What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-04-10 compared with 2024-04-01 · 519 added, 535 removed, 232 unchanged (82% of the section changed)

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of SHF’s organization), SHF’s mission is to provide access to reliable and compliant financial services for the legal cannabis

Through that mission and as an early leader with over nine years of experience, SHF is a leading provider of access to reliable

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

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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, the Company has assisted in the processing of more than $22 billion in cannabis related funds.

Through its relationship with its financial institution clients, the Company has successfully navigated 16 state and federal banking

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

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

related anti money laundering provisions.

Since inception, the Company has assisted in the processing of more than $24.9 billion in

cannabis related depository funds.

Through its relationship with its financial institution clients, the Company has successfully

navigated over 16 state and federal banking exams.

strategically selected geographic areas, the Company has licensed its proprietary software and Safe Harbor Program (the “Program”)

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exam assistance.

Reorganization

was formed by PCCU following the approval of the contribution of certain assets and operating activities associated with operations from

both certain branches and Safe Harbor Services, a wholly-owned subsidiary of PCCU, to SHF Holding, Co., LLC.

SHF Holding, Co., LLC then

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

The reorganization effectively occurred July 1, 2021.

In conjunction with the reorganization, all of the employees engaged in

the operations and certain PCCU employees were terminated from PCCU and hired as SHF employees.

The relevant operations of the PCCU branches,

and SHF, represent the “Carved-Out Operations.” After the reorganization, the entirety of the Carved-Out Operations were

owned by SHF and the Pre-Public Company was dissolved.

In addition, effective July 1, 2021, SHF entered into an Account Servicing Agreement

and Support Services Agreement with PCCU, which memorialized the operational relationship between SHF and PCCU and which were subsequently

amended and restated and are discussed in Note 10 to the Consolidated Financial Statements included elsewhere in this Form 10-K.

February 11, 2022, SHF and SHF Holding Co., LLC, the sole member of SHF, and PCCU, the sole member of SHF Holding, Co., LLC, entered

into a definitive Unit Purchase Agreement (herein referred to as the “Business Combination”) with Northern Lights Acquisition

(“NLIT”), a special purpose acquisition company, and its sponsor, 5AK, LLC.

Subsequent to the completion of the transaction,

NLIT changed its name to “SHF Holdings, Inc.” (herein referred to as the “Company”).

On September 19, 2022, the

parties entered into the First Amendment to the Unit Purchase Agreement to extend the date by which the closing had to occur from August

31, 2022 until September 28, 2022 and provide for the deferral of $30 million of the $70 million in cash due at the closing.

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.

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 1.3125 times PCCU’s

net worth or 60% of total CRB deposits.

Concentration limits for the deployment of loans are further categorized as (i) real estate secured,

(ii) construction, (iii) unsecured and (iv) mixed collateral with each category limited to a percentage of PCCU’s net worth.

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.

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.

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.

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 Unit

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

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

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

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

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.

● Immediately

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

PIPE Investors pursuant to the PIPE Securities Purchase Agreements for an aggregate value

of $20,450,000.

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

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

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 December 31, 2023, there were

1101 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 share.

Holders of the Company’s Class A Common

Stock are entitled to one vote for each share.

As of December 31, 2023, and December 31,

2022, there were 54,563,371 and 20,815,912 shares, respectively, of Class A Common Stock

issued or outstanding.

As of December 31, 2023, and December 31, 2022, 3,667,377 Class A

Common Stock are held by the purchasers under the Forward Purchase Agreement dated June 16,

2022, by and among the Company and such purchasers.

● Parent-Entity

Net Investment:

Parent-Entity Net Investment balance in the consolidated balance sheets represents

PCCU’s historical net investment in the Carved-Out Operations.

For purposes of these

consolidated financial statements, investing requirements have been summarized as “Parent-Entity

Net Investment” and represent equity as no cash settlement with PCCU is required.

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

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

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These key metrics are discussed below.

Financial Measures

addition to financial measures presented in accordance with accounting principles generally accepted in the United States of America

(“GAAP”), this document contains non-GAAP financial measures where management believes it to be helpful in understanding

our results of operations or financial position.

Where non-GAAP financial measures are used, the comparable GAAP financial measure, as

well as the reconciliation to the comparable GAAP financial measure, can be found herein.

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

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

which are non-GAAP financial measures that we calculate as net loss 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.

a reconciliation of net loss (the most directly comparable 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,

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Some of these limitations are as follows:

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in

the future, and both EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for

new capital expenditure requirements;

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

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

although depreciation and amortization are non-cash charges,

the assets being depreciated and amortized may have to be replaced in the future, and both EBITDA and Adjusted EBITDA do not reflect

cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

EBITDA and Adjusted EBITDA do not reflect changes in, or cash

requirements for, our working capital needs;

EBITDA and Adjusted EBITDA do not reflect tax payments that

may represent a reduction in cash available to us.

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

and our other GAAP results.

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

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

Year Ended December 31,

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Depreciation and amortization

(16,622,375 )

Provision (benefit) for income taxes

(16,641,105 )

Other adjustments –

Provision for credit losses

Credit loss (benefit) expense

Change in the fair value of warrants and forward purchase derivatives

Change in fair value of Forward Purchase Agreement

Change in the fair value of deferred consideration

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Adjusted EBITDA

increase in our income on both an EBITDA and Adjusted EBITDA basis for the fiscal year ending December 31, 2023, can be attributed to

several key factors.

These include a rise in deposits and activity income, which was significantly influenced by the growth in account

numbers following the Abaca acquisition.

Additionally, there was an increase in employee benefits and general and administrative expenses,

coupled with a decrease in professional expenses, as detailed in the ‘Discussion of our Results of Operations’ section below.

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

them, change in the fair value of warrants and forward purchase derivates, Change in fair value of Forward Purchase Agreement, Stock

based compensation and Goodwill and long-lived intangible assets impairment.

The Company had entered into a Loan Servicing Agreement

with PCCU, pursuant to which the Company agreed to indemnify PCCU for claims associated with CRB activities including any loan default

related losses for loans funded by PCCU;

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

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

When included with a new

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

and incur costs associated with originating a specific loan.

