “Corporate Governance” and “Delinquent Section 16 (a) Reports,” which information
is incorporated by reference herein. 

 Code
of Ethics 

 We
have adopted a Code of Conduct and Ethics applicable to all officers, directors and employees. A copy of our Code of Conduct and Ethics is filed as an exhibit to this Annual Report on Form 10-K. 

 Item
11. Executive Compensation. 

 The
information required under this Item will be contained in the Company’s Proxy Statement under the caption “Compensation Committee
Report,” “Director Compensation,” “Executive Compensation” and “Compensation Committee Interlocks
and Insider Participation,” which information is incorporated by reference herein. 

 Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 

 The
information required under this Item will be contained in the Company’s Proxy Statement under the caption “Security Ownership
of Certain Beneficial Owners” and “Equity Compensation Plan Information,” which information is incorporated by reference
herein. 

 Item
13. Certain Relationships and Related Transactions and Director Independence. 

 The
information required under this Item will be contained in the Company’s Proxy Statement under the caption “Certain Relationships
and Related Party Transactions” and “Corporate Governance,” which information is incorporated by reference herein. 

 Item
14. Principal Accountant Fees and Services. 

 The
information required under this Item will be contained in the Company’s Proxy Statement under the caption “Ratification of
the Appointment of Independent Registered Public Accounting Firm,” which information is incorporated by reference herein. 

 33 

 Table of Contents 

 PART
IV 

 Item
15. Exhibits and Financial Statement Schedules. 

List of documents filed as part of this Annual Report on Form 10-K: 

 (1)
Consolidated Financial Statements 

 The consolidated financial statements required by this item are contained
under the section entitled “Index to Consolidated Financial Statements” (and the consolidated financial statements and related
notes referenced therein) included beginning on page F-1 of this Annual Report on Form 10-K. 

 (2)
Consolidated Financial Statements Schedules 

 All financial statement schedules are omitted because they are either not applicable, not required, or because
the information required is included in the above referenced consolidated financial statements and notes thereto. 

 (3)
List of Exhibits 

 The
exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of this Annual Report on Form 10-K. 

 EXHIBIT
INDEX 

 The
following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. 

 No. 
 
 Description
 of Exhibit 

 1* 
 
 Form of Code of Ethics and Business Conduct 

 2.1
 † 
 
 Unit Purchase Agreement dated February 11, 2022 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 14, 2022). 

 2.2 
 
 First Amendment to Unit Purchase Agreement dated September 19, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 19, 2022). 

 2.3 
 
 Second Amendment to Unit Purchase Agreement dated September 22, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 23, 2022). 

 2.4 
 
 Third Amendment to Unit Purchase Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 29, 2022). 

 2.5† 
 
 Agreement and Plan of Merger, dated October 29, 2022, by and among SHF Holdings, Inc., Merger Sub I, Merger Sub II, Rockview Digital Solutions, Inc. d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of Abaca security holders (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on October 31, 2022). 

 2.6 
 
 Amendment to Agreement and Plan of Merger, dated November 11, 2022, by and among SHF Holdings, Inc., Merger Sub I, Merger Sub II, Rockview Digital Solutions, Inc. d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of the Abaca security holders (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on November 15, 2022). 

 2.7 
 
 Second Amendment to Agreement and Plan of Merger, dated October 26, 2023, by and among SHF Holdings, Inc., Merger Sub I, Merger Sub II, Rockview Digital Solutions, Inc. d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of the Abaca security holders (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on October 27, 2023). 

 3* 
 
 Amended and Restated - 2022 Equity Incentive Plan 

 3.1 
 
 Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed on September 29, 2022). 

 3.2 
 
 Certificate of Designation (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed on September 29, 2022). 

 4* 
 
 Form SHF Holdings, Inc. Stock Option Agreement 

 4.1 
 
 Warrant Agreement, dated June 23, 2021, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 25, 2021). 

 4.2 
 
 Registration Rights Agreement, dated March 29, 2023, by and between the Company and Partner Colorado Credit Union (incorporated by reference to Exhibit 2 of the Company’s Quarterly Report on Form 10-Q, filed May 15, 2023). 

 4.3 
 
 Security Agreement, dated March 29, 2023, by and between the Company and Partner Colorado Credit Union (incorporated by reference to Exhibit 3 of the Company’s Quarterly Report on Form 10-Q, filed May 15, 2023). 

 4.4 
 
 Senior Secured Promissory Note, dated March 29, 2023, by and between the Company and Partner Colorado Credit Union (incorporated by reference to Exhibit 4 of the Company’s Quarterly Report on Form 10-Q, filed May 15, 2023) 

 4.5 
 
 Securities Issuance Agreement, dated March 29, 2023, by and among the Company and Partner Colorado Credit Union (incorporated by reference to Exhibit 5 of the Company’s Quarterly Report on Form 10-Q, filed May 15, 2023). 

 4.5 
 
 Warrant Agreement, dated October 26, 2023, by and among the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K, filed on October 27, 2023). 

 34 

 Table of Contents 

 4.6* 
 
 Description of Registered Securities 

 5* 
 
 Form of SHF Holdings, Inc. Restricted Stock Unit Agreement 

 7* 
 
 By Laws 

 10.1 
 
 Letter Agreement, dated June 23, 2021, among the Company, its officers and directors and 5AK, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 25, 2021). 

 10.2
 † 
 
 Registration Rights Agreement, dated June 23, 2021, by and among the Company and certain securityholders (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 25, 2021). 

 10.3 
 
 Form of Indemnity Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 filed on June 2, 2021). 

 10.4 
 
 Forward Purchase Agreement dated June 16, 2022 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on June 17, 2022). 

 10.5 
 
 Registration Rights Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on October 4, 2022). 

 10.6† 
 
 Lock-Up Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on October 4, 2022). 

 10.7 
 
 Non-Competition Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed on October 4, 2022). 

 10.8† 
 
 Form of Amended and Restated Securities Purchase Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on September 29, 2022). 

 10.9 
 
 SHF Holdings, Inc. 2022 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K, filed on October 4, 2022). 

 10.10 
 
 Forbearance Agreement, dated as of October 27, 2022 by and between SHF Holdings, Inc., Partner Colorado Credit Union and Luminous Capital USA Inc. (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K, filed on November 1, 2022). 

 10.11 
 
 Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on November 15, 2022). 

 10.12 
 
 Executive Employment Agreement, dated January 10, 2023, by and between the Company and Donnie Emmi (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K, filed on April 14, 2023). 

 10.13 
 
 Executive Employment Agreement, dated January 10, 2023, by and between the Company and James H. Dennedy (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K, filed on April 14, 2023). 

 10.14 
 
 Commercial Alliance Agreement, dated March 29, 2023, between the Company and Partner Colorado Credit Unit (incorporated by reference to Exhibit 1 of the Company’s Quarterly Report on Form 10-Q, filed on May 15, 2023). 

 10.15 
 
 Executive Employment Agreement, dated August 16, 2023, by and between the Company and Tyler Beuerlein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on August 22, 2023). 

 21.1* 
 
 Subsidiaries of the Registrant 

 23.1* 
 
 Consent of Marcum LLP, independent registered public accounting firm 

 31.1* 
 
 Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

 31.2* 
 
 Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

 32.1** 
 
 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

 32.2** 
 
 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 

 97* 
 
 Clawback policy 

 101.INS* 
 
 Inline
 XBRL Instance Document 

 101.CAL* 
 
 Inline
 XBRL Taxonomy Extension Calculation Linkbase Document 

 101.SCH* 
 
 Inline
 XBRL Taxonomy Extension Schema Document 

 101.DEF* 
 
 Inline
 XBRL Taxonomy Extension Definition Linkbase Document 

 101.LAB* 
 
 Inline
 XBRL Taxonomy Extension Labels Linkbase Document 

 101.PRE* 
 
 Inline
 XBRL Taxonomy Extension Presentation Linkbase Document 

 104* 
 
 Cover
 Page Interactive Data File (embedded within the Inline XBRL document) 

 * 
 Filed
 herewith. 

 ** 
 Furnished. 

 † 
 Certain
 of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees
 to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. 

 Item
16. Form 10-K Summary. 

 None. 

 35 

 Table of Contents 

 SIGNATURES 

 Pursuant
to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. 

 SHF
 HOLDINGS INC . 

 Date:
 April 01, 2024 
 
 /s/
 Sundie Seefried 

 Name:
 
 Sundie
 Seefried 

 Title: 
 Chief
 Executive Officer 

 (Principal
 Executive Officer) 

 Date:
 April 01, 2024 
 
 /s/
 James H. Dennedy 

 Name: 
 James
 H. Dennedy 

 Title: 
 Chief
Financial Officer 

 (Principal
Financial and Accounting Officer) 

 Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report
on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. 

 Signature 
 
 Title 
 
 Date 

 /s/ Sundie
 Seefried 
 
 Chief
 Executive Officer 
 
 April 01, 2024 

 Sundie
 Seefried 
 
 /s/ James
 H. Dennedy 
 
 Chief
 Financial Officer 
 
 April 01, 2024 

 James
 H. Dennedy 
 
 /s/ Jonathon
 F. Niehaus 
 
 Director 
 
 April 01, 2024 

 Jonathon
 F. Niehaus 
 
 /s/ Douglas
 Fagan 
 
 Director 
 
 April 01, 2024 

 Douglas
 Fagan 
 
 /s/ Jennifer
 Meyers 
 
 Director 
 
 April 01, 2024 

 Jennifer
 Meyers 
 
 /s/ Jonathan
 Summers 
 
 Director 
 
 April 01, 2024 

 Jonathan
 Summers 
 
 /s/ Karl
 Racine 
 
 Director 
 
 April 01, 2024 

 Karl
 Racine 
 
 /s/
 Richard Carleton 
 
 Director 
 
 April 01, 2024 

 Richard
 Carleton 
 
 /s/ John Darwin 
 
 Director 
 
 April 01, 2024 

 John Darwin 
 
 36 

 Table of Contents 

 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS. 

 SHF
HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS 

 INDEX 

 Page 

 Report of Independent Registered Public Accounting Firm (Marcum LLP) (PCAOB ID 688 ) 
 F-2 

 Consolidated Balance Sheets as of December 31, 2023 and 2022 
 F-3 

 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 
 F-4 

 Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity for the years ended December 31, 2023 and 2022 
 F-5 

 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 
 F-6 

 Notes to the Consolidated Financial Statements for the years ended December 2023 and 2022 
 F-7 

 F- 1 

 Table of Contents 

 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

 To
the Stockholders and Board of Directors of 

 SHF
Holdings, Inc. 

 Opinion
on the Financial Statements 

 We
have audited the accompanying consolidated balance sheets of SHF Holdings, Inc. and subsidiaries (the “Company”) as of
December 31, 2023 and 2022, the related consolidated statements of operations, parent-entity net investment and stockholders’
equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred
to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the
United States of America. 

 Explanatory
Paragraph – Going Concern 

 The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described
in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds
to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty. 

 Change
in Accounting Principle 

 As
discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and
measurement of credit losses as of January 1, 2023 due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses . 

 Basis
for Opinion 

 These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 

 We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 

 Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion. 

 /s/
 Marcum LLP 

 Marcum LLP

 We
have served as the Company’s auditor since 2022. 

 Hartford,
Connecticut 

 April
1, 2024 

 F- 2 

 Table of Contents 

 SHF
Holdings, Inc. 

 CONSOLIDATED
BALANCE SHEETS 

 December 31,
 2023 
 December 31,
 2022 

 ASSETS 
 
 Current Assets: 
 
 Cash and cash equivalents 
 $ 4,888,769 
 $ 8,390,195 

 Accounts receivable – trade 
 121,875 
 203,058 

 Accounts receivable – related party 
 2,095,320 
 1,231,727 

 Accounts receivable 
 2,095,320 
 1,231,727 

 Contract assets 
 - 
 21,170 

 Prepaid expenses – current portion 
 546,437 
 175,585 

 Accrued interest receivable 
 13,780 
 7,320 

 Short-term loans receivable, net 
 12,391 
 51,300 

 Other current assets 
 82,657 
 150,817 

 Total Current Assets 
 $ 7,761,229 
 $ 10,231,172 

 Long-term loans receivable, net 
 381,463 
 1,359,772 

 Property, plant and equipment, net 
 84,220 
 49,614 

 Operating lease right to use assets 
 859,861 
 1,016,198 

 Goodwill 
 6,058,000 
 19,266,276 

 Intangible assets, net 
 3,721,745 
 10,621,087 

 Deferred tax asset 
 43,829,019 
 51,593,302 

 Prepaid expenses – long term position 
 562,500 
 712,500 

 Forward purchase receivable 
 4,584,221 
 4,584,221 

 Security deposit 
 18,651 
 17,795 

 Total Assets 
 $ 67,860,909 
 $ 99,451,937 

 LIABILITIES AND PARENT-ENTITY NET INVESTMENT AND STOCKHOLDERS’ EQUITY 
 
 Current Liabilities: 
 
 Accounts payable 
 $ 217,392 
 $ 2,654,489 

 Accounts payable-related party 
 577,315 
 5,078,042 

 Accounts payable 
 577,315 
 5,078,042 

 Accrued expenses 
 1,008,987 
 1,473,411 

 Contract liabilities 
 21,922 
 996 

 Lease liabilities – current 
 132,546 
 20,124 

 Senior secured promissory note – current portion 
 3,006,991 
 - 

 Deferred consideration – current portion 
 2,889,792 
 14,359,822 

 Due to seller - current portion 
 - 
 25,973,017 

 Other current liabilities 
 41,639 
 11,291 

 Total Current Liabilities 
 $ 7,896,584 
 $ 49,571,192 

 Warrant liability 
 4,164,129 
 666,510 

 Deferred consideration – long term portion 
 810,000 
 2,747,592 

 Forward purchase derivative liability 
 7,309,580 
 7,309,580 

 Due to seller – long term portion 
 - 
 30,976,783 

 Senior secured promissory note—long term portion 
 11,004,175 
 - 

 Net deferred indemnified loan origination fees 
 63,275 
 109,081 

 Lease liabilities – long term 
 875,447 
 1,008,109 

 Deferred underwriter fee 
 - 
 1,450,500 

 Indemnity liability 
 1,382,408 
 499,465 

 Total Liabilities 
 $ 33,505,598 
 $ 94,338,812 

 Commitment and Contingencies (Note 15) 
 - 
 - 

 Parent-Entity Net Investment and Stockholders’ Equity 
 
 Convertible preferred stock, $ .0001 par value, 1,250,000 shares authorized, 1,101 and 14,616 shares issued and outstanding on December 31, 2023, and December 31, 2022, respectively 
 - 
 1 

 Class A common stock, $ .0001 par value, 130,000,000 shares authorized, 54,563,372 and 23,732,889 issued and outstanding on December 31, 2023, and December 31, 2022, respectively 
 5,458 
 2,374 

 Additional paid in capital 
 105,919,674 
 44,806,031 

 Retained deficit 
 ( 71,569,821 ) 
 ( 39,695,281 ) 

 Total Parent-Entity Net Investment and Stockholders’ Equity 
 $ 34,355,311 
 $ 5,113,125 

 Total Liabilities and Parent-Entity Net Investment and Stockholders’ Equity 
 $ 67,860,909 
 $ 99,451,937 

 See
accompanying notes to consolidated financial statements 

 F- 3 

 Table of Contents 

 SHF
Holdings, Inc. 

 CONSOLIDATED
STATEMENTS OF OPERATIONS 

 2023 
 2022 

 For
 the year ended December 31, 

 2023 
 2022 

 Revenue 
 $ 17,562,903 
 $ 9,478,819 

 Operating Expenses 
 
 Compensation and employee
 benefits 
 $ 10,334,212 
 $ 6,695,319 

 General and administrative
 expenses 
 6,568,662 
 2,390,539 

 Professional services 
 1,858,137 
 1,985,343 

 Rent expense 
 315,615 
 99,246 

 Provision for credit losses 
 290,857 
 506,212 

 Impairment of goodwill 
 13,208,276 
 - 

 Impairment
 of long-lived intangible assets 
 5,699,463 
 - 

 Total
 operating expenses 
 $ 38,275,222 
 $ 11,676,659 

 Operating loss 
 ( 20,712,319 ) 
 ( 2,197,840 ) 

 Other (income) expenses 
 
 Interest expense 
 1,113,466 
 705,204 

 Change in fair value of
 warrant liability 
 1,853,920 
 ( 939,019 ) 

 Change in the fair value
 of deferred consideration 
 ( 4,570,157 ) 
 97,593 

 Change in fair value of
 forward purchase agreement 
 - 
 33,322,248 

 Change
 in fair value of forward purchase option derivative 
 - 
 8,997,110 

 Total other (income)
 expenses 
 $ ( 1,602,771 ) 
 $ 42,183,136 

 Net loss income before income tax 
 ( 19,109,548 ) 
 ( 44,380,976 ) 

 Provision for income
 taxes 
 $ ( 1,829,701 ) 
 $ ( 9,252,893 ) 

 Net loss 
 $ ( 17,279,847 ) 
 $ ( 35,128,083 ) 

 Weighted average shares outstanding, basic 
 42,574,563 
 18,988,558 

 Basic net loss per share 
 $ ( 0.41 ) 
 $ ( 1.85 ) 

 Weighted average shares outstanding, diluted 
 42,574,563 
 18,988,558 

 Diluted net loss per share 
 $ ( 0.41 ) 
 $ ( 1.85 ) 

 See
accompanying notes to consolidated financial statements 

 F- 4 

 Table of Contents 

 SHF
Holdings, Inc. 

 Consolidated
Statements of Parent-Entity Net Investment and Stockholders’ Equity 

 FOR
THE YEARS ENDED DECEMBER 31, 2023 AND 2022 

 Shares 
 Amount 
 Shares 
 Amount 
 Capital 
 Investment 
 Earnings 
 Equity 

 Preferred
 Stock 
 Class
 A Common Stock 
 Additional
 Paid-in 
 Parent-Entity
 Net 
 Retained 
 Total
 Shareholders’ 

 Shares 
 Amount 
 Shares 
 Amount 
 Capital 
 Investment 
 Earnings 
 Equity 

 Balance, December 31, 2021 
 - 
 $ - 
 - 
 $ - 
 $ - 
 $ 7,339,101 
 $ - 
 $ 7,339,101 

 Issuance of shares in connection with Business
 Combination and PIPE offering, net of issuance costs 
 20,450 
 2 
 18,715,912 
 1,872 
 29,327,087 
 ( 7,339,101 ) 
 - 
 21,989,860 

 Acquisition of Abaca 
 - 
 - 
 2,099,977 
 210 
 8,105,701 
 - 
 - 
 8,105,911 

 Conversion of PIPE Shares 
 ( 5,834 ) 
 ( 1 ) 
 2,917,000 
 292 
 2,916,709 
 - 
 ( 2,917,000 ) 
 - 

 Stock option conversion 
 - 
 - 
 - 
 - 
 2,806,336 
 - 
 - 
 2,806,336 

 Net loss 
 - 
 - 
 - 
 - 
 1,650,198 
 - 
 ( 36,778,281 ) 
 ( 35,128,083 ) 

 Balance, December 31, 2022 
 14,616 
 $ 1 
 23,732,889 
 $ 2,374 
 $ 44,806,031 
 $ - 
 $ ( 39,695,281 ) 
 $ 5,113,125 

 Balance 
 14,616 
 $ 1 
 23,732,889 
 $ 2,374 
 $ 44,806,031 
 $ - 
 $ ( 39,695,281 ) 
 $ 5,113,125 

 Cumulative effect from adoption of
 CECL 
 - 
 - 
 - 
 - 
 - 
 - 
 ( 581,318 ) 
 ( 581,318 ) 

 Issuance of shares to Abaca shareholders 
 - 
 - 
 5,835,822 
 585 
 4,084,491 
 - 
 - 
 4,085,076 

 Conversion of PIPE Shares 
 ( 13,515 ) 
 ( 1 ) 
 12,562,200 
 1,256 
 14,012,120 
 - 
 ( 14,013,375 ) 
 - 

 Restricted stock units 
 - 
 - 
 1,232,461 
 123 
 1,251,920 
 - 
 - 
 1,252,043 

 Stock compensation cost 
 - 
 - 
 - 
 - 
 2,459,324 
 - 
 - 
 2,459,324 

 PCCU Restructuring 
 - 
 - 
 11,200,000 
 1,120 
 38,405,288 
 - 
 - 
 38,406,408 

 Reversal of deferred underwriting cost 
 - 
 - 
 - 
 - 
 900,500 
 - 
 - 
 900,500 

 Net loss 
 - 
 - 
 - 
 - 
 - 
 - 
 ( 17,279,847 ) 
 ( 17,279,847 ) 

 Net income
 (loss) 
 - 
 - 
 - 
 - 
 - 
 - 
 ( 17,279,847 ) 
 ( 17,279,847 ) 

 Balance, December 31,
 2023 
 1,101 
 - 
 54,563,372 
 5,458 
 105,919,674 
 - 
 ( 71,569,821 ) 
 34,355,311 

 Balance 
 1,101 
 - 
 54,563,372 
 5,458 
 105,919,674 
 - 
 ( 71,569,821 ) 
 34,355,311 

 See
accompanying notes to consolidated financial statements 

 F- 5 

 Table of Contents 

 SHF
Holdings, Inc. 

