What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-14 · 309 added, 260 removed, 280 unchanged (67% of the section changed)

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

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

to as the “Company”).

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

The following discussion

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

financial statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion and analysis of our financial condition and results of operations should be read together with our unaudited Condensed

Consolidated Financial Statements and the related notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

the context otherwise requires, references in this section to “we,” “us,” or “our” refer to SHF Holdings,

Inc and its subsidiaries (herein referred to as the “Company”).

References to “management” refer to our officers

and Board of Directors.

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.

Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as

amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements generally relate to future events

or our future financial or operating performance and may include statements concerning, among other things, our business strategy (including

anticipated trends and developments in, and management plans for, our business and the markets in which we operate), financial results,

results of operations, revenues, operating expenses, and capital expenditures, sales and marketing initiatives and competition.

cases, you can identify forward-looking statements because they contain words such as “may,” “might,” “will,”

“should,” “expects,” “plans,” “anticipates,” “could,” “intends,”

“target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,”

“suggests,” “potential” or “continue” or the negative of these words or other similar terms or expressions

that concern our expectations, strategy, plans or intentions.

These statements are not guarantees of future performance;

our current views with respect to future events and are based on assumptions and are subject to known and unknown risks, uncertainties

and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results

projected or implied by forward-looking statements.

discuss many of these risks in other filings we make from time to time with the SEC.

Also, these forward-looking statements represent

our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, which are inherently subject to change and involve

risks and uncertainties.

Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements,

or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur

after the statements are made.

Given these uncertainties, investors should not place undue reliance on these forward-looking statements.

should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the SEC, including

our Annual Report on Form 10-K, filed with the SEC on April 1, 2024, with the understanding that our actual future results may be materially

different from what we expect.

We qualify all of our forward-looking statements by these cautionary statements.

provide services to a variety of cannabis-industry participants in 41 states, including financial institutions that support business

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Our services include, among other things:

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;

compliance consulting and software enabled service 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;

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

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Our software enabled services access and maintain reliable financial information to

enable both our financial institution clients and our the CRB clients to meet regulatory requirements.

enable both our financial institution clients and our CRB clients to meet regulatory requirements.

Our platform has been streamlined

and fine-tuned 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.

and fine-tuned since 2014.

Our software platform enables the Company’s staff to efficiently guide financial institution clients

and CRBs desiring banking services through the onboarding, validation and monitoring process.

Our automated platform provides for an

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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.

solidifies our ability to continue to grow existing services while simultaneously reducing barriers to expanding into new service offerings.

Company maintains relationships with PCCU and other financial institutions in which CRBs’ funds are deposited and monetary transactions

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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.

Company earns income on deposit activity and onboarding fees, which have historically been the majority of our revenue, based on CRB

client’s initial onboarding and continuing deposit activity we facilitate between the CRB and our financial institution clients.

When we help establish a new relationship between a CRB or ancillary service provider with our financial institution clients 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 fees monthly based on the frequency and amount of deposit activity fees of our CRB client..

fees are also based on business type and size.

Monitoring and validating deposit activity is paramount to the success of the Company’s

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.

financial institution’s core banking systems to monitor account activity for those accounts the Company facilitated the onboarding.

Company earns income on deposit activity and from onboarding fees, which have historically been the majority of our revenue.

help establish a new relationship between a CRB or ancillary service provider with our financial institution clients for which the Company

provides its onboarding services, an initial onboarding fee is assessed based on the type and complexity of the business.

is an important part of the KYC requirements set forth in federal guidance.

Additionally, the Company assesses fees monthly based on

the frequency and amount of deposit activity fees of the applicable CRB client.

These fees are also based on business type and size.

Company earns investment income based on the balances maintained on deposit by our CRB clients with our financial institution clients.

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for facilitating the investment activity.

Under our Commercial Alliance Agreement with PCCU, the Company pays 25% of the investment income

as a hosting cost of revenue fee to PCCU based on the earned investment income from the CRB deposit balances maintained at PCCU.

its relationship with PCCU, depository amounts invested are typically restricted to low-risk assets with high liquidity and modest returns.