For accounting purposes, the cash received for loan origination fees and

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

the year ending December 31, 2024, our adjusted EBITDA declined primarily due to a decrease in account fee income resulting from a reduction

in the number of accounts, as well as higher professional expenses, particularly legal fees associated with ongoing litigation.

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 entered into the PCCU CAA with PCCU, under which it agreed to indemnify PCCU for claims related to CRB activities,

including loan default-related losses for loans funded by PCCU.

This agreement was subsequently amended and restated, effective December

31, 2024, to eliminate the Company’s indemnification liability.

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.

our business operations, we monitor the following key metrics.

account balances, number of accounts and average account balances

lending capacity is dependent on the size of our managed deposit base and number of active accounts.

Our ability to originate loans for PCCU is dependent on the size of our managed deposit base and number of active accounts.

In addition, fees are generated

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$ 117,847,512

(87,075,578 )

Average active accounts

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

the year ending December 31, 2023, there was a decline in the average number of accounts compared to the previous year, primarily due

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

Despite this, the average size and fees associated

with accounts saw an increase, largely attributed to the acquisition of Abaca.

We anticipate this pattern to persist as our lending program,

which generally necessitates borrowers to make deposits at our affiliated financial institutions, remains a key focus.

are focused on enhancing and growing our lending platform.

Incremental lending key metrics will be monitored as this portion of our business

grows in volume.

Metrics will include average loan balance, average life to repayment, average effective interest rate and loan status,

amongst others.

the year ended December 31, 2024, there was a decline in the average number of accounts and associated fees compared to the prior

period, mainly due to a reduction in clientele following the termination of the agreement with the Central Bank of Arkansas which

was acquired in 2022 as part of the Abaca Acquisition.

However, we anticipate a reversal of this trend as we focus on our lending

program, which generally requires borrowers to maintain deposits with financial institutions with which we have established

relationships.

are focused on expanding and enhancing our lending platform.

As this part of our business scales, we will track key metrics, such as

average loan balance, average repayment term, effective interest rate, loan status, and other relevant indicators, to measure growth

and performance.

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.

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.

Company generates interest and fee income through providing a variety of services to our 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, credit loss (benefit) expense 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

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

institutions.

The Company indemnifies PCCU and other financial institutions for the losses on loans to borrowers sourced by the Company

and funded by PCCU and other financial institutions.

The Company anticipates comparable arrangements with other financial institutions

that fund loans to borrowers sourced by the Company.

Company reports provisions for credit losses on internally funded and indemnified loans.

Prior to December 31, 2024, the Company indemnified

PCCU against losses on sourced loans.

With effect from the Amended CAA, the indemnification obligation ceased on December 31, 2024.

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

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Year Ended December 31,

Deposit, activity, onboarding income

Account fee income

$ (2,167,744 )

Safe Harbor Program income

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Total Revenue

$ (2,320,343 )

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

Historically, the Company has charged fees based on

cannabis related deposit account activity.

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

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

activity levels.

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

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

The increase in deposit,

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

In 2023, PCCU accounted for $5,150,397 of the revenue generated from deposits, activities, and client onboarding.

Related to this revenue,

the Company recognized $529,209 in account hosting expenses, in accordance with the Loan Servicing Agreement and the Commercial Alliance

In 2022, PCCU contributed $5,554,922 to the revenue from similar sources, with account hosting expenses amounting to $255,853

as per the Loan Servicing Agreement provisions.

These expenses were categorized under “General and administrative expenses”

in the Consolidated Statements of Operations.

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

We receive a flat fee and lower rates for

ancillary accounts, which are accounts provided to businesses servicing the cannabis industry in general but do not manufacture,

possess, distribute or transport cannabis.

The decrease in account fee income was primarily attributable to the previously disclosed

reduction in the number of accounts and the average monthly ending deposit

reconciliation of account fee income and account hosting fees are as follows:

Year Ended December 31,

Pacific Valley Bank

Five Star Bank

Total account fee income

$ (2,167,744 )

hosting fees:

Year Ended December 31,

Pacific Valley Bank

Five Star Bank

Total account hosting fees

Account fees, net of hosting fees, were $5,902,407 and $7,186,723 for December 31, 2024, and December 31, 2023, respectively, reflecting

an 8% margin improvement on reduced fees.

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

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 agreements with PCCU (related party) and Five Star Bank (FSB) where our financial institution clients pay us interest on the daily

account balance as per the rates in the agreements.

In fiscal 2022 and up to the third quarter of 2023, our investment earnings were

solely from interest on deposits at the Federal Reserve Bank, capped at the earnings accrued by PCCU from its reserves.

However, a strategic

shift in the fourth quarter of 2023 led us to adopt Federal Reserve’s interest rates applied to the daily average balance of SHF

customer deposits, with certain exclusions.

This method, applied retroactively from the beginning of 2023, resulted in incremental revenue

of $549,000 recognized in the fourth quarter.

Under our Commercial Alliance Agreement, we pay 25% of the investment income as a hosting fee to PCCU based

on this income.

In 2023, the income derived from investment income associated with PCCU totaled $5,803,114.

In relation to this income,

the Company incurred $1,445,517 in investment hosting fees, consistent with the stipulations of the Loan Servicing Agreement and the Commercial

Alliance Agreement.

In 2022, PCCU’s contribution to investment income amounted to $2,110,572, against which the Company recorded

investment hosting fees of $519,406, as governed by the terms of the Loan Servicing Agreement.

These expenses were categorized under “General

and administrative expenses” in the Consolidated Statements of Operations.

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 year ended December 31, 2023, SHF serviced 22 loans, as compared to 11 loans in the year ended

December 31, 2022.

have agreements with PCCU and Five Star Bank (FSB), where our financial institution clients pay us interest on daily account balances

as per the rates outlined in the agreements.

March 29, 2023, we operated under a Loan Servicing Agreement with PCCU, where PCCU reported the loan balances on its financial statements.

This agreement was later superseded by the PCCU CAA, under which we paid a hosting fee equivalent to 25% of the investment income derived

from PCCU-related funds.

For the year ended December 31, 2024, investment income associated with PCCU totaled $1,903,422, with the Company

incurring $457,105 in investment hosting fees.

In comparison, for the year ended December 31, 2023, PCCU’s contribution to investment

income was $5,803,114, resulting in $1,445,517 in investment hosting fees.