 CONSOLIDATED
STATEMENTS OF CASH FLOWS 

 2023 
 2022 
 
 Year
 ended December 31, 
 
 2023 
 2022 
 
 CASH FLOWS FROM OPERATING
 ACTIVITIES: 
 
 Net loss 
 $ ( 17,279,847 ) 
 $ ( 35,128,083 ) 
 
 Adjustments to reconcile net income to net
 cash provided by operating activities: 
 
 Depreciation and amortization
 expense 
 1,373,707 
 189,274 
 
 Stock compensation expense 
 3,711,367 
 2,806,336 
 
 Net deferred indemnified
 loan origination fees 
 ( 45,806 ) 
 - 
 
 Interest expense 
 663,208 
 705,204 
 
 Lease Expense 
 136,097 
 - 
 
 Provision for credit loss 
 290,857 
 506,212 
 
 Impairment of goodwill 
 13,208,276 
 - 
 
 Impairment of long-lived
 intangible assets 
 5,699,463 
 - 
 
 Deferred tax credit 
 ( 1,829,700 ) 
 ( 9,252,893 ) 
 
 Change in fair value of
 warrant and forward purchase 
option derivative liabilities 
 1,853,920 
 41,380,339 
 
 Change in the fair value
 of deferred consideration 
 ( 4,570,157 ) 
 97,593 
 
 Changes in operating assets and liabilities: 
 
 Accounts receivable - Trade 
 81,183 
 24,798 
 
 Accounts receivable –
 Related Party 
 ( 863,593 ) 
 ( 710,698 ) 
 
 Contract assets 
 21,170 
 ( 2,853 ) 
 
 Prepaid expenses 
 ( 220,852 ) 
 55,997 
 
 Forward purchase receivables 
 - 
 1,379,285 
 
 Accrued interest receivable 
 ( 6,460 ) 
 ( 236 ) 
 
 Deferred underwriting payable 
 ( 550,000 ) 
 ( 715,750 ) 
 
 Other current assets 
 68,160 
 ( 150,817 ) 
 
 Accounts payable 
 ( 2,515,443 ) 
 355,202 
 
 Accounts Payable –
 related party 
 386,660 
 ( 231,875 ) 
 
 Accrued expenses 
 ( 464,424 ) 
 402,767 
 
 Contract Liabilities 
 20,926 
 ( 7,337 ) 
 
 Security
 deposit 
 ( 856 ) 
 ( 5,085 ) 
 
 Net
 cash (used in)/provided by operating activities 
 $ ( 832,144 ) 
 $ 1,697,380 
 
 CASH FLOWS USED IN INVESTING
 ACTIVITIES: 
 
 Purchase of property and
 equipment 
 ( 208,434 ) 
 ( 17,318 ) 
 
 Change in loan receivable,
 net 
 - 
 161,569 
 
 Payment to Abaca Shareholder 
 ( 3,000,000 ) 
 - 
 
 Loan receivable repayment 
 1,027,986 
 - 
 
 Acquisition of Abaca 
 - 
 ( 3,041,680 ) 
 
 Net
 cash used in investing activities 
 $ ( 2,180,448 ) 
 $ ( 2,897,429 ) 
 
 CASH FLOWS USED IN FINANCING
 ACTIVITIES: 
 
 Proceeds from reverse capitalization, net of
 transaction costs 
 - 
 4,094,339 
 
 Repayment of loans 
 ( 488,834 ) 
 - 
 
 Net
 cash (used in)/provided by financing activities 
 $ ( 488,834 ) 
 $ 4,094,339 
 
 Net (decrease)/increase in cash and cash equivalents 
 ( 3,501,426 ) 
 2,894,290 
 
 Cash and cash equivalents
 - beginning of period 
 8,390,195 
 5,495,905 
 
 Cash and cash equivalents
 - end of period 
 $ 4,888,769 
 $ 8,390,195 
 
 Supplemental
 disclosure of cash flow information 
 
 Interest paid 
 $ 450,258 
 - 
 
 Non-cash transactions: 
 
 Shares issued for the settlement of abaca acquisition 
 $ 4,085,076 
 $ 8,105,911 
 
 Operating lease right of use assets recognized 
 - 
 1,029,227 
 
 Operating lease liabilities recognized 
 - 
 1,022,380 
 
 Shares issued for the settlement of PCCU debt
 obligation 
 38,406,408 
 - 
 
 Cumulative effect from adoption of CECL 
 581,318 
 - 
 
 Reversal of deferred underwriting cost 
 900,500 
 - 
 
 Interest recognized on PCCU settlement 
 639,521 
 - 
 
 See
accompanying notes to consolidated financial statements 

 F- 6 

 Table of Contents 

 Note
1. Organization and Business Operations 

 Business
Description 

 The
Company originated as business operations conducted through Partner Colorado Credit Union (“PCCU”), which were transferred
to SHF LLC (“SHF”), then an indirect wholly owned subsidiary of PCCU. 

 SHF
Holdings, Inc. (the “Company”), formerly known as Northern Lights Acquisition Corp. (“NLIT”), acquired all of
the outstanding membership interests of SHF in a transaction that closed on September 28, 2022 (the “Business Combination”).
The Business Combination was consummated pursuant to a Unit Purchase Agreement dated February 11, 2022 (the “Business Combination
Agreement”) among SHF, SHF Holding Co., LLC (the direct parent of SHF and a wholly owned subsidiary of PCCU), PCCU, NLIT, a special
purpose acquisition company, and its sponsor, 5AK, LLC. Subsequent to the completion of the Business Combination, NLIT changed its name
to “SHF Holdings, Inc.” We use the terms “we,” “us,” “our” and the “Company”
to refer to the business and operations of SHF Holdings, Inc. following the closing of the Business Combination. (Refer to Note 3 to
the Consolidated Financial Statements.) 

 SHF
was formed by PCCU following the approval of the contribution of certain assets and operating activities associated with operations from
both certain branches and Safe Harbor Services, a wholly-owned subsidiary of PCCU, to SHF Holding, Co., LLC. SHF Holding, Co., LLC then
contributed the same assets and related operations to SHF, with PCCU’s investment in SHF maintained at the SHF Holding, Co., LLC
level (the “reorganization”). The reorganization effectively occurred July 1, 2021. In conjunction with the reorganization,
all of the employees engaged in the operations and certain PCCU employees were terminated from PCCU and hired as SHF employees. Collectively,
Pre-Public Company, the relevant operations of the PCCU branches, and SHF, represent the “Carved-Out Operations.” After the
reorganization, the entirety of the Carved-Out Operations were owned by SHF and Pre-Public Company was dissolved. In addition, effective
July 1, 2021, SHF entered into an Account Servicing Agreement and Support Services Agreement with PCCU, which memorialized the operational
relationship between SHF and PCCU and which were subsequently amended and restated and are discussed in Note 10 to the Consolidated Financial
Statements. 

 On
September 28, 2022, the parties consummated the Business Combination, resulting in NLIT acquiring all of the issued and outstanding membership
interests of SHF upon exchange for an aggregate of $ 185,000,000 , consisting of (i) 11,386,139 shares of the Company’s Class A common
stock with an aggregate value equal to $ 115,000,000 and (ii) $ 70,000,000 in cash, $ 56,949,801 of which will be paid on a deferred basis.
At the closing, 1,831,683 shares of the Class A Common Stock were deposited with an escrow agent to be held in escrow for a period of
12 months following the closing date to satisfy potential indemnification claims of the parties. On December 31, 2023, the 12 month period
has expired, and the Company is in discussion with the escrow agent for the release those shares. For more information about the Business
Combination, refer to Note 3 to the Consolidated Financial Statements. As a result of the Business Combination, PCCU is the Company’s
largest stockholder, owning 46.37 % of the Company’s outstanding Class A Common Stock. 

 The
Business Combination Agreement was amended to provide for the deferral of a portion of the cash due to PCCU at the closing of the Business
Combination. The purpose of this deferral was to provide the Company with additional cash to support its post-closing activities. Furthermore,
PCCU also agreed to defer $ 3,143,388 , representing certain excess cash of SHF due to PCCU under the Business Combination Agreement, and
the reimbursement of certain reimbursable expenses under the Business Combination Agreement. 

 On
October 26, 2022, the Company, entered into a Forbearance Agreement (the “Forbearance Agreement”) with PCCU and Luminous
Capital USA Inc. (“Luminous”), an affiliate of the sponsor of NLIT. Under the Forbearance Agreement, PCCU agreed to defer
all payments owed by the Company pursuant to the Business Combination Agreement for a period of six months from the date of the Forbearance
Agreement. On March 29, 2023, the Company and PCCU entered into a definitive transaction to settle and restructure the deferred obligations
payable in connection with the business combination. 

 On
March 29, 2023, the Company and PCCU entered into a definitive transaction to settle and restructure the deferred obligations, including
$ 56,949,800 into a five -year Senior Secured Promissory Note (the “Note”) in the principal amount of $ 14,500,000 bearing interest
at the rate of 4.25 %; a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security
interest in substantially all of the assets of the Company; and a Securities Issuance Agreement, pursuant to which the Company will issue
 11,200,000 shares of the Company’s Class A Common Stock to PCCU. The Company and PCCU also entered into the Commercial Alliance
Agreement that sets forth the terms and conditions of the lending-related and account-related services governing the relationship between
the Company and PCCU and supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and
the Amended and Restated Account Servicing Agreement. 

 On
October 31, 2022, the Company entered into an Agreement and Plan of Merger (the “Abaca Merger Agreement”) by and among the
Company, SHF Merger Sub I, a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Merger Sub I”), SHF
Merger Sub II, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of the Company (“Merger Sub II”
and, together with Merger Sub I, the “Merger Subs”), Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca
(“Abaca”) and Dan Roda, solely in such individual’s capacity as the representative of the security holders of Abaca
(the “Abaca Stockholders’ Representative”). On November 11, 2022, the parties to the Abaca Merger Agreement entered
into an amendment to the Abaca Merger Agreement to modify the number of shares of the Company’s Class A Common Stock to be issued
as consideration thereunder. On November 15, 2022, the parties consummated the transactions contemplated by the Abaca Merger Agreement,
as amended. Pursuant to the Abaca Merger Agreement, as amended, (a) Merger Sub I merged with and into Abaca, with Abaca surviving as
a direct wholly-owned subsidiary of the Company (“Merger I”) and (b) immediately following the effective time of the Merger
I, Abaca merged with and into Merger Sub II (“Merger II” and, collectively with Merger I, the “Mergers”), with
Merger Sub II surviving Merger II as a direct wholly-owned subsidiary of the Company. 

 F- 7 

 Table of Contents 

 Pursuant
to the Abaca Merger Agreement, as amended, the Company acquired Abaca together with its proprietary financial technology platform in
exchange for $ 30,000,000 , paid in a combination of cash and shares of the Company as follows: (a) cash consideration in an amount equal
to (i) $ 9,000,000 ($ 3,000,000 was payable at the closing of the Mergers (the “Merger Closing”), with an additional $ 3,000,000 
payable at each of the one-year and two-year anniversaries of the Merger Closing), (collectively, the “Cash Consideration”);
and (b) 2,100,000 shares of Class A Common Stock at the Closing Date and $ 12,600,000 (minus an outstanding note balance of $ 500,000 ,
plus accrued interest) in shares of Class A Common Stock at the one-year anniversary of the Merger Closing based on a 10-day VWAP (collectively,
the “Share Consideration”). Each of the Company, the Merger Subs, and Abaca provided customary representations, warranties
and covenants in the Agreement. As on October 26, 2023, the Company and the Abaca stockholders entered into the second amendment to the
Abaca merger agreement to redefine the deferred cash consideration payable and the deferred stock consideration payable on the one-year
anniversary of the merger closing. (Refer to Note 4 to the Consolidated Financial Statements.) 

 The
Company generates both interest income and fee income through providing a variety of services to financial institutions desiring to service
the cannabis industry including, among other things, the origination, onboarding, and servicing of cannabis-related deposit business
for and on behalf of those partner institutions; Bank Secrecy Act and other regulatory compliance and reporting related to these accounts;
onboarding these accounts and responding to account and customer service inquiries; and sourcing, underwriting, and servicing, and administering
loans issued to cannabis businesses and related entities. In addition to PCCU, the Company provides these similar services and outsourced
support to other financial institutions providing banking to the cannabis industry. These services are provided to other financial institutions
under the Safe Harbor Master Program Agreement. 

 Note
2. Basis of Presentation and Summary of Significant Accounting Policies 

 i.
 Use of Estimates 

 The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Material estimates that are particularly subject to change in the near term include the
determination of the allowance for credit losses, indemnification liabilities, valuation and useful lives of intangibles and the fair
value of financial instruments. Actual results could differ from the estimates. 

 ii.
 Basis of Presentation 

 The
accompanying consolidated financial statements and related notes have been prepared on the accrual basis of accounting in conformity
with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts
of the Company, and its wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments that, in the opinion
of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and
for the periods presented. All intercompany balances and transactions have been eliminated in consolidation. 

 In
this reporting period, we have adopted the Current Expected Credit Loss (CECL) accounting standard for the first time, marking a significant
change in our accounting policy for the recognition of credit losses. This adoption necessitates the estimation and immediate recognition
of expected credit losses over the lifetimes of our financial assets upon their origination or acquisition, which is a departure from
the previous incurred loss approach. The accounting method was adopted with on a modified retrospectively
basis, and the effects of this adoption were recorded as of January 1, 2023. 

 The
Company has made certain immaterial reclassifications to the 2022 balance sheet and statements of operations to conform to the
presentation of the 2023 balance sheet and statements of operations. These included reclassifications totaling $ 1,198,781 
from accounts receivable-trade and $ 32,946 
from accrued interest receivable into accounts receivable - related party, $ 196,968 
from accounts payable and $ 4,881,074 
from accrued expenses into accounts payable - related party, $ 109,081 
of net deferred loan origination fees to liabilities, and reclassification of $ 97,593 from Interest expense into change in the fair value of deferred consideration. Corresponding adjustments have been made to the statement of cash flows and
applicable notes to the consolidated financial statements. 

 iii.
 Liquidity and Going Concern 

 As
of December 31, 2023, the Company had $ 4,888,769 cash and net working capital deficit of $ 135,355 . The Company has also incurred an operating
loss of $ 20,712,319 for the year ended December 31, 2023, and cash flows used in operating activities of $ 832,144 . 

 Based
upon these factors, management of the Company has determined that there is a risk of substantial doubt about the Company’s ability
to continue as a going concern for a period of at least twelve months from the date these consolidated financial statements have been
issued. 

 If
the Company is not able to sustain its present level of operations, it may be forced to make reductions in spending, extend payment terms
with suppliers, liquidate assets where possible, or suspend or curtail planned expansion programs. Any of these actions could materially
harm the Company’s business, results of operations and future prospects. 

 The
accompanying 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. 

 F- 8 

 Table of Contents 

 iv.
 Cash and Cash Equivalents 

 Cash
and cash equivalents include cash on hand, amounts due from financial institutions, and investments with maturities of three months or
less. 

 v.
 Concentrations of Risk 

 The
Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. Cash balances are
maintained substantially in accounts at PCCU which is insured by the National Credit Union Share Insurance Fund (“NCUSIF”)
up to regulatory limits. From time to time, cash balances may exceed the NCUSIF insurance limit. The Company has not experienced any
credit losses associated with its cash balances in the past. 

 Currently
the Company only services the cannabis industry. Cannabis remains illegal under federal law, and therefore, strict enforcement of federal
laws regarding cannabis would likely result in our inability to execute our business plan. 

 Currently
the Company substantially relies on PCCU to hold customer deposits and fund its originated loans. As of this time, majority of the Company’s
revenue is generated by deposits and loans hosted by PCCU pursuant to a master service agreement. 

 The
Company had only one loan on its balance sheet as of December 31, 2023, which comprises 100 % of the total loan balance. The Company also
indemnified twenty loans as of December 31, 2023; of which three of these indemnified loans were in excess of 10 % of the total balance. 

 vi.
 Accounts Receivable and Allowance for Doubtful Accounts 

 Accounts
receivable are recorded based on account fee schedules. While fees are generated from individual CRB related accounts, amounts are initially
collected by the financial institutional partners and remitted in the subsequent month. Accounts receivable - related party represents
amounts due from PCCU under related party contracts disclosed in Note 10. The Company maintains allowances for doubtful accounts for
estimated losses as a result of a customers’ inability to make required payments. The Company estimates anticipated losses from
doubtful accounts based on days past due as measured from the contractual due date and historical collection history. The Company also
takes into consideration changes in economic conditions that may not be reflected in historical trends, for example customers in bankruptcy,
liquidation or reorganization. Receivables are written-off against the allowance for doubtful accounts when they are determined uncollectible.
Such determination includes analysis and consideration of the particular conditions of the account, including time intervals since last
collection, customer performance against agreed upon payment plans, solvency of customer and any bankruptcy proceedings. 

 At
December 31, 2023 and December 31, 2022, there were no recorded allowances for doubtful accounts on accounts receivables. 

 vii.
 Loans Receivable 

 CRB
Loans that significantly support the Company’s operations are recognized as assets on the balance sheet. These loans, intended
to be held either for the foreseeable future or until their maturity or full repayment, are recorded at their outstanding principal balance.
This amount is adjusted for any credit loss allowances and net of any deferred loan origination fees and costs, as applicable, to reflect
the net investment in these loans. The Company recognizes interest income on CRB Loans over the loan term using the simple-interest method
based on outstanding principal amounts. This approach ensures a systematic recognition of income, aligning with the time value of money
principle. 

 Interest
income recognition is suspended when there is uncertainty regarding full loan repayment, such as in cases of loan impairment or when
payments are overdue by ninety days or more. Loans under these conditions are placed on nonaccrual status. Any accrued interest not received
by the time a loan is placed on nonaccrual is reversed from interest income. Subsequent interest payments on nonaccrual loans are recorded
using either the cash basis or the cost recovery method until the loan meets the criteria for reclassification to accrual status. 