The investment income is significantly influenced by the levels of CRB deposits and the prevailing interest rate environment for cash

and similar assets.

We believe that fees based on deposits that we onboard and interest on the daily balance less cash used to collateralize

our loan portfolios maintained with financial institutions will represent a significant portion of our revenue by 2024.

Under our PCCU CAA, the Company pays 25% of the investment income as a hosting cost of revenue

fee to PCCU based on the earned investment income from the CRB deposit balances maintained at PCCU.

Through its relationship with PCCU,

depository amounts invested are typically restricted to low-risk assets with high liquidity and modest returns.

The investment income

is significantly influenced by the levels of CRB deposits and the prevailing interest rate environment for cash and similar assets.

Lending Program

We earn interest income from lending activity we facilitate between our CRB clients and our financial institution clients.

CRB deposits onboarded by the Company and held at PCCU provide a strong foundation for lending capacity.

In 2020, the Company launched

a commercial lending program, that has developed to be our largest revenue component by value and percentage.

The program focuses on

senior secured lending, with smaller unsecured loans also being considered.

Collateral types include real estate, equipment, and other

business assets.

The commercial lending program is built on:

Stringent collateral package requirements with substantial loan-to-value coverage;

Rigorous underwriting of collateral and borrower creditworthiness;

In-depth knowledge of the industry, borrowers’ operations, and the cannabis industry business cycle.

lending is primarily funded through PCCU using CRB deposits balances onboarded by the Company.

The Company is seeking relationships with

additional financial institutions and other sources of working capital to directly fund the loans.

The Company’s lending program

is tailored to the unique needs of CRBs, achieving strong returns on high-quality loans.

The Company in collaboration with third parties

manages loan underwriting and loan servicing.

As the program develops, the Company intends to establish a full-service internal lending

function to perform a larger percentage of the underwriting and servicing activities, improve efficiency and increase profitability of

this revenue element.

believe our creative and methodical approach in building the Company’s platform has enabled national business scaling.

The platform’s

policies, training, monitoring, and processes are well established and supported by expert talent.

We anticipate this combination of

intellectual property plus human capital talent will provide a competitive advantage as we focus on continued growth.

We earn interest income from lending activity we facilitate between our CRB clients and our financial institution clients and to a lesser

extent, direct lending by the Company.

The robust CRB deposits onboarded by the Company and held at PCCU provide a strong foundation

for lending capacity.

In 2020, the Company launched a commercial lending program that has developed to be our largest revenue component

by value and percentage.

The program focuses on senior secured lending, with smaller unsecured loans also being considered.

types include real estate, equipment, and other business assets.

lending is primarily funded through PCCU.

The Company is seeking relationships with additional financial institutions and other sources

of working capital to directly fund the loans.

The Company, in collaboration with third parties manages loan underwriting and loan servicing.

As the program develops, the Company intends to establish a full-service internal lending function to perform a larger percentage of

the underwriting and servicing activities, improve efficiency and increase profitability of this revenue element.

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

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Net (loss)/income

$ (19,766,081 )

$ (19,018,014 )

Interest expense

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$ (18,915,565 )

$ (18,677,843 )

Other adjustments –

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Adjusted EBITDA

the period six months and three months ended June 30, 2024, our EBITDA income improved primarily as a result of 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 has 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

the three and nine months ended September 30, 2024, our EBITDA income improved primarily as a result of decrease in General and Administrative

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 has entered into a Commercial Alliance Agreement with PCCU (referred to as “PCCU CAA”), 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.

When included

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

partners and incur costs associated with originating a specific loan.

For accounting purposes, the cash received for loan origination

fees and costs is initially deferred and recognized as interest income utilizing the interest method.

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

institution partners and incur costs associated with originating a specific loan.

For accounting purposes, the cash received for loan

origination fees and costs is initially deferred and recognized as interest income utilizing the interest method.

our business operations, we monitor the following key metrics.

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fees per average active accounts managed

a significant amount of our fees is generated from account openings, active accounts and account activity.

a significant amount of our fees are generated from account openings, active accounts and account activity.