These expenses were recorded under “General and Administrative

Expenses” in the Consolidated Statements of Operations.

The Amended CAA eliminates the 25% investment hosting fees.

Under the Amended CAA, the

Company is entitled to receive 100% of the investment income.

For further details, please refer to the ‘Amended and Restated CAA

with PCCU’ section in the Recent Updates above.

interest income

the year ended December 31, 2024, the Company serviced twenty-four loans, compared to twelve loans in the year ended December 31, 2023.

In 2024, the Company recognized $6,254,175 in loan interest income attributable to PCCU activities.

Related expenses

for this income included $81,577 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the Commercial Alliance

In the preceding year, 2022, loan interest income from PCCU operations amounted to $989,642, with associated loan servicing

fees totaling $26,088, pursuant to the same agreements.

These expenses were categorized under “General and administrative expenses”

in the Consolidated Statements of Operations.

Related expenses for this income

included $143,217 in loan servicing fees, in compliance with both the Loan Servicing Agreement and the PCCU CAA.

In 2023, loan interest

income from PCCU operations amounted to $2,883,192, with associated loan servicing fees totaling $81,577, pursuant to the same agreements.

These expenses were also categorized under “General and Administrative Expenses” in the Consolidated Statements of Operations.

Amended CAA, the Company’s loan interest income will be determined by a new loan yield allocation formula.

This formula incorporates

the Constant Maturity US Treasury Rate and a proprietary risk rating to determine the fee split for each loan.

Please refer to the ‘Amended

and Restated CAA with PCCU’ section in the Recent Updates above.

Year Ended December 31,

Compensation and employee benefits

$ (2,550,881 )

General and administrative expenses

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Professional services

Provision for loan losses

Credit loss (benefit) expense

Total Operating Expenses

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

and administrative expenses increased across various categories including:

$ (15,959,906 )

In 2024, we reduced expenses by $15,959,906, which is a 41.68% reduction in expenses compared to 2023.

and employee benefits expenses decreased due to decrease in stock-based compensation and a lower headcount as compared to previous year.

Restructuring efforts will continue as we optimize our talent portfolio.

and administrative expenses decreased across various categories including:

i) $988,412 in investment hosting fees as a result of the

increase in investment income, ii) $715,771 in increased bank sharing fees due to the increase in the number of accounts related to the

Abaca acquisition, iii) $1,184,432 in amortization and depreciation, and iv) $343,187 in business insurance.

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

of goodwill and finite-lived intangible assets arose from the annual impairment assessment conducted on December 31, 2023, and an interim

impairment assessment on June 30, 2023, triggered by the termination of the Master Services and Revenue Sharing Agreement with the Central

Under this agreement, the Company offered expertise and intellectual property to cannabis-related businesses primarily in Arkansas.

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

decrease in investment income, ii) $900,034 in decreased bank sharing fees due to the decrease in the number of accounts, and iii) $661,776

in decreased amortization and depreciation.

the year ended December 31, 2024, the impairment of goodwill and finite-lived intangible assets was recognized as a result of the Company’s

annual impairment assessment conducted on December 31, 2024.

Similarly, for the year ended December 31, 2023, impairment of goodwill

and finite-lived intangible assets was recorded following both the annual impairment assessment on December 31, 2023, and an interim

impairment assessment on June 30, 2023.

The interim assessment was necessitated by the termination of the Master Services and Revenue

Sharing Agreement with the Central Bank, under which the Company provided expertise and intellectual property to cannabis-related businesses,

primarily in Arkansas.

professional services expense increased primarily due to higher legal fees related to ongoing litigation.

indemnity liability was eliminated from the Balance Sheet as of December 31, 2024, due to the Amended CAA, which led to the complete

reversal of the liability under the ‘credit loss (benefit) expense.’ Please refer to the ‘Amended and Restated CAA

with PCCU’ section in the Recent Updates above.

(income) /expenses

Year ended December 31,

Change in the fair value of deferred consideration

$ (4,570,157 )

Interest expense

Change in fair value of warrant liabilities

$ (2,631,697 )

$ (1,621,501 )

$ (1,010,196 )

deferred consideration from the Abaca acquisition is classified as a derivative liability under ASC 815 and recorded at fair value, with

periodic adjustments.

Its value fluctuates based on factors such as the company’s stock price, market volatility, risk-free interest

rates, and amendments to the agreement.

For the year ended December 31, 2024, the fair value of deferred consideration decreased by $361,449

from its balance as of December 31, 2023.

This reduction was due to a decline in the fair value adjustment on the stock and cash consideration

payable to the Abaca shareholders, which affected the fair value of the third anniversary payment.

Interest expense for 2024 primarily consists of interest liability on the Senior Secured Promissory Note.

In contrast, interest expense

for 2023 primarily comprised interest liabilities on both the Senior Secured Promissory Note and the deferred obligation related to the

reverse acquisition of NLIT (see Note 8 for details on the issuance of shares to PCCU).

For the year ended December 31, 2024, interest

expense decreased by $561,346.

This reduction was mainly due to the restructuring of the deferred obligation payable related to the reverse

acquisition, which was converted into a Senior Secured Promissory Note on March 29, 2023.

Company has warrant liabilities related to Public, Private Placement, PIPE, and Abaca Warrants, which may be settled in cash or stock

depending on conditions such as stock price or registration status.

These warrants are accounted for as derivative liabilities due to

their contingent nature.

The liabilities are subject to adjustments based on terms and stock performance.

The change in the fair value

of warrant liabilities by $2,803,638 from December 31, 2023 was attributable to the decrease in the share price.

Year ended December 31,

Income tax expense (benefit), net

$ (1,829,701 )

Company recognized a deferred tax asset, primarily arising from temporary differences between financial accounting and tax reporting

related to the reverse acquisition of NLIT, the acquisition of Abaca, and Net Operating Loss (NOL) carryforwards (see Note 18 for a detailed

breakdown of deferred tax assets).

For the year ended December 31, 2024, the provision for income taxes increased by $45,689,387 compared

to the same period in 2023.

This increase was principally due to our determination that it is more likely than not the deferred tax assets

cannot be realized.

and cash equivalents

cash equivalents totaled $2,324,647 and $4,888,769 as of December 31, 2024 and 2023, respectively.

the year ended December 31, 2023, the Company’s cash used in operations was $832,144 compared to cash provided by operations of

the year ended December 31, 2024, the Company generated $430,477 in cash from operations, compared to cash used of $832,144 for the year

ended December 31, 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 year ended December 31, 2024, the Company generated $12,394 in cash from investing activities, compared to cash used of $2,180,448

for the year ended December 31, 2023.

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

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

See discussion under

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

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

the year ended December 31, 2024, the Company used $3,006,993 in cash for financing activities, compared to $488,834 in the corresponding

period of 2023.

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

assets and liabilities

4 unchanged sentences

and going concern

Liquidity refers to our capacity to fulfill anticipated cash demands, encompassing obligations to settle debt,

sustain assets and operations, distribute earnings to shareholders, and cover other typical business expenditures.

Our cash outflows predominantly

settle towards repaying debt principal and interest, distributing dividends to shareholders, and financing our operational activities.

The main contributors to our liquidity are the cash inflows from our operational performance.

As of the end of the fiscal year on December

31, 2023, the Company reports no significant commitments to capital investments.

of December 31, 2023, the Company had $4,888,769 cash and net working capital deficit of $135,355.

The Company has also incurred an operating

loss of $20,712,319 for the year ended December 31, 2023, and cash flows used in operating activities of $832,144.

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

to continue as a going concern for a period of at least twelve months from the date these consolidated financial statements have been

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 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.

refers to our ability to meet anticipated cash demands, including servicing debt, funding operations, maintaining assets, and covering

other routine business expenses.

Our primary cash outflows include debt principal and interest repayments, operating costs, and general

business expenditures.

The main source of our liquidity continues to be cash inflows generated from operational performance.

As of December

31, 2024, the Company does not have significant capital investment commitments.

Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements—Going Concern, the Company is

responsible for evaluating whether conditions or events raise substantial doubt about its ability to meet future financial obligations

within one year of the financial statement issuance date.

This evaluation involves two steps:

(1) assessing whether conditions or events

raise substantial doubt about the Company’s ability to continue as a going concern, and (2) if substantial doubt is raised, evaluating

whether the Company has plans to mitigate that doubt.

Disclosures are required if substantial doubt exists or if the Company’s plans

alleviate the doubt.

the company reported a net working capital deficit of $983,833 at the end of 2024, this figure includes several non-cash liabilities

that do not affect liquidity.

After adjusting for these non-cash items and considering the cost of the Amended PCCU Note the adjusted

working capital calculation is as follows:

Working capital deficit as on December 31, 2024

Forward purchase agreement, net

Third anniversary payment consideration

Fees paid in 2025 on the Amended PCCU Note

Adjusted working capital as on December 31, 2024

The Company has the following non-cash items

on its balance sheet that impact the working capital calculation as reported, thus improving working capital:

- Obligation under the Forward Purchase Agreement :

As of December 31,

2024, the Company had a forward purchase receivable of $4,584,221 and a forward purchase derivative liability of $7,309,580, resulting

in a net liability of $2,725,359.

This liability can be settled in common stock at the Company’s discretion, offering flexibility to improve

working capital, which is management’s plan and intention.

- Obligation under the Third Anniversary Consideration Payment :

of December 31, 2024, the Company had an outstanding liability of $322,000, payable to the Abaca shareholders.

This liability can also

be settled in common stock at the Company’s discretion, providing further flexibility to enhance working capital, which is management’s

plan and intention.

At December 31, 2024, the Company reported

cash of $2,324,647 and a net working capital deficit of $983,833, compared to cash of $4,888,769 and a net working capital deficit of

$135,355 as of December 31, 2023.

The Company’s ability to continue as a going concern depends on its capacity to generate sufficient

liquidity to meet financial obligations, including interest repayments under the senior secured note with PCCU.

The Company incurred operating

losses of $7,091,486 and $20,731,049 for the years ended December 31, 2024 and 2023, respectively.

The reported working capital deficit and operating losses, before adjustment

for non-cash activity raises substantial doubt about the Company’s ability to continue as a going concern for a period of at least

twelve months from the date these consolidated financial statements are issued.

Management’s Plan Related to Going Concern

To address these concerns, the Company has

performed actions, including renegotiating its senior secured loan with PCCU.

On January 29, 2025, the Company and PCCU entered

into a letter agreement to defer the principal payments for February and March 2025 (the “Deferral Period”).

While interest

has been repaid during the Deferral Period, the note repayment schedule has been extended by an additional two months.

Furthermore, on March 1, 2025, the Company

entered into an Amended PCCU Note with PCCU, modifying the outstanding principal of $10,748,408 with an interest rate of 4.25% per annum.

The new repayment schedule includes interest-only payments from March 1, 2025, to January 5, 2027, followed by monthly principal and interest

payments from February 5, 2027, to September 5, 2030, with the full loan balance due by October 5, 2030.

This two-year deferment of principal

has unlocked $6,437,050 in cash flow, significantly improving the Company’s liquidity position.

On December 31, 2024, as a result of the

Amended PCCU Note, the Company excluded the short-term obligations of the PCCU Note totaling $2,883,167 from current liabilities and reclassified

it as non-current liabilities.

In the first quarter of 2025, the Company commenced

utilizing its stock-based compensation as an alternative to cash payments to attract and retain talent, the Board of Directors restructured

their compensation towards stock-based compensation, and the Company has continued to reduce costs through lower headcount and other

operational spend.

The Company has established a budget and monitors its liquidity position and will make

adjustments as needed.

Due to the uncertainty surrounding cash flows

from operations, the management plans outlined above do not entirely resolve the uncertainty regarding the going concern assumption.

a result, management has determined that there remains substantial doubt about the Company’s ability to continue as a going concern

for a period of at least twelve months from the date these consolidated financial statements are issued.

If the Company is not able to sustain its

present level of operations, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where

possible, or suspend or curtail planned expansion programs.

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

of operations and future prospects.

The accompanying consolidated financial statements

have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction

of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability

and classification of assets or amounts and classification of liabilities that may result should the Company not continue as a going

concern as a result of this uncertainty.

October 17, 2024, the Company caused a 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 R.

Carroll , Case No.

2024CV33187 (Denver County District Court).

On November 21, 2024, in connection with the Company’s request, the Company caused the Merger Payment to be deposited into

the Denver County District Court’s registry so that it can be distributed in accordance with the terms of the Merger Agreement.

The Merger Payment has already been accounted for in the working capital deficit disclosed in the Liquidity and Going Concern section.

On December 19, 2024, Daniel Roda, Gregory W.

Ellis, and James R.

Carroll caused

an answer and counterclaim to be filed in response to the Company Complaint.

For additional details, p lease refer to the section

titled “Abaca legal case in Denver” in the Recent Updates above as well as the Company’s Current Reports on Form 8-K

filed with the SEC on October 18, 2024 and December 19, 2024.

Accounting Estimates

13 unchanged sentences

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.

This new approach, applied retroactively to the start of 2023, led to an additional

$549,000 in revenue for that quarter.

The company’s customer base mainly consists of financial institutions that serve cannabis-related

businesses (CRBs), with revenue primarily generated in the United States.

Under the terms of its Commercial Alliance Agreement with PCCU,

the company is obligated to pay PCCU various fees, including a loan servicing fee of 0.35% of the current loan balance, and monthly service

fees based on account balances, with rates varying for balances below and above $1 million.

Additionally, the company must pass on 25%

of its investment hosting fees to PCCU, which are calculated from the returns on PCCU-related deposits.

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

The Company accounts for the indemnification component of the Commercial Alliance Agreement for claims related to cannabis-related

businesses, with a particular emphasis on default-related credit losses.

The Company’s indemnity is secondary to other recovery

methods like foreclosure or guarantor recourse.

Indemnity payments don’t absolve borrowers of their obligations, maintaining PCCU’s

rights to recoveries.

The indemnification is considered a general loss contingency under ASC 460 due to uncertainties that could lead

to losses, resolved by future events.

The Company’s liability for indemnity is based on management’s estimation of probable

credit losses at the balance sheet date, influenced by individual loan risk ratings and economic assumptions in the estimation model.

These risk ratings are re-evaluated quarterly.

The indemnity liability for the pooled component is derived from an estimate

of expected credit losses primarily using an expected loss methodology that incorporates risk parameters such as probability of default

(“PD”) and loss given default (“LGD”) which are derived from internally developed model estimation approaches

for smaller homogenous loans.

The PD is quantified by analyzing historical data to determine the rate at which loans have defaulted within

the portfolio, relative to the total outstanding loans as of the end of the reporting period.

This rate is expressed as a percentage

and serves as a key indicator of the likelihood of default across the loan pool.

LGD assessments are conducted to estimate the potential

loss amount in the event of a default, considering the recoverable value from the collateral liquidation against the remaining loan balance.

This involves a detailed analysis of two primary components:

the loss on principal, which arises from the gap between the collateral’s

liquidation value and the unpaid principal balance of the loan;

and the loss associated with various ancillary costs to recover, including,

but not limited to, foregone interest, transaction costs, legal and administrative fees, and expenses related to the maintenance and

renovation of the property.

in the PD and LGD directly affect the estimated indemnity liability.

An increase in PD, indicating a higher likelihood of defaults, necessitates

a larger indemnity liability to cover potential losses, impacting the company’s financial reserves.

Conversely, a decrease in PD

would lower the required indemnity liability, reflecting a more favorable risk outlook.

Similarly, a rise in LGD, due to reduced collateral

values or higher recovery costs, increases the estimated loss per default, requiring a higher indemnity liability.

Conversely, a reduction

in LGD suggests more loss recoveries, allowing for a decrease in the indemnity liability.

Company recognizes revenue in accordance with ASC 606, allocating transaction prices to specific services provided within a contract.

The primary revenue streams include account fee income, interest income on loans, and investment income, each classified as gross revenue

due to the Company’s control over the respective processes.

An important element of the estimation process is the determination

of a principal-vs-agent (gross-vs-net) relationship.

from account fee income is recognized when the Company fulfills its service obligations, including fees charged for financial services

such as account maintenance, transaction processing, and other miscellaneous services.

The transaction price is determined based on contractual

terms and potential fluctuations in customer usage.

The Company recognizes revenue on a gross basis, as it is directly responsible for

compliance monitoring, account management, and reporting services, and has sole discretion in setting service fees.

Income on Loans

Company earns revenue from interest on loans, previously determined using a fixed percentage fee structure, where PCCU received a share

of interest income from CRB-related loans.

Revenue is recognized over the loan period as earned.

The Company reports this revenue on

a gross basis as a principle, as it is responsible for identifying customers, evaluating and onboarding borrowers, and determining loan

interest rates.

Additionally, under the PCCU CAA, the Company is required to pay PCCU a loan servicing fee of 0.35% of the outstanding

loan balance and monthly service fees, which vary based on account balances above or below $1 million.

from investment income consists of interest earned on daily deposit balances maintained with financial institutions.

The Company’s

customer base primarily includes financial institutions serving cannabis-related businesses (CRBs), with revenue primarily generated

in the United States.

Revenue is recognized on a gross basis, as the Company retains first rights over deposit balances and controls

their allocation for loan funding, subject to contractual ceiling limits.

The Company maintains control over the utilization of deposit

balances, reinforcing its principal role in this revenue stream.

Additionally, the Company paid PCCU a 25% hosting fee based on investment

earnings derived from PCCU-related deposits.

revenue recognition policies align with ASC 606, ensuring the appropriate allocation of transaction prices to the Company’s distinct

performance obligations, including setup fees, ongoing service charges, and financial management activities.

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

22 unchanged sentences

Purchase Agreement

Company, under a Forward Purchase Agreement (FPA) with Midtown East, which was later reassigned to Verdun and Vellar, involved complex

transactions around Class A common stock.

Initially, about 3.8 million shares were acquired from the market.

Post-business combination,

the Company disbursed $39.6 million for these shares and associated costs.

The FPA allows for an early termination sale of shares by

the assignees, with proceeds above the reset price going to them and the rest to the Company.

The final settlement at the Maturity Date

includes a cash or share payment based on the Forward Price and a Maturity Cash Consideration.

In 2022, the reset price adjustment, influenced

by the common stock’s trading value and preferred share conversions, significantly reduced the FPA receivable from $37.9 million

to $4.6 million.

No further transactions or value changes were noted in the year end December 31, 2023, maintaining the FPA receivable’s

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.

Company, under a Forward Purchase Agreement (“FPA”) with Midtown East, which was later reassigned to Verdun and Vellar (both

such terms defined below), involved complex transactions around Class A Common Stock.

Initially, about 0.19 million shares were acquired

from the market.

Post-business combination, the Company disbursed $39.6 million for these shares and associated costs.

The FPA allows

for an early termination sale of shares by the assignees, with proceeds above the reset price going to them and the rest to the Company.

The final settlement at the maturity date includes a cash or share payment based on the forward price and a maturity cash consideration.

In 2022, the reset price adjustment, influenced by the common stock’s trading value and preferred share conversions, significantly

reduced the FPA receivable from $37.9 million to $4.6 million.

No further transactions or value changes were noted in the year end December

31, 2023, and December 31, 2024, 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 $25.00 per share before the agreement expires.

Purchase Derivative

3 unchanged sentences

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.

Throughout 2023, there were no notable shifts in risk

factors that would impact the values of FPA derivatives.

As a result, the valuation established on December 31, 2022, was maintained

for the year ended December 31, 2023.

Simulation, applying Geometric Brownian Motion for stock price projections, was utilized for valuation.

In 2022, the company fully accounted

for the maximum contractual liability.

Throughout 2023 and 2024, there were no notable shifts in risk factors that would impact the values

of FPA derivatives.

As a result, the valuation established on December 31, 2022, was maintained for the years ended December 31, 2023

and December 31, 2024.

of Goodwill and Finite-lived intangible assets

November 15, 2022, the company finalized a significant acquisition for $30 million, resulting in the recognition of $19,266,276 in goodwill

and $10,800,000 in amortizable intangible assets, which included market-related intangible assets valued at $2,100,000, customer relationships

at $2,000,000, and developed technology at $6,700,000.

According to ASC 350 and 360, the company is required to perform impairment assessments

annually or more frequently if needed.

An interim assessment conducted on June 30 utilized a hybrid approach, dividing emphasis between

the income approach (one-third) and the market approach (two-thirds) for evaluating goodwill’s fair value.

Additionally, specific

methods were applied to the intangibles:

the Royalty Method for market-related intangibles, the Discounted Cash Flow Method for customer

relationships, and the Cost to Re-create Method for developed technologies.

This interim evaluation led to a goodwill impairment of $13.2

million, a $1,865,668 impairment for market-related intangible assets, and a $1,814,795 impairment for customer relationships.

assessment on December 31, 2023, also adopted the hybrid approach for goodwill valuation and applied the Relief from Royalty Method for

market-related intangibles and developed technologies, along with the Multi-Period Excess Earnings Method for customer relationships,

resulting in a $2,019,000 impairment for developed technologies.

impairment determination process is inherently subjective, heavily reliant on assumptions about future conditions and events that might

affect asset values.

For impairment testing under ASC 350 and ASC 360 regarding goodwill and other intangibles, critical assumptions

include future cash flow projections, appropriate discount rate determination reflective of asset-specific risks, the estimated useful

lives of intangible assets, and customer attrition rates for assets tied to customer relationships.

These assumptions are affected by

wider market and economic factors, including interest rate fluctuations, inflation, and sector-specific developments.

Due to these variables,

impairment test outcomes can significantly shift over time with changes in the company’s operational performance, market dynamics,

technological innovations, or strategic decisions like asset disposals or cessation of certain operations.

This variability highlights

the complex and judgment-based nature of impairment testing, emphasizing the potential for notable fluctuations in impairment charges

across different periods.

Company assesses goodwill and intangible assets for impairment in accordance with ASC 350 and ASC 360, utilizing various valuation methodologies

that involve significant management judgment and estimation.

December 31, 2024, the Company conducted its annual goodwill impairment test under ASC 350, employing a combination of the Discounted

Cash Flow (DCF) Method and the Guideline Public Company (GPC) Method.

The DCF method estimated the present value of projected future

cash flows using an appropriate discount rate, while the GPC method compared key financial metrics against publicly traded comparable

As a cross-check, the enterprise value approach was used to validate the results.

The impairment determination incorporated

an equally weighted enterprise value derived from both the DCF and GPC methods.

Since the fair value of the asset group was lower than

its carrying amount, the Company recorded a full goodwill impairment charge of $6.06 million.

Additionally,

under ASC 360, the Company conducted a recoverability test by comparing the sum of estimated undiscounted future cash flows of the asset

group to its carrying amount.

As the undiscounted cash flows were lower than the carrying amount, the Company proceeded with a fair value

assessment using a DCF analysis.

The results indicated that the fair value of the asset group was lower than its carrying amount, leading

to impairment charges of $0.05 million for market-related intangible assets, $0.05 million for customer relationships, and $2.99 million

for developed technologies.

determination of impairment is inherently subjective and relies on key assumptions regarding future economic conditions, industry-specific

factors, and Company performance.

For goodwill and intangible asset impairment testing under ASC 350 and ASC 360, the Company applies

critical estimates, including projected future cash flows based on expected revenue growth, market demand, and operational performance,

discount rate selection reflecting asset-specific risks and prevailing market conditions, useful life estimates for intangible assets,

which impact the recoverability assessment, and customer attrition rates affecting the valuation of customer-related intangible assets.

These estimates are influenced by broader macroeconomic factors, including interest rate fluctuations, inflationary pressures, and sector-specific

developments.

Given the complexity and judgment involved, impairment test results may significantly vary over time due to changes in

market conditions, operational performance, technological advancements, or strategic business decisions such as asset sales or discontinued

As a result, impairment charges may fluctuate materially across reporting periods, highlighting the sensitivity of these

estimates to evolving financial and market dynamics.

Company’s accounting for warrants, including Public, Private Placement, PIPE, and Abaca warrants, constitutes a critical accounting

6 unchanged sentences

with these warrants.

Private Placement and PIPE Warrants valuation, as of 2023, has transitioned from third-party reports to internal

assessments by the Company, employing Level 3 inputs derived from unobservable inputs.

This shift aims to enhance the precision of the

valuation process, allowing for adjustments reflective of the unique characteristics of these warrants and prevailing market conditions.

Key assumptions in this valuation include the expected volatility of our stock, the risk-free interest rate, the expected life of the

warrants, and the dividend yield.

Variability in these assumptions could significantly impact the fair value estimates of these warrants.

For Abaca Warrants, the Company also utilizes an internal assessment approach with Level 3 inputs.

The valuation assumptions include,

but are not limited to, the exercise price, the fair market value of the underlying Class A Common Stock, the expected term of the warrants,

and the risk-free interest rate.

Future variations in these critical assumptions could arise from changes in market conditions, such

as fluctuations in the volatility of the Company’s stock, alterations in the risk-free interest rate reflecting broader economic

shifts, or adjustments in the expected life of the warrants due to changes in the holders’ exercise behavior.

Additionally, regulatory

changes or shifts in the market perception of the Company could also necessitate adjustments to these assumptions.

Changes in these assumptions

could lead to significant variations in the recorded fair value of the warrants, impacting the Company’s financial position and

results of operations.

The Company closely monitors these assumptions and market conditions to ensure that the warrant valuations accurately

reflect their fair market value on reporting date.

Private Placement, PIPE and Abaca Warrants valuations are based upon internal assessments by the Company, employing

Level 3 inputs derived from unobservable inputs.

Key assumptions in the valuations include the expected volatility of our stock, exercise

price, the fair market value of the underlying Class A Common Stock, the risk-free interest rate, the expected life of the warrants,

and the dividend yield.

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

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

1 unchanged sentence

consistent with ASC Topic 815, “Derivatives and Hedging” (“ASC 815”).

This consideration, due to

its failure to meet the equity classification criteria under ASC 815, is accounted for as a derivative liability.

This approach necessitates

the recognition of this obligation on the balance sheet at its fair value, with subsequent adjustments to fair value reflected at each

reporting period end.

The determination of fair value involves significant judgments and assumptions, particularly in light of the complex

terms outlined in the Abaca merger agreement and its amendments.

The deferred consideration includes cash payments scheduled at various

anniversaries of the merger closing, the issuance of common stock based on specified conditions, and the introduction of additional consideration

and stock warrants as per the latest amendments to the agreement.

The fair value assessment of these components is influenced by several

factors, including the Company’s stock price, the volatility of the stock, the risk-free interest rate, and the specific terms

of the deferred and stock considerations as amended.

Future variations in the fair value of this derivative liability could arise from

changes in the Company’s stock price, fluctuations in market volatility, alterations in the risk-free interest rate, or changes

in the terms of the agreement as negotiated with the Abaca stockholders.

Such changes could be prompted by evolving business strategies,

market conditions, or regulatory environments that impact the financial and operational aspects of the agreement.

These estimates and

assumptions are subject to inherent uncertainties and the exercise of management’s judgment.

Changes in these critical assumptions

could lead to significant adjustments in the recorded fair value of the derivative liability associated with the Abaca acquisition’s

deferred consideration.

These adjustments could materially impact the Company’s financial position and results of operations, emphasizing

the importance of the estimates and assumptions used in the valuation of this complex financial instrument.

The Company closely monitors

related developments and market conditions to ensure the derivative liability is accurately valued, providing transparency and reliability

on the reporting date .

This consideration is accounted for as

a derivative liability.

This approach necessitates the recognition of this obligation on the balance sheet at its fair value, with subsequent

adjustments to fair value reflected at each reporting period end.

The determination of fair value involves significant judgments and

assumptions, particularly in light of the complex terms outlined in the Abaca merger agreement and its amendments.

The deferred consideration

includes cash payments scheduled at various anniversaries of the merger closing, the issuance of common stock based on specified conditions,

and the introduction of additional consideration and stock warrants as per the latest amendments to the agreement.

The fair value assessment

of these components is influenced by several factors, including the Company’s stock price, the volatility of the stock, the risk-free

interest rate, and the specific terms of the deferred and stock considerations as amended.

Future variations in the fair value of this

derivative liability could arise from changes in the Company’s stock price, fluctuations in market volatility, alterations in the

risk-free interest rate, or changes in the terms of the agreement as negotiated with the Abaca stockholders.

Such changes could be prompted

by evolving business strategies, market conditions, or regulatory environments that impact the financial and operational aspects of the

These estimates and assumptions are subject to inherent uncertainties and the exercise of management’s judgment.

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

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 .

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 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.

Company 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

SHF has elected to use this relief and will do so until the earlier of the date that it (a) is no longer an emerging growth

company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.

As a result of the

elected JOBS Act relief, these combined and consolidated financial statements may not be comparable to companies that do not elect JOBS

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

Control Over Financial Reporting

connection with our management assessment of internal control over financial reporting as of and for the year ended December 31, 2024,

the Company has identified three (3) material weaknesses within our internal controls associated with Revenue Recognition, Complex Financial

Instrument and Credit losses.

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

the Company has identified material weaknesses within our internal controls over financial reporting.

Refer to Item 9A of this document

for additional details.

Party Relationships

is considered a related party as it holds a significant ownership interest in the Company and serves as its position as the Company’s

sole lending institution.

The agreements between PCCU and the Company are as follows:

Servicing Agreement

Company had an Account Servicing Agreement with PCCU.

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

to providing the services, SHF assumed the costs associated with the CRB accounts.

These costs include employees to manage account onboarding,

monitoring and compliance, rent and office expense, insurance and other operating expenses necessary to service these accounts.

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

Amounts due to SHF were due monthly in arrears and upon

receipt of invoice.

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

2023, between PCCU and the Company.

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

addition to providing the services, the Company assumed the costs associated with the CRB accounts.

These costs include employees to

manage account onboarding, monitoring and compliance, rent and office expense, insurance and other operating expenses necessary to service

these accounts.

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

Amounts due to the Company

were due monthly in arrears and upon receipt of invoice.

This agreement was replaced and superseded in its entirety by the PCCU CAA,

which was entered into on March 29, 2023, and later amended and restated on December 31, 2024, between PCCU and the Company

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 the PCCU CAA, which was entered into on March 29, 2023, and later amended and restated on December 31, 2024, between PCCU and the

Servicing Agreement

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

The agreement sets forth the application, underwriting and

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

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

and serviced by PCCU.

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

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

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

Under the Loan Servicing Agreement, SHF has

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

This agreement

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

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.

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

loan funded and serviced by PCCU.

For the loans that are subject to this agreement, the Company 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, the Company has agreed to indemnify PCCU from all claims related to default-related credit losses as defined in the Loan Servicing

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

the Company, which was subsequently amended on December 31, 2024.

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

replaces and supersedes, in their entirety, the following agreements entered into between the aforementioned parties:

the Amended and

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

the Second Amended and Restated

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

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

Commercial Alliance Agreement sets forth the application, underwriting, loan approval, and foreclosure process for loans from PCCU to

borrowers that are cannabis-related businesses and the loan servicing and monitoring responsibilities provided by the Company and PCCU.

In particular, the Commercial Alliance Agreement provides for procedures to be followed upon the default of a loan to ensure that neither

the Company nor PCCU will take title to or possession of any cannabis-related assets, including real property, that may be collateral

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

Under the Commercial Alliance agreement, 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.

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.

fiscal 2022 and up to the third quarter of 2023, our investment earnings were solely from interest on deposits at the Federal Reserve

Bank, capped at the earnings accrued by PCCU from its reserves.

However, a strategic shift in the fourth quarter of 2023 led us to adopt

Federal Reserve’s interest rates applied to the daily average balance of SHF customer deposits, with certain exclusions.

applied retroactively from the beginning of 2023, resulted in incremental revenue of $549,000 recognized in the fourth quarter.

our Commercial Alliance Agreement, we are obligated to remit 25% of the investment hosting fees to PCCU based on this income.

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

March 29, 2023, the Company and PCCU entered into the PCCU CAA, which was subsequently amended and restated on December 31, 2024.

agreement set forth the terms and conditions of lending and account-related services, governing the relationship between the Company

The PCCU CAA outlined the application, underwriting, loan approval, and foreclosure processes for loans issued by PCCU to CRBs,

as well as the loan servicing and monitoring responsibilities of both parties.

particular, the PCCU CAA provided procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU would

take title to or possession of cannabis-related assets, including real property that may have served as collateral for loans funded by

PCCU pursuant to the agreement.

the PCCU CAA, PCCU had the right to receive monthly fees for managing loans.

For SHF-serviced loans (CRB loans provided by PCCU but primarily

handled by SHF), a yearly fee of 0.25% of the remaining loan balance was applied.

For loans both financed and serviced by PCCU, a yearly

fee of 0.35% on the outstanding balance was charged.

These fees were calculated based on the average daily balance of each loan for the

preceding month.

Additionally,

the Company was obligated under the PCCU CAA to indemnify PCCU from certain default-related loan losses, as fully defined in the agreement.

the PCCU CAA outlined certain fees to be paid to the Company for specified account-related services, including cannabis-related income

such as loan origination fees, interest income on CRB-related loans, participation fees, servicing fees, investment income, account activity

fees, processing fees, and other revenue.

These fees were set at $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69

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

was shared at a ratio of 25% to PCCU and 75% to the Company.

Additionally, PCCU maintained its CRB-related deposits to total assets ratio

at 60%, unless otherwise dictated by regulatory, regulator, or policy requirements.

The initial term of the PCCU CAA was two years, with

a one-year automatic renewal, unless either party provided a one hundred twenty-day written notice prior to the end of the term.

to the third quarter of 2023, the Company’s investment earnings came solely from interest on deposits at the Federal Reserve Bank,

capped at the earnings accrued by PCCU from its reserves.

However, in the fourth quarter of 2023, a strategic shift led the Company to

adopt the Federal Reserve’s interest rates applied to the daily average balance of SHF customer deposits, with certain exclusions.

This method, applied retroactively from the beginning of 2023, resulted in an incremental revenue of $549,000, which was recognized in

the fourth quarter.

Under the PCCU CAA, the Company was obligated to pay a 25% of the investment earnings as a hosting fee to PCCU based

on this income.

December 31, 2024, the Company and PCCU entered into an Amended CAA, extending the term through December 31, 2028, with automatic two-year

renewal periods unless a party provides written notice of non-renewal at least 12 months before the current term expires.

modifications under the Amended CAA include:

of Indemnification Obligations:

The Company is no longer required to indemnify PCCU for any loan-related losses under either

the original or future agreements.

of Prior Fees and Implementation of Asset Hosting Fee Structure:

Under the previous agreement, the Company was required to pay

various fees to PCCU, including per-account servicing fees, investment hosting fees, and loan servicing fees.

The Amended CAA eliminates

all these charges and replaces them with a fixed account servicing fee.

Under the new structure, the Company will pay a single asset

hosting fee which is calculated as 0.01 multiplied by the average daily balance of account relationships generated by the Company,

divided by the number of days in the year, and multiplied by the number of days in the applicable month.

This revised model aligns

servicing costs with account balances rather than a flat per-account charge, offering a more scalable and efficient fee structure.

Income Entitlement:

Under the Amended CAA, the Company received all investment income earned on CRB funds invested on its behalf

by PCCU, effectively eliminating the investment hosting fees that were previously payable to PCCU.

Yield Allocation Formula:

The Company’s interest income will be determined using a loan yield allocation formula incorporating

the Constant Maturity US Treasury Rate and a proprietary risk rating formula for determining the fee split.

Loan-to-Share

Ratio Compliance:

The Amended CAA introduces penalties for the Company, if it fails to maintain the agreed Loan-to-Share (LTS)

If the LTS Maximum (60%) is exceeded for over 90 days, the Asset Hosting Fee increases from 1.00% to 1.10% of the average

daily balance (ADB) until compliance is restored.

If the LTS Minimum (27.5%) is breached, SHF must pay a quarterly adjustment fee

based on the shortfall.

Additionally, if the LTS Ratio exceeds 100% for 90 days, SHF incurs an interest charge at the Federal Funds

Rate + 120 bps, calculated daily and paid monthly.

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

December 31, 2024

December 31, 2023

CRB related deposits

8 unchanged sentences

Incremental capacity

$ 154,971,429

revenue from operation on the statement of operations consists of the following agreement mentioned above for the year ended December

15 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-K

Item 7. Management’s Discussion and Analysis