 Loans
are returned to accrual status when they become current (less than ninety days past due) and when there is reasonable assurance of future
payment compliance, evidenced by the full satisfaction of both principal and interest payments due. 

 Loans
are assessed individually for potential charge-off, which typically occurs at the point of foreclosure. Charge-offs are executed to reflect
the realizable value of loans that are deemed uncollectible. 

 The
determination of a loan’s past-due status is based on its contractual repayment terms. Loans are either placed on nonaccrual status
or charged-off ahead of their contractual delinquency dates if the collection of principal and interest is deemed doubtful, ceasing the
recognition of interest income on such loans. 

 viii.
 Allowance for Credit Losses (ACL) 

 On
January 1, 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. 

 F- 9 

 Table of Contents 

 The
ACL is a valuation account that is deducted from the amortized cost basis of financial assets carried at their amortized cost, including
loans held for investment, to present the net amount that is expected to be collected throughout the life of the financial asset. The
estimated ACL is recorded through a provision for credit losses charged against operations. Management periodically evaluates the adequacy
of the ACL to maintain it at a level it believes to be reasonable. The Company uses the same methods used to determine the ACL to assess
any reserves needed for off-balance sheet credit risks such as unfunded loan commitments including Indemnified loans to PCCU. These reserves
for off-balance sheet credit risks are presented in the liabilities section in the consolidated balance sheets as an “Indemnity
liability.” 

 The
ACL consists of two components: an asset-specific component for estimating credit losses for individual loans that do not share similar
risk characteristics with other loans; and a pooled component for estimating credit losses for pools of loans that share similar risk
characteristics. The ACL for the pooled component is derived from an estimate of expected credit losses primarily using an expected loss
methodology that incorporates risk parameters such as probability of default (“PD”) and loss given default (“LGD”)
which are derived from internally developed model estimation approaches for smaller homogenous loans. 

 The
PD is quantified by analyzing historical data to determine the rate at which loans have defaulted within the portfolio, relative to the
total outstanding loans as of the end of the reporting period. This rate is expressed as a percentage and serves as a key indicator of
the likelihood of default across the loan pool. LGD assessments are conducted to estimate the potential loss amount in the event of a
default, considering the recoverable value from the collateral liquidation against the remaining loan balance. This involves a detailed
analysis of two primary components: the loss on principal, which arises from the gap between the collateral’s liquidation value
and the unpaid principal balance of the loan; and the loss associated with various ancillary costs to recover, including, but not limited
to, foregone interest, transaction costs, legal and administrative fees, and expenses related to the maintenance and renovation of the
property. The Company considers relevant current conditions and reasonable and supportable forecasts that relate to its lending
practices and environment and the specific borrower and determines that the significant factor affecting the loan’s performance
is the fact that these borrowers are involved in the cannabis business. Despite being legal at the state level in certain jurisdictions,
cannabis remains federally illegal in the United States as of the date of this filing. As cannabis related lending is a new practice
in the United States, there is very little historical or industry data on which to base a loss forecast. Therefore, significant judgement
is required in creating a reasonable loss estimate, using similar non-MRB loans as a baseline and adjusting for the inherent risks in
the cannabis industry. While the Company considers other qualitative factors, including national macroeconomic conditions, in its overall
risk analysis, it has determined that they are not significant inputs to the overall loss estimate calculations. 

 The
ACL estimation process also applies an economic forecast scenario, or a composite of scenarios based on management’s judgment and
expectations around the current and future macroeconomic outlook. Expected credit losses are estimated over the contractual term of the
loans, adjusted for expected prepayments when appropriate. The contractual term of a loan excludes expected extensions, renewals, and
modification under certain conditions. 

 Recoveries
on loans represent collections received on amounts that were previously charged off against the ACL. Recoveries are credited to the ACL
when received, to the extent of the amount previously charged off against the ACL on the related loan. Any amounts collected in excess
of this limit are first recognized as interest income, then as a reduction of collection costs, and then as other income. 

 ix.
 Allowance for Loan Losses (ALL) 

 Prior
to the adoption of CECL on January 1, 2023, the Company recognized an allowance for loan losses is a valuation allowance for probable
incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates
the required allowance for loan losses balance using past loan loss experience, known and inherent risks in the nature and volume of
the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.
Allocations of the allowance for loan losses may be made for specific loans, but the entire allowance is available for any loan that,
in management’s judgment, should be charged-off. 

 The
allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually
classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and
is based on historical loss experience adjusted for current factors. 

 Due
to the nature of uncertainties related to any estimation process, management’s estimate of loan losses inherent in the loan portfolio
may change in the near term. However, the amount of the change that is reasonably possible cannot be estimated. 

 A
loan is considered impaired when, based on current information and events, full payment under the loan terms is not expected. Impairment
is generally evaluated in total for smaller-balance loans of similar nature such as commercial lines of credit but may be evaluated on
an individual loan basis if deemed necessary. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported,
net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment
is expected solely from the collateral. 

 The
loans SHF originates are secured by various types of assets of the borrowers, including real property and certain personal property,
including value associated with other assets to the extent permitted by applicable laws and the regulations governing the borrowers.
The documents governing the loans also include a variety of provisions intended to provide remedies against the value associated with
licenses. Collection procedures are designed to ensure that neither SHF nor its financial institution clients who provide funding for
a loan, nor a third-party agent engaged to assist with the liquidation or foreclosure process, will take possession of cannabis inventory,
cannabis paraphernalia, or other cannabis-related assets, nor will they take title to real estate used in cannabis-related businesses.
Upon default of a loan, a third-party agent will be engaged to work with the borrower to have the borrower sell collateral securing the
loan to a third party or to institute a foreclosure proceeding to have such collateral sold to generate funds towards the payoff of the
loan. Applicable regulations under state law that govern CRBs generally do not permit the taking of title to real estate involved in
commercial sales of cannabis, whether through foreclosure or otherwise, without prior regulatory approval. The sale of a license or other
realization of the value of licenses also requires the approval of state and local regulatory authorities. A defaulted loan may also
be sold if such a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while
yielding proceeds comparable to what would be expected from a foreclosure sale. Such sale of the loan would be conducted through a third-party
administrative agent. However, SHF can provide no assurances that a sale of such loans would be possible or that the sales price of such
loans would be sufficient to recover the outstanding principal balance, accrued interest, and fees. 

 F- 10 

 Table of Contents 

 x.
 Net Deferred Loan Origination Fees and Cost 

 When
included with a new loan origination, the Company receives loan origination fees in conjunction with new loans funded and any indemnified
liabilities which are not recorded on the balance sheet from the Company financial institution partners. Where applicable, the loan origination
fee is netted with loan origination costs associated with originating a specific loan. These loan origination costs are typically incremental
direct costs (non-reimbursed) paid to third parties. Net loan origination fees are initially deferred and presented net of loans receivable
asset for portfolio loans, or as a separate liability for indemnified loans, and recognized as interest income utilizing the interest
method. 

 xi.
 Indemnity Liability 

 Under
the Loan Servicing Agreement and Commercial Alliance Agreement with PCCU, the Company had agreed to indemnify PCCU from all claims related
to Company’s cannabis-related business, including but not limited to default-related credit losses as defined in the Loan Servicing
Agreement. The indemnification component of the Loan Servicing Agreement and the Commercial Alliance Agreement (refer to Note 10 to the
consolidated financial statements) is accounted for in accordance with accounting standards codification (“ ASC”) 460 Guarantees .
In determining the applicability of ASC 460, the Company considered that the agreement outlines a broad indemnification of all claims
related to the cannabis-related business. The most immediate and potentially significant of these are potential default-related credit
losses. In the lending industry, it is inherently anticipated future credit losses will result from currently issued debt. The Company’s
indemnity obligation is subordinate to PCCU’s and other financial institution clients’ other means of collecting on the loans
including foreclosure of the collateral, recourse against personal and/or corporate guarantors and other default remedies available in
the loan agreements. Since borrowers are not party to the agreement between Company and PCCU, any indemnity payments do not relieve borrowers
of their obligation to PCCU nor would such payments preclude PCCU’s right to future recoveries from the debtor. Therefore, as defined
in ASC 460, the indemnification clause represents a general loss contingency in that it is an existing condition, situation or set of
circumstances involving uncertainty as to possible loss to the Company that will ultimately be resolved when one or more future events
occur or fail to occur. SHF’s indemnity liability reflects SHF management’s estimate of probable credit losses inherent under
the agreement at the balance sheet date. The liability is measured and recognized in accordance with our accounting polices for ACL and
ALL. 

 In
addition to default-related credit losses, the Company continuously monitors all other circumstances pursuant to the agreement and identifies
events that may necessitate a loss contingency under the Loan Servicing Agreement. A loss contingency is reported when it is both probable
that a future event will confirm that a loss had been incurred on or before the related balance sheet date and the loss is reasonably
estimable. 

 xii.
 Property and Equipment, net 

 Property
and equipment are recorded at historical cost, net of accumulated depreciation. Depreciation is provided over the assets’ useful
lives on a straight-line basis 3 - 5 years for equipment and furniture and fixtures. Repairs and maintenance costs are expensed as incurred. 

 Management
periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in
the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the
carrying value prospectively over the shorter remaining useful life. 

 The
carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the period of disposal and the
resulting gains and losses are included in the results of operations during the same period. 

 The
Company capitalize certain costs related to software developed for internal-use, primarily associated with the ongoing development and
enhancement of our technology platform. Costs incurred in the preliminary development and post-development stages are expensed. These
costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally five years. 

 xiii.
 Right of Use Assets and Lease Liability 

 The
Company has entered into lease agreements for a certain facility and certain items of equipment, which provide the right to use the underlying
asset and require lease payments over the term of the lease. At inception of the lease agreement, the Company assesses whether the agreement
conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified
as a lease. Each lease is further analyzed to check whether it meets the classification criteria of a finance or operating lease. All
identified leases are recorded on the consolidated balance sheet with a corresponding lease right-of-use asset, net, representing the
right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments
arising from the lease. The Company has elected not to recognize lease assets and lease liabilities for short-term leases (leases with
a term of 12 months or less) and leases of low-value assets. Lease right-of-use assets, net and lease liabilities are recognized at the
commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate
the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental
borrowing rate based on the information available as of the lease commencement date. 

 F- 11 

 Table of Contents 

 Lease
expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Finance
lease interest expense is recognized based on an effective interest method and depreciation of assets is recorded on a straight-line
basis over the shorter of the lease term and useful life of the asset. Both operating and finance lease right of use assets are reviewed
for impairment, consistent with other finite lived assets, whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. After a right of use asset is impaired, any remaining balance of the asset is amortized on a straight-line basis
over the shorter of the remaining lease term or the estimated useful life. 

 xiv.
 Goodwill and Other Intangible Assets 

 The
Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect
the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess
of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed. 

 Goodwill
is tested for impairment at least annually, 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. The Company previously had elected to test goodwill for impairment as of November 15 th
 annually, which was one year from the date of the Abaca acquisition. During the year ended December 31, 2023 the Company elected
to change this accounting policy to measure goodwill impairment on December 31 st (see Note 2 (xxv) for additional information
on this accounting policy change). 

 Goodwill
is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying
value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on
that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating
segment provided that the component constitutes a business for which discrete financial information is available and management regularly
reviews the operating results of that component. 

 Finite-lived
intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute
directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering
event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated
from the assets are less than their carrying amounts. 

 xv.
 Stock-based Compensation 

 The
Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock
Compensation. The Company’s stock-based compensation cost is measured based on the fair value at the grant date of the stock-based
award. It is recognized as expense on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized
as they occur. The Company estimates the fair value of each stock-based award on its measurement date using either the current market
price of the stock or Black-Scholes option valuation model, whichever is most appropriate. The Black-Scholes valuation model incorporates
assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend
yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s
experience with similar instruments. Changes in assumptions used to estimate fair value could result in materially different results. 

 The
shares of the Company have been listed on the Nasdaq stock exchange for a limited period of the time and also the stock price has dropped
significantly from the date of listing, based on which the Company has considered the expected volatility at 100 % for the purpose of
stock compensation. The risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating
the awards’ expected lives. The expected term of the options granted is calculated based on the simplified method by taking average
of contractual term and vesting period the awards. The expected dividend yield is zero as the Company has never paid dividends and does
not currently anticipate paying any in the foreseeable future. 

 xvi.
 Fair Value Measurements 

 The
Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation
techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market
participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs
reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level
within the hierarchy is described below: 

 Level
1 — Quoted prices for identical assets or liabilities in active markets. 

 Level
2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. 

 Level
3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable. 

 F- 12 

 Table of Contents 

 xvii.
 Revenue Recognition 

 SHF
recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle
of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which SHF expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process
to achieve this core principle including identifying performance obligations in the contract, estimating the amount of variable consideration
to include in the transaction price and allocating the transaction price to each separate performance obligation. 

 Revenue
is recorded at a point in time when the performance obligation is satisfied, and no contingencies exist. Revenue consists primarily of
fees earned on deposit accounts held at PCCU but serviced by SHF such as bank account charges, onboarding income, account activity fee
income and other miscellaneous fees. Under the terms of the Loan Servicing Agreement and the Commercial Alliance Agreement, the Company
is responsible for covering account hosting costs associated with the fees generated from deposits held at PCCU. These costs are classified
as “General and Administrative Expenses” in the Consolidated Statements of Operations. 

 In
addition, SHF recognizes revenue from the Master Program Agreement. The Master Program Agreement is a non-exclusive and non-transferable
right to implement and utilize the Safe Harbor Program. The Safe Harbor Program has two performance obligations; an implementation fee
recognized when the contract is effective and a service fee recognized ratable over the contract term as the compliance program is executed. 

 SHF
recognizes revenue from interest on loans and investment income distributed by PCCU, which is determined by particular customer account
balances. As per the Loan Servicing Agreement and the Commercial Alliance Agreement, SHF bears the expenses for hosting investments and
servicing loans related to this interest and investment income. These expenses are allocated to “General and Administrative Expenses”
in the Consolidated Statements of Operations. 

 Amounts
received in advance of the service being provided is recorded as a liability under deferred revenue on the consolidated balance sheets.
Typical Safe Harbor Program contracts are three-year contracts with amounts due monthly, quarterly or annually based on contract terms. 

 Customers
consist of financial institutions providing services to CRBs. Revenues are concentrated in the United States of America. 

 xviii.
 Contract Assets / Contract Liabilities 

 A
contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a
customer. Conversely, the Company recognizes a contract liability if the customer’s payment of consideration precedes the reporting
entity’s performance. 

 As
of December 31, 2023, the Company reported contract assets and contract liabilities of $ 0 and $ 21,922 , respectively, from contracts with
customers. As of December 31, 2022, the Company reported a contract asset and liability of $ 21,170 and $ 996 , respectively. 

 xix.
 Warrants Liability 

 The
Company has evaluated each of the warrant arrangements separately in accordance with ASC 480 and 815, to determine classification as
either equity instruments or liabilities based on the specific terms and features of each warrant. Warrants are recognized as equity
if they are indexed to our own stock and meet the equity classification criteria in ASC 815-40. These warrants are recorded within stockholders’
equity at their issuance date and are not subsequently remeasured at fair value. Conversely, warrants that do not meet the criteria for
equity classification under ASC 815-40 are classified as liabilities. Such warrants are initially recorded at fair value on the issuance
date and are subject to remeasurement at each balance sheet date thereafter. Any changes in fair value are recognized in the statement
of operations. None of our warrant contracts met criteria to be considered indexed to their own stock, as a result, have each been accounted
for as a liability financial instrument. The fair value of warrants classified as liabilities is determined using appropriate
valuation models, such as the Black-Scholes model, which incorporates various inputs, including the current stock price, expected volatility,
risk-free interest rate, and the expected term of the warrants. 

 xix.
 Deferred consideration 

 In
line with ASC Topic 815, “Derivatives and Hedging” (“ASC 815”), the Company treats the deferred consideration
from the Abaca acquisition as a derivative liability, since it does not fulfill the equity classification criteria. As a result, this
obligation is recognized as a liability on the balance sheet at fair value and is adjusted to reflect its fair value at the end of each
reporting period. The liability will be reassessed at fair value on every balance sheet date until the obligation’s term concludes.
Fluctuations in its fair value are recorded in the consolidated statements of operations. 

 F- 13 

 Table of Contents 

 xx.
 Forward purchase derivative 

 The
Company accounts for the forward purchase derivative assumed in the business combination in accordance with the guidance contained in
ASC Topic 815 The Company classifies the forward purchase derivative as an asset or liability carried at fair value and adjusts
the forward purchase derivative to fair value at each reporting period. This derivative asset or liability is subject to re-measurement
at each balance sheet date until the conditions under the forward purchase agreement are exercised or expire, and any change in fair
value is recognized in the consolidated statement of operations. On December 31, 2022, a Monte-Carlo Simulation within a risk-neutral
framework was used to estimate the forward purchase derivative’s fair value, assuming Geometric Brownian Motion for future stock
prices. Values from each simulation path were determined per contractual terms and discounted by a matching risk-free rate. In 2023,
no FPA holder sales occurred, and no significant risk factor changes affecting FPA derivative values were noted. Consequently, management
retained the December 31, 2022 valuation for year-end 2023. 

 xxi.
 Earnings Per Share 

 Basic
and diluted earnings per share are computed and disclosed in accordance with ASC Topic 260, Earnings Per Share. The Company utilizes
the two-class method to compute earnings available to common shareholders. Under the two-class method, earnings are adjusted by accretion
amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance,
to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair
value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other
common shareholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all
of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment
awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings
with common shareholders (Refer to Note 16). Basic earnings per common share excludes dilution and is calculated by dividing net earnings
allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share
is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the
period, as adjusted for the potential dilutive effect of non-participating share-based awards. 

 xxii.
 Income Tax 

 Deferred
tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are adjusted
through the provision for income taxes as changes in tax laws or rates are enacted. 

 Prior
to the merger, the Company was a pass-through entity for tax purposes, in which PCCU was exempt from most federal, state, and local taxes
under the provisions of the Internal Revenue Code and state tax laws, except for being subject to unrelated business income tax. Effective
September 28, 2022, the Company became subject to income taxes as a Corporation and complies with the accounting and reporting requirements
of ASC Topic 740, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income
tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that
will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. 

 ASC
740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in
interim periods. If management is unable to estimate a portion of its ordinary income, but is otherwise able to reliably estimate the
remainder, ASC 740-270-25-3 provides that the tax applicable to that item be reported in the interim period in which the item occurs.
The tax (or benefit) related to ordinary income (or loss) shall be computed at an estimated annual effective tax rate and the tax (or
benefit) related to all other items shall be individually computed and recognized when the items occur. Management is unable to estimate
a portion of its ordinary income and as a result had computed the company’s tax provision in accordance with ASC 740-270-25-3. 

 ASC
Topic 740 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized
tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties
as of December 31, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant
payments, accruals or material deviation from its position. 

 xxiii.
 Offering Costs 

 Offering
costs consisted of legal, accounting, underwriting fees and other costs incurred that were directly related to the PIPE offering. Offering
costs are allocated to the separable financial instruments issued based on a relative fair value basis, compared to total proceeds received.
Offering costs associated with warrant liabilities are expensed as incurred, presented as offering costs allocated to warrants in the
statements of operations. Offering costs associated with the Public Shares were charged to Parent-Entity Net Investment and Stockholders’
Equity upon the completion of the Initial Public Offering. 

 F- 14 

 Table of Contents 

 xxiv.
 Recently Issued Accounting Standards 

 From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting
bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards
that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations
upon adoption. 