As a result, we monitor account

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

Six months ended June 30,

Three months ended September 30,

Average monthly ending deposit balance

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Average fees per account

Three months ended June 30,

Nine months ended September 30,

Average monthly ending deposit balance

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

the six months ended June 30, 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.

the nine months ended September 30, 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 of Arkansas.

We expect this

trend to shift as we lead with our lending program typically requiring borrowers to place deposits with financial institutions with which

we have relationships.

are focused on enhancing and growing our lending platform.

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of our Results of Operations

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

its banking services to CRBs including, among other things, Bank Secrecy Act and other regulatory compliance and reporting, onboarding,

responding to account inquiries, responding to customer service inquiries relating to CRB deposit accounts held at financial institution

clients, and sourcing and originating loans.

In addition, the Company provides these similar services and outsourced support to other

financial institutions providing banking to the cannabis industry.

Company generates interest and fee income by providing a variety of services to PCCU and other financial institutions to facilitate its

banking services to CRBs including, among other things, Bank Secrecy Act and other regulatory compliance and reporting, onboarding, responding

to account inquiries, responding to customer service inquiries relating to CRB deposit accounts held at financial institution clients,

and sourcing and originating loans.

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

institutions providing banking to the cannabis industry.

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

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

of our Results of Operations —2024 Compared to 2023 (Six Months Ended June 30)

Six Months Ended June 30,

of our Results of Operations —2024 Compared to 2023 (Nine Months Ended September 30)

Nine Months Ended September 30,

Deposit, activity, onboarding income

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Abaca acquisition.

In the six months ended June 30, 2024, PCCU accounted for $2,424,598 of the revenue generated from deposits, activities,

and client onboarding.

Related to this revenue, the Company recognized $277,721 in account hosting expenses, in accordance with the Commercial

Alliance Agreement.

In the six months ended June 30, 2023, PCCU contributed $2,763,684 to the revenue from similar sources, with account

hosting expenses amounting to $116,258 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 services to the cannabis

our Commercial Alliance Agreement with PCCU, we pay 25% of the investment income as a hosting fee based on this income.

In the six months

ended June 30, 2024, the income derived from investment income associated with PCCU totaled $1,166,663.

In relation to this income, the

Company incurred $277,721 in investment hosting fees, consistent with the stipulations of the Commercial Alliance Agreement.

months ended June 30, 2023, PCCU’s contribution to investment income amounted to $2,837,694, against which the Company recorded

investment hosting fees of $704,732, as governed by the terms of the Loan Servicing Agreement.

In the nine months ended September 30, 2024, PCCU accounted for $3,778,633 of the revenue generated from deposits,

activities, and client onboarding.

Related to this revenue, the Company recognized $356,369 in account hosting expenses, in accordance

with the PCCU CAA.

In the nine months ended September 30, 2023, PCCU contributed $4,051,353 to the revenue from similar sources, with

account hosting expenses amounting to $170,987 as per the Loan Servicing Agreement provisions.

These expenses were categorized under

“General and Administrative Expenses” in the Consolidated Statements of Operations.

previously had a Loan Servicing Agreement with PCCU (related party) which has since been superseded by the Commercial Alliance Agreement.

The loan interest income reflects our share of loan interest on issued loans.

We are obligated to pay 0.35% on the total outstanding

principal of each loan that is funded and serviced by PCCU.

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

loans grew as the Company increased its focus on lending.

For the six months ended June 30, 2024, SHF serviced twenty-four loans, as

compared to twelve loans in the six months ended June 30, 2023.

In six months ended June 2024, the Company recognized $3,472,848 in loan

interest income attributable to PCCU activities.

The related expenses for this income included $72,057 in loan servicing fees, in compliance

with both the Loan Servicing Agreement and the Commercial Alliance Agreement.

In six months ended June 2023, loan interest income from

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

our Commercial Alliance Agreement with PCCU (“PCCU CAA”), we pay 25% of the investment income as a hosting fee based on this

In the nine months ended September 30, 2024, the income derived from investment income associated with PCCU totaled $1,601,611.

In relation to this income, the Company incurred $374,591 in investment hosting fees, consistent with the stipulations of the PCCU CAA.

In the nine months ended September 30, 2023, PCCU’s contribution to investment income amounted to $4,051,353, against which the

Company recorded investment hosting fees of $978,671, 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.

previously had a Loan Servicing Agreement with PCCU (related party) which has since been superseded by the PCCU CAA.

The loan interest

income reflects our share of loan interest on issued loans.

We are obligated to pay 0.35% on the total outstanding principal of each

loan that is funded and serviced by PCCU.

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

the Company increased its focus on lending.

For the nine months ended September 30, 2024, SHF serviced twenty-four loans, as compared

to twelve loans in the nine months ended September 30, 2023.

In nine months ended September 2024, the Company recognized $4,814,349 in

loan interest income attributable to PCCU activities.

The related expenses for this income included $106,946 in loan servicing fees,

in compliance with both the Loan Servicing Agreement and the PCCU CAA.

In nine months ended September 2023, loan interest income from

PCCU operations amounted to $1,977,337, with associated loan servicing fees totaling $53,790, pursuant to the same agreements.

expenses were categorized under “General and administrative expenses” in the Consolidated Statements of Operations.

Six months ended June 30,

Nine months ended September 30,

Compensation and employee benefits

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$ (21,319,897 )

and employee benefits decreased in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 on account of stock-based

compensation and also related to a reduction in force.

expenses decreased in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to reduction in the number

of lease properties.

Provision for credit losses decreased in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to a decrease

in the estimated loss rate.

the six months ended June 30, 2024, general and administrative expenses decreased across various categories including:

and employee benefits decreased in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 on account

of stock-based compensation and also related to a reduction in force.

expenses decreased in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to reduction

in the number of lease properties.

Provision for credit losses increased in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

due to increase in loan portfolio amount .

the nine months ended September 30, 2024, general and administrative expenses decreased across various categories including:

i) approximately

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due to the reduction in the gross value of intangible assets from impairment recorded in 2023.

of our Results of Operations —2024 Compared to 2023 (Three Months Ended June 30)

Three Months Ended June 30,

income /(expenses)

Nine months ended September 30,

Change in the fair value of deferred consideration

Interest expense

Change in fair value of warrant liabilities

$ (1,962,577 )

the nine months ended September 30, 2024, the fair value of deferred consideration decreased by $908,574.

This reduction was due to a

decline in the fair value adjustment on the stock and cash consideration payable to the Abaca shareholders, as a result of payments made

before the end of 2023, and a decrease in the share price as of September 30,2024, which affected the fair value of the third anniversary

interest expenses decreased by $551,135, primarily due to the elimination of the interest component on the deferred cash consideration

payable to the PCCU related to the business combination, which was settled and restructured at the end of the first quarter of 2023.

change in the fair value of warrant liabilities by $3,173,843 was attributable to the decrease in the share price.

for income taxes

Nine months ended September 30,

Income tax benefit/ (expense), net

$ (1,255,062 )

provision for income taxes in the nine months ended September 30, 2024 increased $1,255,062, compared to the same period in 2023, due

to an increase in income before provision for income taxes.

of our Results of Operations —2024 Compared to 2023 (Three Months Ended September 30)

Three Months Ended September 30,

Deposit, activity, onboarding income

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Abaca acquisition.

In the three months ended June 30, 2024, PCCU accounted for $1,206,922 of the revenue generated from deposits, activities,

and client onboarding.

Related to this revenue, the Company recognized $121,108 in account hosting expenses, in accordance with the Commercial

Alliance Agreement.

In the three months ended June 30, 2023, PCCU contributed $1,385,845 to the revenue from similar sources, with account

hosting expenses amounting to $60,833 as per the Loan Servicing Agreement provisions.

These expenses were categorized under “General

and administrative expenses” in the Consolidated Statements of Operations.

In the three months ended September 30, 2024, PCCU accounted for $1,354,036 of the revenue generated from deposits,

activities, and client onboarding.

Related to this revenue, the Company recognized $131,002 in account hosting expenses, in accordance

with the PCCU CAA.

In the three months ended September 30, 2023, PCCU contributed $1,287,669 to the revenue from similar sources, with

account hosting expenses amounting to $54,729 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.

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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 the three months ended June 30, 2024, the income derived from investment income associated

with PCCU totaled $435,238.

In relation to this income, the Company incurred $117,620 in investment hosting fees, consistent with the

stipulations of the Commercial Alliance Agreement.

In three months ended June 30, 2023, PCCU’s contribution to investment income

amounted to $1,420,542, against which the Company recorded investment hosting fees of $381,427, 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.

Under our Commercial Alliance Agreement with PCCU (“PCCU CAA”), we pay

25% of the investment income as a hosting fee based on this income.

In the three months ended September 30, 2024, the income derived

from investment income associated with PCCU totaled $434,949.

In relation to this income, the Company incurred $96,870 in investment

hosting fees, consistent with the stipulations of the PCCU CAA.

In three months ended September 30, 2023, PCCU’s contribution to

investment income amounted to $1,186,246, against which the Company recorded investment hosting fees of $273,939, 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

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

The loan interest income reflects

our share of loan interest on issued loans.

We are obligated to pay 0.35% on the total outstanding principal of each loan that is funded

and serviced by PCCU.

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

its focus on lending.

For the quarter ended June 30, 2024, SHF serviced twenty-four loans, as compared to twelve loans in the quarter

ended June 30, 2023.

In the quarter ended June 30, 2024, the Company recognized $1,836,093 in loan interest income attributable to PCCU

Related expenses for this income included $36,156 in loan servicing fees, in compliance with both the Loan Servicing Agreement

and the Commercial Alliance Agreement.

In the quarter ended June 30, 2023, loan interest income from PCCU operations amounted to $604,831,

with associated loan servicing fees totaling $16,741, pursuant to the same agreements.

These expenses were categorized under “General

and Administrative Expenses” in the Consolidated Statements of Operations.

Three months ended June 30,

the Loan Servicing Agreement has since been superseded by the PCCU CAA.

The loan interest income reflects our share of loan

interest on issued loans.

We are obligated to pay 0.35% on the total outstanding principal of each loan that is funded and serviced by

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 September 30, 2024, SHF serviced twenty-four loans, as compared to twelve loans in the quarter ended September

In the quarter ended September 30, 2024, the Company recognized $1,341,501 in loan interest income attributable to PCCU activities.

Related expenses for this income included $34,889 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the

In the quarter ended September 30, 2023, loan interest income from PCCU operations amounted to $906,213, with associated loan

servicing fees totaling $25,120, pursuant to the same agreements.

These expenses were categorized under “General and Administrative

Expenses” in the Consolidated Statements of Operations.

Three months ended September 30,

Compensation and employee benefits

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Professional services

Impairment of goodwill

(13,208,276 )

Impairment of finite lived intangible assets

(Benefit)/provision for credit losses

Total operating expenses

$ (1,859,164 )

and employee benefits decreased in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 on account of

stock-based compensation and the decrease in the headcount.

expenses decreased in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to reduction in the number

of lease properties.

Provision for credit losses decreased in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to

a decrease in the loss rate.

the three months ended June 30, 2024, general and administrative expenses decreased across various categories including:

and employee benefits decreased in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 on

account of stock-based compensation and the decrease in the headcount.

expenses decreased in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to reduction

in the number of lease properties.

Provision for credit losses increased in the three months ended September 30, 2024 compared to the three months ended September 30, 2023

due to increase in loan portfolio amount.

the three months ended September 30, 2024, general and administrative expenses decreased across various categories including:

i) approximately

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due to the reduction in the gross value of intangible assets from impairment recorded in 2023.

income /(expenses)

Three months ended September 30,

Change in the fair value of deferred consideration

Interest expense

Change in fair value of warrant liabilities

$ (1,217,575 )

the three months ended September 30, 2024, the fair value of deferred consideration decreased by $128,496.

This reduction was due to

a decline in the fair value adjustment on the stock and cash consideration payable to the Abaca shareholders, as a result of payments

made before the end of 2023, which affected the fair value of the third anniversary payment.

change in the fair value of warrant liabilities by $1,275,007 was attributable to the decrease in the share price.

for income taxes

Three months ended September 30,

Income tax benefit/ (expense), net

provision for income taxes in the three months ended September 30, 2024 decreased by $55,104, compared to the same period in 2023, due

to an increase in income before provision for income taxes.

and cash equivalents

and cash equivalents totaled $6,111,982 and $4,888,769 as of June 30, 2024 and December 31, 2023, respectively.

the six months ended June 30, 2024, the Company generated $2,704,637 in cash from operations, compared to cash used of $964,786 for the

six months ended June 30, 2023.

This improvement was mainly due to lower operating expenses and the greater number of performing loans

at better interest rates than the previous period.

the six months ended June 30, 2024, the Company generated $6,083 in cash from investing activities, compared to $813,686 for the six

months ended June 30, 2023.

and cash equivalents totaled $5,861,475 and $4,888,769 as of September 30, 2024 and December 31, 2023, respectively.

the nine months ended September 30, 2024, the Company generated $3,207,069 in cash from operations, compared to cash used of $225,032

for the nine months ended September 30, 2023.

This improvement was mainly due to lower operating expenses and the greater number of performing

loans at better interest rates than the previous period.

the nine months ended September 30, 2024, the Company generated $8,173 in cash from investing activities, compared to $783,481 for the

nine months ended September 30, 2023.

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

the six months ended June 30, 2024, the Company used $1,487,507 in cash for financing activities, compared to zero cash flow in the corresponding

period of 2023.

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

the three months ended June 30, 2023.

the nine months ended September 30, 2024, the Company used $2,242,536 in cash for financing activities, compared to zero cash flow in

the corresponding period of 2023.

This was mainly due to the repayments on the senior secured promissory note during 2024, which was

not in place during the nine months ended September 30, 2023.

and going concern

5 unchanged sentences

liquidity are the cash inflows from our operational performance.

As of June 30, 2024, the Company reports no significant commitments

As of September 30, 2024, the Company reports no significant commitments

to capital investments.

of June 30, 2024, the Company had $6,111,982 in cash and net working capital of $301,738, 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 $69,444,867 on June 30, 2024, and $71,569,821 on December

The Company has also generated operating income of $300,163 and $625,104 for the three months and six months period ended June

the six months ended June 30, 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.

As of June 30, 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.

of September 30, 2024, the Company had $5,861,475 in cash and net working capital deficit of $2,520,441 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 $69,091,050 on September 30, 2024,

and $71,569,821 on December 31, 2023.

The Company has also generated operating income of $176,909 and $802,013 for the three months and

nine months period ended September 30, 2024.

the nine months ended September 30, 2024, the Company reported positive operating income.

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.

As of September 30,

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

6 unchanged sentences

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

reported on its Current Report on Form 8-K, on October 17, 2024 the Company caused a declaratory judgment complaint to be filed in the

District Court for the City and County of Denver, Colorado, captioned SHF Holdings, Inc.

Daniel Roda, Gregory W.

Ellis, and James

Carroll, Case No.

2024CV33187, Denver County District Court (“Declaratory Judgement Complaint”).

The Declaratory Judgement

Complaint was filed related to the Amended Abaca Merger Agreement, dated October 26, 2023.

On November 4, 2024, in connection with the

Declaratory Judgment Complaint, the Company filed a motion with the court requesting that the court authorize the Company to deposit

the $3,000,000 payment owed pursuant to the Amended Abaca Merger Agreement into the court’s registry so that it can be distributed

in accordance with the terms of the Amended Abaca Merger Agreement.

The payment obligation of $3,000,000 has already been accounted for

in the working capital deficit disclosed in the Liquidity and Going Concern section .

Accounting Estimates

of June 30, 2024, there were no significant changes in the application or the nature of accounting estimates that are considered critical

in nature from those presented in our Annual Report on Form 10-K.

of September 30, 2024, there were no significant changes in the application or the nature of accounting estimates that are considered

critical in nature from those presented in our Annual Report on Form 10-K.

Growth Company Status

19 unchanged sentences

Control Over Financial Reporting

connection with our management assessment of internal control over financial reporting as of and for the six months ended June 30, 2024,

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

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

30, 2024, the Company has identified two (2) material weaknesses within our internal controls associated with Revenue Recognition and

Complex Financial Instruments.

Refer to Item 4 of this Quarterly Report on Form 10-Q for additional details.

9 unchanged sentences

receipt of invoice.

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

2023, between PCCU and the Company.

This agreement was replaced and superseded in its entirety by PCCU CAA entered on March 29, 2023, between PCCU and

Services Agreement

4 unchanged sentences

This agreement was replaced and superseded in its entirety

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

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

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

9 unchanged sentences

This agreement

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

was replaced and superseded in its entirety by PCCU CAA entered on March 29, 2023, between PCCU and the Company.

Alliance Agreement

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

This Agreement sets forth the terms and conditions

of the lending and account-related services, governing the relationship between the Company and PCCU.

The Commercial Alliance Agreement

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

March 29, 2023, the Company and PCCU entered into the Commercial Alliance Agreement (referred to as PCCU CAA).

This Agreement sets forth

the terms and conditions of the lending and account-related services, governing the relationship between the Company and PCCU.

CAA sets forth the application, underwriting, loan approval, and foreclosure process for loans from PCCU to borrowers that are cannabis-related

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

In particular, the Commercial Alliance

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

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

the Commercial Alliance Agreement.

Under the Commercial Alliance agreement, the PCCU has the right to receive monthly fees for managing

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

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

services to include:

all cannabis-related income, including all lending-related income (such as loan origination fees, interest income

on CRB-related loans, participation fees and servicing fees), investment income, interest income, account activity fees, processing fees,

flat fees, and other revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system for a

monthly fee equal to $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024.

In addition, as it pertains

to CRB deposits held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU)

will be shared 25% to PCCU and 75% to the Company.

Finally, under the Commercial Alliance Agreement, PCCU will continue to allow its

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

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

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

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

In particular, the PCCU CAA provides

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

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

the PCCU CAA, 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 PCCU CAA to indemnify

PCCU from certain default-related loan losses (as fully defined in the PCCU CAA).

addition, the PCCU CAA provides for certain fees to be paid to the Company for certain identified account related services to include:

all cannabis-related income, including all lending-related income (such as loan origination fees, interest income on CRB-related loans,

participation fees and servicing fees), investment income, interest income, account activity fees, processing fees, flat fees, and other

revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system for a monthly fee equal to

$30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024.

In addition, as it pertains to CRB deposits

held at PCCU, investment and interest income earned on these deposits (excluding interest income on loans funded by PCCU) will be shared

25% to PCCU and 75% to the Company.

Finally, under the PCCU CAA, PCCU will continue to allow its ratio of CRB-related deposits to total

assets to equal at least 60% unless otherwise dictated by regulatory, regulator or policy requirements.

The initial term of the PCCU

CAA is for a period of two years, with a one-year automatic renewal unless a party provides one hundred twenty days’ written notice

prior to the end of the term.

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

September 30,

CRB related deposits

7 unchanged sentences

Incremental capacity*

If the loans funded by PCCU exceed the limiting capacity, the CAA specifies that PCCU will be unable to fund additional loans until the

incremental capacity is positive.

revenue from the PCCU Agreements recognized in the statements of operations consists of the following for the periods ended June 30,

2024, and June 30, 2023:

$ (1,430,765 )

If the loans funded by PCCU exceed the limiting capacity, the PCCU CAA specifies that PCCU will be unable to fund additional loans until

the incremental capacity is positive.

revenue from the PCCU Agreements recognized in the statements of operations consists of the following for the periods ended September

30, 2024, and September 30, 2023:

Three months ended

Six months ended

Nine months ended

September 30,

Account servicing agreement

1 unchanged sentence

operating expense from the PCCU Agreements recognized in the statements of operations consists of the following for the periods ended

June 30, 2024, and June 30, 2023:

September 30, 2024, and September 30, 2023:

Three months ended

Six months ended

Nine months ended

September 30,

Support services agreement

5 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis