What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-13 compared with 2023-11-14 · 473 added, 750 removed, 159 unchanged (88% of the section changed)

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

Looking Statements

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

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

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

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

or the Exchange Act.

All statements other than statements of historical facts contained in this report, including statements regarding

future operations, are forward-looking statements.

In some cases, forward-looking statements may be identified by words such as “believe,”

“may,” “will,” “estimate,” “continue,” “anticipate,” “intend,”

“could,” “would,” “expect,” “objective,” “plan,” “potential,”

“seek,” “grow,” “target,” “if,” and similar expressions intended to identify forward-looking

We have based these forward-looking statements largely on our current expectations and projections about future events and

trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business

operations, objectives, and financial needs.

Forward-looking

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

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

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

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

Given these uncertainties, you should not place undue reliance on

these forward-looking statements.

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

New risks emerge from

time to time.

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

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

statements we may make.

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

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

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

Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual

results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available

in the future.

in this section to “we,” “us,” or “our” refer to SHF Holdings, Inc (herein referred to as the “Company”).

in this section to “we,” “us,” or “our” refer to SHF Holdings, Inc (herein referred to as the

References to “management” refer to our officers and board of managers.

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

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 ten years of experience, SHF is a leading provider of access to reliable and compliance driven banking, lending and

other financial services to financial institutions desiring to provide those services to the cannabis industry.

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

financial institutions:

checking and savings accounts

management accounts

and investment options

services (via third party relationships)

deposit services

Clearing House (ACH) payments and origination

services allow Cannabis Related Businesses (herein referred to as “CRBs”) to obtain services from financial institutions

that allow them to run their business more efficiently and effectively with improved financial insight into their business and access

to resources to help them grow.

Due to limited availability of payment and other banking solutions for the cannabis industry, most businesses

transact with high volumes of cash.

Our fintech platform benefits CRBs and financial institutions by providing CRBs with access to financial

institutions and financial institutions access to increased deposits with the comfort of knowing that those deposits have been compliantly

monitored and validated.

By facilitating the daily deposits of cash receipts between CRBs and financial institutions, the risks associated

with high cash on hand are mitigated, creating a safer atmosphere for the CRB’s employees and the financial institutions at which

the deposit accounts are held.

Because SHF is not a financial institution, SHF does not hold customer deposits.

All deposit accounts

are held by SHF’s financial institution clients and all transmissions of funds to and from deposit accounts are handled directly

by the financial institutions.

In an industry with limited capital and financing options, we offer access to loan options at what we

believe to be competitive rates, often with less punitive terms than the current industry average.

Our financial institution clients

offer loan options including senior secured debt and operating lines of debt.

Collateral types include real estate, equipment, and other

The following discussion

and analysis of our financial performance and results of operations should be read in conjunction with our unaudited condensed

consolidated financial statements.

Looking Statements

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

forward-looking statements.

In some cases, forward-looking statements may be identified by words such as “believe,” “may,”

“will,” “estimate,” “continue,” “anticipate,” “intend,” “could,”

“would,” “expect,” “objective,” “plan,” “potential,” “seek,”

“grow,” “target,” “if,” and similar expressions intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that

we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations,

objectives, and financial needs.

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

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;

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.

Services Platform

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.

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.

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.

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.

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.

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.

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.

Lending Program

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.

We also provide access to lending options for ancillary service providers serving the cannabis industry as these businesses

also can have difficulty finding reliable financial services.

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

institutions in a compliance driven environment ensuring strict adherence to the Bank Secrecy Act/FinCEN guidance and related anti money

laundering provisions.

Since inception, SHF has assisted PCCU in processing more than $20 billion in cannabis related funds and, through

its relationship with PCCU and other financial institutions, SHF has successfully navigated 16 state and federal banking exams.

strategically selected geographic areas, SHF licenses to other financial institutions its proprietary software and Safe Harbor Program

(the “Program”) to provide compliance-related services to CRBs.

As part of the Program, we provide the following to financial

institutions interested in licensing the Program to assist in compliant cannabis banking:

customer due diligence – Know Your Customer

application management

management support

exam assistance

Reorganization

Board of Directors approved the contribution of certain assets and operating activities associated with operations from both the Branches

and Safe Harbor Services (“SHS” or “Oldco”), a wholly-owned subsidiary of PCCU, to SHF Holding, Co., LLC.

Holding, Co., LLC then contributed the same assets and related operations to SHF, LLC with PCCU’s investment in SHF, LLC maintained

at the SHF Holding, Co., LLC level (the “reorganization”).

The reorganization effectively occurred July 1, 2021.

In conjunction

with the reorganization, all of Branches’ employees and certain PCCU employees were terminated from PCCU and hired as SHF, LLC

Collectively, Oldco, the Branches and SHF, LLC represent the “Carved-Out Operations.” After the reorganization,

SHF, LLC contains the entirety of the Carved-Out Operations and Oldco was dissolved.

In addition, effective July 1, 2021, the entity

entered into an Account Servicing Agreement and Support Servicing Agreement which were subsequently amended and restated and then superseded

and replaced in March 2023 by a Commercial Alliance Agreement.

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

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,

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.

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.

February 11, 2022, the Company entered into a Loan Servicing Agreement with PCCU.

The agreement sets forth the application, underwriting

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

and the Company.

For the loans subject to this agreement, the Company underwrites the loans and performs all compliance analysis, credit

analysis of the potential borrower, due diligence and underwriting and all administration, including hiring and incurring the costs of

all related personnel or third-party vendors necessary to perform these services.

PCCU receives a monthly servicing fee at an annual

rate of 0.25% of the then-outstanding principal balance of each loan funded by PCCU.

Under the Loan Servicing Agreement, the Company

has agreed to indemnify PCCU from all claims related to default-related credit losses as defined in the Loan Servicing Agreement.

agreement is for an initial term of three years and will renew for additional one-year terms unless a party provides 120 days’

notice of non-renewal or there is a termination for cause, provided that PCCU may not provide notice of non-renewal until 30 months following

the signing date.

On March 29, 2023, the Company and PCCU entered into the Commercial Alliance Agreement that sets forth the terms and

conditions of the lending-related and account-related services governing the relationship between the Company and PCCU and supersedes

the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing

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

loan policy for loans to CRBs, PCCU’s board of directors has approved aggregate lending limits at the lessor of 131.25% 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.

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.

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.

to the completion of the business combination, the status of PCCU has changed from Parent to majority shareholder of the Company pursuant

to its ownership of 60.8% of the Company.

Company generates both interest income and fee income through providing a variety of services to financial institutions desiring to service

the cannabis industry including, among other things, Bank Secrecy Act and other regulatory compliance and reporting, onboarding, responding

to account inquiries, responding to customer service inquiries relating to CRB depository accounts held at PCCU, and sourcing and managing

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.

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.

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

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

October 26, 2022, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with PCCU and Luminous Capital

(“Luminous”).

As per the terms of the agreement, PCCU has agreed to defer all payments owed pursuant to the Purchase

Agreement for a period of six (6) months from the date hereof while the Parties engage in good faith efforts to renegotiate the payment

terms applicable to the Deferred Obligation (the “Forbearance Period”).

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

Agreement and Public Company Costs

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.

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

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

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

the terms of the Purchase Agreement.

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.

Parent-Entity Net Investment appearing in the balance sheet of the Company amounting to $9,124,297 on the date of business combination

was transferred to additional paid in capital.

prior to the Closing, 20,450 shares of Series A Convertible Preferred were purchased by the PIPE Investors pursuant to the PIPE Securities

Purchase Agreements for an aggregate value of $20,450,000.

The shares of Series A Convertible Preferred were converted into 2,045,000

shares of Class A Common Stock at a purchase price of $10.00 per share of Class A Common Stock.

Twenty (20) percent of the aggregate

value was deposited into a third party escrow account for purposes of paying the PIPE Investors any required Registration Delay Payments.

Upon the filing of the registration statement 10 calendar days subsequent to closing, 17.5% of the escrow amount was released with

the remaining amount once all securities were included in an effective registration statement.

tax purposes, the transaction is treated as a taxable asset acquisition, resulting in an estimated tax basis Goodwill balance of

$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.

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 September 30, 2023,

there were 3,811 preferred shares issued or outstanding and 14,616 preferred shares issued or outstanding on December 31, 2022.

A Common Stock:

The Company is authorized to issue up to 130,000,000 shares of Class A Common Stock with a par value of $0.0001 per

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

As of September 30, 2023, and

December 31, 2022, there were 46,593,317 and 23,732,889 shares, respectively, of Class A Common Stock issued or outstanding.

September 30, 2023, and December 31, 2022, 3,669,504 Class A Common Stock are held by the purchasers under forward purchase agreement

dated June 16, 2022, by and among the Company and such purchasers.

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 unaudited condensed consolidated financial statements, investing requirements

have been summarized as “Parent-Entity Net Investment” and represent equity as no cash settlement with PCCU is required.

No separate equity accounts are maintained for SHS, SHF or the Branches.

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

measures in the operation of our business.

The Company’s commercial lending program is built on:

collateral package requirements with ample loan to value coverage;

underwriting of collateral and creditworthiness of borrower;

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

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.

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.

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

certain measures in the operation of our business.

These key metrics are discussed below.

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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.

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.

have provided a reconciliation of net income (the most directly comparable U.S.

GAAP financial measure) to EBITDA and from EBITDA to

Adjusted EBITDA.

present EBITDA and Adjusted EBITDA because these metrics are a key measure used by our management to evaluate our operating performance,

3 unchanged sentences

in the same manner as our management.

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.

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

of our results as reported under U.S.

Some of these limitations are as follows:

2 unchanged sentences

expenditure requirements;

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

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

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

of these limitations, you should consider EBITDA and Adjusted EBITDA alongside other financial performance measures, including net loss

and our other GAAP results.

and our other U.S.

GAAP results.

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

Three months ended

September 30,

Nine months ended

September 30,

Net (loss) income

Three Months Ended March 31,

Net income/(loss)

$ (1,413,447 )

1 unchanged sentence

Depreciation and amortization

$ (18,334,250 )

Other adjustments –

Provision for credit (benefit) losses

(Benefit)/ Provision for credit losses

Change in the fair value of warrants

Change in the fair value of forward purchase derivatives

Stock option conversion

Impairment of goodwill and finite-lived intangible assets

Change in the fair value of deferred consideration

Stock based compensation

Loan origination fees and costs

Adjusted EBITDA

change in our income on an EBITDA and Adjusted EBITDA basis for the three and nine months ended September 30, 2023, is due to increase

in professional fees on account increase in compliances as well as increases in compensation, employee benefits, marketing, insurance,

and additional items, as discussed under “ Discussion of our Results of Operations ” below.

Other adjustments include

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

The Company had entered

into a Loan Servicing Agreement with PCCU, pursuant to which the Company agreed to indemnify PCCU for claims associated with CRB activities

including any loan default related losses for loans funded by PCCU;

the Loan Servicing Agreement has since been superseded by the Commercial

Alliance Agreement.

the period ended March 31, 2024, our EBITDA income improved primarily as a result of lower General and Administrative expenses and reduced

stock-based compensation.

Additionally, the increase in adjusted EBITDA income during this period was mainly attributed to the decrease

in General and Administrative expenses.

This reduction was driven by lower investment hosting fees, decreased amortization and depreciation

expenses, and reduced business insurance costs.

Additionally, there were decreases in compensation, employee benefits, marketing expenses,

and other insurance costs.

These factors contributing to our financial performance are further discussed 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.

The Company had entered into a Commercial alliance 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.

Deferred loan origination fees and costs represent the change in net deferred loan origination fees and costs.

included with a new loan origination, we receive an upfront loan origination fee in conjunction with new loans funded by our financial

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.

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

Nine months ended September 30

Average monthly ending deposit balance

$ 226,798,931

$ 148,191,118

Average monthly account fees

Average active accounts

Average account balance

Average fees per account

Three months ended September 30

Three months Ended March 31

Average monthly ending deposit balance

1 unchanged sentence

(87,390,151 )

Average monthly account fees

Average active accounts

2 unchanged sentences

the average of monthly ending account balances

the average account activity fee revenue

account activity fee revenue

the average of monthly ending active accounts

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

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

ended September 30, 2022, the average account size and account fees decreased as we experienced some churn of larger clients replaced

by smaller business.

We expect this trend to shift as we lead with our lending program typically requiring borrowers to place deposits

with financial institutions with which we have relationships.

the period ending March 31, 2024, there was a decline in the average number of accounts and fees compared to the previous period, primarily

due to a decrease in clientele following the termination of an agreement with the Central Bank.

We expect this trend to shift as we lead

with our lending program typically requiring borrowers to place deposits with financial institutions with which we have relationships.

are focused on enhancing and growing our lending platform.

11 unchanged sentences

These services are provided under the Safe Harbor Master Program Agreement.

expenses consist of compensation and benefits, professional services, rent expense, parent allocations, provisions for credit losses

and other general and administrative expenses.

expenses consist of compensation and benefits, professional services, rent expense, provisions for credit losses and other general and

administrative expenses.

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

1 unchanged sentence

institutions.

The Company indemnifies PCCU for losses on loans to borrowers sourced by the Company and funded by PCCU.

The Company anticipates

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

The Company indemnifies PCCU and other financial institutions for 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.

general and administrative expenses consist of various miscellaneous items including account hosting fees, insurance expense, advertising

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

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

Nine months ended September 30,

Deposit, activity, onboarding income

Safe Harbor Program income

Investment income

Loan interest income

Total Revenue

fee income consists of deposit account fees, activity fees and onboarding income.

Historically, the Company has charged fees based on

cannabis related deposit account activity.

During 2023, we reduced our fee percentage for cannabis specific accounts in order to ensure

we were competitive with the market and for many accounts implemented a flat fee structure for certain CRB accounts based on historical

and anticipated deposit levels.