 Adopted
Standards 

 Simplifying
the impairment test for Intangibles-Goodwill and Other 

 In
January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare
the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting
Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other (“ASC 350”). As a result, an entity
should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.
However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04,
as amended, is effective for annual reporting periods beginning after December 15, 2019, for SEC filers, excluding entities eligible
to be smaller reporting companies (for whom the effective periods begin after December 15, 2022), including any interim impairment tests
within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates
after January 1, 2017. The Company adopted ASU 2017-04 on January 1, 2023, with no material impact; however, the standard was applied
to the impairment analyses noted in Note 5 of the financial statements below. 

 Current
Expected Credit Losses 

 In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which introduces a model based on expected losses to estimate credit losses for most financial assets and certain
other instruments. In November 2019, the FASB issued ASU No. 2019-10 Financial Instruments — Credit Losses (Topic 326), Derivatives
and Hedging (Topic 815), and Leases (Topic 842). The update allows the extension of the initial effective date for entities which have
not yet adopted ASU No. 2016-02. The standard is effective for annual reporting periods beginning after December 15, 2022 for private
companies and SEC filers classified as smaller reporting entities, with early adoption permitted. Entities apply the standard’s
provisions by recording a cumulative effect adjustment to retained deficit. The Company has adopted ASU 2016-13 as of January 1, 2023,
utilizing the modified retrospective method. 

 CECL
Transition Impact: The table below provides details on the transition impacts of adopting CECL. Other balance sheet lines not presented
were not affected by CECL. 

 Schedule of Current Expected Credit Losses Transition Impact 

 Assets 
 December
 31, 2022 
 Transition

 Adjustment 
 January
 1, 2023 

 Loans receivable, gross 
 $ 1,432,560 
 $ - 
 $ 1,432,560 

 Less: Allowance for
 credit loss 
 ( 21,488 ) 
 ( 14,980 ) 
 ( 36,468 ) 

 $ 14,11,072 
 $ ( 14,980 ) 
 $ 1,396,092 

 Liabilities
 & Equity 
 December
 31, 2022 
 Transition

 Adjustment 
 January
 1, 2023 

 Indemnity liability 
 $ 499,465 
 $ 566,338 
 $ 1,065,803 

 Retained deficit 
 ( 39,695,281 ) 
 ( 581,318 ) 
 ( 40,276,599 ) 

 $ ( 39,195,816 ) 
 $ ( 14,980 ) 
 $ ( 39,210,796 ) 

 Lease
Accounting 

 FASB
ASU 2016-02, Leases, (“ASC 842”) and related amendments, require lessees to recognize a right-of-use asset and a lease liability
for substantially all leases and to disclose key information about leasing arrangements and aligns certain underlying principles of the
lessor model with the revenue standard. The Company adopted this guidance during fiscal year 2022 using the optional transition method,
which allows entities to apply the guidance at the adoption date and recognize a cumulative effect adjustment to the opening balance
of retained earnings, if any, in the period of adoption with no restatement of comparative periods. At January 1, 2022 adoption date,
there were no leases outstanding that met criteria for recognition. The Company has since recognized any leases in accordance with ASC
842 by recording right-of-use assets and operating lease liabilities on the consolidated balance sheets. 

 F- 15 

 Table of Contents 

 Troubled
Debt Restructurings and Vintage Disclosures 

 This
Accounting Standard Update (ASU 2022-02) eliminates the recognition and measurement guidance on troubled debt restructurings for creditors
that have adopted ASC 326 and requires them to make enhanced disclosures about loan modifications for borrowers experiencing financial
difficulty. The new guidance also requires public business entities to present current period gross write-offs (on a current year-to-date
basis for interim-period disclosures) by year of origination in their vintage disclosures. For entities that have adopted ASU 2016-13,
this ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company
did not adopt ASU 2022-02 as of December 31, 2022; however, it has adopted this standard as of January 1, 2023 and the ASU has not had
a material impact on the Company’s consolidated financial statements. 

 Standards
Pending to be Adopted 

 Fair
Value Measurement of Equity Securities Subject to Contractual Sale Restrictions 

 This
Accounting Standard Update (ASU 2022-03) clarifies that a contractual restriction on the sale of an equity security is not considered
part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual
restriction on the sale of an equity security as a separate unit of account is not permitted. This ASU is effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect this ASU to have
a material impact on its consolidated financial statements. 

 Reference
Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 

 This
Accounting Standard Update (ASU 2022-06) defers the Sunset Date of ASC Topic 848, Reference Rate Reform (Topic 848), which provides temporary
optional relief in accounting for the impact of Reference Rate Reform. This ASU is effective upon issuance (December 21, 2022) and generally
can be applied through December 31, 2024. The Company does not expect this ASU to have a material impact on its consolidated financial
statements. 

Investments-Equity Method and Joint Ventures 

 In
March 2023, the FASB issued ASU 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax
Credit Structures using the Proportional Amortization Method. The FASB issued final guidance allowing entities to apply the proportional
amortization method to equity investments in all tax credit programs that meet the conditions in ASC 323-740, rather than just investments
in qualified affordable projects that generate low income housing tax credits, as was required under the legacy guidance. The guidance
is effective for public business entities for fiscal years beginning after December 15, 2023 and interim periods within those fiscal
years. The Company is evaluating the impact of this update on its consolidated financial statements. 

 Business
Combinations-Joint Venture Formations 

 In
August 2023, the FASB issued 2023-05, Business Combinations-Joint Venture Formations (Subtopic 805-60); Recognition and Initial Measurement.
This ASU contains guidance requiring certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially
measuring most of their assets and liabilities at fair value. This guidance is effective for all joint venture formations with a formation
date on or after January 1, 2025. Early adoption is permitted. Joint Ventures formed before the effective date have the option to apply
it retrospectively, while those formed after the effective date are required to apply it prospectively. The Company is evaluating the
impact of this update on its consolidated financial statements. 

 Disclosure
Improvements, “Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” 

 In
October 2023, the FASB issued ASU 2023-06, Disclosure Improvements, “Codification Amendments in Response to the SEC’s Disclosure
Update and Simplification Initiative.” This ASU amends the disclosure or presentation requirements related to various subtopics
in the FASB codification. 

 The
effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or
Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years
later. The amendments in this Update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed
the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the
Codification and will not become effective for any entity. The Company is evaluating the impact of this update on its consolidated financial
statements. 

 Segment
Reporting 

 In
November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). This ASU requires public entities to provide disclosures of
significant segment expenses and other segment items. It also requires public entities to provide in interim periods all disclosures
about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable
segment will have to provide all the disclosures required by ASC 280, including the significant segment expense disclosures. This guidance
is applied retrospectively to all periods presented, unless it is impractical. This ASU applies to all public entities and is effective
for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted.
The Company is evaluating the impact of this update on its consolidated financial statements. 

 F- 16 

 Table of Contents 

 Income
Taxes 

 In
December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This ASU requires public business entities to disclose in their
rate reconciliation table additional categories of information about income taxes paid, including certain disclosures that would be disaggregated
by jurisdiction and other categories. This ASU is effective for public entities for fiscal years beginning after December 15, 2024, and
interim periods within fiscal years beginning after December 15, 2025. For all other entities, this ASU is effective for fiscal years
after December 15, 2024 and for interim periods beginning after December 15, 2026. Early adoption would be permitted. The Company is
evaluating the impact of this update on its consolidated financial statements. 

 xxv:
 Change in annual goodwill impairment testing date 

 During
the current financial year, the Company has elected to change the annual impairment testing date for its goodwill from November 15th
to December 31st. The change was considered by the Company to be preferable considering guidance in the December 8, 2014 “Remarks
before the 2014 AICPA Conference on Current SEC and PCAOB Developments” by Carlton E. Tartar, Associate Chief Accountant, Office
of the Chief Accountant as follows: 

 a. 
 This change aligns the impairment
 testing process more closely with the Company’s financial year-end and facilitates a more efficient integration of the impairment
 analysis with the annual financial reporting cycle. 

 b. 
 This adjustment in timing is deemed to provide
 a more relevant and timely assessment of the recoverable amounts of our assets, reflecting the operational and financial performance
 for the entire financial year. 

 c. 
 We do not believe a different result in impairment
 assessment would have occurred had the measurement been conducted at November 15, 2023 vs. December 31, 2023. 

 d. 
 November 15 th was previously elected
 because it was one year from the date, we had acquired the goodwill. The Company had noted no goodwill impairment trigger events between
 the November 15 th and December 31 st dates in 2022. While November 15 th was the elected policy date
 at that time, we could have also considered December 31 st a relevant measurement date in determining that policy in the
 prior year. 

 e. 
 We conducted an impairment test at June 30,
 2023 as outlined in Note 5, which allowed for less than twelve months between conducting impairment tests with this policy change. 

 The
change is applied prospectively from the current year and does not materially affect the comparability of our financial statements. 

 Note
3. Business Combination 

 On
September 28, 2022, the Business Combination detailed in Note 1 above was accounted for as a reverse recapitalization, with no goodwill
or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, NLIT was treated as the acquired company
for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of SHF
issuing shares for the net assets of NLIT, accompanied by a recapitalization. The net assets of NLIT were recognized at fair value (which
was consistent with carrying value), with no goodwill or other intangible assets recorded. 

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

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

 ● 
 Upon
 closing of the Business Combination, 11,386,139 shares of Class A Stock were issued to the Seller as set forth in and pursuant to
 the terms of the Purchase Agreement. 

 The
Seller was due to receive a cash payment of $ 3.1 million at the consummation of the Business Combination, which represented the amount
of SHF’s cash on hand at July 31, 2021, less accrued but unpaid liabilities. In addition, pursuant to the terms of the purchase
agreement, the Company is responsible for reimbursing the Seller for its transaction expenses. 

 ● 
 Offering
 costs consisted of legal, accounting, underwriting fees and other costs incurred that were directly related to the business combination
 was approximately $ 10.85 million. 

 ● 
 Approximately
 $ 56.9 million of the $ 70 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 million is due in six quarterly instalments of $ 6.4 million
 thereafter. Interest accrues at an effective annual rate of approximately 4.71 %. A sum of 1,200,000 founder shares were escrowed
 until the amount is paid in full. 

 F- 17 

 Table of Contents 

 ● 
 The
 Parent-Entity Net Investment appearing in the balance sheet of SHF amounting to $ 9,124,297 on the date of business combination was
 transferred to additional paid in capital. 

 ● 
 Immediately
 prior to the Closing, 20,450 shares of Series A Convertible Preferred were purchased by the PIPE Investors pursuant to the PIPE Securities
 Purchase Agreements for an aggregate value of $ 20,450,000 . The shares of Series A Convertible Preferred were converted into 2,045,000 
 shares of Class A Stock at a purchase price of $ 10.00 per share of Class A Stock. Twenty (20) percent of the aggregate value was
 deposited into a third party escrow account for purposes of paying the PIPE Investors any required Registration Delay Payments. Upon
 the filing of registration statement 10 calendar days subsequent to closing, 17.5 % of the escrow amount was released with the remaining
 amount once all securities are included in an effective registration statement. 

 ● 
 For
 tax purposes, the transaction is treated as a taxable asset acquisition, resulting in an estimated tax basis Goodwill balance of
 $ 44,102,572 , creating a deferred tax asset reported as Additional Paid-in Capital in the equity section of the balance sheet as of
 the date of the business combination. There is not any goodwill for book reporting purposes as no goodwill or other intangible assets
 are to be recorded in accordance with GAAP. 

 ● 
 Preferred
 Stock: The Company is authorized to issue 1,250,000 preferred shares with a par value of $ 0.0001 per share with such designation
 rights and preferences as may be determined from time to time by the Company’s Board of Directors. As of December 31, 2023,
 there were 1,101 preferred shares issued and outstanding and 14,616 preferred shares issued and outstanding on December 31, 2022.
 The holders of preferred stock shall be entitled to receive, and the Company shall pay, dividends on shares of preferred stock equal(on
 an as-if-converted-to-Class-A-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Class A Common
 Stock when, as and if such dividends are paid on shares of the Class A Common Stock. No other dividends shall be paid on the preferred
 stock. The terms of the preferred stock provide for an initial conversion price of $ 10.00 per share of Class A Common Stock, which
 conversion price is subject to downward adjustment on each of the dates that are 10 days, 55 days, 100 days, 145 days and 190 days
 after the effectiveness of a registration statement registering the shares of Class A Common Stock issuable upon conversion of the
 preferred stock to the lower of the Conversion Price and the greater of (i) 80% of the volume weighted average price of the Class
 A Common Stock for the prior five trading days and (ii) $2.00 (the “Floor Price”), provided that, so long as a preferred
 stock holders continues to hold any preferred shares, such preferred stock holder will be entitled to receive the aggregate shares
 of Class A Common Stock that would be issuable based upon its initial purchase of preferred stock at the adjusted Conversion Price .
 Additionally, on January 25, 2023, at a special meeting of the Company’s stockholders the reduction in the floor conversion
 price of the outstanding preferred stock from $ 2.00 per share to $ 1.25 per share. 

 ● 
 Class
 A Common Stock: The Company is authorized to issue up to 130,000,000 shares of Class A Common Stock with a par value of $ 0.0001 per
 share. Holders of the Company’s Class A Common Stock are entitled to one vote for each share. As of December 31, 2022, and
 December 31, 2023 there were 23,732,889 and 54,563,372 shares, respectively, of Class A Common Stock issued or outstanding. As of
 December 31, 2023, and December 31, 2022, 3,667,377 Class A Common Stock are held by the purchasers under forward purchase agreement
 dated June 16, 2022, by and among the Company and such purchasers. 

 ● 
 The fair value of net assets
 on September 28,2022 in the books of NLIT are as follows: 

 Schedule
of Fair Value Net Assets 

 Cash & Cash Equivalents 
 $ 2,879 

 Prepaid Expense 
 15,000 

 Cash held in Trust 
 118,738,861 

 Deferred offering cost 
 266,240 

 Accounts Payable 
 ( 1,374,021 ) 

 Accrued Expense 
 ( 1,202,164 ) 

 Advance from sponsor 
 ( 1,150,000 ) 

 Deferred underwriter payable 
 ( 4,025,000 ) 

 Forward purchase derivative 
 ( 795,942 ) 

 Warrant Liability 
 ( 1,394,453 ) 

 Class A Common Stock
 subject to possible redemption 
 ( 79,259,819 ) 

 Fair
 value of net assets acquired 
 $ 29,821,581 

 ● 
 The following table summarizes the total fair value of
 consideration: 

 Schedule
of Fair Value Consideration 

 Company’s Class A common
 stock comprises of 11,386,139 shares 
 $ 115,000,000 

 Cash consideration 
 13,050,199 

 Deferred cash consideration 
 56,949,801 

 Total fair value of consideration 
 $ 185,000,000 

 Parent-Entity
Net Investment: Parent-Entity Net Investment balance in the consolidated balance sheets represents PCCU’s historical net investment
in the Carved-Out Operations. For purposes of these consolidated financial statements, investing requirements have been summarized as
“Parent-Entity Net Investment” and represent equity as no cash settlement with PCCU is required. No separate equity accounts
are maintained for SHS, SHF or the Branches. 

 F- 18 

 Table of Contents 

 On
March 29, 2023, the Company and PCCU entered into a definitive transaction to settle and restructure the deferred obligations, including
$ 56,949,800 into a five -year Senior Secured Promissory Note (the “Note”) in the principal amount of $ 14,500,000 bearing interest
at the rate of 4.25 %; a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security
interest in substantially all of the assets of the Company; and a Securities Issuance Agreement, pursuant to which the Company will issue
 11,200,000 shares of the Company’s Class A Common Stock to PCCU (Refer to Note 10 to the financial statements below.) 

 Note
4. Acquisition 

 On
November 15, 2022, the Company and its subsidiary entered into a series of merger and acquisition transactions resulting in the acquisition
of 100 % control of Rockview Digital Solutions Inc. d/b/a/ ABACA (collectively “Abaca”). This acquisition was completed in
exchange for a combination of cash and the Company’s shares. As part of the acquisition, the Company’s Notes of $ 500,000 
along with interest accrued until the date of acquisition were redeemed. 

 The
acquisition increases the Company’s customer base to include more than 1,000 unique depository accounts across 40 states and U.S.
territories; adds Abaca’s fintech platform to the Company’s existing technology; increases the Company’s financial
institution client relationships and access to balance sheet capacity to five unique financial institutions strategically located across
the United States; increases the Company’s lending capacity; and nearly doubles the Company’s team, adding to the existing
talent pool of the cannabis industry’s foremost financial services and financial technology experts. 

 Pursuant
to the Abaca merger agreement, as amended, the Company acquired Abaca in exchange for $ 30,000,000 ,
paid in a combination of cash and shares of the Company as follows: 

 (a) 
 cash
 consideration in an amount equal to (i) $ 9,000,000 ($ 3,000,000 was payable at the closing of the Mergers (the “Merger Closing”),
 with an additional $ 3,000,000 payable at each of the one-year and two-year anniversaries of the Merger Closing), (collectively, the
 “Deferred Cash Consideration”); and 

 (b) 
 Common
 Stock equal to the lesser of (1) 2,100,000 shares or (2) a number of shares equal to (i) $ 8,400,000 , divided by (ii) the Closing
 Parent Trading Price and $ 12,600,000 (minus an outstanding note balance of $ 500,000 , plus accrued interest) in shares of Class A
 Common Stock at the one-year anniversary of the Merger Closing based on a 10-day VWAP (collectively, the “Deferred stock consideration”). 

 The
Company measures the deferred cash consideration and deferred stock consideration at fair value on the acquisition date based on a report
received from an independent valuation firm. 

 The
following table summarizes the purchase price allocation: 

 Schedule
of Purchase Price Allocation 

 Property, plant & equipment 
 $ 27,117 

 Software 
 9,189 

 Cash & cash equivalents 
 245,524 

 Prepaid expense 
 23,061 

 Security deposit 
 675 

 Accounts receivables 
 232,265 

 Accounts Payable 
 ( 206,508 ) 

 Accrued Expense 
 ( 235,894 ) 

 Fair value of net assets
 acquired 
 $ 95,429 

 Other intangibles 
 10,800,000 

 Goodwill 
 19,266,276 

 Deferred tax liabilities 
 ( 1,758,769 ) 

 Total
 purchase consideration 
 $ 28,402,936 

 The
following table summarizes the total fair value of consideration: 

 Schedule
of Fair Value Consideration 

 Cash paid 
 $ 2,763,800 

 Deferred cash payment 
 5,452,424 

 Share issued – common stock ( 2,099,977 shares) 
 8,105,911 

 Settlement of pre-existing notes along with
 accrued interest 
 523,404 

 Deferred consideration
 settled in common stock 
 11,557,397 

 Fair value of consideration 
 $ 28,402,936 

 F- 19 

 Table of Contents 

 At
the date of acquisition, management allocated the initial purchase price based on the estimated fair value of the identifiable assets
and liabilities assumed on the acquisition date. The pre-existing relationships settled were the Company’s notes and related accrued
interest with Abaca. Subsequently, the Company finalized the purchase price allocation and has adjusted the provisional values retrospectively
to reflect changes to the assets and liabilities at the acquisition date. For the fair value of the identifiable intangible assets acquired,
the Company used an income-based approach, which involves estimating the future net cash flows and applies an appropriate discount rate
to those future cash flows. 

 Intangible
assets were recorded at estimated fair value, as determined by management based on available information which includes a valuation prepared
by an independent third party. The fair values assigned to identifiable intangible assets were determined through the use of the income
approach and multi-period excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset
values included management’s estimates of future cash flows, discounted at an appropriate rate of return which is based on the
weighted average cost of capital for both the company and other market participants. The useful lives of intangible assets were determined
based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future
cash flows. The estimated fair value of intangible assets and related useful lives as included in the purchase price allocation include: 

 Schedule of Intangible Assets and Related Useful Lives as Included
in Purchase Price Allocation 

 Amount 
 Useful
 life in Years 

 Market related intangible assets 
 $ 2,100,000 
 8 

 Customer relationships 
 2,000,000 
 10 

 Developed technology 
 6,700,000 
 10 

 Fair value of consideration 
 $ 10,800,000 
 
 Goodwill
has been recognized as a result of the specialized assembled workforce at Abaca. 

 Note
5. Deferred consideration 

 As
per the note 4, Under the Abaca merger agreement, as amended, the Company acquired Abaca in exchange for $ 30,000,000 ,
paid in a combination of cash and shares of the Company as follows: 

 (a) 
 cash
 consideration in an amount equal to (i) $ 9,000,000 ($ 3,000,000 was payable at the closing of the Mergers (the “Merger Closing”),
 with an additional $ 3,000,000 payable at each of the one-year and two-year anniversaries of the Merger Closing), (collectively, the
 “Deferred Cash Consideration”); and 

 (b) 
 Common
 Stock equal to the lesser of (1) 2,100,000 shares or (2) a number of shares equal to (i) $ 8,400,000 , divided by (ii) the Closing
 Parent Trading Price and $ 12,600,000 (minus an outstanding note balance of $ 500,000 , plus accrued interest) in shares of Class A
 Common Stock at the one-year anniversary of the Merger Closing based on a 10-day VWAP (collectively, the “Deferred stock consideration”) 

 As
a result, there was $ 11.3 million and $ 5.6 million of liabilities for deferred stock consideration and deferred cash consideration were
recognized at the date of acquisition on November 15, 2022. Such liabilities were marked to fair value throughout the years ended December
31, 2023, and 2022, for the change in the fair value of deferred consideration in the consolidated statements of operations. 

 On
October 26, 2023, the Company and the Abaca stockholders entered into the second amendment to the Abaca merger agreement to redefine
the deferred consideration payable and the deferred stock consideration payable on the one-year anniversary of the merger closing. The
main points of the amendment are outlined below: 

 a) 
 The deferred stock consideration
 payable on the first anniversary of the merger amounts to $ 12,600,000 minus the Closing Note Balance and the Working Capital divided
 by $ 2.00 per share. As a result, 5,835,822 shares of common stock issued as the stock consideration on the first anniversary of the
 merger. 

 b) 
 No changes were made to the
 cash payments of $ 3,000,000 payable at each of the one-year (November 15, 2023) and two-year (October 5, 2024) anniversaries of the
 original closing. 

 c) 
 Added a Third Anniversary
 Consideration Payment of $ 1,500,000 (due October 5, 2024) which will be payable in cash, stock, or a combination of both at the Company’s
 discretion. If the Company decides to pay with shares, their value will be determined by the 10-day NASDAQ average before
 the anniversary, with prices ranging between $2.00 and $4.36. Shares given purely for payment won’t be restricted by the Lock-Up
 Agreement. However, if the Lock-Up Agreement is in effect, the payment will be split into $750,000 cash and an equivalent $750,000
 in shares. The lock-up duration for any shares will adhere to the legal minimum. In the event of a company stock consolidation or similar
 activity, the number of shares to be issued for the payment will be adjusted to reflect the decreased total of outstanding shares. 

 d) 
 The Company issued stock
 warrants equal to 5,000,000 shares of the Company’s common stock for an initial exercise price of $ 2.00 per share. 

 e) 
 The Company has also granted
 the Abaca Stockholders’ Representative the right to nominate 3 qualified candidates for the Company’s Board of Directors
 to the Company’s Nominating and Corporate Governance Committee (“NCG Committee”) of which the NCG Committee shall
 select and nominate 1 candidate to the Company’s Board of Directors in the Company’s 2024 annual proxy statement. 

 As
a result of the above, under the original agreement, the Company would have been obligated to issue 16.67 million common shares to the
shareholders of Abaca, based on the fair value of the Company’s common shares on October 26, 2023, of $ 0.70 . The second amendment
to the merger agreement revised these terms such that the Company issued 5.8 million common shares at a value of $ 2.00 . The difference
between the fair value of the first anniversary payment liability recognized vs. remeasured under the amended terms was $ 7.7 million
recorded as a fair value adjustment in the statement of operations. 

 F- 20 

 Table of Contents 

 Furthermore,
the second amendment introduced a third-anniversary consideration, which includes a payment of $ 1.5 million, settleable in cash, stock,
or a combination of both, at the discretion of the Company and warrants of 5 million shares of the Company’s common stock at an
initial exercise price of $ 2.00 per share. The fair value of this third-anniversary payment and warrants was determined pursuant to ASC
815, and recognized as $ 430,000 and $ 1,643,699 , respectively on October 26, 2023, also recorded as part of the fair value adjustment.
The change in the amount of deferred consideration from January 1, 2022, to December 31, 2023, is as follows: 

 Schedule
of Change in Deferred Consideration 

 Stock
 consideration 
 Cash
 consideration 
 Third
 Anniversary Consideration Payment 

 January 1, 2022 
 $ - 
 $ - 
 $ - 

 Add: Abaca acquisition 
 11,391,205 
 5,618,616 
 - 

 Add: Fair value adjustment 
 65,433 
 32,160 
 - 

 December 31, 2022 
 11,456,639 
 5,650,775 
 - 

 Less: Working capital adjustment 
 ( 108,691 ) 
 - 
 - 

 Less: Issuance of shares and payment to shareholders 
 ( 4,085,075 ) 
 ( 3,000,000 ) 
 - 

 Less: Issuance of Abaca warrants 
 ( 1,643,699 ) 
 - 
 - 

 Less: Issuance of third anniversary payment
 consideration 
 ( 430,000 ) 
 - 
 430,000 

 Less: Gain recognized in the consolidated statements
 of operations 
 ( 5,645,107 ) 
 - 
 - 

 Add: Fair value adjustment 
 455,933 
 239,017 
 380,000 

 December 31, 2023 
 $ - 
 $ 2,889,792 
 810,000 

 The
second amendment has also led to a net gain of $ 5.6 million, which has been recorded in the Consolidated Statements of Operations. The
table below outlines the effects of the transaction: 

 Schedule
of Change in Fair Value of Deferred Consideration 

 Change in the fair value of stock
 consideration 
 $ 7,718,806 

 Less: Fair value of third-anniversary consideration 
 ( 430,000 ) 

 Less: Fair value of
 Abaca warrants 
 ( 1,643,699 ) 

 Change in the fair value of deferred consideration
 on October 26, 2023, due to Second Amendment 
 5,645,107 

 Less: Adjustment to
 the fair value of deferred consideration for the year 2023 
 ( 1,074,950 ) 

 Net impact recognized
 in the Consolidated Statements of Operations 
 $ 4,570,157 

 Note
6. Goodwill and Finite-lived Intangible Assets 

 Goodwill 

 The
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, or more frequently if a triggering event occurs. 

 On
July 20, 2023, the Company agreed to terminate the Master Services and Revenue Sharing Agreement between Abaca and Central Bank, effective
October 1, 2023. 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. 

 The
Company engaged a third-party valuation specialist to assist in the performance of an impairment analysis of the goodwill at June 30,
2023 in conjunction with the aforementioned triggering event, and also at December 31, 2023 for the annual impairment test. In conducting
the quantitative goodwill impairment tests as of June 30, 2023, and December 31, 2023, the Company adopted a hybrid method, allocating
one-third of the emphasis on the income approach and the remainder two-third on the market approach to assess the goodwill’s fair
value . 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. 

 During
the interim impairment assessment at June 30, 2023, it was found that the carrying value of goodwill exceeded its fair value, leading
to the recognition of a $ 13.21 million non-cash goodwill impairment charge in the Company’s consolidated statements of operations.
The December 31, 2023, annual impairment test resulted in no additional impairment expense recognized, as the fair value did not surpass
the carrying value. 

 Fair
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: (i) an
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. 

 F- 21 

 Table of Contents 

 As
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 January 1, 2022, to December 31, 2023, is as follows: 

 Schedule of Carrying Amount of Goodwill 

 January 1, 2022 
 $ - 

 Acquisition of Abaca 
 19,266,276 

 December 31, 2022 
 19,266,276 

 Impairment of Goodwill 
 ( 13,208,276 ) 

 December 31, 2023 
 $ 6,058,000 

 As
of December 31, 2023, our accumulated goodwill impairment was $ 13,208,276 . 

 Finite-lived
intangible assets 

 The
Company reviews its finite-lived intangible assets is tested for impairment at least annually on December 31st unless any events or circumstances
indicate it is more likely than not that the fair value of the finite-lived intangible assets is less than its carrying value. 

 As
of June 30, 2023, due to the triggering event mentioned in the analysis of Goodwill analysis above, the Company conducted an interim
test. Furthermore, in alignment with our policy, an annual assessment was carried out on December 31, 2023. The finite-lived intangible
assets consist of market-related intangibles, customer relationships, and developed technologies. 

 The
interim test, conducted as of June 30, 2023, utilized the Royalty Method for market-related intangibles, the Discounted Cash Flow Method
for customer relationships, and the Cost to Re-create Method for developed technologies. This assessment led to the recognition of an
impairment charge of $ 3,680,463 due to the market-related intangibles and customer relationships carrying values exceeding their fair
values. The annual evaluation on December 31, 2023, applied the Relief from Royalty Method for both market-related intangibles and developed
technologies, and the Multi-Period Excess Earnings Method for customer relationships, revealing a diminished fair value of developed
technologies below their carrying value, resulting in an additional impairment charge of $ 2,019,000 . The total impairment charges for
the year, amounting to $ 5,699,464 , were reflected in our consolidated statements of operations for the fiscal year ended December 31,
2023. 

 Schedule of Finite Lived Intangible Assets 

 Remaining
 Useful life in Years 
 December
 31, 2022 
 (A) 
 
 Acquired
 in Acquisition 
 (B) 
 
 Amortization 
 (C) 
 
 Impairment 
 (D) 
 
 December
 31,
 2023 
 (A+B-C-D) 
 
 Market related intangible assets 
 6.87 
 Years 
 2,066,918 
 $ - 
 $ 136,034 
 1,865,668 
 $ 65,216 

 Customer relationships 
 8.87 
 Years 
 1,974,795 
 - 
 103,225 
 1,814,795 
 56,775 

 Developed technology 
 5.87 
 Years 
 6,579,374 
 - 
 960,620 
 2,019,001 
 3,599,753 

 Total
 intangible assets 
 
 $ 10,621,087 
 $ - 
 $ 1,199,877 
 5,699,464 
 $ 3,721,745 

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

 Remaining
 Useful life in Years 
 January
 1, 2022 (A) 
 Acquired
 in Acquisition
 (B) 
 Amortization 
 (C) 
 
 Impairment 
 (D) 
 
 December
 31, 2022 (A+B-C-D) 

 Market related intangible assets 
 8.00 Years 
 - 
 $ 2,100,000 
 $ 33,082 
 - 
 $ 2,066,918 

 Customer relationships 
 10.00 Years 
 - 
 2,000,000 
 25,205 
 - 
 1,974,795 

 Developed technology 
 7.00 Years 
 - 
 6,700,000 
 120,626 
 - 
 6,579,374 

 Total
 intangible assets 
 
 $ - 
 $ 10,800,000 
 $ 178,913 
 - 
 $ 10,621,087 

 Note
7. Loans Receivable 

 Commercial
real estate loans receivable, net consist of the following: 

 Schedule
of Commercial Real Estate Loans Receivable 

 December
 31, 2023 
 December
 31, 2022 

 Commercial real estate loans receivable,
 gross 
 $ 404,577 
 $ 1,432,560 

 Allowance
 for credit losses 
 ( 10,723 ) 
 ( 21,488 ) 

 Commercial
 real estate loans receivable, net 
 393,854 
 1,411,072 

 Current portion 
 ( 12,391 ) 
 ( 51,300 ) 

 Noncurrent portion 
 $ 381,463 
 $ 1,359,772 

 F- 22 

 Table of Contents 

 Allowance
for Credit Losses 

 The
allowance for credit losses is maintained at a level believed to be sufficient to provide for estimated credit losses based on evaluating
known and inherent risks in the loan portfolio. The Company’s estimated the allowance for credit losses on the reporting date in
accordance with the credit loss policy described in Note 2. 

 The
allowance for credit losses consists of the following activity for the year ended December 31, 2023 and 2022: 

 Schedule of Allowance For Loan Losses 

 Year ended
 December 31, 
 2023 
 2022 

 Allowance for credit losses 
 
 Beginning balance 
 $ 21,488 
 $ 14,741 

 Cumulative effect from
 adoption of CECL 
 14,980 
 - 

 Charge-offs 
 - 
 - 

 Recoveries 
 - 
 - 

 (Benefits)
 Provision 
 ( 25,745 ) 
 6,747 

 Ending balance 
 $ 10,723 
 $ 21,488 

 Loans receivable: 
 
 Individually evaluated for impairment 
 $ - 
 $ - 

 Collectively
 evaluated for impairment 
 404,577 
 1,432,560 

 $ 404,577 
 $ 1,432,560 

 Allowance for credit losses: 
 
 Individually evaluated for impairment 
 $ - 
 $ - 

 Collectively evaluated
 for impairment 
 10,723 
 21,488 

 $ 10,723 
 $ 21,488 

 At
December 31, 2023 and December 31, 2022, no loans were past due, classified as non-accrual or considered impaired. Additionally, no loans
were modified during the years ended December 31, 2023, or 2022. 

 Credit
quality of loans: 

 As
part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks credit quality indicators
based on the loan payment status on monthly basis. The Company continuously evaluates the credit quality of each indemnified loan by
assessing the risk factors and assigning a risk rating based on a variety of factors. The detailed breakdown of risk factors described
in Note 8. 

 The
carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value within each risk rating is as follows: 

 Schedule
of Risk Rating 

 Risk rating 
 Year
 ended. 
 December
 31, 2023 
 
 Year
 ended 
 December
 31, 2022 
 
 4 
 $ 404,577 
 $ 1,432,560 

 Grand total 
 $ 404,577 
 $ 1,432,560 

 Note
8. Indemnification Liability 

 As
discussed at Note 10 to the consolidated financial statements, and pursuant to PCCU Agreements, PCCU funds loans through a third-party
vendor. SHF earns the associated interest and pays PCCU a loan hosting payment at an annual rate of 0.35% of the outstanding loan principal
funded and serviced by PCCU and 0.25% of the outstanding loan principle serviced by SHF. The below schedule details outstanding amounts
funded by PCCU and categorized as either collateralized loans or unsecured loans and lines of credit. 

 Schedule
of Outstanding Amounts 

 December
 31, 
 2023 
 
 December
 31, 
 2022 
 
 Secured term loans 
 $ 55,215,013 
 $ 18,400,000 

 Unsecured loans and
 lines of credit 
 431,640 
 498,042 

 Total
 loans funded by Parent 
 $ 55,646,653 
 $ 18,898,042 

 Secured
loans contained an interest rate ranging from 7 % to 12 %. Unsecured loans and lines of credit contain variable rates ranging from Prime
+1.50 % to Prime +6.00 %. Unsecured lines of credit had incremental availability of $ 525,000 and $ 996,958 at December 31, 2023 and December
31, 2022. 

 F- 23 

 Table of Contents 

 SHF
has agreed to indemnify PCCU for losses on certain PCCU loans. The indemnity liability reflects SHF management’s estimate of probable
credit losses inherent under the agreement at the balance sheet date. The Company’s estimated indemnity liability on the reporting
date was calculated in accordance with the allowance for credit loss policy described in Note 2. 

 The
indemnity liability activity are as follows: 

 Schedule of Indemnity Liability 

 Year
 ended. 
 December
 31, 2023 
 
 Year
 ended 
 December
 31, 2022 
 
 Beginning balance 
 $ 499,465 
 $ - 

 Cumulative effect from
 adoption of CECL 
 566,341 
 - 

 Charge-offs 
 - 
 - 

 Recoveries 
 - 
 - 

 Provision 
 316,602 
 499,465 

 Ending balance 
 $ 1,382,408 
 $ 499,465 

 All
loans were current and considered performing at December 31, 2023 except one loan which was identified pursuant to potential default
on January 5, 2023. The Company’s management was informed that an indemnified loan, having an outstanding balance of $ 3.1 million,
was past due pursuant to its December 2022 payment. The guarantor on the loan stated to management that the borrower is out of money
due to business losses. The Company is discussing workout options with the borrower. The above-mentioned loan is now greater than 120
days delinquent and is included in the Company’s CECL methodology to calculate management’s best estimate of credit losses
in relation to this loan and the overall loan portfolio on a collective basis. 

 Credit
quality of indemnified loans: 

 As
part of the on-going monitoring of the credit quality of the Company’s indemnified loan portfolio, management tracks credit quality
indicators based on the loan payment status on monthly basis. The Company continuously evaluates the credit quality of each indemnified
loan by assessing the risk factors and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic
and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage
ratio, project sponsorship, and other factors deemed necessary. Based on a 10-point scale, the Company’s loans are rated “0”
through “10,” from less risk to greater risk, which ratings are defined as follows: 

 Risk
 rating 
 
 Category 
 
 Description 

 0 
 
 Risk
 Free 
 
 Free
 of repayment risk. The loan is fully guaranteed by the full faith and backing of the US Government or entirely secured by cash controlled
 by SHF. 

 1 
 
 Highest
 Quality 
 
 High
 caliber loan with the lowest risk of default. Significant excess cash flow after debt service and moderate to low leverage. 

 2 
 
 Excellent 
 
 High
 quality loan that carry’s a low risk of default. Strong cash flow and relatively few negative individual risk factors. 

 3 
 
 Good 
 
 Loans
 with lower-than-average level of risk. Excess cash flow and other factors contributing to the overall low level of risk in the loan. 

 4 
 
 Average 
 
 Risk
 factors may be mixed with some negative and some positive aspects, but the overall rating will indicate an average level of risk. 

 5 
 
 Fair 
 
 Loans
 in this category have the maximum level of risk that can be accepted while still recommending a new loan for origination. The loan
 risk factors may contain multiple negative factors, but they are generally outweighed by the positive aspects of the loan. 

 6 
 
 Watch
 List 
 
 There
 is a temporary and curable condition resulting in a lower risk rating. 

 7 
 
 Special
 Mention 
 
 There
 is a potential weakness that may result in the deterioration of the prospect of repayment that are not temporary and may require
 additional collection or workout efforts. 

 8 
 
 Substandard 
 
 Loans
 in this category are inadequately protected by the current net worth and paying capacity of the obligors or of the collateral pledged
 and have well-defined weaknesses that jeopardize the liquidation of the debt with distinct possibility of loss. SHF may be required
 to advance additional funds to manage the loan. Escalated collection activities such as foreclosure have been scheduled with anticipated
 losses up to 20% of the outstanding balance. 

 9 
 
 Doubtful 
 
 Collection
 or liquidation in full highly questionable and improbable. Escalated collection activities such as foreclosure have commenced with
 anticipated losses from 20% to 50% of the outstanding balance. 

 10 
 
 Loss 
 
 Uncollectable
 loans. A complete write-off is imminent although a partial recovery may be affected in the future. 

 SHF
has agreed to indemnify PCCU from all claims related to SHF’s cannabis-related business. Other than potential credit losses, no
other circumstances were identified meeting the requirements of a loss contingency. 

 F- 24 

 Table of Contents 

 The
carrying value, excluding the CECL Reserve, of the Company’s indemnified loans held at carrying value within each risk rating is
as follows: 

 Schedule
of Indemnified Loans Risk Rating 

 Risk rating 
 Year
 ended. 
 December
 31, 2023 
 
 Year
 ended 
 December
 31, 2022 
 
 3 
 $ 10,100,000 
 $ 1,100,000 

 4 
 3,431,640 
 - 

 5 
 28,115,013 
 5,498,042 

 6 
 10,900,000 
 9,200,000 

 7 
 3,100,000 
 3,100,000 

 Grand total 
 $ 55,646,653 
 $ 18,898,042 

 The
provision for credit losses on the statement of operations consists of the following activity for the year ended December 31, 2023 and
December 31, 2022: 

 Schedule
of Provision for Loan Losses 

 Commercial
 real estate loans 
 Indemnity
 liability 
 Total 
 Commercial
 real estate loans 
 Indemnity
 liability 
 Total 

 December
 31, 2023 
 December
 31, 2022 

 Commercial
 real estate loans 
 Indemnity
 liability 
 Total 
 Commercial
 real estate loans 
 Indemnity
 liability 
 Total 

 Provision
 (benefit) 
 $ ( 25,745 ) 
 $ 316,602 
 $ 290,857 
 $ 6,747 
 $ 499,465 
 $ 506,212 

 Note
9. Property and equipment, net 

 Property
and equipment consist of the following: 

 Schedule
of Property and Equipment, Net 

 December
 31, 
 2023 
 
 December
 31, 
 2022 
 
 Equipment 
 $ 45,397 
 $ 45,397 

 Software 
 51,692 
 51,692 

 Improvement 
 71,635 
 71,635 

 Office furniture 
 215,504 
 7,070 

 Property and equipment, gross 
 384,228 
 175,794 

 Less: accumulated depreciation 
 ( 300,008 ) 
 ( 126,180 ) 

 Property and equipment,
 net 
 $ 84,220 
 $ 49,614 

 Depreciation
expense was $ 173,828 and $ 10,361 for the years ended December 31, 2023, and 2022, respectively. 

 Note
10. Related party transactions 

 Account
Servicing Agreement 

 The
Company had an Account Servicing Agreement with PCCU. SHF provides services as per the agreement to CRB accounts at PCCU. In addition
to providing the services, SHF 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. 

 Support
Services Agreement 

 On
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. 

 Loan
Servicing Agreement 

 Effective
February 11, 2022, SHF entered into a Loan Servicing Agreement with PCCU. The agreement sets forth the application, underwriting and
approval process for loans from PCCU to CRB customers and the loan servicing and monitoring responsibilities provided by both PCCU and
SHF. PCCU receives a monthly servicing fee at the annual rate of 0.25 % of the then-outstanding principal balance of each loan funded
and serviced 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. 

 F- 25 

 Table of Contents 

 Commercial
Alliance Agreement 

 On
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
11, 2022). 

 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, the PCCU has the right to receive monthly fees
for managing loans. For SHF-serviced loans, which are CRB loans provided by the PCCU but primarily handled by SHF, a yearly fee of 0.25 % of the remaining loan balance is applied. On the other hand, loans
both financed and serviced by the PCCU are charged a yearly fee of 0.35 % on their outstanding balance. These fees are calculated using
the average daily balance of each loan for the preceding month. 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). 

 In
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. 

 In
fiscal 2022 and up to the third quarter of 2023, our investment earnings were solely from interest on deposits at the Federal Reserve
Bank, capped at the earnings accrued by PCCU from its reserves. However, a strategic shift in the fourth quarter of 2023 led us to adopt
Federal Reserve’s interest rates applied to the daily average balance of SHF customer deposits, with certain exclusions. This method,
applied retroactively from the beginning of 2023, resulted in incremental revenue of $ 549,000 recognized in the fourth quarter. Under
our Commercial Alliance Agreement, we are obligated to remit 25 % of the investment hosting fees to PCCU based on this income. 

 The
below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits: 

 Schedule
of Demonstrated Deposit Capacity 

 December
 31, 2023

(Unaudited) 
 December
 31, 2022

(Unaudited) 

 CRB related deposits 
 $ 129,350,998 
 $ 161,138,975 

 Capacity at 60% 
 77,610,599 
 96,683,385 

 PCCU net worth 
 81,087,746 
 133,231,565 

 Capacity at 1.3125 
 106,670,306 
 174,866,429 

 Limiting capacity 
 77,610,599 
 174,866,429 

 PCCU loans funded 
 55,660,039 
 18,898,042 

 Amounts available under
 lines of credit 
 525,000 
 996,958 

 Incremental
 capacity 
 $ 21,425,560 
 $ 154,971,429 

 The
revenue from the PCCU Agreements recognized in the statements of operations consists of the following for the year ended December 31,
2023, and December 31, 2022: 

 Schedule
of Revenue from Operations 

 Year
 ended 
 December
 31, 2023 
 
 Year
 ended 
 December
 31, 2022 
 
 Account servicing agreement 
 $ 3,075,458 
 $ 8,823,608 

 Commercial alliance
 agreement 
 10,761,245 
 - 

 Total 
 $ 13,836,703 
 $ 8,823,608 

 Revenue 
 $ 13,836,703 
 $ 8,823,608 

 F- 26 

 Table of Contents 

 The
operating expense from the PCCU Agreements recognized in the statements of operations consists of the following for the year ended December
31, 2023, and December 31, 2022: 

 Schedule
of Operating Expense from Operations 

 Year
 ended 
 December
 31, 2023 
 
 Year
 ended 
 December
 31, 2022 
 
 Support services agreement 
 $ 378,730 
 $ 775,259 

 Loan servicing agreement 
 11,929 
 26,088 

 Commercial alliance
 agreement 
 1,665,644 
 - 

 Total 
 $ 2,056,303 
 $ 801,347 

 Operating expense 
 $ 2,056,303 
 $ 801,347 

 Issuance
of shares to PCCU 

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

 ● 
 A
 five-year Senior Secured Promissory Note (the “Note”) in the principal amount of $ 14,500,000 bearing interest at the
 rate of 4.25 % and a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security
 interest in substantially all of the assets of the Company. 

 ● 
 A
 Securities Issuance Agreement, pursuant to which the Company issued 11,200,000 shares of the Company’s Class A Common Stock
 to PCCU. Following the issuance of the Shares, PCCU own 46.39 % of the outstanding Class A Common Stock. In connection with the Securities
 Issuance Agreement, the parties also entered into a Registration Rights Agreement and a Lock-Up Agreement. 

 ● 
 The
 Registration Rights Agreement requires the Company to register the Shares for resale pursuant to the Securities Act of 1933, as amended
 (the “Securities Act”); and the Lock-Up Agreement restricts PCCU from transferring the Shares until the earlier of (i)
 six (6) months after the date of the Securities Issuance Documents or (ii) the consummation of a transaction with an unaffiliated
 third party in which all of the Company’s stockholders have the right to exchange their shares of Class A Common Stock for
 cash, securities, or other property; and 

 ● 
 A
 Commercial Alliance Agreement that sets forth the terms and conditions of the lending-related and account-related services governing
 the relationship between the Company and PCCU which supersedes the Loan Servicing Agreement, as well as the Amended and Restated
 Support Services Agreement and the Amended and Restated Account Servicing Agreement. 

 Operating
leases 

 Effective
July 1, 2021, SHF entered into a one-year gross lease with PCCU to lease space in its existing office at a monthly rent of $ 5,400 . Effective
July 1, 2022, the Company amended its existing lease to a month-to-month lease and therefore no asset or liability amounts are reported
pursuant to ASC 842. The lease was terminated on February 1, 2023. 

 Advance
from Sponsor 

 On
June 27, 2022, Luminous Capital Inc., an affiliate of the Sponsor provided a non-interest-bearing advance (the “Advance”)
amounting to $ 1,150,000 to fund the operation of NLIT. The amount outstanding on December 31, 2023, and December 31, 2022, is $ 0 and
$ 1,150,000 , respectively and is presented within “accounts payable” in the consolidated balance sheets. 

 The
outstanding balances associated with the PCCU disclosed in the balance sheet are as follows: 

 Schedule
of Outstanding Balances from Balance Sheet 

 December 31, 2023 
 
 December 31, 2022 

 December
 31, 2023 
 December
 31, 2022 

 Accounts receivable 
 $ 2,095,320 
 $ 1,231,727 

 Accounts payable 
 577,315 
 5,078,042 

 Due to Seller (Refer to Note 11 to the financial
 statements below) 
 - 
 56,949,800 

 Senior Secured Promissory Note (Refer to Note
 12 to the financial statements below) 
 14,011,166 
 - 

 Of the $ 8.9 million and $ 8.4 million
of cash and cash equivalents at December 31, 2023 and 2022, $ 4.6 million and $ 8.3 million of the cash and cash equivalents were held
in deposit accounts at PCCU as a related party.

 Transactions
with Abaca shareholder 

 As
disclosed in Notes 4 and 5 to the consolidated financial statements, the merger with Abaca that occurred in October 2022 involves certain
payments either paid or payable to the former shareholders of Abaca, warrants and issuances of stock. The former shareholders of Abaca
represent a related party to the Company based on current employment with the Company and their significant equity ownership interest
in the Company. 

 Note
11. Due to Seller 

 Amounts
due to seller were as follows: 

 Schedule
of Amounts Due to Seller 

 December
 31, 2023 
 December
 31, 2022 

 Due to Seller-Current (Unsecured) 
 $ - 
 $ 25,973,017 

 Due to Seller-long term
 (Unsecured) 
 - 
 30,976,783 

 Total
 loans funded by PCCU 
 $ - 
 $ 56,949,800 

 F- 27 

 Table of Contents 

 As
contemplated by the Unit Purchase Agreement, related to reverse acquisition of NLIT, the consideration paid to PCCU in connection with
the Business Combination consisted of an aggregate of $ 185,000,000 , consisting of (i) 11,386,139 shares of the Company’s Class
A Common Stock with an aggregate value equal to$ 115,000,000 and (ii) $ 70,000,000 in cash, $ 56,949,800 of which was to be paid on a deferred
basis (the “Deferred Cash Consideration”). 

 The
Deferred Cash Consideration was to be paid in one payment of $ 21,949,800 on or before December 15, 2022, and the $ 35,000,000 balance
in six equal instalments of $ 6,416,667 , payable beginning on the first business day following April 1,2023 and on the first business
day of each of the following five fiscal quarters, for a total of $ 38,500,002 . 

 On
October 26, 2022, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with PCCU and Luminous Capital
USA Inc. (“Luminous”). As per the terms of the agreement, PCCU has agreed to defer all payments owed by the Company pursuant
to the Purchase Agreement for a period of six (6) months from the date hereof while the Parties engage in good faith efforts to renegotiate
the payment terms applicable to the Deferred Obligation (the “Forbearance Period”). 

 The
loan included 5 % interest annualized using the simple interest method and an approximate 4.71 % effective interest rate. 

 On
March 29, 2023, the Company and PCCU entered into a definitive transaction to settle and restructure the deferred obligations, including
$ 56,949,800 into a five-year Senior Secured Promissory Note (the “Note”) in the principal amount of $ 14,500,000 bearing interest
at the rate of 4.25 %; a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security
interest in substantially all of the assets of the Company; and a Securities Issuance Agreement, pursuant to which the Company issued
 11,200,000 shares of the Company’s Class A Common Stock to PCCU. The breakdown of the liabilities settled under this transaction
are as follows: 

 Schedule of
Breakdown of Liabilities Settled 

 Due to Seller 
 $ 56,949,800 

 Cash payment obligation under business combination 
 3,143,389 

 Business combination expense payable to seller 
 1,069,359 

 Interest accrued but
 not paid 
 1,337,843 

 Total deferred obligation 
 62,500,391 

 Less: Senior secured promissory note 
 14,500,000 

 Less: Change in deferred
 tax 
 9,593,983 

 Amount charged to Stockholders’
 Equity towards issuance of common stock 
 $ 38,406,408 

 Note
12. Senior Secured Promissory Note 

 Schedule
of Senior Secured Promissory Note 

 December
 31, 2023 
 December
 31, 2022 

 Senior Secured Promissory Note
 (current) 
 $ 3,006,991 
 $ - 

 Senior Secured Promissory
 Note (long term) 
 11,004,175 
 - 

 Total 
 $ 14,011,166 
 $ - 

 On
March 29, 2023, the Company and PCCU entered into definitive transaction documents to settle and restructure the deferred obligation
related to business Combination (Refer to Note 3) under which the Company has issued the five-year Senior Secured Promissory Note (the
“Note”) in the principal amount of $ 14,500,000 bearing interest at the rate of 4.25 % and a Security Agreement pursuant to
which the Company will grant, as collateral for the Note, a first priority security interest in substantially all of the assets of the
Company. 

 The
Note amount will be paid in 54 installments of principal and interest of $ 295,487 each starting from November 5, 2023, and for the period
between March 29, 2023, to October 5, 2023, the Company has paid only interest portion. 

 The
repayment schedule of the outstanding principal amount on December 31, 2023, is as follows: 

 Schedule
of Outstanding Amount on Debt 

 Year of payment 
 
 2024 
 $ 3,006,991 

 2025 
 3,138,933 

 2026 
 3,274,966 

 2027 
 3,416,896 

 2028 
 1,173,380 

 Grand total 
 $ 14,011,166 

 Note
13. Leases 

 The
Company has non-cancellable operating leases for facility space with varying terms. All of the active leases for facility space qualified
for capitalization under FASB ASC 842, Leases. These leases have remaining lease terms between one to 7 years and may include options
to extend the leases for up to ten years . The extension terms are not recognized as part of the right-of-use assets. The Company has
elected not to capitalize leases with terms equal to, or less than, one year. As of December 31, 2023, and December 31, 2022, net assets
recorded under operating leases were $ 859,861 and $ 1,016,198 , respectively, and net lease liabilities were $ 1,007,993 and $ 1,028,233 ,
respectively. 

 F- 28 

 Table of Contents 

 The
Company analyses contracts above certain thresholds to identify leases and lease components. Lease and non-lease components are not separated
for facility space leases. The Company uses its contractual borrowing rate to determine lease discount rates when an implicit rate is
not available. Total lease cost for the years ended December 31, 2023 and 2022, included in Consolidated Statements of Operations, is
detailed in the table below: 

 Schedule
of Lease Cost and Right of Use Assets Related to Lease and Future Minimum Lease Payments 

 Year
 ended 
 December
 31, 2023 
 
 Year
 ended 
 December
 31, 2022 
 
 Operating lease cost 
 $ - 
 $ - 

 Short-term
 lease cost 
 315,615 
 99,246 

 Total Lease Cost 
 $ 315,615 
 $ 99,246 

 ROU assets that are related to lease properties
 are presented as follows: 
 
 Beginning balance 
 $ 1,016,198 
 $ - 

 Additions to right-of-use assets 
 - 
 1,029,226 

 Amortization charge for the year 
 ( 156,337 ) 
 ( 13,028 ) 

 Lease modifications 
 - 
 - 

 Ending balance 
 $ 859,861 
 $ 1,016,198 

 Further information related to leases is as
 follows: 
 
 Weighted-average remaining lease term 
 3.42 
 Years 
 4.42 
 Years 

 Weighted-average discount rate 
 6.87 % 
 6.87 % 

 Future
minimum lease payments as of December 31, 2023 and December 31, 2022 are as follows: 

 Schedule of Future Minimum Lease Payments 

 Year 
 
 2023 
 $ - 
 $ 91,303 

 2024 
 197,520 
 197,520 

 2025 
 217,925 
 217,925 

 2026 
 222,275 
 222,275 

 2027 
 226,705 
 226,705 

 2028 
 231,216 
 231,216 

 Thereafter 
 117,710 
 117,710 

 Total future minimum lease payments 
 $ 1,213,351 
 $ 1,304,654 

 Less: Imputed interest 
 205,358 
 276,421 

 Operating lease liabilities 
 $ 1,007,993 
 $ 1,028,233 

 Less: Current portion 
 132,546 
 20,124 

 Non-current portion
 of lease liabilities 
 $ 875,447 
 $ 1,008,109 

 Note
14. Revenue 

 Disaggregated
revenue 

 Revenue
by type are as follows: 

 Schedule
of Disaggregated Revenue 

 2023 
 2022 

 Year
 ended December 31 

 2023 
 2022 

 Deposit, activity, onboarding income 
 $ 8,614,945 
 $ 6,063,939 

 Investment income 
 5,844,836 
 2,120,640 

 Loan interest income 
 2,972,434 
 1,130,178 

 Safe Harbor Program
 income 
 130,688 
 164,062 

 Total Revenue 
 $ 17,562,903 
 $ 9,478,819 

 Account
fee income consists of deposit account fees, activity fees and onboarding income, which are recognized on periodic basis as per the fee
schedule with financial partner institutions. Safe Harbor Program income consists of outsourced support to other financial institutions
providing banking to the cannabis industry whose income is recognized on the basis of usage as per the agreements. Loan interest income
consist of interest earned on both direct and indemnified loans pursuant to a commercial alliance agreement with PCCU. Investment income
consist of interest earned on the daily deposits balance with financial institution. 

 In
fiscal 2022 and up to the third quarter of 2023, our investment earnings were solely from interest on deposits at the Federal Reserve
Bank, capped at the earnings accrued by PCCU from its reserves. However, a strategic shift in the fourth quarter of 2023 led us to adopt
Federal Reserve’s interest rates applied to the daily average balance of SHF customer deposits, with certain exclusions. This method,
applied retroactively from the beginning of 2023, resulted in incremental revenue of $ 549,000 recognized in the fourth quarter. Under
our Commercial Alliance Agreement, we are obligated to remit 25 % of the investment hosting fees to PCCU based on this income which is
classified as “General and Administrative Expenses” in the Consolidated Statements of Operations. In 2023, PCCU’s contributions
to the Company’s revenues included $ 5,150,397 from deposits, activities, and client onboarding, $ 5,803,114 from investment income,
and $ 2,883,192 from loan interest income. The associated expenses for these revenues were $ 529,209 for account hosting, $ 1,445,517 for
investment hosting fees, and $ 81,577 for loan servicing fees, all in accordance with the Loan Servicing Agreement and the Commercial
Alliance Agreement, classified as “General and Administrative Expenses” in the Consolidated Statements of Operations. In
2022, PCCU contributed to the Company’s revenues with $ 5,554,922 from deposits, activities, and client onboarding, $ 2,110,572 from
investment income, and $ 989,642 from loan interest income. The related expenses for these revenue streams were $ 255,853 for account hosting,
$ 519,406 for investment hosting fees, and $ 26,088 for loan servicing fees, all in compliance with the Loan Servicing Agreement, classified
as “General and Administrative Expenses” in the Consolidated Statements of Operations. 

 F- 29 

 Table of Contents 

 Note
15. Deferred underwriter fee 

 In
connection with the business combination (refer to Note 3), the Company executed a note on September 28, 2022 with EF Hutton related
to PIPE financing under which the Company was obligated to pay the principal sum of $ 2,166,250 on the following schedule: (i) $ 715,750 
on October 14, 2022, and (ii) $ 362,625 on each of October 31, 2022, November 30, 2022, December 31, 2022, and January 31, 2023. 

 The
Company made the payment of its first installment of $ 715,750 and defaulted on the remaining outstanding amounts. The outstanding balance
of the note on December 31, 2022 was $ 1,450,500 . On March 13, 2023, the Company and EF Hutton entered into a settlement agreement pursuant
to which the Company paid $ 550,000 to EF Hutton in full settlement of the amount due and the difference of $ 900,500 has been accounted
for in the “Consolidated Statements of Parent-Entity Net Investment and Stockholders’ Equity.” 

 Note
16. Commitments and Contingencies 

 ● 
 
 The
 Company is involved in, or has been involved in, arbitrations or various other legal proceedings
 that arise from the normal course of its business. The ultimate outcome of any litigation
 is uncertain, and either unfavorable or favorable outcomes could have a material impact on
 the Company’s results of operations, balance sheets and cash flows due to defense costs,
 and divert management resources. The Company cannot predict the timing or outcome of these
 claims and other proceedings. 

 ● 
 In
 connection with the Company’s initial public offering (“IPO”), the Company entered into a registration rights agreement
 dated June 23, 2021 with the Sponsor and the individuals serving as directors and executive officers of the Company at the time of
 the IPO. Pursuant to this registration rights agreement, the Company has agreed to register for resale upon the expiration of the
 applicable lock-up period the Company securities acquired by the Sponsor and such individuals in connection with the organization
 of the Company and the IPO. 

 ● 
 In
 connection with the issuance of common stock to Abaca shareholders, the Company commits to registering the stock upon the exercise
 of Warrants if required by law or regulation to ensure the shares can be sold without restrictive legends, known as the Warrant Registration
 Requirement. Should this requirement arise, the Company is obliged to file a registration statement with the SEC within 45 calendar
 days of notification of the Warrant Registration Requirement. The failure to file within this timeframe constitutes an event of default.
 Moreover, the Company is dedicated to making the registration statement effective as promptly as possible and maintaining its effectiveness,
 along with a current prospectus, until the Warrants expire according to this Agreement’s terms. In the event a registration
 statement triggered by a Warrant Registration Requirement is not declared effective by the SEC within one year from its filing date,
 Warrant holders are entitled to exercise their Warrants on a cashless basis from the 366th day post-filing until the statement becomes
 effective. 

 Note
17. Earnings Per Share 

 Basic
net income (loss) per common share is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average
number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income
(loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of
common shares and potentially dilutive securities outstanding for the period. For the Company’s diluted earnings per share calculation,
the Company uses the “if-converted” method for preferred stock and convertible debt and the “treasury stock”
method for Warrants and Options. 

 As
the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the period presented,
the calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the shares issued in connection
with the Business Combination have been outstanding for the entire period presented. 

 Schedule
of Earning Per Shares, Basic and Diluted 

 For year
 Ended December 31 
 2023 
 2022 

 Net loss 
 $ ( 17,279,847 ) 
 $ ( 35,128,083 ) 

 Weighted average shares outstanding – basic 
 42,574,563 
 18,988,558 

 Basic net loss per share 
 $ ( 0.41 ) 
 $ ( 1.85 ) 

 Weighted average shares outstanding – diluted 
 42,574,563 
 18,988,558 

 Diluted net loss per share 
 $ ( 0.41 ) 
 $ ( 1.85 ) 

 F- 30 

 Table of Contents 

 Weighted average shares calculation 
 December
 31, 2023 
 December
 31, 2022 

 Company public shares 
 3,926,598 
 3,926,598 

 Company initial stockholders 
 3,403,175 
 3,403,175 

 PCCU stockholders 
 19,977,920 
 11,386,139 

 Shares issued for Abaca acquisition 
 3,155,222 
 264,654 

 Restricted stock units issued 
 999,638 
 - 

 Conversion of Preferred
 stock 
 11,112,010 
 7,992 

 Grand total 
 42,574,563 
 18,988,558 

 Certain
share-based equity awards were excluded from the computation of dilutive loss per share because inclusion of these awards would have
had an anti-dilutive effect. The following table reflects the awards excluded. 

 Schedule
of Share-based Equity Awards Excluded From Computation of Dilutive Loss 

 For year
 Ended December 31 
 2023 
 2022 

 Warrants 
 12,786,588 
 7,036,588 

 Share based payments 
 2,643,277 
 2,170,000 

 Shares to be issued to Abaca shareholders 
 - 
 6,433,839 

 Conversion of preferred
 stock 
 880,800 
 13,443,000 

 Grand total 
 16,310,665 
 29,083,427 

 The
holders of Series A Convertible Preferred Stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series
A Convertible Preferred Stock equal (on an as-if-converted-to-Class-A-Common-Stock basis) to and in the same form as dividends actually
paid on shares of the Class A Common Stock when, as and if such dividends are paid on shares of the Class A Common Stock. No other dividends
shall be paid on shares of Series A Convertible Preferred Stock. 

 Note
18. Forward Purchase Agreement 

 On
June 16, 2022, NLIT entered into a Forward Purchase Agreement with Midtown East Management NL, LLC (“Midtown East”). Subsequent
to entering into the Forward Purchase Agreement, the Company, NLIT, and Midtown East entered into assignment and novation agreements
with Verdun Investments LLC (“Verdun”) and Vellar Opportunity Fund SPV LLC – Series 1 (“Vellar”), pursuant
to which Midtown East assigned its obligations as to 1,666,666 shares of the shares of Class A Stock to be purchased under the Forward
Purchase Agreement to each of Verdun and Vellar. As contemplated by the Forward Purchase Agreement: 

 ● 
 Prior
 to the closing, Midtown East, Verdun and Vellar purchased approximately 3.8 million shares of NLIT Class A common stock directly
 from investors at market price in the public market. Midtown East and other counter parties waived their redemption rights with respect
 to the acquired shares. 

 ● 
 One
 business day following the closing, NLIT paid approximately $ 39.3 million from the cash held in its trust account to Midtown East;
 Verdun and Vellar for the shares purchased and approximately $ 0.3 million in related expense amounts. 

 ● 
 At
 the Maturity Date, Midtown East, Verdun and Vellar shall be entitled to (1) the product of the shares then held by them multiplied
 by the Forward Price, and (2) an amount, in cash or shares at the sole discretion of NLIT, equal to (a) in the case of cash, the
 product of (i)(x) 3.8 million shares less (y) the number of Terminated Shares and (ii) $2.00 (the “Maturity Cash Consideration”)
 and (b) in the case of shares, (i) the Maturity Cash Consideration divided by (ii) the VWAP Price for the 30 Scheduled Trading Days
 prior to the Maturity Date . 

 ● 
 At
 any time prior to the Maturity Date (defined as the earlier of i) the third anniversary of the Closing of the Business Combination,
 ii) the shares are delisted from The Nasdaq Stock Market or (iii) during any 30 consecutive Scheduled Trading Day-period following
 the closing of the Business Combination, the Volume Weighted Average Share Price (VWAP) Price for 20 Scheduled Trading Days during
 such period shall be less than $ 3.00 per share), Midtown East, Verdun and Vellar may elect an optional early termination to sell
 some or all of the shares (the “Terminated Shares”) of Class A Stock in the open market. If Midtown East, Verdun and
 Vellar sell any shares prior to the Maturity Date, the pro-rata portion of the Reset Price will be released from the escrow account
 and paid to SHF. Midtown East, Verdun and Vellar shall retain any proceeds in excess of the Reset Price that is paid to SHF. 

 ● 
 
 The
 trading value of the common stock combined with preferred shareholders electing to convert
 their preferred shares to common stock triggered a lower reset price embedded in the forward
 purchase agreement, or FPA. In 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. 

 ● 
 
 In
 2022, an agreement was reached among the Company, its common shareholders, and preferred investors, leading to a reduction in the
 make-whole price to $ 1.25 per share. This reset resulted in a significant decrease in the FPA receivable, from $ 37.9 million as of
 September 30, 2022, to $ 4.6 million. In 2023, there were no share transactions by FPA holders, and management identified no additional
 impacts on the FPA receivable’s value on December 31, 2023. 
 
 F- 31 

 Table of Contents 

 ● 
 The
 reconciliation statement of the common stock held by the parties are as follows: 

 Schedule
of Forward Purchase Agreement 

 As
 at
 December 31, 2022 
 Shares
 sold during
 the year 
 ended December 31, 2023 
 As
 at
 December 31, 2023 

 S.no 
 Name
 of the party 
 Opening
 Shares
 (a) 
 Amount 
 Shares

 (b) 
 Amount 
 Shares

 (c=a-b) 
 Rest
 price
 (iii) 
 Amount

 (c x iii) 

 1 
 Vellar 
 971,204 
 $ 1,214,005 
 - 
 $ - 
 971,204 
 1.25 
 $ 1,214,005 

 2 
 Midtown East 
 1,517,924 
 1,897,405 
 - 
 - 
 1,517,924 
 1.25 
 1,897,405 

 3 
 Verdun 
 1,178,249 
 1,472,811 
 - 
 - 
 1,178,249 
 1.25 
 1,472,811 

 Grand
 total 
 3,667,377 
 $ 4,584,221 
 - 
 $ - 
 3,667,377 
 
 $ 4,584,221 

 On
 the date of
 acquisition
 (September 28, 2022) 
 Shares
 sold during
 the period
 September 29, 2022
 to December 31, 2022 
 As
 at
 December 31, 2022 

 Name
 of the
 party 
 Opening

 Shares
 (a) 
 Amount 
 Shares

 (b) 
 Amount 
 Shares

 (c=a-b) 
 Rest

 price
 (iii) 
 Amount

 (c x iii) 

 Vellar 
 1,025,000 
 $ 10,583,246 
 53,796 
 $ 524,472 
 971,204 
 1.25 
 $ 1,214,005 

 Midtown East 
 1,599,496 
 16,514,986 
 81,572 
 832,850 
 1,517,924 
 1.25 
 1,897,405 

 Verdun 
 1,180,376 
 12,187,522 
 2,127 
 21,962 
 1,178,249 
 1.25 
 1,472,811 

 Grand
 total 
 3,804,872 
 39,285,754 
 137,495 
 1,379,284 
 3,667,377 
 
 $ 4,584,221 

 Note
19. Warrant Liabilities 

 Public
and Private Placement Warrants 

 As
of December 31, 2023, and December 31, 2022, the Company has 5,750,000 Public warrants and 264,088 Private Placement Warrants. 

 The
Public and Private Placement Warrants may only be exercised for a whole number of shares. 

 The
Public and Private Placement Warrants became exercisable on September 28, 2022, the date of the Business Combination and will expire
on September 28, 2027, or earlier upon redemption or liquidation . 

 No
warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking
to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws
of the state of the exercising holder, or an exemption from registration is available. 

 Redemption
of warrants become exercisable when the price per Class A Common Stock equals or exceeds $ 18.00 . Once the warrants become exercisable,
the Company may redeem the warrants: 

 ● 
 in
 whole and not in part; 

 ● 
 at
 a price of $ 0.01 per warrant; 

 ● 
 upon
 not less than 30 days’ prior written notice of redemption to each warrant holder; and 

 ● 
 if,
 and only if, the reported last sale price of the Class A Common Stock equals or exceeds $ 18.00 per share (as adjusted for stock splits,
 stock dividends, reorganizations, recapitalizations and the like and certain issuances of Class A Common Stock and equity-linked
 securities) for any 20 trading days within a 30-trading day period commencing no earlier than the date the warrants become exercisable
 and ending on the third business day before the date on which the Company sends the notice of redemption to the warrant holders. 

 If
and when the warrants become redeemable by the Company, the Company may exercise its redemption rights; this is also the case if the
Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws. 

 If
the Company calls the warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants
to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A
Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend,
or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A Common
Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. 

 F- 32 

 Table of Contents 

 The
private placement warrants are identical to the public warrants, except that the private placement warrants and the Class A Common Stock
issuable upon the exercise of the private placement warrants were not transferable, assignable or saleable, subject to certain limited
exceptions. Additionally, the private placement warrants are exercisable on a cashless basis and non-redeemable so long as they are held
by the initial purchasers or their permitted transferees. If the private placement warrants are held by someone other than the initial
purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders
on the same basis as the public warrants. 

 PIPE
Warrants 

 As
of December 31, 2023, and December 31, 2022, the Company has 1,022,500 PIPE Warrants. 

 The
PIPE Warrants have an exercise price of $ 11.50 per share of Class A Common Stock to be paid in cash (except if the shares underlying
the warrants are not covered by an effective registration statement after the six-month anniversary of the closing date, in which case
cashless exercise is permitted), subject to adjustment to a price equal to the greater of (i)125% of the conversion price if at any time
there is an adjustment to the Conversion Price and the exercise price after such adjustment is greater than 125% of the Conversion Price
as adjusted and (ii) $5.00 . The PIPE Warrants are also subject to adjustment for other customary adjustments for stock dividends, stock
splits and similar corporate actions. The PIPE Warrants are exercisable for a period of five years following the Closing, or September
28, 2027. After exercise of a PIPE Warrant, the Company may be required to pay certain penalties if it fails to deliver the Class A Common
Stock within a specified period of time. 

 Abaca
Warrants 

 As
of December 31, 2023, the Company has 5,000,000 Abaca warrants . As of December 31, 2022, the Company has no Abaca warrants
outstanding. 

 The
Abaca 5,000,000 stock warrants have an exercise price of $ 2.00 per share of Class A Common stock to be paid in Cash. A Warrant may be
exercised only during the period commencing 1 year of the Effective Date and terminating five ( 5 ) years from the effective date of the
registration statement. The Company may, in its sole discretion, settle the Warrant when exercised, in whole or in part, in cash in lieu
of issuing shares of Common Stock underlying the Warrant. The Company may elect to pay the Registered Holder in cash in the amount equal
to the difference between the fair market value of the Company’s Common Stock on the date of exercise and the warrant price ($ 2.00 )
multiplied by the number of shares of Common Stock. The Company commits to promptly registering shares issued upon Warrant exercises
if required by law, ensuring these shares can be sold without restrictions. This registration must be filed within 45 days of receiving
a notification of such a requirement, with failure to do so constituting a default. The Company will endeavor to keep the registration
effective until the Warrants expire. If the registration isn’t effective within one year, Warrant holders may exercise their Warrants
on a cashless basis, receiving shares based on a defined fair market value calculation. This process aims to facilitate the straightforward
and lawful exercise of Warrants, ensuring the shares issued are readily tradable without the need for restrictive legends. 

 Note
20. Financial Instruments 

 Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows: 

 ○ 
 Level
 1 – Observable, unadjusted quoted prices in active markets 

 ○ 
 Level
 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability 

 ○ 
 Level
 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions 

 The
Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company
may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment.
Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise.
If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective
reporting period. 

 Assets
and Liabilities Reported at Fair Value on a Recurring Basis 

 Public
Warrants: 

 Public
warrants are recorded at fair value on a recurring basis. The Company obtains exchange traded price, of Level 1 inputs, based on observable
data to value these warrants. 

 Private
Placement Warrants: 

 Private
Placement Warrants are recorded at fair value on a recurring basis. In 2023, the Company internally assessed the value of these derivatives
with Level 3 inputs, which are derived from Black-Scholes model . This is a change from 2022, when the valuation was
based on third-party reports, also utilizing Level 3 inputs for these derivatives. Management believes that this change was necessary
to enhance the precision and control over the valuation process, allowing for a more tailored and responsive approach to the unique characteristics
of the derivatives and the evolving market conditions. 

 F- 33 

 Table of Contents 

 PIPE
Warrants: 

 PIPE
Warrants are recorded at fair value on a recurring basis. In 2023, the Company internally assessed the value of these derivatives with
Level 3 inputs, which are derived from Black-Scholes model. This is a change from 2022, when the valuation was based on third-party reports,
also utilizing Level 3 inputs for these derivatives. Management believes that this change was necessary to enhance the precision and
control over the valuation process, allowing for a more tailored and responsive approach to the unique characteristics of the derivatives
and the evolving market conditions. 

 Abaca
Warrants: 

 Abaca
Warrants are recorded at fair value on a recurring basis. The Company internally assessed the value of these derivatives with Level 3
inputs. Level 3 inputs, based on unobservable data derived from Black-Scholes model. 

 Third
anniversary payment consideration: 

 Third
anniversary payment consideration are recorded at fair value on a recurring basis. The Company value these derivatives based on third
party reports for Level 3 inputs. Level 3 inputs, based on unobservable data derived from Black Scholes-Merton model. 

 Forward
purchase option derivatives: 

 Forward
purchase option derivatives are recorded at fair value on a recurring basis. In 2022, the Company values these derivatives based on third
party reports for Level 3 inputs. In 2023, no significant risk factor changes affecting FPA derivative values were noted. Consequently,
management retained the December 31, 2022, valuation for December 31, 2023. 

 The
following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs
in the fair value hierarchy on December 31, 2023, and December 31,2022: 

 Schedule
of Fair Value Assets and Liabilities Measured on Recurring Basis 

 Total
 Fair Value 
 Quoted
 Prices in Active Markets (Level 1) 
 Significant
 Other Unobservable Inputs (Level 3) 
 Total
 Fair Value 
 Quoted
 Prices in Active Markets (Level 1) 
 Significant
 Other
 Unobserva ble
 Inputs
 (Level 3) 

 December
 31, 2023 
 December
 31, 2022 

 Total
 Fair Value 
 Quoted Prices in Active Markets 

 (Level 1) 
 
 Significant Other Unobservable Inputs 

 (Level 3) 
 
 Total
 Fair Value 
 Quoted Prices in Active Markets 

 (Level 1) 
 
 Significant Other
 Unobservable
 Inputs 

 (Level 3) 
 
 Description 
 
 Liabilities: 
 
 PIPE warrants 
 $ 273,124 
 - 
 273,124 
 $ 286,300 
 - 
 286,300 

 Public warrants 
 $ 481,850 
 481,850 
 - 
 $ 361,100 
 361,100 
 - 

 Private placement warrants 
 $ 25,070 
 - 
 25,070 
 $ 19,110 
 - 
 19,110 

 Abaca warrant 
 $ 3,384,085 
 - 
 3,384,085 
 $ - 
 - 
 - 

 Forward purchase derivative liability 
 $ 7,309,580 
 - 
 7,309,580 
 $ 7,309,580 
 - 
 7,309,580 

 Third anniversary payment consideration 
 $ 810,000 
 - 
 810,000 
 $ - 
 - 
 - 

 Liabilities 
 $ 810,000 
 - 
 810,000 
 $ - 
 - 
 - 

 Assets
Measured at Fair Value on a Nonrecurring Basis 

 Assets
that are measured at fair value on a nonrecurring basis primarily comprises of property, plant and equipment, right-to-use assets, finite
lived intangible assets and goodwill. The Company does not record these at fair value on a recurring basis, however, the carrying value
of the assets may be reduced to fair value when the Company determines that impairment has occurred. 

 At
December 31, 2023, the Company’s developed technology asset were measured at fair value on a nonrecurring basis as result of annual
impairment testing. In order to evaluate the fair value of the developed technology asset, the annual impairment test employed the Relief
from Royalty Method for accurately reflecting market conditions and asset performance (Refer to note 5 - Goodwill and Finite-lived intangible
assets). 

 The
following table presents the carrying amounts and fair values of financial instruments measured on a nonrecurring basis, by the level
of valuation inputs in the fair value hierarchy, as of the dates indicated: 

 Schedule
of Carrying Amounts and Fair Values of Financial Instruments Measured on a Nonrecurring Basis 

 Level
 1 
 Level
 2 
 Level
 3 

 As
 on December 31, 2023 

 Carrying
 
 amount 
 
 Fair
 value 
 Fair
 value measurement using 

 Level
 1 
 Level
 2 
 Level
 3 

 Assets 
 
 Developed Technology 
 3,599,754 
 3,599,754 
 - 
 - 
 3,599,754 

 F- 34 

 Table of Contents 

 The
following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the finite lived
intangible assets as of their measurement dates: 

 Schedule
of Finite Lived Intangible Assets Measurement 

 As on December
 31, 2023 
 Developed
 technology 

 Royalty rate 
 6.50 % 

 Discount rate 
 14.25 % 

 Estimated useful life 
 5.87 
 years 

 Tax rate 
 25 % 

 Fair value measurements inputs 
 25 % 

 There
were no assets or liabilities recorded at fair value on a nonrecurring basis for the period ended December 31, 2022. 

 Fair
Value of Financial Instruments 

 The
Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. With the exceptions of
loans receivable, warrants and forward purchase option derivatives, the Company considers the carrying amounts of its financial instruments
(cash, accounts receivable and accounts payable) in the balance sheet to approximate fair value because of the short-term or highly liquid
nature of these financial instruments. 

 The
following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair
value hierarchy, as of the dates indicated: 

 Schedule
of Carrying Amounts and Fair Values of Financial Instruments 

 Level
 1 
 Level
 2 
 Level
 3 

 As
 on December 31, 2023 

 Carrying
 
 amount 
 
 Fair
 value 
 Fair
 value measurement using 

 Level
 1 
 Level
 2 
 Level
 3 

 Assets 
 
 Cash and cash equivalents 
 $ 4,888,769 
 $ 4,888,769 
 $ 4,888,769 
 $ - 
 $ - 

 Forward purchase receivables 
 4,584,221 
 4,584,221 
 4,584,221 
 - 
 - 

 Loans 
 330,579 
 363,561 
 - 
 - 
 363,561 

 Liabilities 
 
 Deferred consideration 
 2,889,792 
 2,889,792 
 2,889,792 
 - 
 - 

 Senior secured promissory note 
 14,011,166 
 12,750,204 
 - 
 - 
 12,750,204 

 Public warrants 
 481,850 
 481,850 
 481,850 
 - 
 - 

 Private placement warrants 
 25,070 
 25,070 
 - 
 - 
 25,070 

 PIPE warrants 
 273,124 
 273,124 
 - 
 - 
 273,124 

 Abaca warrants 
 3,384,085 
 3,384,085 
 - 
 - 
 3,384,085 

 Forward purchase derivative 
 7,309,580 
 7,309,580 
 - 
 - 
 7,309,580 

 Third anniversary payment consideration 
 810,000 
 810,000 
 - 
 - 
 810,000 

 Level
 1 
 Level
 2 
 Level
 3 

 As
 on December 31, 2022 

 Carrying
 
 amount 
 
 Fair
 value 
 Fair
 value measurement using 

 Level
 1 
 Level
 2 
 Level
 3 

 Assets 
 
 Cash and cash equivalents 
 $ 8,390,195 
 $ 8,390,195 
 $ 8,390,195 
 $ - 
 $ - 

 Forward purchase receivables 
 4,584,221 
 4,584,221 
 4,584,221 
 
 - 

 Loans 
 1,301,991 
 1,241,761 
 - 
 - 
 1,241,761 

 Liabilities 
 
 Deferred consideration 
 14,359,822 
 14,359,822 
 14,359,822 
 - 
 - 

 Due to seller - current portion 
 25,973,017 
 25,973,017 
 25,973,017 
 - 
 - 

 Due to seller - long term position 
 30,976,783 
 30,976,783 
 30,976,783 
 - 
 - 

 Deferred underwriter fee payable 
 1,450,500 
 1,450,500 
 1,450,500 
 - 
 - 

 Public warrants 
 361,100 
 361,100 
 361,100 
 - 
 - 

 Private placement warrants 
 19,110 
 19,110 
 - 
 - 
 19,110 

 PIPE warrants 
 286,300 
 286,300 
 - 
 - 
 286,300 

 Forward purchase derivative 
 7,309,580 
 7,309,580 
 - 
 - 
 7,309,580 

 F- 35 

 Table of Contents 

 The
change in the assets measured at fair value on a recurring basis for which the Company have utilized Level 3 inputs to determine fair
value are presented in the following table: 

 Schedule
of Fair Value Assets Measured on Recurring Basis 

 For
 the Year ended December 31, 2023 

 PIPE
 Warrants 
 Abaca 
 Warrant 
 
 Private 
 Placement 
 Warrants 
 
 Third
 anniversary 
 payment
 consideration 
 
 Forward 
 Purchase 
 Derivative 
 
 Balance at the beginning of the
 period 
 $ 286,300 
 - 
 19,110 
 - 
 7,309,580 

 Issued to Abaca shareholders 
 - 
 1,635,407 
 - 
 430,000 
 - 

 Acquired under business combination 
 
 Fair value adjustment 
 ( 13,176 ) 
 1,740,386 
 5,960 
 380,000 
 - 

 Balance at the end of
 the period 
 $ 273,124 
 3,384,085 
 25,070 
 810,000 
 7,309,580 

 For
 the Year ended December 31, 2022 
 
 PIPE
 
 Warrants 
 
 Private
 
 Placement 
 Warrants 
 
 Forward
 
 Purchase 
 Derivative 
 
 Balance at the beginning of the period 
 $ - 
 $ - 
 $ - 

 Acquired under business combination 
 
 203,112 
 ( 1,687,530 ) 

 Fair value adjustment 
 286,300 
 184,002 
 8,997,110 

 Balance at the end of
 the period 
 $ 286,300 
 $ 19,110 
 $ 7,309,580 

 In
2023, the valuation of private placement warrants, PIPE warrants, and Abaca warrants was carried out using the Black-Scholes model, while
the fair value of the Abaca third anniversary payment consideration was determined using the Black Scholes Merton Option pricing model.
Contrastingly, in 2022, the fair value assessments for both the private placement warrants and PIPE warrants were conducted using the
Black-Scholes model and the Black Scholes-Merton model, respectively. Management believes that the change in method for PIPE warrants
was necessary to enhance the precision and control over the valuation process, allowing for a more tailored and responsive approach to
the unique characteristics of the derivatives and the evolving market conditions. As of December 31, 2023, and December 31, 2022, these
warrants were valued for Level 3 inputs, which are based on observable data to value these derivatives. 

 In
2022, 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). In 2023, no significant risk factor changes affecting FPA derivative values were noted. Consequently, management
retained the December 31, 2022, valuation for December 31, 2023.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. 

 During
the fiscal years 2022 and 2023, there were no changes in the classification of financial instruments within Level 2 and Level 3 of the
fair value hierarchy. 

 The
following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the private placement
warrants and public warrants as of their measurement dates: 

 Schedule
of Level 3 Fair Value Measurement Inputs 

 PIPE Warrants 
 Private Warrants 
 Third
 anniversary 
 payment
 consideration 
 
 Abaca Warrants 
 PIPE Warrants 
 Private Warrants 
 Third
 anniversary 
 payment
 consideration 
 
 Abaca Warrants 

 December
 31, 2023 
 December
 31, 2022 

 PIPE Warrants 
 Private Warrants 
 Third
 anniversary 
 payment
 consideration 
 
 Abaca Warrants 
 PIPE Warrants 
 Private Warrants 
 Third
 anniversary 
 payment
 consideration 
 
 Abaca Warrants 

 Exercise price 
 $ 5 
 $ 11.5 
 - 
 $ 2 
 $ 5 
 $ 11.5 
 - 
 - 

 Share Price 
 $ 1.42 
 $ 1.42 
 $ 1.42 
 $ 1.42 
 $ 1.78 
 $ 1.78 
 - 
 - 

 Expected term (years) 
 3.74 
 3.74 
 1.76 
 4.84 
 4.74 
 4.74 
 - 
 - 

 Volatility 
 62.95 % 
 62.95 % 
 62.95 % 
 62.95 % 
 46.00 % 
 46.00 % 
 - 
 - 

 Risk-free rate 
 4.25 % 
 4.25 % 
 4.25 % 
 4.25 % 
 4.00 % 
 3.98 % 
 - 
 - 

 Warrants and rights outstanding,
 measurement input 
 4.25 % 
 4.25 % 
 4.25 % 
 4.25 % 
 4.00 % 
 3.98 % 
 - 
 - 

 F- 36 

 Table of Contents 

 The
following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase
derivatives as of their measurement dates on December 31, 2023 and December 31, 2022: 

 Schedule of
Level 3 Fair Value Measurements Inputs 

 December
 31, 2023 
 December
 31, 2022 

 Reset Price 
 $ 1.25 
 $ 1.25 

 Expected term (years) 
 1.74 
 2.74 

 Additional Maturity Consideration per share 
 $ 2.00 
 $ 2.00 

 Volatility 
 46 % 
 46 % 

 Risk-free rate 
 4.2 % 
 4.2 % 

 Risk-adjusted discount rate 
 13.4 % 
 13.4 % 

 Derivative liability, measurement input 
 13.4 % 
 13.4 % 

 Note
21. Tax 

 The
major components of income tax expense for the years ended 31 December 2023 and 31 December 2022: 

 Schedule
of Major Components of Income Tax 

 For year ended December
 31, 
 2023 
 2022 

 Current income tax: 
 
 Current tax on profits 
 $ - 
 $ ( 3,394 ) 

 Deferred tax: 
 
 Deferred
 taxation - current year 
 $ ( 1,829,701 ) 
 $ ( 9,249,499 ) 

 Income tax benefit reported
 in the income statement 
 $ ( 1,829,701 ) 
 $ ( 9,252,893 ) 

 A
reconciliation follows between tax benefit and the product of accounting profit multiplied by the United States domestic tax rate for
the years ended December 31, 2023 and December 31, 2022: 

 Schedule
of Effective Income Tax Rate Reconciliation 

 For year ended December
 31, 
 2023 
 2022 

 Accounting loss before tax from
 continuing operations 
 ( 19,109,548 ) 
 $ ( 44,380,976 ) 

 Accounting loss before
 income tax 
 ( 19,109,548 ) 
 ( 44,380,976 ) 

 At federal statutory income tax rate of
 21% 
 ( 4,013,005 ) 
 ( 9,320,005 ) 

 State income tax benefit, net of federal
 benefit 
 ( 253,649 ) 
 ( 1,304,510 ) 

 Permanent differences, net 
 2,207,439 
 1,787,471 

 Other 
 229,514 
 ( 415,849 ) 

 Total 
 ( 1,829,701 ) 
 $ ( 9,252,893 ) 

 Deferred
tax: 

 Deferred
taxes are comprised of the following: 

 Schedule
of Deferred Tax Assets and Liabilities 

 December
 31, 2023 
 December
 31, 2022 
 Change 

 Loan Loss
 Reserve 
 340,982 
 127,508 
 ( 213,473 ) 

 Capital Loss Carryover 
 72,914 
 - 
 ( 72,914 ) 

 Stock Option Expense 
 1,322,890 
 686,879 
 ( 636,011 ) 

 Deferred Revenue 
 5,366 
 251 
 ( 5,115 ) 

 Fixed Assets 
 20,866 
 ( 11,444 ) 
 ( 32,310 ) 

 Transaction Costs 
 1,014,922 
 817,323 
 ( 197,599 ) 

 Change in Forward Purchase
 Contract 
 8,155,953 
 8,155,953 
 - 

 Goodwill 
 30,631,880 
 42,551,111 
 11,919,231 

 NOL Carryforward 
 3,210,838 
 1,862,393 
 ( 1,348,445 ) 

 ROU Assets 
 ( 210,460 ) 
 ( 248,725 ) 
 ( 38,265 ) 

 ROU Liabilities 
 246,716 
 251,670 
 4,954 

 Intangible Assets 
 ( 910,934 ) 
 ( 2,599,617 ) 
 ( 1,688,683 ) 

 Valuation
 Allowance 
 ( 72,914 ) 
 - 
 72,914 

 Net deferred tax
 assets / (liabilities) 
 43,829,019 
 51,593,302 
 7,764,284 

 Reflected in the statement of financial
 position as follows: 
 
 Deferred tax assets 
 44,950,413 
 - 
 
 Deferred tax liabilities 
 ( 1,121,394 ) 
 - 
 
 Deferred tax assets net 
 43,829,019 
 - 
 
 F- 37 

 Table of Contents 

 Reconciliation
of deferred tax liabilities net: 

 Schedule
of Deferred Tax Liabilities Net 

 Year
 on year change 
 December
 31, 2022 

 Opening balance as on December
 31, 2022 
 $ 51,593,302 
 $ - 

 Tax Income/(expense) during the period recognized
 in profit or loss 
 1,829,701 
 9,249,499 

 Acquisitions 
 ( 9,593,985 ) 
 42,343,803 

 Closing balance as
 on December 31, 2023 
 $ 43,829,019 
 $ 51,593,302 

 The
Company offsets tax assets and liabilities only if it has a legally enforceable right to set off current tax assets and current tax liabilities
and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. The Company considers
their deferred tax assets to be realizable and has not established a valuation allowance. The Company has US federal tax loss carryovers
totaling $ 13.1 million arising from 2020 through 2023 which have an unlimited carryover period. The Company has State of Colorado loss
carryovers arising in 2020 through 2023 of $ 12.8 million which expire in 2042 and State of Arkansas loss carryovers arising in 2020 through 2022 of
$ 0.2 million which expire in 2028 through 2032. The Company currently has no tax examinations in progress. The Company has open years
for examination from Federal and State of Arkansas for the years ending December 31, 2020, forward and from State of Colorado from December
31, 2022. The Company does not have any uncertain tax positions as of December 31, 2022. In both 2022 and 2023, the Company did not make any payments towards federal or state taxes. 

 Note
22. 401(k) Plan 

 The
Company offers to all employees a tax-qualified retirement contribution plan, with the Company’s 100 % matching contribution up
to 4 % of a participant’s eligible compensation. The Company’s consolidated matching contributions for the year ended December
31, 2023, amounting to $ 62,785 , and December 31, 2022, amounting to $ 47,806 , respectively. 

 Note
23. Share based compensation 

 2022
Equity Incentive Plan 

 Share-based
compensation expense recognized for the years ended December 31, 2023, and 2022 totaled $ 3.71 million and $ 2.81 million respectively. 

 The
2022 Plan was approved by the Company’s stockholders on June 28, 2022. The 2022 Plan permits the grant of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, and performance
compensation awards. The Company has not issued stock appreciation rights, stock bonus awards, or performance compensation awards in
the year ended December 31, 2023, and December 31, 2022. In conjunction with the 2023 Plan, as of December 31, 2023, the Company had
granted stock options and restricted stock units which are described in more detail below. 

 Stock
options 

 Stock
options are awarded to encourage ownership of the Company’s common stock by employees and to provide increased incentive for employees
to render services and to exert maximum effort for the success of the Company. The Company’s incentive stock options generally
permit net-share settlement upon exercise. The option exercise price, vesting schedule and exercise period are determined for each grant
by the administrator (person appointed by board to administer the stock plans) of the applicable plan. The Company’s stock options
generally have a 10 -year contractual term. 

 The
assumptions used to determine the fair value of options granted in the year ended December 31, 2023, using the Black-Scholes-Merton model
are as follows: 

 Schedule
of Fair Value of Options Granted Black-Scholes-Merton Model 

 Particulars 
 December
 31, 2023 
 December
 31, 2022 
 
 Dividend yield 
 - 
 - 
 
 Risk-free interest rate 
 3.62 
 % to 4.23 % 
 3.62 
 % to 4.23 % 
 
 Expected volatility (weighted-average
 and range, if applicable) 
 100 % 
 100 % 
 
 Expected term 
 6.00 
 to 6.5 years 
 6.00 
 to 6.5 years 
 
 The
expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period
the awards. The shares of the Company have been listed on the stock exchange for a limited period of the time and the share price has
also dropped significantly from the date of listing, based on these factors, Management has considered the expected volatility at 100 %
for the current period. The risk-free interest rate used is the current yield on US Treasury notes, with a term equal to the expected
term of the options at the grant date. The expected dividend yield is based on annualized dividends on the underlying share during the
expected term of the option. 

 A
summary of the Company’s stock option activities and related information for the year ended December 31, 2023, is as follows: 

 Schedule of Stock Option and Related Information 

 Stock
 Option 
 No.
 of Stock Option 
 Weighted
 Average Exercise Price 
 Weighted-Average 
 Remaining 
 Contractual
 Life 
 (in
 Years) 
 
 December 31, 2022 
 2,170,000 
 5.29 
 2.02 

 Granted 
 336,730 
 $ 1.03 
 1.28 

 Exercised 
 - 
 - 
 - 

 Expired 
 - 
 - 
 - 

 Cancelled / Forfeited 
 ( 220,720 ) 
 ( 2.67 ) 
 - 

 December 31, 2023 
 2,286,010 
 $ 5.43 
 1.65 

 F- 38 

 Table of Contents 

 On
December 31, 2023, there were no unrecognized compensation costs related to non-vested stock options to be recognized. Share based compensation
did not impact on Company’s cash flow in year ended December 31, 2023 or year ended December 31, 2022. 

 Stock
 Option 
 
 No.
 of Stock Option 
 
 Weighted
 Average Exercise Price 
 
 Weighted-Average 

 Remaining 

 Contractual
 Life 

 (in
 Years) 
 
 December
 31, 2021 
 
 - 
 
 - 
 
 - 
 
 Granted 
 
 2,170,000 
 
 $ 
 5.29 
 
 2.02 
 
 Exercised 
 
 - 
 
 - 
 
 - 
 
 Expired 
 
 - 
 
 - 
 
 - 
 
 Cancelled
 / Forfeited 
 
 - 
 
 - 
 
 - 
 
 December
 31, 2022 
 
 2,170,000 
 
 $ 
 5.29 
 
 2.02 
 
 The
following options were outstanding at their respective exercise price: 

 Schedule
of Options Outstanding 

 Exercise
 price options outstanding 
 December
 31, 2023 
 December
 31, 2022 

 $ 1.56 
 376,510 
 87,500 

 $ 2.58 
 350,000 
 350,000 

 $ 4.00 
 309,500 
 482,500 

 $ 6.67 
 1,250,000 
 1,250,000 

 Total 
 2,286,010 
 2,170,000 

 Restricted
Stock Units (“RSUs”) 

 A
summary of the Company’s RSU activities and related information for the year ended December 31, 2023, is as follows: 

 Schedule
of Restricted Stock Units 

 Restricted
 Stock Units 
 No.
 of RSU 
 Weighted- 
 Average
 Grant 
 Date
 Fair Value 
 Per
 RSU 
 
 Weighted-Average 
 Remaining 
 Contractual
 Life 
 (in
 Years) 
 
 December 31, 2022 
 - 
 $ - 
 $ - 

 Granted 
 1,600,028 
 0.99 
 2.0 

 Exercised 
 ( 1,266,228 ) 
 ( 0.90 ) 
 - 

 Expired 
 - 
 - 
 - 

 Cancelled / Forfeited 
 ( 10,300 ) 
 1.31 
 - 

 December 31, 2023 
 323,500 
 $ 0.47 
 2.0 

 The
following RSU were outstanding at their respective exercise price: 

 Schedule
of Exercise price of Restricted Stock Units 

 Exercise price RSU outstanding 
 December 31,
 2023 
 December 31,
 2022 

 $ 1.31 
 323,500 
 - 

 Total 
 323,500 
 - 

 The
fair value as of the respective vesting dates of RSUs that vested during the year ended December 31, 2023, and December 31, 2022 was
$ 1,140,648 and $ 0 . As of December 31, 2023, there is no unrecognized share-based compensation expense related to RSU awards. 

 Note
24. Subsequent event 

 For the period subsequent to the reporting date up to the date of filing this report, there have been no significant
events that would materially affect the financial position or results of operations as presented in this 10-K. 

 F- 39
SHF Holdings, Inc. 10-K