In addition, we receive a flat fee and lower rates for ancillary accounts, which are accounts provided

to businesses servicing the cannabis industry in general but do not manufacture, possess, distribute or transport cannabis.

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

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

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.

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

into short term US treasury instruments.

The investment income in our income statement reflects our share of that investment income.

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

in the balances maintained by the customers.

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

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

The loan interest income reflects

our share of loan interest on issued credit.

Loan interest earned on the Company’s direct loans and the indemnified loans increased

as the Company increases its focus on lending.

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

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

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

into both an account servicing agreement and support service agreement.

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

Nine months ended September 30,

Compensation and employee benefits

General and administrative expenses

Professional services

Impairment of goodwill

Impairment of finite lived intangible assets

Provision for credit losses

Total operating expenses

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

and administrative expenses increased across various categories including:

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

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

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

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

ancillary reporting.

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

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

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

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

Three Months Ended September 30,

Deposit, activity, onboarding income

of our Results of Operations —2024 Compared to 2023 (Three Months Ended March 31)

Months Ended March 31,

Deposit, activity,

onboarding income

Safe Harbor Program income

Investment income

Loan interest income

Total Revenue

interest income

fee income consists of deposit account fees, activity fees and onboarding income.

Historically, the Company has charged fees based on

cannabis related deposit account activity.

During 2023, we reduced our fee percentage for cannabis specific accounts in order to ensure

we were competitive with the market and for many accounts implemented a flat fee structure for certain CRB accounts based on historical

and anticipated deposit levels.

In addition, we receive a flat fee and lower rates for ancillary accounts, which are accounts provided

to businesses servicing the cannabis industry in general but do not manufacture, possess, distribute or transport cannabis.

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

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.

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

Abaca acquisition.

In period ended March 2024, PCCU accounted for $1,217,675 of the revenue generated from deposits, activities, and

client onboarding.

Related to this revenue, the Company recognized $104,259 in account hosting expenses, in accordance with the Commercial

Alliance Agreement.

In period ended March 2023, PCCU contributed $1,377,839 to the revenue from similar sources, with account hosting

expenses amounting to $55,425 as per the Loan Servicing Agreement provisions.

These expenses were categorized under “General and

administrative expenses” in the Consolidated Statements of Operations.

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

4 unchanged sentences

result of the reduction in the number of accounts.

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

into short term US treasury instruments.

The investment income in our income statement reflects our share of that investment income.

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

in the balances maintained by the customers.

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.

Under our Commercial Alliance Agreement with PCCU, we pay 25% of the investment income

as a hosting fee based on this income.

In period ended March 2024, the income derived from investment income associated with PCCU totaled

In relation to this income, the Company incurred $160,101 in investment hosting fees, consistent with the stipulations of the

Commercial Alliance Agreement.

In period ended March 2023, PCCU’s contribution to investment income amounted to $1,417,152, against

which the Company recorded investment hosting fees of $323,305, 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.

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

1 unchanged sentence

The loan interest income reflects

our share of loan interest on issued credit.

Loan interest earned on the Company’s direct loans and the indemnified loans increased

as the Company increases its focus on lending.

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

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

Three months ended September 30,

Compensation and employee benefits

General and administrative expenses

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 quarter ended March 31, 2024, SHF serviced twenty two loans, as compared to eight loans in the quarter ended March

In quarter ended March 2024, the Company recognized $1,636,756 in loan interest income attributable to PCCU activities.

expenses for this income included $35,901 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the Commercial

Alliance Agreement.

In quarter ended March 2023, loan interest income from PCCU operations amounted to $466,293, with associated loan

servicing fees totaling $11,929, pursuant to the same agreements.

These expenses were categorized under” General and administrative

expenses” in the Consolidated Statements of Operations.

months Ended March 31,

Compensation and

employee benefits

$ (1,379,482 )

General and administrative

Professional services

Provision (benefit) for credit losses

Total operating expenses

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

and administrative expenses increased across various categories including:

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

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

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

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

ancillary reporting’s.

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

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

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

(Benefit)/provision

for credit losses

operating expenses

$ (2,076,190 )

and employee benefits decreased on account of stock-based compensation and also the decrease in the head count.

expenses has been decreased due to reduction in the number of lease properties.

Provision for credit losses has decreased due to decrease in the loss rate.

and administrative expenses decreased across various categories including:

(i) approximately $163,204 in investment hosting fees, (ii)

approximately $54,169 in advertising and marketing, (iii) $198,056 in amortization and depreciation, and (iv) $46,378 in business insurance.

and cash equivalents

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

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

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

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

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

discussion under “ Discussion of our Results of Operations ” above for more information.

assets and liabilities

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

As of September 30, 2023, SHF reported a

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

$996, respectively.

and cash equivalents totaled $5,626,362 and $4,888,769 as of March 31, 2024 and December 31, 2023, respectively.

the three months ended March 31, 2024, the Company generated $1,475,123

in cash from operations, compared to cash used of $232,040 for the three months ended March 31, 2023.

This improvement was mainly due

to lower operating expenses and the greater number of performing loans at better rates than the previous period.

the three months ended March 31, 2024, the Company generated $3,014 in cash from investing activities, compared to $470,597 for the three

months ended March 31, 2023.

The decrease was primarily due to the repayment of loans by customers in the previous period.

For the three months ended March 31, 2024,

the Company used $740,544 in cash for financing activities, compared to zero cash flow in the corresponding period of 2023.

mainly due to the repayments on the senior secured promissory note during 2024, which was not in place during the three months ended

March 31, 2023.

and going concern

of September 30, 2023, the Company had $8,948,644 cash and net working capital deficit of $9,381,113, as compared to $8,390,195 in cash

and net working capital deficit of $39,340,020 at December 31, 2022.

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

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

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

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

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

statements have been issued.

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

As outlined above, the Company restructured the due to PCCU issuing equity and a long-term payable.

As a result, this risk factor

that the Company may not be able to continue as a going concern which existed at December 31, 2022 was alleviated.

Despite the restructuring

of the due to PCCU, at September 30, 2023, the working capital deficit substantially includes an equity commitment towards the Abaca

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

These factors, however, do not fully remove substantial doubt regarding

the Company’s ability to continue as a going concern.

If the Company is not able to sustain its present level of operations, it

may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail

planned expansion programs.

Any of these actions could materially harm the Company’s business, results of operations and future

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

which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include

any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification

of liabilities that may result should the Company not continue as a going concern as a result of this uncertainty.

Accounting Policies and Estimates

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

Preparing unaudited

condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of

assets, liabilities, revenue, and expenses, as well as disclosure of contingent assets and liabilities.

An appreciation of our critical

accounting policies is necessary to understand our financial results.

In some cases, we could reasonably use different accounting policies

and estimates, and changes in our estimates are reasonably likely to occur from period to period.

Accordingly, actual results could differ

materially from our estimates, and our financial condition or results of operations could be affected.

We base our estimates on our experience

and other assumptions that we believe are reasonable, and we evaluate these estimates on an ongoing basis.

We refer to accounting estimates

of this type as critical accounting policies and estimates, which we discuss further below.

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

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

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.

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.

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 also records revenue for interest on loans and investment income allocated by PCCU based on specific customer balances.

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.

consist of financial institutions providing services to CRBs.

Revenues are concentrated in the United States.

indemnification component of the Loan Servicing Agreement is accounted for in accordance with ASC 460 Guarantees.

In determining the

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

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

In the lending industry,

it is inherently anticipated future credit losses will result from currently issued debt.

SHF’s indemnity obligation is subordinate

to PCCU’s and other financial institution clients’ other means of collecting on the loans including foreclosure of the collateral,

recourse against personal and/or corporate guarantors and other default remedies available in the loan agreements.

Since borrowers are

not party to the agreement between SHF and PCCU, any indemnity payments do not relieve borrowers of their obligation to PCCU nor would

such payments preclude PCCU’s right to future recoveries from the debtor.

Therefore, as defined in ASC 460, the indemnification

clause represents a general loss contingency in that it is an existing condition, situation or set of circumstances involving uncertainty

as to possible loss to the Company that will ultimately be resolved when one or more future events occur or fail to occur.

indemnity liability reflects SHF management’s estimate of probable credit losses inherent under the agreement at the balance sheet

Management uses a disciplined process and methodology to establish the liability, and the estimates are sensitive to risk ratings

assigned to individual loans covered by the agreement as well as economic assumptions driving the estimation model.

Individual loan risk

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

addition to default-related credit losses, SHF continuously monitors all other circumstances pursuant to the agreement and identifies

events that may necessitate a loss contingency under the Loan Servicing Agreement;

the Loan Servicing Agreement has since been superseded

by the Commercial Alliance Agreement.

A loss contingency is reported when it is both probable that a future event will confirm that a

loss had been incurred on or before the related balance sheet date and the loss is reasonably estimable.

2022 Plan (“Equity Incentive Plan”) was approved by the Company’s stockholders on June 28, 2022.

The 2022 Plan permits

the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units,

stock bonus awards, and performance compensation awards.

The Company has not issued stock appreciation rights, restricted stock, stock

bonus awards, or performance compensation awards in years 2023 and 2022.

In conjunction with the 2022 Plan, as of September 30, 2023,

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

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

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

The Company’s stock options

generally have a 10-year contractual term.

Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock

Compensation.

The Company’s stock-based compensation cost is measured based on the fair value at the grant date of the stock-based

It is recognized as expense on a straight-line basis over the requisite service period for the entire award.

Forfeitures are recognized

as they occur.

The Company estimates the fair value of each stock-based award on its measurement date using either the current market

price of the stock or Black-Scholes option valuation model, whichever is most appropriate.

The Black-Scholes valuation model incorporates

assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend

yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s

experience with similar instruments.

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

shares of the Company have been listed on the stock exchange for a limited period of the time and also the stock price has dropped significantly

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

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

Treasury rates for securities with maturities approximating the awards’ expected

The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and

vesting period the awards.

The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate

paying any in the foreseeable future.

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 March 31, 2024, the Company reports

no significant commitments to capital investments.

of March 31, 2024, the Company had $5,626,362 in cash and net working capital of $318,825, as compared to $4,888,769 in cash and net

working capital deficit of $135,355 as at December 31, 2023.

The retained deficit was $70,386,394 on March 31, 2024, and $71,569,821

on December 31, 2023.

The Company has also generated operating income of $324,941 for the period ended March 31, 2024.

the period ending March 31, 2024, the Company reported positive operating income and net working capital.

However, considering the historical

data from the four preceding quarters, where the Company experienced negative operating income and negative net working capital, management

acknowledges the need to closely evaluate the financial performance in upcoming quarters to mitigate any going concern risks.

31, 2024, due to these historical trends, there is substantial doubt about the Company’s ability to continue as a going concern

for at least twelve months from the date these unaudited condensed consolidated financial statements were issued.

the Company is not able to sustain its present level of operations, it may be forced to make reductions in spending, extend payment terms

with suppliers, liquidate assets where possible, or suspend or curtail planned expansion programs.

Any of these actions could materially

harm the Company’s business, results of operations and future prospects.

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

concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do

not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and

classification of liabilities that may result should the Company not continue as a going concern as a result of this

Accounting Estimates

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

unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported

amounts of assets, liabilities, revenue, and expenses, as well as disclosure of contingent assets and liabilities.

An appreciation

of our critical accounting policies is necessary to understand our financial results.

In some cases, we could reasonably use

different accounting policies and estimates, and changes in our estimates are reasonably likely to occur from period to period.

Accordingly, actual results could differ materially from our estimates, and our financial condition or results of operations could

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:

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.

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.

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

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

Conversely, a decrease in PD would lower the required indemnity liability, reflecting a more favorable risk outlook.

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.

conjunction with the 2022 Plan, as of March 31, 2024, the Company had granted stock options and restricted stock units which are described

in more detail below:

Company awards stock options to incentivize employee ownership and performance, applying ASC 718 for equity-based payments.

with a 10-year term with their fair value determined at the grant date, considering either market price or the Black-Scholes model.

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

The expected option term is derived using the simplified method, averaging the contractual term and vesting period.

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.

Stock Units / Restricted Stock Awards

Stock Units / Restricted Stock Awards are awarded to encourage ownership of the Company’s common stock by employees and to provide

increased incentive for employees to render services and to exert maximum effort for the success of the Company.

The option exercise

price, vesting schedule and exercise period are determined for each grant by the administrator (committee appointed by board to administer

the stock plans) of the applicable plan.

Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock

Compensation.

The Company’s stock-based compensation cost is measured based on the fair value at the grant date of the stock-based

It is recognized as expense on a straight-line basis over the requisite service period for the entire award.

Forfeitures are recognized

as they occur.

The Company estimates the fair value of each stock-based award on its measurement date using either the current market

price of the stock or Black-Scholes option valuation model, whichever is most appropriate.

The Black-Scholes valuation model incorporates

assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend

yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s

experience with similar instruments.

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

shares of the Company were listed on the stock exchange for a limited period of the time and also the stock price has dropped significantly

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

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

Treasury rates for securities with maturities approximating the awards’ expected

The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and

vesting period the awards.

The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate

paying any in the foreseeable future.

Company values equity-based payments under ASC 718, using fair value at grant date for stock awards, recognizing expenses over the service

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

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.

Purchase Agreement

June 16, 2022, NLIT entered into a Forward Purchase Agreement with Midtown East Management NL, LLC (“Midtown East”).

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:

to the business combination, Midtown East, Verdun and Vellar purchased approximately 3.8 million shares of NLIT Class A common stock

directly from investors at market price in the public market.

Midtown East and other counter parties waived their redemption rights

with respect to the acquired shares;

business day following the Closing, NLIT paid approximately $39.3 million from the cash held in its trust account to Midtown East;

Verdun and Vellar for the shares purchased and approximately $0.3 million in related expense amounts.

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

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

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

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

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

If Midtown East, Verdun and

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

and paid to SHF.

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

the Maturity Date, Midtown East, Verdun and Vellar shall be entitled to (1) the product of the shares then held by them multiplied

by the Forward Price, and (2) an amount, in cash or shares at the sole discretion of NLIT, equal to (a) in the case of cash, the

product of(i)(x) 3.8 million shares less (y) the number of Terminated Shares and (ii) $2.00 (the “Maturity Cash Consideration”)

and (b) in the case of shares, (i) the Maturity Cash Consideration divided by (ii) the VWAP Price for the 30 Scheduled Trading Days

prior to the Maturity Date.

trading value of the common stock combined with preferred shareholders electing to convert their preferred shares to common stock

triggered a lower reset price embedded in the forward purchase agreement, or FPA.

As of December 31, 2022, the Company had already

called a special meeting to lower the make-whole price under the preferred share purchase agreement to $1.25/share.

majority common shareholders and the preferred investors had entered into a voting agreement whereby the vote to approve the $1.25/share

make-whole price was secured.

Knowing the Company would ultimately be issuing shares to the preferred stockholders with a make whole

issuance at $1.25/share compelled the company to recognize a reset price under the terms of the FPA of $1.25/share.

significantly reduced the FPA receivable to approximately $4.6 million, from approximately $37.9 million reported at the end of the

September 2022 quarter.

The loss in value resulted not only in a compression of the balance sheet, but also $42.3 million charge

to other expense on the statement of operations.

for Credit Losses (ACL)

2023, the Company adopted Accounting Standards Codification Topic 326 - Financial Instruments - Credit Losses (ASC Topic 326), which

replaced the incurred loss methodology for estimated probable credit losses with an expected credit loss methodology that is referred

to as the current expected credit loss (“CECL”) methodology.

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.

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

ACL consists of two components:

an asset-specific component for estimating credit losses for individual loans that do not share similar

risk characteristics with other loans;

and a pooled component for estimating credit losses for pools of loans that share similar risk

characteristics.

The ACL for the pooled component is derived from an estimate of expected credit losses primarily using an expected loss

methodology that incorporates risk parameters such as probability of default (“PD”) and loss given default (“LGD”)

which are derived from various vendor models and/or internally developed model estimation approaches for smaller homogenous loans.

is projected in these models or estimation approaches using economic scenarios, whose outcomes are weighted based on the Company’s

economic outlook and are developed to incorporate relevant information about past events, current conditions, and reasonable and supportable

The Company considers relevant current conditions and reasonable and supportable forecasts that relate to its lending practices

and environment and the specific borrower and determines that the significant factor affecting the loan’s performance is the fact

that these borrowers are involved in the cannabis business.

Despite being legal at the state level in certain jurisdictions, cannabis

remains federally illegal in the United States as of the date of this memorandum.

As cannabis related lending is a new practice in the

United States, there is very little historical or industry data on which to base a loss forecast.

Therefore, significant judgement is

required in creating a reasonable loss estimate, using similar non-MRB loans as a baseline and adjusting for the inherent risks in the

cannabis industry.

While the Company considers other qualitative factors, including national macroeconomic conditions, in its overall

risk analysis, it has determined that they are not significant inputs to the overall loss estimate calculations.

ACL estimation process applies an economic forecast scenario, or a composite of scenarios based on management’s judgment and expectations

around the current and future macroeconomic outlook.

Expected credit losses are estimated over the contractual term of the loans, adjusted

for expected prepayments when appropriate.

The contractual term of a loan excludes expected extensions, renewals, and modification under

certain conditions.

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.

of Goodwill and Finite-lived intangible assets

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

net identifiable assets acquired.

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

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

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

Under the agreement,

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

needs of cannabis related businesses primarily located in Arkansas.

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

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

on customer operations.

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

early termination penalties.

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

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

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

and sustainability.

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

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

Company engaged a third-party valuation specialist to assist in the performance of the impairment analysis of the goodwill.

For the interim

quantitative goodwill impairment analysis performed as of September 30, 2023, the Company utilized an equally weighted combination of

both an income and market approach to determine the fair value of the goodwill.

The income approach utilizes a discounted cash flow method

which is based on the present value of projected cash flows.

The discounted cash flow models reflect company’s assumptions regarding

revenue growth rates, risk-adjusted discount rate, terminal period growth rate, economic and market trends and other expectations about

the anticipated operating results of the goodwill.

Under the market approach, the Company estimates the fair value based on market multiples

of revenues derived from comparable publicly traded companies with operating characteristics similar to the Company.

As a result of the

interim goodwill impairment analysis, the goodwill was determined to have a carrying value that exceeded its fair value and therefore,

a $13.21 million noncash goodwill impairment charge was recognized in the Company’s unaudited condensed consolidated statements

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

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

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

will prove to be an accurate prediction of future results.

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

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

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

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

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

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

December 31, 2022

Goodwill impairment

(13,208,276 )

September 30, 2023

of September 30, 2023, our accumulated goodwill impairment was $13,208,276.

intangible assets

Company reviews its finite-lived intangible assets when there is a triggering event.

The Company perform impairment test by comparing

the fair value of finite lived intangible assets to the carrying value.

In the event the carrying value exceeds the fair value of the

assets, the assets are written down to their fair value.

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

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

order to evaluate the fair value of the finite-lived intangible assets, a royalty method was applied for market related intangibles,

a discounted cash flow method applied for customer relationships and a cost to re-create method for developed technologies.

the Company determined that the fair value of market related intangibles and developed technologies were less than the carrying value

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 for the period ended March 31, 2024 and year ended 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.

Purchase Derivative

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,

In 2022, the company fully accounted for the maximum contractual liability.

Through March 31, 2024, there were no notable shifts

in risk factors that would impact the values of FPA derivatives.

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.

For the fiscal year ending December 31, 2023, and the first quarter ending March 31, 2024, the Company shifted its

approach to valuing Private Placement and PIPE (Private Investment in Public Equity) Warrants from relying on external third-party reports

to conducting in-house evaluations.

This internal assessment strategy utilizes Level 3 inputs, which are based on data that is not observable

in the market, contrasting with the method used in the quarter ending March 31, 2023, where the valuation was grounded on third-party

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.

consideration

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

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 .

The Company recognized an impairment charge of $0 and $3.68 million in the unaudited condensed consolidated statements

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

There was no impairment recognized for developed technologies as

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

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

Remaining Useful life in Years

December 31, 2022

Acquired in Acquisition

Market related intangible assets

Customer relationships

Developed technology

Total intangible assets

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

Remaining Useful life in Years

December 31, 2021

Acquired in Acquisition

December 31, 2022

Market related intangible assets

Customer relationships

Developed technology

Total intangible assets

Growth Company Status

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 unaudited condensed consolidated financial statements may not be comparable to companies that do not elect

JOBS Act relief or choose to early adopt different accounting pronouncements than SHF.

are an “emerging growth company,” or “EGC”, as defined in the Jumpstart Our Business Startups Act of 2012 (the

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.

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.

Control Over Financial Reporting

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

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

Recognition, Complex Financial Instruments and Credit Losses.

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

connection with our management assessment of internal control over financial reporting as of and for the three months ended March 31,

2024, the Company has identified two (2) material weaknesses within our internal controls associated with Revenue Recognition and Complex

Financial Instrument.

Refer to Item 9A of this Quarterly Report on Form 10-Q for additional details.

Party Relationships

22 unchanged sentences

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

For the loans that are subject to this agreement, SHF originates the loans and performs all compliance analysis, credit analysis

of the potential borrower, due diligence and underwriting and all administration, including hiring and incurring the costs of all related

personnel or third-party vendors necessary to perform these services.

Under the Loan Servicing Agreement, SHF has agreed to indemnify

PCCU from all claims related to default-related credit losses as defined in the Loan Servicing Agreement.

This agreement was replaced

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

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.

Alliance Agreement

14 unchanged sentences

for a loan funded by PCCU pursuant to the Commercial Alliance Agreement.

Under the Commercial Alliance Agreement, PCCU receives a servicing

fee at the annual rate of 0.25% of the then-outstanding principal balance of each loan funded by PCCU and serviced by the Company, and

a servicing fee at the annual rate of 0.35% of the then outstanding principal balance of each loan presented by the Company and both

funded and serviced by PCCU.

In addition, the Company’s is obligated by the Commercial Alliance Agreement to indemnify PCCU from

certain default-related loan losses (as fully defined in the Commercial Alliance Agreement).

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).

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

11 unchanged sentences

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

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

CRB related balance

below schedule demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits on March 31, 2024 and December

March 31, 2024

December 31, 2023

CRB related deposits

$ 106,692,488

7 unchanged sentences

Incremental capacity

$ 154,971,429

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

September 30, 2023, and September 30, 2022:

September 30, 2023

Nine months ended

March 31, 2024, and March 31, 2023:

Three months ended

March 31, 2024

Three months ended

March 31, 2023

Account Servicing Agreement

Commercial Alliance Agreement

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

30, 2023, and September 30, 2022:

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

31, 2024, and March 31, 2023:

Three months ended

March 31, 2024

Three months ended

March 31, 2023

Support Services Agreement

2 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk.

Holdings, Inc.

is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information

otherwise required with respect to market risk.

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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis