SHF Holdings, Inc. 10-K

Item 9A. Controls and Procedures. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with GAAP. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has identified material weaknesses, two of which were recognized in 2022. A “material weakness”, represents a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. Based on the material weaknesses identified in the management team’s evaluation of internal controls over financial reporting, management has concluded that our internal control over financial reporting was not effective as of December 31, 2024. We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. 30 Table of Contents As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2024 due to the material weaknesses described below. In light of the material weaknesses, we performed additional analysis as deemed necessary to ensure that our consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Annual Report on Form 10-K present fairly in all material respects our financial position, results of operations and cash flows for the periods presented. We consider the following material weaknesses to be outstanding as of December 31, 2024: Revenue Recognition : The Company has identified a material weakness in our internal control over financial reporting related to the need to enhance the design and operating effectiveness of internal controls over the review of revenue recognition from calculations that occur on a monthly basis between the Company and PCCU. To remediate this material weakness, the Company is developing a tool aimed at improving oversight and accuracy in the revenue calculation process. The tool is currently in the testing phase, and management expects that, once fully implemented, it will enable the Company to establish more robust internal processes for revenue reconciliation with financial institution partners. Additionally, the tool will improve the Company’s ability to serve its customer base more effectively. Accounting for Financial Instruments: Prior to the year ended 2024, the Company identified a material weakness in the effectiveness of management’s review controls related to the accounting, disclosure, and valuation of complex financial instruments. In 2023, the Company did not initially properly account for certain warrants and deferred consideration payable to the Abaca shareholders which was corrected before the filing of the financial statement. Remediation plans were put in place in 2024 over these financial instruments, and the Company subsequently accounted for these warrants and deferred consideration correctly under GAAP for all 2024 quarterly periods, including the year-end period ending December 31, 2024. Despite these efforts, on December 31, 2024 the Company did not appropriately apply the guidance under ASC 470, Debt, in connection with the reclassification of the Amended PCCU Note. The PCCU Note, which was amended on March 1, 2025, met the criteria for classification as a non-current liability under ASC 470, but was incorrectly presented as a current liability in the Company’s financial statements. This classification error resulted from the material weakness pertaining to these management review controls remaining ineffective as of year-end 2024. The Company is in the process of designing its approach to remediation. Going concern: As of December 31, 2024, the Company identified a material weakness in its internal control over financial reporting related to its going concern assessment. Specifically, management reached an incorrect conclusion regarding the absence of substantial doubt about the Company’s ability to continue as a going concern, due to deficiencies in the application of ASC 205-40 and SEC Staff Accounting Bulletin No. 59 (Topic 1.M). While the Company considered a number of positive indicators—such as adjusted working capital, a three-year trend of public adjusted EBITDA, material reductions in non-rate expenses, the Amended PCCU Note, and the ability to renegotiate vendor arrangements—management’s evaluation initially failed to be evaluated based on financial cash flow projections from the date the financial statements would be issued. As a result of these factors, the Company’s initial conclusion regarding its ability to continue as a going concern was not appropriately supported under GAAP. Ineffective management review constitutes a material weakness in the Company’s internal control over the going concern analysis. The Company is in the process of designing its approach to remediation. Information technology : Certain users with unnecessary privileged access were noted within the financially relevant systems resulting in segregation of duty risk. The Company’s controls over logical access, specifically user access reviews and privileged access to financially relevant systems and underlying accounting records were not effectively designed. Access logs from the Company’s business systems indicate that the certain users never inappropriately accessed these systems or posted any transactions resulting in inaccurate financial reporting. As of the filing, the unnecessary access has been removed and the Company is designing a remediation plan to mitigate this material weakness. We plan to continue to assess and improve our internal controls and procedures and to take further action as necessary or appropriate to address any other matters we identify. Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly. A failure to maintain effective internal controls over financial reporting could result in errors in its financial statements that could require the Company to restate past financial statements, cause the Company to fail to meet its reporting obligations and cause investors to lose confidence in the Company’s reported financial information, all of which could materially and adversely affect the Company. Changes in Internal Control over Financial Reporting Other than the efforts to remediate the material weakness noted above, there were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2024, covered by this Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The Company’s management has expended, and will continue to expend, effort and resources for their mediation of the material weakness and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards. Item 9B. Other Information. None . Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 31 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. Information required by this item and not set forth below will be set forth in our definitive Proxy Statement to be filed with the Commission within 120 days after the conclusion of our year ended December 31, 2024 (the “Proxy Statement”) pursuant to General Instructions G(3) of Form 10-K and is incorporated herein by reference. Certain information relating to the Executive Officers of the Company appears in Part I of this Form 10-K under the heading “Information about Our Executive Officers” and is incorporated by reference in this section. Code of Ethics We have adopted a Code of Conduct and Ethics applicable to all officers, directors and employees. A copy of our Code of Conduct and Ethics is filed as Exhibit 14 to this Form 10-K. Item 11. Executive Compensation. The information required under this Item will be contained in the Company’s Proxy Statement under the caption “Compensation Committee Report,” “Director Compensation,” “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation,” which information is incorporated by reference herein. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required under this Item will be contained in the Company’s Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners” and “Equity Compensation Plan Information,” which information is incorporated by reference herein. Item 13. Certain Relationships and Related Transactions and Director Independence. The information required under this Item will be contained in the Company’s Proxy Statement under the caption “Certain Relationships and Related Party Transactions” and “Corporate Governance,” which information is incorporated by reference herein. Item 14. Principal Accountant Fees and Services. The information required under this Item will be contained in the Company’s Proxy Statement under the caption “Ratification of the Appointment of Independent Registered Public Accounting Firm,” which information is incorporated by reference herein. 32 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules. List of documents filed as part of this Annual Report on Form 10-K: (1) Consolidated Financial Statements The consolidated financial statements required by this item are contained under the section entitled “Index to Consolidated Financial Statements” (and the consolidated financial statements and related notes referenced therein) included beginning on page F-1 of this Annual Report on Form 10-K. (2) Consolidated Financial Statements Schedules All financial statement schedules are omitted because they are either not applicable, not required, or because the information required is included in the above referenced consolidated financial statements and notes thereto. (3) List of Exhibits The exhibit list in the Exhibit Index is incorporated herein by reference as the list of exhibits required as part of this Annual Report on Form 10-K. EXHIBIT INDEX The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. No. Description of Exhibit 2.1 † Unit Purchase Agreement dated February 11, 2022 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 14, 2022). 2.2 First Amendment to Unit Purchase Agreement dated September 19, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 19, 2022). 2.3 Second Amendment to Unit Purchase Agreement dated September 22, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 23, 2022). 2.4 Third Amendment to Unit Purchase Agreement dated September 28, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 29, 2022). 2.5† Agreement and Plan of Merger, dated October 29, 2022, by and among SHF Holdings, Inc., Merger Sub I, Merger Sub II, Rockview Digital Solutions, Inc. d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of Abaca security holders (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on October 31, 2022). 2.6 Amendment to Agreement and Plan of Merger, dated November 11, 2022, by and among SHF Holdings, Inc., Merger Sub I, Merger Sub II, Rockview Digital Solutions, Inc. d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of the Abaca security holders (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on November 15, 2022). 2.7 Second Amendment to Agreement and Plan of Merger, dated October 26, 2023, by and among SHF Holdings, Inc., Merger Sub I, Merger Sub II, Rockview Digital Solutions, Inc. d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of the Abaca security holders (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on October 27, 2023). 2.8 First Amendment to Second Amendment to Agreement and Plan of Merger, Warrant Agreement, and Lock-up Agreement dated February 27, 2024 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on March 4, 2024). 3.1 Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed on September 29, 2022). 3.2 Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed March 20, 2025. 3.3 Bylaws of the Company (incorporated by reference to Exhibit 3.3 of the Company’s Registration Statement on Form S-1, filed on June 2, 2021). 33 Table of Contents 4.7 Description of Registered Securities (incorporated by reference to Exhibit 4.6 of the Company’s Annual Report on Form 10-K, filed on April 1, 2024). 10.13 Amended and Restated Commercial Alliance Agreement, dated December 30, 2024, between the Company and Partner Colorado Credit Union (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on January 7, 2025). 10.15 Amended and Restated - 2022 Equity Incentive Plan (incorporated by reference to Exhibit 3 of the Company’s Annual Report on Form 10-K, filed on April 1, 2024). 10.16 Form SHF Holdings, Inc. Stock Option Agreement (incorporated by reference to Exhibit 4 of the Company’s Annual Report on Form 10-K, filed on April 1, 2024). 10.17 Form of SHF Holdings, Inc. Restricted Stock Unit Agreement ( incorporated by reference to Exhibit 5 of the Company’s Annual Report on Form 10-K, filed on April 1, 2024). 10.18 Security Agreement, dated March 29, 2023, by and between the Company and Partner Colorado Credit Union (incorporated by reference to Exhibit 3 of the Company’s Quarterly Report on Form 10-Q, filed May 15, 2023). 10.20 Letter Agreement dated January 29, 2025 (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K, filed on February 3, 2025). 10.21 Amendment to Employment Agreement dated April 2, 2024 between the Company and James Dennedy (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on April 8, 2024). 10.22 Amendment to Employment Agreement dated April 2, 2024 between the Company and Donald Emmi (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on April 8, 2024). 10.23 Amendment to Employment Agreement dated August 1, 2024 between the Company and Sundie Seefried (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on September 4, 2024). 10.24 Amendment to Employment Agreement dated August 1, 2024 between the Company and Dan Roda (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on August 27, 2024). 10.25 Amendment to Employment Agreement dated August 1, 2024 between the Company and Tyler Beuerlein (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on August 27, 2024). 10.26 Executive Employment Agreement, dated January 21, 2025, between the Company and Terrance Mendez (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 27, 2025). 14 Code of Ethics and Business Conduct (incorporated by reference to Exhibit 1 of the Company’s Annual Report on Form 10-K, filed on April 1, 2024). 19* [Insider Trading Policies and Procedures] 21.1* Subsidiaries of the Registrant 23.1* Consent of Marcum LLP, independent registered public accounting firm 31.1* Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 97 Clawback policy (incorporated by reference to Exhibit 97 of the Company’s Annual Report on Form 10-K, filed on April 1, 2024). 101.INS* Inline XBRL Instance Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Labels Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104* Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Furnished. † Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request. Item 16. Form 10-K Summary. None. 34 Table of Contents SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHF HOLDINGS INC . Date: April 10, 2025 /s/ Terrance E. Mendez Name: Terrance Mendez Title: Chief Executive Officer (Principal Executive Officer) Date: April 10, 2025 /s/ James H. Dennedy Name: James H. Dennedy Title: Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Signature Title Date /s/ Terrance E. Mendez Chief Executive Officer April 10, 2025 Terrance E. Mendez /s/ James H. Dennedy Chief Financial Officer April 10, 2025 James H. Dennedy /s/ Jonathon F. Niehaus Director April 10, 2025 Jonathon F. Niehaus /s/ Douglas Fagan Director April 10, 2025 Douglas Fagan /s/ Jennifer Meyers Director April 10, 2025 Jennifer Meyers /s/ Jonathan Summers Director April 10, 2025 Jonathan Summers /s/ Karl Racine Director April 10, 2025 Karl Racine /s/ Richard Carleton Director April 10, 2025 Richard Carleton /s/ Sundie Seefried Director April 10, 2025 Sundie Seefried 35 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS. SHF HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INDEX Page Report of Independent Registered Public Accounting Firm (Marcum LLP) (PCAOB ID 688 ) F-2 Consolidated Balance Sheets as of December 31, 2024 and 2023 F-3 Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 F-4 Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended December 31, 2024 and 2023 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 F-6 Notes to the Consolidated Financial Statements for the years ended December 2024 and 2023 F-7 F- 1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of SHF Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SHF Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and may need to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2022. Hartford, CT April 10, 2025 F- 2 Table of Contents SHF Holdings, Inc. CONSOLIDATED BALANCE SHEETS December 31, 2024 December 31, 2023 ASSETS Current Assets: Cash and cash equivalents $ 2,324,647 $ 4,888,769 Accounts receivable – trade 134,609 121,875 Accounts receivable – related party 968,023 2,095,320 Accounts receivable 968,023 2,095,320 Prepaid expenses – current portion 659,536 546,437 Accrued interest receivable 16,319 13,780 Forward purchase receivable 4,584,221 - Short-term loans receivable, net 13,332 12,391 Other current assets 3,000,000 82,657 Total Current Assets $ 11,700,687 $ 7,761,229 Long-term loans receivable, net 378,854 381,463 Property, plant and equipment, net 3,154 84,220 Operating lease right to use assets 703,524 859,861 Goodwill - 6,058,000 Intangible assets, net - 3,721,745 Deferred tax asset, net - 43,829,019 Prepaid expenses – long term position 412,500 562,500 Forward purchase receivable - 4,584,221 Security deposit 19,568 18,651 Total Assets $ 13,218,287 $ 67,860,909 LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY Current Liabilities: Accounts payable $ 140,723 $ 217,392 Accounts payable-related party 75,608 577,315 Accounts payable 75,608 577,315 Accrued expenses 1,301,378 1,008,987 Contract liabilities 28,335 21,922 Lease liabilities – current 161,952 132,546 Senior secured promissory note – current portion 255,765 3,006,991 Deferred consideration – current portion 3,338,343 2,889,792 Forward purchase derivative liability 7,309,580 - Other current liabilities 72,836 41,639 Total Current Liabilities $ 12,684,520 $ 7,896,584 Warrant liabilities 1,360,491 4,164,129 Deferred consideration – long term portion - 810,000 Forward purchase derivative liability - 7,309,580 Senior secured promissory note—long term portion 10,748,408 11,004,175 Net deferred indemnified loan origination fees - 63,275 Lease liabilities – long term 712,882 875,447 Indemnity liability - 1,382,408 Total Liabilities $ 25,506,301 $ 33,505,598 Commitment and Contingencies (Note 13) - - Stockholders’ (Deficit) Equity Convertible preferred stock, $ .0001 par value, 1,250,000 shares authorized, 111 and 1,101 shares issued and outstanding on December 31, 2024, and December 31, 2023, respectively - - Class A Common Stock, $ .0001 par value, 130,000,000 shares authorized, 2,783,667 and 2,728,169 issued and outstanding on December 31, 2024, and December 31, 2023, respectively 278 273 Additional paid in capital 108,467,253 105,924,859 Retained deficit ( 120,755,545 ) ( 71,569,821 ) Total Stockholders’ (Deficit) Equity $ ( 12,288,014 ) $ 34,355,311 Total Liabilities and Stockholders’ (Deficit) Equity $ 13,218,287 $ 67,860,909 See accompanying notes to consolidated financial statements F- 3 Table of Contents SHF Holdings, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS 2024 2023 For the year ended December 31, 2024 2023 Revenue $ 15,242,560 $ 17,562,903 Operating expenses Compensation and employee benefits $ 7,783,331 $ 10,334,212 General and administrative expenses 4,018,094 6,587,392 Professional services 2,518,394 1,858,137 Lease expense 258,477 315,614 Credit loss (benefit) expense ( 1,393,131 ) 290,857 Impairment of goodwill 6,058,000 13,208,276 Impairment of long-lived intangible assets 3,090,881 5,699,464 Total operating expenses $ 22,334,046 $ 38,293,952 Operating loss ( 7,091,486 ) ( 20,731,049 ) Other (income) expenses Interest expense 533,390 1,094,736 Change in fair value of warrant liabilities ( 2,803,638 ) 1,853,920 Change in the fair value of deferred consideration ( 361,449 ) ( 4,570,157 ) Total other (income) expenses $ ( 2,631,697 ) $ ( 1,621,501 ) Net loss before income tax ( 4,459,789 ) ( 19,109,548 ) Provision (benefit) for income taxes $ 43,859,686 $ ( 1,829,701 ) Net loss $ ( 48,319,475 ) $ ( 17,279,847 ) Weighted average shares outstanding, basic 2,772,867 2,128,728 Basic net loss per share $ ( 17.43 ) $ ( 8.12 ) Weighted average shares outstanding, diluted 2,772,867 2,128,728 Diluted net loss per share $ ( 17.43 ) $ ( 8.12 ) See accompanying notes to consolidated financial statements F- 4 Table of Contents SHF Holdings, Inc. Consolidated Statements of Stockholders’ (Deficit) Equity FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Shares Amount Shares Amount Capital Earnings Equity Preferred Stock Class A Common Stock Additional Paid-in Retained Total Shareholders’ (Deficit) Shares Amount Shares Amount Capital (Deficit) Equity Balance, January 01, 2023 14,616 $ 1 1,186,644 $ 119 $ 44,808,286 $ ( 39,695,281 ) $ 5,113,125 Cumulative effect from adoption of CECL - - - - - ( 581,318 ) ( 581,318 ) Issuance of shares to Abaca shareholders - - 291,791 29 4,085,047 - 4,085,076 Conversion of PIPE Shares ( 13,515 ) ( 1 ) 628,110 63 14,013,313 ( 14,013,375 ) - Restricted stock units - - 61,623 6 1,252,037 - 1,252,043 Stock compensation cost - - - - 2,459,324 - 2,459,324 PCCU Restructuring - - 560,000 56 38,406,352 - 38,406,408 Reversal of deferred underwriting cost - - - - 900,500 - 900,500 Net loss - - - - - ( 17,279,847 ) ( 17,279,847 ) Balance, December 31, 2023 1,101 $ - 2,728,168 $ 273 $ 105,924,859 $ ( 71,569,821 ) $ 34,355,311 Balance 1,101 - 2,728,168 273 105,924,859 ( 71,569,821 ) 34,355,311 Issuance of equity for marketing services - - 12,117 1 149,999 - 150,000 Conversion of PIPE shares ( 990 ) - 39,600 4 866,245 ( 866,249 ) - Restricted stock units - - 3,781 - 63,784 - 63,784 Stock compensation cost - - - - 1,462,366 - 1,462,366 Net loss - - - - - ( 48,319,475 ) ( 48,319,475 ) Balance, December 31, 2024 111 $ - 2,783,666 $ 278 $ 108,467,253 $ ( 120,755,545 ) $ ( 12,288,014 ) Balance 111 - 2,783,666 278 108,467,253 ( 120,755,545 ) ( 12,288,014 ) See accompanying notes to consolidated financial statements F- 5 Table of Contents SHF Holdings, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS 2024 2023 Year ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 48,319,475 ) $ ( 17,279,847 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization expense 711,929 1,373,707 Stock compensation expense 1,575,952 3,739,156 Net deferred indemnified loan origination fees ( 63,275 ) ( 45,806 ) Interest expense - 663,208 Lease expense 23,181 136,097 Credit loss (benefit) expense ( 1,393,131 ) 290,857 Impairment of goodwill 6,058,000 13,208,276 Impairment of long-lived intangible assets 3,090,881 5,699,464 Deferred tax expense (benefit), net 43,859,686 ( 1,829,701 ) Marketing expense settled via common stock 100,000 - Change in fair value of warrant liabilities ( 2,803,638 ) 1,853,920 Change in the fair value of deferred consideration ( 361,449 ) ( 4,570,157 ) Changes in operating assets and liabilities: Accounts receivable - trade ( 12,734 ) 81,183 Accounts receivable – related party 1,127,297 ( 863,593 ) Contract assets - 21,170 Prepaid expenses 86,901 ( 220,852 ) Other current liabilities 527 - Accrued interest receivable ( 2,542 ) ( 6,460 ) Deferred underwriting payable - ( 550,000 ) Other current assets ( 2,967,145 ) 40,370 Accounts payable ( 76,672 ) ( 2,515,442 ) Accounts payable – related party ( 501,709 ) 386,660 Accrued expenses 292,396 ( 464,424 ) Contract liabilities 6,413 20,926 Security deposit ( 916 ) ( 856 ) Net cash provided by (used in) operating activities $ 430,477 $ ( 832,144 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment - ( 208,434 ) Payment to Abaca Shareholder - ( 3,000,000 ) Loan receivable repayment 12,394 1,027,986 Net cash provided by (used in) investing activities $ 12,394 $ ( 2,180,448 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of senior secured promissory note ( 3,006,993 ) ( 488,834 ) Net cash used in financing activities $ ( 3,006,993 ) $ ( 488,834 ) Net decrease in cash and cash equivalents ( 2,564,122 ) ( 3,501,426 ) Cash and cash equivalents - beginning of period 4,888,769 8,390,195 Cash and cash equivalents - end of period $ 2,324,647 $ 4,888,769 Supplemental disclosure of cash flow information Interest paid $ 416,852 $ 450,258 Non-cash transactions: Marketing expense settled via common stock $ 50,000 $ - Shares issued for the settlement of abaca acquisition - 4,085,076 Operating lease right of use assets recognized - - Operating lease liabilities recognized - - Shares issued for the settlement of PCCU debt obligation - 38,406,408 Cumulative effect from adoption of CECL - 581,318 Reversal of deferred underwriting cost - 900,500 Interest recognized on PCCU settlement - 639,521 See accompanying notes to consolidated financial statements F- 6 Table of Contents Note 1. Organization and Business Operations Business Description SHF Holdings, Inc. (the “Company”), based in Golden, Colorado, specializes in financial technology designed to facilitate banking service solutions tailored to the cannabis industry. Initially, the Company’s operations were developed as a credit union service organization under Partner Colorado Credit Union (“PCCU”). A strategic reorganization on July 1, 2021 consolidated select assets and activities from PCCU into SHF LLC (“SHF”) under SHF Holding Co., LLC. On September 28, 2022, Northern Lights Acquisition Corp. (“NLIT”) acquired SHF, changing its name from Northern Lights Acquisition Corp. to SHF Holdings, Inc., (the “Business Combination”). The Business Combination aimed to enhance the Company’s financial services footprint in the cannabis sector. On October 31, 2022, the Company acquired Rockview Digital Solutions, Inc. d/b/a Abaca (“Abaca”). This merger, executed in two steps, positioned Abaca as a wholly-owned subsidiary, bolstering the Company’s fintech offerings and market reach. The Company facilitates a range of financial services through its financial institution customers using a proprietary technology platform for deposit and ongoing deposit activity compliance with banking regulations and regulators. These include access to business checking and savings accounts, cash management, commercial lending, courier services, remote deposit services, ACH payments, and wire payments. These services enable cannabis businesses to manage their finances effectively. The Company generates revenue from fee income, investment income, loan interest income and by offering compliance services to certain financial institutions serving the cannabis industry. Note 2. Basis of Presentation and Summary of Significant Accounting Policies i. Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Material estimates that are particularly subject to change in the near term include the determination of the allowance for credit losses, valuation of deferred tax assets, and the fair value of financial instruments. Actual results could differ from the estimates. ii. Basis of Presentation The accompanying consolidated financial statements and related notes have been prepared on the accrual basis of accounting in conformity with GAAP and include the accounts of the Company, and its wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and for the periods presented. All intercompany balances and transactions have been eliminated in consolidation. The Company has made certain immaterial reclassifications to the statements of operations for the year ended December 31, 2023, to conform to the presentation for the year ended December 31, 2024. These reclassifications, totaling $ 18,730 for the year ended December 31, 2023, were moved from ‘Interest Expense’ to ‘General and administrative expenses’. The consolidated financial statements include the accounts of SHF Holdings, Inc. and its subsidiaries where the Company have controlling financial interests. All intercompany balances and transactions have been eliminated except that the par value per share remained $ 0.0001 per share. F- 7 Table of Contents iii. Reverse Stock Split The Company effected a reverse stock split of 1-for-20 on March 14, 2025. Unless otherwise stated, all share and per share amounts for all periods presented have been adjusted to reflect the reverse stock split. iv. Concentrations of Risk The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash. Cash balances are maintained substantially in accounts at PCCU, which are insured by the National Credit Union Share Insurance Fund (“NCUSIF”) up to regulatory limits. From time to time, cash balances may exceed the NCUSIF insurance limit. The Company has not experienced any credit losses associated with its cash balances in the past. In addition to providing compliance and related services for its financial institution partners, the Company offers services to businesses operating primarily in the cannabis industry as well as businesses offering cannabis adjacent services. Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in the Company inability to execute our business plan. Currently the Company substantially relies on PCCU to hold customer deposits and fund its originated loans. The majority of the Company’s revenue is generated by deposits and loans hosted by PCCU pursuant to the Commercial Alliance Agreement (“PCCU CAA”) dated March 29, 2023 between PCCU and the Company, which was amended on December 31, 2024 . As of December 31, 2024 and 2023, the Company had only one loan on its balance sheet. As of December 31, 2023, the Company had a total of twenty indemnified loans, three of which individually represented more than 10 % of the total balance of indemnified loans. However, following the CAA amendment effective December 31, 2024, the Company is no longer responsible for these prior indemnifications. Therefore, no concentration related to indemnified loans existed as of December 31, 2024. v. Segments We have determined that our Chief Executive Officer (“CEO”) serves as the Chief Operating Decision Maker (“CODM”), who regularly reviews the financial performance of the business on a consolidated basis for the purposes of allocating resources and evaluating financial performance. The Company operates as one reportable segment and one operating segment, which focuses on providing financial services, particularly tailored to the cannabis industry. In making this determination, we consider factors such as the nature of our operating activities, the organizational and reporting structure, and the information reviewed by the CODM to evaluate and allocate resources effectively. The CODM utilizes adjusted EBITDA as the primary measure to assess segment performance, considering revenue trends, operating expenses, and overall financial position when making strategic decisions. All of our assets are located within the United States. vi. Liquidity and Going Concern Liquidity 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. F- 8 Table of Contents Going concern Under 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. While 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: Schedule of Adjusted Working Capital Amount Working capital deficit as on December 31, 2024 $ ( 983,833 ) Forward purchase agreement, net 2,725,359 Third anniversary payment consideration 322,000 Fees paid in 2025 on the Amended PCCU Note ( 53,742 ) Adjusted working capital as on December 31, 2024 $ 2,009,784 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 plan and intention. - Obligation under the Third Anniversary Consideration Payment: As 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 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. As 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. vii. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, amounts due from financial institutions, and investments with maturities of three months or less. viii. Accounts Receivable and Allowance for Credit losses Accounts receivable are recorded based on account fee schedules. While fees are generated from individual CRB-related accounts, amounts are initially collected by the financial institution and remitted in the subsequent month. Accounts receivable - related party represents amounts due from PCCU under related party contracts disclosed in Note 8. The Company maintains allowances for doubtful accounts for estimated losses resulting from customers’ inability to make required payments. In accordance with the adoption of ASU 2016-13, the Company estimates anticipated losses from doubtful accounts using the current expected credit loss (CECL) model. This model considers both historical collection experience and forward-looking information, including changes in economic conditions that may not be reflected in historical trends, such as customers in bankruptcy, liquidation, or reorganization. The Company estimates losses based on days past due as measured from the contractual due date. Receivables are written off against the allowance for doubtful accounts when they are determined to be uncollectible. Such determination includes an analysis of the specific conditions of the account, including time intervals since last collection, customer performance against agreed-upon payment plans, solvency of the customer, and any bankruptcy proceedings. As of December 31, 2024, and December 31, 2023, there were no recorded allowances for doubtful accounts on accounts receivable. F- 9 Table of Contents ix. Loans Receivable CRB Loans that significantly support the Company’s operations are recognized as assets on the balance sheet. These loans, intended to be held either for the foreseeable future or until their maturity or full repayment, are recorded at their outstanding principal balance. This amount is adjusted for any credit loss allowances and net of any deferred loan origination fees and costs, as applicable, to reflect the net investment in these loans. The Company recognizes interest income on CRB Loans over the loan term using the simple-interest method based on outstanding principal amounts. This approach ensures a systematic recognition of income, aligning with the time value of money principle. Interest income recognition is suspended when there is uncertainty regarding full loan repayment, such as in cases of loan impairment or when payments are overdue by ninety days or more. Loans under these conditions are placed on nonaccrual status. Any accrued interest not received by the time a loan is placed on nonaccrual is reversed from interest income. Subsequent interest payments on nonaccrual loans are recorded using either the cash basis or the cost recovery method until the loan meets the criteria for reclassification to accrual status. Loans are returned to accrual status when they become current (less than ninety days past due) and when there is reasonable assurance of future payment compliance, evidenced by the full satisfaction of both principal and interest payments due. Loans are assessed individually for potential charge-off, which typically occurs at the point of foreclosure. Charge-offs are executed to reflect the realizable value of loans that are deemed uncollectible. The determination of a loan’s past-due status is based on its contractual repayment terms. Loans are either placed on nonaccrual status or charged-off ahead of their contractual delinquency dates if the collection of principal and interest is deemed doubtful, ceasing the recognition of interest income on such loans. x. Allowance for Credit Losses (ACL) and Indemnification The Company accounts for credit losses in accordance with ASC 326 – Financial Instruments – Credit Losses (CECL methodology), which replaces the incurred loss model with an expected credit loss approach. The allowance for credit losses (ACL) is established to reflect the estimated lifetime credit losses on financial assets carried at amortized cost, including loans held for investment. The ACL consists of an asset-specific component for individual loans with unique risk characteristics and a pooled component based on expected loss models, incorporating probability of default (PD) and loss given default (LGD). Given the evolving nature of cannabis-related lending and the absence of extensive historical industry data, the Company applies significant judgment to estimate credit losses using comparable non-cannabis loan data while adjusting for industry-specific risks. The ACL estimation process incorporates macroeconomic conditions, economic forecasts, and reasonable future expectations. Expected credit losses are measured over the contractual term of the loans, adjusted for expected prepayments where applicable. Recoveries on previously charged-off loans are credited to the ACL upon collection. The Company previously recorded an indemnity liability under ASC 460 – Guarantees related to its obligation to indemnify PCCU against credit losses on cannabis-related loans. This liability was measured using the same methodology as the ACL and included an assessment of potential losses from defaulted loans. However, following the execution of the Amended and Restated CAA on December 31, 2024, the Company is no longer obligated to indemnify PCCU for credit losses, resulting in the complete reversal of the indemnity liability into the statement of operations. As of December 31, 2024, the Company no longer has any outstanding indemnified loans. F- 10 Table of Contents xi. Property and Equipment, net Property and equipment are recorded at historical cost, net of accumulated depreciation. Depreciation is provided over the assets’ useful lives on a straight-line basis 3 - 5 years for equipment and furniture and fixtures. Repairs and maintenance costs are expensed as incurred. Management periodically assesses the estimated useful life over which assets are depreciated or amortized. If the analysis warrants a change in the estimated useful life of property and equipment, management will reduce the estimated useful life and depreciate or amortize the carrying value prospectively over the shorter remaining useful life. The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the period of disposal and the resulting gains and losses are included in the results of operations during the same period. The Company capitalizes certain costs related to software developed for internal-use, primarily associated with the ongoing development and enhancement of our technology platform. Costs incurred in the preliminary development and post-development stages are expensed. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally five years. xii. Right of Use Assets and Lease Liability The Company has entered into lease agreements for a certain facility and certain items of equipment, which provide the right to use the underlying asset and require lease payments over the term of the lease. At inception of the lease agreement, the Company assesses whether the agreement conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified as a lease. Each lease is further analyzed to check whether it meets the classification criteria of a finance or operating lease. All identified leases are recorded on the consolidated balance sheet with a corresponding lease right-of-use asset, net, representing the right to use the underlying asset for the lease term and the operating lease liabilities representing the obligation to make lease payments arising from the lease. The Company has elected not to recognize lease assets and lease liabilities for short-term leases (leases with a term of 12 months or less) and leases of low-value assets. Lease right-of-use assets, net and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available as of the lease commencement date. Lease expense for operating leases is recorded on a straight-line basis over the lease term and variable lease costs are recorded as incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Finance lease interest expense is recognized based on an effective interest method and depreciation of assets is recorded on a straight-line basis over the shorter of the lease term and useful life of the asset. Both operating and finance lease right of use assets are reviewed for impairment, consistent with other finite lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a right of use asset is impaired, any remaining balance of the asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life. xiii. Goodwill and Other Intangible Assets The Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed. Goodwill is tested for impairment at least annually, unless any events or circumstances indicate it is more likely than not that the fair value of the goodwill is less than its carrying value at the elected measurement date of December 31. F- 11 Table of Contents Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts. xiv. Stock-based Compensation The Company measures all equity-based payment arrangements to employees and directors in accordance with ASC 718, Compensation–Stock Compensation. The Company’s stock-based compensation cost is measured based on the fair value at the grant date of the stock-based award. It is recognized as expense on a straight-line basis over the requisite service period for the entire award. Forfeitures are recognized as they occur. The Company estimates the fair value of each stock-based award on its measurement date using either the current market price of the stock or Black-Scholes option valuation model, whichever is most appropriate. The Black-Scholes valuation model incorporates assumptions such as expected term of the instrument, volatility of the Company’s future share price, risk free rates, future dividend yields and estimated forfeitures at the initial grant date, by reference to the underlying terms of the instrument, and the Company’s experience with similar instruments. Changes in assumptions used to estimate fair value could result in materially different results. The stock price of the Company has dropped significantly from the date of listing, based on which the Company has considered the expected volatility at 100 % for the purpose of stock compensation. The risk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the awards’ expected lives. The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period of the awards. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future. xv. Fair Value Measurements The Company utilizes the fair value hierarchy to apply fair value measurements. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair values that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below: Level 1 — Quoted prices for identical assets or liabilities in active markets. Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 —Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable. F- 12 Table of Contents xvi. Revenue Recognition SHF recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which SHF expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Revenue is recorded at a point in time when the performance obligation is satisfied, and no contingencies exist. Revenue consists primarily of fees earned on deposit accounts such as bank account charges, onboarding income, account activity fee income and other miscellaneous fees. Revenue from account fee income is recognized when the Company fulfills its service obligations, which include fees charged for financial services such as account maintenance, transaction processing, and other related services. Revenue from interest on loans is recognized over the loan period as earned. The Company utilizes a fixed percentage fee structure, under which financial institutions receive a share of interest income from CRB-related loans. Revenue from investment income is recognized based on interest earned on daily deposit balances maintained with financial institutions. In addition, the Company recognizes revenue from the Master Program Agreement. The Master Program Agreement is a non-exclusive and non-transferable right to implement and utilize the Safe Harbor Program. The Safe Harbor Program has two performance obligations; an implementation fee recognized when the contract is effective and a service fee recognized ratable over the contract term as the compliance program is executed. Amounts received in advance of the service being provided is recorded as a liability under deferred revenue on the consolidated balance sheets. Customers consist of financial institutions providing services to CRBs. Revenues are concentrated in the United States of America. xvii. Contract Assets / Contract Liabilities A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. Conversely, the Company recognizes a contract liability if the customer’s payment of consideration precedes the reporting entity’s performance. As of December 31, 2024, the Company reported contract assets and contract liabilities of $ 0 and $ 28,335 , respectively, from contracts with customers. As of December 31, 2023, the Company reported a contract asset and liability of $ 0 and $ 21,922 , respectively. xviii. Warrants Liabilities The Company has four separate warrants including public, private, PIPE and Abaca and has evaluated each of the warrant arrangements separately in accordance with ASC 480 and 815, to determine classification as either equity instruments or liabilities based on the specific terms and features of each warrant. Warrants are recognized as equity if they are indexed to our own stock and meet the equity classification criteria in ASC 815-40. These warrants are recorded within stockholders’ equity at their issuance date and are not subsequently remeasured at fair value. Conversely, warrants that do not meet the criteria for equity classification under ASC 815-40 are classified as liabilities. Such warrants are initially recorded at fair value on the issuance date and are subject to remeasurement at each balance sheet date thereafter. Any changes in fair value are recognized in the statement of operations. None of our warrant contracts met criteria to be considered indexed to their own stock, and as a result, have each been accounted for as a liability financial instrument. The fair value of warrants classified as liabilities is determined using appropriate valuation models, such as the Black-Scholes model, which incorporates various inputs, including the current stock price, expected volatility, risk-free interest rate, and the expected term of the warrants. xviii. Deferred consideration In line with ASC Topic 815, “Derivatives and Hedging” (“ASC 815”), the Company treats the deferred consideration from the Abaca acquisition as a derivative liability, since it does not fulfill the equity classification criteria. As a result, this obligation is recognized as a liability on the balance sheet at fair value and is adjusted to reflect its fair value at the end of each reporting period. The liability will be reassessed at fair value on every balance sheet date until the obligation’s term concludes. Fluctuations in its fair value are recorded in the consolidated statements of operations. F- 13 Table of Contents xxi. Forward purchase derivative The Company accounted for the forward purchase derivative in the business combination in accordance with the guidance contained in ASC Topic 815, the Company classifies the forward purchase derivative as an asset or liability carried at fair value and adjusts the forward purchase derivative to fair value at each reporting period. Under the terms of the contract, the forward purchase derivative may be settled in either cash or stock upon maturity, at the discretion of management. This derivative asset or liability is subject to re-measurement at each balance sheet date until the conditions under the forward purchase agreement are exercised or expire, and any change in fair value is recognized in the consolidated statement of operations. On December 31, 2022, a Monte-Carlo Simulation within a risk-neutral framework was used to estimate the forward purchase derivative’s fair value, assuming Geometric Brownian Motion for future stock prices. Values from each simulation path were determined per contractual terms and discounted by a matching risk-free rate. In 2023 and 2024, no FPA holder sales occurred, and no significant risk factor changes affecting FPA derivative values were noted. Consequently, management retained the December 31, 2022 valuation for year-end 2023 and 2024. xx. Earnings Per Share Basic and diluted earnings per share are computed and disclosed in accordance with ASC Topic 260, Earnings Per Share. The Company utilizes the two-class method to compute earnings available to common stockholders. Under the two-class method, earnings are adjusted by accretion amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance, to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other common stockholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common stockholders (Refer to Note 14). Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards. xxi. Income Tax Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are adjusted through the provision for income taxes as changes in tax laws or rates are enacted. A valuation allowance is established when it is determined that it is more likely than not that some portion or all of the deferred tax assets may not be realized . ASC Topic 740 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. F- 14 Table of Contents xxii. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective are not expected to have a material impact on the Company’s financial position or results of operations upon adoption. Adopted Standards Segment Reporting In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), requiring public entities to disclose significant segment expenses and other segment items. It also mandates that public entities provide, in interim periods, all disclosures related to a reportable segment’s profit or loss and assets that were previously required only annually. Public entities with a single reportable segment must comply with all ASC 280 disclosure requirements, including significant segment expense disclosures. The guidance upon adoption has been applied retrospectively to all periods presented unless impractical. This ASU applies to all public entities and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. The Company has adopted ASU 2023-07, Segment Reporting (Topic 280) and applied disclosure requirements throughout the financial statements. Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions This Accounting Standard Update (ASU 2022-03) clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring fair value. Recognizing a contractual restriction on the sale of an equity security as a separate unit of account is not permitted. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company has prospectively adopted this standard during the year ended December 31, 2024, and the ASU has not had a material impact on the Company’s audited consolidated financial statements. Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 This Accounting Standard Update (ASU 2022-06) defers the Sunset Date of ASC Topic 848, Reference Rate Reform (Topic 848), which provides temporary optional relief in accounting for the impact of Reference Rate Reform. This ASU is effective upon issuance (December 21, 2022) and generally can be applied through December 31, 2024. The Company has prospectively adopted this standard during the year ended December 31, 2024, and the ASU has not had a material impact on the Company’s audited consolidated financial statements. Investments-Equity Method and Joint Ventures In March 2023, the FASB issued ASU 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures using the Proportional Amortization Method. The FASB issued final guidance allowing entities to apply the proportional amortization method to equity investments in all tax credit programs that meet the conditions in ASC 323-740, rather than just investments in qualified affordable projects that generate low-income housing tax credits, as was required under the legacy guidance. The guidance is effective for public business entities for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. The Company has prospectively adopted this standard during the year ended December 31, 2024, and the ASU has not had a material impact on the Company’s audited consolidated financial statements. F- 15 Table of Contents Standards Pending to be Adopted Income Taxes In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This ASU requires public business entities to disclose in their rate reconciliation table additional categories of information about income taxes paid, including certain disclosures that would be disaggregated by jurisdiction and other categories. This ASU is effective for fiscal years after December 15, 2024. Early adoption would be permitted. The Company does not expect this ASU to have a material impact on its audited consolidated financial statements. In January 2024, the FASB issued ASU 2024-01, Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interests and Similar Awards, which clarifies the scope and application of profits interest awards under ASC 718 by providing illustrative guidance. The amendments apply to all entities that account for profits interest awards as compensation for services provided by employees or non-employees. The amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those years, for public entities, and for fiscal years beginning after December 15, 2025, for all other entities, with early adoption permitted. The Company will adopt this standard prospectively and is currently assessing the impact of adopting this guidance on its financial statements and related disclosures. In March 2024, the FASB issued ASU 2024-02, Codification Improvements: Amendments to Remove References to the Concepts Statements. Since the Concept Statements are not considered authoritative and do not establish Generally Accepted Accounting Principles (GAAP), the ASU eliminates references to these statements from the codification. The amendments are effective for public entities for fiscal years beginning after December 15, 2024, and for all other entities for fiscal years beginning after December 15, 2025, with early adoption permitted. The Company will adopt this ASU prospectively and does not anticipate a material impact on its financial reporting as a result of adopting this ASU. ASU 2024-03, Disaggregation of Income Statement Expenses, was issued in November 2024 and requires public business entities to disaggregate certain income statement expense captions in the footnotes of the financial statements. Specifically, entities must provide disclosures that separately present expenses related to purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion (including depreciation, depletion, and amortization for oil and gas producing activities). While this ASU does not change the presentation of expense captions on the face of the income statement, it requires detailed disclosures in the notes to the financial statements. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company will adopt this ASU prospectively and does not anticipate a material impact on its financial reporting as a result of adopting this ASU. In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which provides clarification on the accounting treatment of convertible debt settlements that occur under terms differing from those of the original instrument. The amendments specify that if the settlement is considered an induced conversion, an entity must recognize an inducement expense at the offer acceptance date. Conversely, if the settlement is treated as a debt extinguishment, an entity must recognize a gain or loss at the extinguishment date. This ASU is effective for all entities for fiscal years beginning after December 15, 2025, including interim periods within those years, with early adoption permitted. The Company will adopt this ASU prospectively and does not anticipate a material impact on its financial reporting as a result of adopting this ASU. In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The Board is issuing this Update to clarify the effective date of Accounting Standards Update No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendment in this Update applies to all public business entities but only potentially affects non-calendar year-end entities. The amendment in this Update amends the effective date of Update 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of Update 2024-03 is permitted. The Company will adopt this ASU prospectively and does not anticipate a material impact on its financial reporting as a result of adopting this ASU. The Company will continue to monitor the development of these standards and intends to adopt them in accordance with their respective effective dates. Additional disclosures will be provided in future filings as the Company finalizes its assessment of these standards’ impacts. F- 16 Table of Contents Note 3. Deferred consideration On November 11, 2022, as provided in Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 16, 2022, on November 11, 2022, the Company entered into the first Amendment to the Merger Agreement and Plan of Merger to that certain Agreement and Plan of Merger, dated as of October 29, 2022, by and among the Parent, SHF Merger Sub I, a Delaware corporation and a direct wholly-owned subsidiary of Parent (“Merger Sub I”), SHF Merger Sub II, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Parent (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of the Company Security Holders (the “Merger Agreement.”) The Merger Agreement provided for payment of $ 30 million through a mix of cash and stock. The payment structure included $ 9 million in cash, distributed in three equal installments, with the first installment occurring at the merger closing and the other installments being paid on the first and second anniversaries of the merger closing. Additionally, the Class A Common Stock consideration was settled through 105,000 Class A Common Stock which represented a monetary equivalent calculated against the closing trading price, alongside deferred stock consideration calculated with a 10-day VWAP formula. Adjustments were made via amendments to redefine the terms and conditions of the deferred stock and cash considerations. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by the Merger Agreement attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 16, 2022. A Second Amendment to the Merger Agreement, dated October 26, 2023, by and among the Company, Merger Sub I, Merger Sub II, Rockview Digital Solutions, Inc., a Delaware corporation, d/b/a Abaca and Dan Roda, solely in such individual’s capacity as the representative of the Abaca security holders as referenced in Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed with the SEC on October 27, 2023 (the “Second Amendment”) amends the Merger Agreement to provide for deferred stock consideration of 291,792 shares of Class A Common Stock to be issued at the first anniversary of the Second Amendment based on a recalculated value of $ 40.00 per share. No changes affected the scheduled cash payments under the Amended Second Amendment. Furthermore, a third-anniversary consideration of $ 1.5 million was introduced, payable in cash or Class A Common Stock at the Company’s discretion, alongside an issue of 250,000 stock warrants at an exercise price of $4 0.00 per share of Class A Common Stock. The adjustments and additional considerations have been valued and recorded according to ASC 815, reflecting changes in the fair value of deferred consideration in the consolidated statements of operations. The change in the amount of deferred consideration from January 1, 2023, to December 31, 2024, is as follows: Schedule of Change in Deferred Consideration Stock Consideration Cash Consideration Third Anniversary Consideration Payment January 1, 2023 $ 11,456,639 $ 5,650,775 $ - Less: Working capital adjustment ( 108,691 ) - - Less: Issuance of shares and payment to shareholders ( 4,085,075 ) ( 3,000,000 ) - Less: Issuance of Abaca warrants ( 1,643,699 ) - - Less: Issuance of third anniversary payment consideration ( 430,000 ) - 430,000 Less: Gain recognized in the consolidated statements of operations ( 5,645,107 ) - - Add: Fair value adjustment 455,933 239,017 380,000 December 31, 2023 - 2,889,792 810,000 Add: Fair value adjustment - 126,551 ( 488,000 ) December 31, 2024 $ - $ 3,016,343 $ 322,000 On 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. v. 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. On November 20, 2024, the Company deposited $ 3,000,000 with the District Court of Denver, Colorado, for the court to determine the appropriate disbursement method to Abaca shareholders. This amount is recorded under “Other Current Assets” on the balance sheet. F- 17 Table of Contents Note 4. Goodwill and Finite-lived Intangible Assets Goodwill The Company’s goodwill was derived from the Abaca Merger, where the purchase price exceeded the fair value of the net identifiable assets acquired. Goodwill is tested for impairment at least annually, or more frequently if a triggering event occurs. On December 31, 2024, the Company conducted its annual goodwill impairment test in accordance with ASC 350, utilizing 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 companies. To validate the results, the enterprise value approach was used as a cross-check. The impairment assessment incorporated an equally weighted enterprise value derived from both the DCF and GPC methods. As the fair value of the asset group was determined to be lower than its carrying amount, the Company recorded a full goodwill impairment charge of $ 6.06 million. In 2023, the Company conducted an interim goodwill and intangible asset impairment assessment on June 30, 2023, which indicated that the carrying value of goodwill exceeded its fair value. As a result, the Company recognized a non-cash goodwill impairment charge of $ 13.21 million in its consolidated statements of operations. However, the annual impairment test conducted on December 31, 2023, did not result in any additional impairment charges, as the fair value remained at or above the carrying value. The following presents a summary of the Company’s goodwill as of December 31, 2024, and December 31, 2023. Schedule of Goodwill Year ended December 31, 2024 2023 Goodwill Beginning balance $ 6,058,000 $ 19,266,276 Acquisition - - Impairment ( 6,058,000 ) ( 13,208,276 ) Ending balance $ - $ 6,058,000 Finite-lived intangible assets The Company reviews its finite-lived intangible assets for impairment at least annually on December 31 unless any events or circumstances indicate it is more likely than not that the fair value of the finite-lived intangible assets is less than its carrying value. In accordance with the Company’s established policy, an annual impairment review of finite-lived intangible assets was conducted on December 31, 2024. The recoverability test compared the sum of estimated undiscounted future cash flows of the asset group to its carrying amount. As the undiscounted cash flows were determined to be lower than the carrying amount, the Company performed a fair value assessment using a Discounted Cash Flow (DCF) analysis. The results indicated that the fair value of the asset group was below 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. In 2023, following a triggering event in the second quarter, the Company performed an interim impairment assessment for goodwill and intangible assets. In addition, the Company conducted its annual impairment review on December 31, 2023, in line with its policy. The finite-lived intangible assets evaluated included market-related intangibles, customer relationships, and developed technologies. The interim assessment resulted in an impairment charge of $ 3.68 million, primarily related to market-related intangibles and customer relationships, as their carrying values exceeded their fair values. The annual review further identified an additional impairment charge of $ 2.02 million related to developed technologies. F- 18 Table of Contents The following presents a summary of the Company’s finite-lived intangible assets as of December 31, 2024, and December 31, 2023: As of December 2024: Schedule of Finite Lived Intangible Assets Remaining Useful Life in Years Gross Carrying Amount Accumulated Amortization Accumulated Impairment Net Carrying amount (A) (B) (C) (A-B-C) Market related intangible assets - $ 2,100,000 $ 178,633 $ 1,921,367 $ - Customer relationships - 2,000,000 134,848 1,865,152 - Developed technology - 6,700,000 1,696,172 5,003,828 - Total intangible assets - 10,800,000 2,009,653 8,790,347 - As of December 31, 2023: Remaining Useful Life in Years Gross Carrying Amount Accumulated Amortization Accumulated Impairment Net Carrying amount (A) (B) (C) (A-B-C) Market related intangible assets 6.87 Years $ 2,100,000 $ 169,116 $ 1,865,668 $ 65,216 Customer relationships 8.87 Years 2,000,000 128,430 1,814,795 56,775 Developed technology 5.87 Years 6,700,000 1,081,245 2,019,001 3,599,754 Total intangible assets - 10,800,000 1,378,791 5,699,464 3,721,745 During the year ended December 31, 2024, amortization expense and impairment of finite-lived intangible assets were $ 630,863 and $ 3,090,881 , respectively, compared to $ 1,199,878 and $ 5,699,464 , respectively, for the year ended December 31, 2023. Note 5. Loans Receivable Commercial real estate loans receivable, net consist of the following: Schedule of Commercial Real Estate Loans Receivable December 31, 2024 December 31, 2023 Commercial real estate loans receivable, gross $ 392,186 $ 404,577 Allowance for credit losses - ( 10,723 ) Commercial real estate loans receivable, net 392,186 393,854 Current portion ( 13,332 ) ( 12,391 ) Noncurrent portion $ 378,854 $ 381,463 F- 19 Table of Contents Allowance for Credit Losses The allowance for credit losses is maintained at a level believed to be sufficient to provide for estimated credit losses based on evaluating known and inherent risks in the loan portfolio. The Company’s estimated the allowance for credit losses on the reporting date in accordance with the credit loss policy described in Note 2. The allowance for credit losses consists of the following activity for the year ended December 31, 2024 and 2023: Schedule of Allowance For Loan Losses Year ended December 31, 2024 2023 Allowance for credit losses Beginning balance $ 10,723 $ 21,488 Cumulative effect from adoption of CECL - 14,980 Charge-offs - - Recoveries - - Benefits ( 10,723 ) ( 25,745 ) Ending balance $ - $ 10,723 Loans receivable: Individually evaluated for impairment $ 392,186 $ - Collectively evaluated for impairment - 404,577 $ 392,186 $ 404,577 Allowance for credit losses: Individually evaluated for impairment $ - $ - Collectively evaluated for impairment - 10,723 $ - $ 10,723 As of December 31, 2024 and December 31, 2023, no loans were past due, or classified as non-accrual or considered impaired. Additionally, no loans were modified during the years ended December 31, 2024, or 2023. Credit quality of loans: As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks credit quality indicators based on the loan payment status on monthly basis. The Company evaluated the credit quality of each indemnified loan by assessing the risk factors and assigning a risk rating based on a variety of factors. The detailed breakdown of risk factors described in Note 6. The carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value within each risk rating is as follows: Schedule of Risk Rating Risk rating Year ended. December 31, 2024 Year ended December 31, 2023 6 $ 392,186 $ - 4 - 404,577 Grand total $ 392,186 $ 404,577 Note 6. Indemnification Liability As of December 31, 2024, the Company had no indemnified loans outstanding. However, as of December 31, 2023, the Company had indemnified a total of twenty loans, three of which individually represented more than 10% of the total balance of indemnified loans. The schedule below details outstanding indemnified amounts funded by PCCU and categorized as either collateralized loans or unsecured loans and lines of credit as of December 31, 2024 and December 31, 2023. Schedule of Outstanding Amounts December 31, 2024 December 31, 2023 Secured term loans $ - $ 55,215,013 Unsecured loans and lines of credit - 431,640 Total loans funded by PCCU $ - $ 55,646,653 As of December 31, 2023, secured loans carried interest rates ranging from 8.00 % to 13.00 %, while unsecured loans and lines of credit had interest rates between 10.00% and 12.50%. Additionally, unsecured lines of credit had an incremental availability of $ 996,958 as of December 31, 2023. F- 20 Table of Contents For the loans outstanding as of December 31, 2023, SHF had agreed to indemnify PCCU for losses on certain PCCU loans. The indemnity liability reflects SHF management’s estimate of probable credit losses inherent under the agreement as of the balance sheet date. The Company’s estimated indemnity liability on the reporting date was calculated in accordance with the allowance for credit loss and indemnity liability policies described in Note 2. As per the Amended CAA, effective December 31, 2024, the Company no longer serves as a guarantor of credit losses to PCCU, accordingly reduced the indemnity liability on loans funded by PCCU to $ 0 at December 31, 2024. The indemnity liability activity are as follows: Schedule of Indemnity Liability 2024 2023 Year ended December 31, 2024 2023 Beginning balance $ 1,382,408 $ 499,465 Cumulative effect from adoption of CECL - 566,341 Charge-offs - - Recoveries - - (Benefit) expense ( 1,382,408 ) 316,602 Ending balance $ - $ 1,382,408 As of December 31, 2023, one loan had been classified as nonaccrual. On December 29, 2023, the Company successfully negotiated an amendment agreement to the nonaccrual loan agreement, resulting in the payment of all overdue amounts and restoring the loan to current status. During the second quarter of 2024, the company received the full principal amount of the loan, along with all accrued interest. Credit quality of indemnified loans: As part of the on-going monitoring of the credit quality of the Company’s indemnified loan portfolio, management tracks credit quality indicators based on the loan payment status on monthly basis. The Company continuously evaluates the credit quality of each indemnified loan by assessing the risk factors and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage ratio, project sponsorship, and other factors deemed necessary. Based on a 10-point scale, the Company’s loans are rated “0” through “10,” from less risk to greater risk, which ratings are defined as follows: Risk rating Category Description 0 Risk Free Free of repayment risk. The loan is fully guaranteed by the full faith and backing of the US Government or entirely secured by cash controlled by SHF. 1 Highest Quality High caliber loan with the lowest risk of default. Significant excess cash flow after debt service and moderate to low leverage. 2 Excellent High quality loan that carry’s a low risk of default. Strong cash flow and relatively few negative individual risk factors. 3 Good Loans with lower-than-average level of risk. Excess cash flow and other factors contributing to the overall low level of risk in the loan. 4 Average Risk factors may be mixed with some negative and some positive aspects, but the overall rating will indicate an average level of risk. 5 Fair Loans in this category have the maximum level of risk that can be accepted while still recommending a new loan for origination. The loan risk factors may contain multiple negative factors, but they are generally outweighed by the positive aspects of the loan. 6 Watch List There is a temporary and curable condition resulting in a lower risk rating. 7 Special Mention There is a potential weakness that may result in the deterioration of the prospect of repayment that are not temporary and may require additional collection or workout efforts. 8 Substandard Loans in this category are inadequately protected by the current net worth and paying capacity of the obligors or of the collateral pledged and have well-defined weaknesses that jeopardize the liquidation of the debt with distinct possibility of loss. SHF may be required to advance additional funds to manage the loan. Escalated collection activities such as foreclosure have been scheduled with anticipated losses up to 20% of the outstanding balance. 9 Doubtful Collection or liquidation in full highly questionable and improbable. Escalated collection activities such as foreclosure have commenced with anticipated losses from 20% to 50% of the outstanding balance. 10 Loss Uncollectable loans. A complete write-off is imminent although a partial recovery may be affected in the future. F- 21 Table of Contents The carrying value, excluding the CECL Reserve, of the Company’s indemnified loans held at carrying value within each risk rating is as follows: Schedule of Indemnified Loans Risk Rating Risk rating December 31, 2024 December 31, 2023 3 $ - $ 10,100,000 4 - 3,431,640 5 - 28,115,013 6 - 10,900,000 7 - 3,100,000 Grand total $ - $ 55,646,653 The provision for credit losses (benefit) on the statements of operations consists of the following activity for the years ended December 31, 2024 and December 31, 2023: Schedule of Provision for Loan Losses Commercial real estate loans Indemnity liability Total Commercial real estate loans Indemnity liability Total December 31, 2024 December 31, 2023 Commercial real estate loans Indemnity liability Total Commercial real estate loans Indemnity liability Total Credit loss (benefit) $ ( 10,723 ) $ ( 1,382,408 ) $ ( 1,393,131 ) $ ( 25,745 ) $ 316,602 $ 290,857 Note 7. Property and equipment, net Property and equipment consist of the following: Schedule of Property and Equipment December 31, 2024 December 31, 2023 Equipment $ 45,397 $ 45,397 Software 51,692 51,692 Improvement 71,635 71,635 Office furniture 215,504 215,504 Property and equipment, gross 384,228 384,228 Less: accumulated depreciation ( 381,074 ) ( 300,008 ) Property and equipment, net $ 3,154 $ 84,220 Depreciation expense was $ 81,066 and $ 173,828 for the years ended December 31, 2024, and 2023, respectively. Note 8. Related party transactions PCCU is considered a related party as it holds a significant ownership interest in the Company, is our most significant financial institution customer, serves as the Company’s sole lending financial institution, is the counterparty to the PCCU Note, and is where we maintain the majority of our deposits. The agreements between PCCU and the Company are as follows: F- 22 Table of Contents Account Servicing Agreement The Company had an Account Servicing Agreement with PCCU. SHF provides services as per the agreement to CRB accounts at PCCU. In addition to providing the services, SHF assumed the costs associated with the CRB accounts. These costs include employees to manage account onboarding, monitoring and compliance, rent and office expense, insurance and other operating expenses necessary to service these accounts. Under the agreement, PCCU agreed to pay SHF all revenue generated from CRB accounts. Amounts due to SHF were due monthly in arrears and upon receipt of invoice. This agreement was replaced and superseded in its entirety by the PCCU CAA, which was entered into on March 29, 2023, and later amended and restated on December 31, 2024. Support Services Agreement On July 1, 2021, SHF entered into a Support Services Agreement with PCCU. In connection with PCCU hosting the depository accounts and the related loans and providing certain infrastructure support, PCCU received (and SHF paid) a monthly fee per depository account. In addition, 25 % of any investment income associated with CRB deposits is paid to PCCU. This agreement was replaced and superseded in its entirety by the PCCU CAA, which was entered into on March 29, 2023, and later amended and restated on December 31, 2024. Loan Servicing Agreement Effective February 11, 2022, SHF entered into a Loan Servicing Agreement with PCCU. The agreement sets forth the application, underwriting and approval process for loans from PCCU to CRB customers and the loan servicing and monitoring responsibilities provided by both PCCU and SHF. PCCU received 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 originated the loans and performed 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 performed these services. Under the Loan Servicing Agreement, SHF 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 the PCCU CAA, which was entered into on March 29, 2023, and later amended and restated on December 31, 2024. Commercial Alliance Agreement (the “PCCU CAA”) On March 29, 2023, the Company and PCCU entered into the PCCU CAA. This Agreement sets forth the terms and conditions of the lending and account-related services, governing the relationship between the Company and PCCU. The PCCU CAA replaces and supersedes, in their entirety, the following agreements entered into between the aforementioned parties: the Amended and Restated Loan Servicing Agreement (the “Loan Servicing Agreement”, dated September 21, 2022); the Second Amended and Restated Account Servicing Agreement (“the “Account Servicing Agreement,” dated May 23, 2022, effective February 11, 2022) and the Second Amended and Restated Support Services Agreement (the “Support Agreement,” dated May 23, 2022, effective February 11, 2022). The PCCU CAA sets forth the application, underwriting, loan approval, and foreclosure process for loans from PCCU to borrowers that are cannabis-related businesses and the loan servicing and monitoring responsibilities provided by the Company and PCCU. In particular, the PCCU CAA provides for procedures to be followed upon the default of a loan to ensure that neither the Company nor PCCU will take title to or possession of any cannabis-related assets, including real property, that may be collateral for a loan funded pursuant to the PCCU CAA. Under the PCCU CAA, the PCCU has the right to receive monthly fees for managing loans. For SHF-serviced loans, which are CRB loans provided by the PCCU but primarily handled by SHF, a yearly fee of 0.25 % of the remaining loan balance is applied. On the other hand, loans both financed and serviced by the PCCU are charged a yearly fee of 0.35 % on their outstanding balance. These fees are calculated using the average daily balance of each loan for the preceding month. In addition, under the PCCU CAA the Company’s is obligated to indemnify PCCU from certain default-related loan losses. F- 23 Table of Contents Furthermore, the PCCU CAA provides for certain fees to be paid to the Company for certain identified account related services to include: all cannabis-related income, including all lending-related income (such as loan origination fees, interest income on CRB-related loans, participation fees and servicing fees), investment income, interest income, account activity fees, processing fees, flat fees, and other revenue generated from cannabis and multi-state hemp accounts that are hosted on PCCU’s core system for a monthly fee equal to $30.96 per account in 2022, $25.32-$27.85 per account in 2023, and $26.08-$28.69 in 2024. In addition, regarding CRB deposits held at PCCU, SHF pays PCCU a fee of 25% of the related income earned from investment and interest on these deposits, excluding interest income on loans funded by PCCU. Finally, under the PCCU CAA, PCCU will continue to allow its ratio of CRB-related deposits to total assets to equal at least 60% unless otherwise dictated by regulatory, regulator or policy requirements. The initial term of the PCCU CAA is for a period of two years, with a one-year automatic renewal unless a party provides one hundred twenty days’ written notice prior to the end of the term. 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 PCCU CAA, we are obligated to remit 25 % of the investment hosting fees to PCCU based on this income. The schedule below demonstrates the ratio of CRB related loans funded by PCCU to the relative lending limits: Schedule of Demonstrated Deposit Capacity December 31, 2024 (Unaudited) December 31, 2023 (Unaudited) CRB related deposits $ 116,064,487 $ 129,350,998 Capacity at 60% 69,638,692 77,610,599 PCCU net worth 82,400,677 81,087,746 Capacity at 1.3125 108,150,889 106,670,306 Limiting capacity 69,638,692 77,610,599 PCCU loans funded 56,794,446 55,660,039 Amounts available under lines of credit 1,131,708 525,000 Incremental capacity * $ 11,712,538 $ 21,425,560 * If the loans funded by PCCU exceed the limiting capacity, the PCCU CAA specifies that PCCU will be unable to fund additional loans until the incremental capacity is positive. On 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. Key modifications under the Amended CAA include: · Elimination of Indemnification Obligations: The Company is no longer required to indemnify PCCU for any loan-related losses under either the original or future agreements. · Elimination 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 fees 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. F- 24 Table of Contents · Investment 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. · Loan 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) Ratio. I f 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. The revenue from the PCCU CAA recognized in the statements of operations consists of the following for the years ended December 31, 2024, and December 31, 2023: Schedule of Revenue from Operations Year ended December 31, 2024 Year ended December 31, 2023 Account servicing agreement $ - $ 3,075,458 Commercial Alliance Agreement 12,601,271 10,761,245 Total $ 12,601,271 $ 13,836,703 Revenue $ 12,601,271 $ 13,836,703 The operating expenses from the PCCU CAA recognized in the statements of operations consists of the following for the years ended December 31, 2024, and December 31, 2023: Schedule of Operating Expense from Operations Year ended December 31, 2024 Year ended December 31, 2023 Support services agreement $ - $ 378,730 Loan servicing agreement - 11,929 Commercial Alliance Agreement 1,052,693 1,665,644 Total $ 1,052,693 $ 2,056,303 Operating expense $ 1,052,693 $ 2,056,303 The outstanding balances associated with the PCCU disclosed in the balance sheet are as follows: Schedule of Outstanding Balances from Balance Sheet December 31, 2024 December 31, 2023 Accounts receivable $ 968,023 $ 2,095,320 Accounts payable 75,608 577,315 Senior Secured Promissory Note (Refer to Note 9 to the financial statements below) 11,004,173 14,011,166 Of the $ 2.3 million and $ 4.9 million of cash and cash equivalents on December 31, 2024 and December 31, 2023, respectively, $ 2.2 million and $ 4.6 million of the cash and cash equivalents, respectively, were held in deposit accounts at PCCU. Issuance of shares to PCCU On March 29, 2023, the Company and PCCU entered into the following definitive transaction documents to settle and restructure the deferred obligation: ● A five-year 5 Senior Secured Promissory Note (the “PCCU Note”) in the principal amount of $ 14,500,000 bearing interest at the rate of 4.25 % and a Security Agreement pursuant to which the Company will grant, as collateral for the Note, a first priority security interest in substantially all of the assets of the Company. The Company has repaid $ 3.5 million as of December 31, 2024. ● A Securities Issuance Agreement, pursuant to which the Company issued 560,000 shares of the Company’s Class A Common Stock to PCCU. In connection with the Securities Issuance Agreement, the parties also entered into a Registration Rights Agreement and a Lock-Up Agreement. PCCU holds 1,080,807 shares of the company as of December 31, 2024, representing a 39 % holding. ● The Registration Rights Agreement requires the Company to register the Shares for resale pursuant to the Securities Act of 1933, as amended (the “Securities Act”); and the Lock-Up Agreement restricts PCCU from transferring the Shares until the earlier of (i) six (6) months after the date of the Securities Issuance Documents or (ii) the consummation of a transaction with an unaffiliated third party in which all of the Company’s stockholders have the right to exchange their shares of Class A Common Stock for cash, securities, or other property; and ● The PCCU CAA that sets forth the terms and conditions of the lending-related and account-related services governing the relationship between the Company and PCCU which supersedes the Loan Servicing Agreement, as well as the Amended and Restated Support Services Agreement and the Amended and Restated Account Servicing Agreement. F- 25 Table of Contents Note 9. Senior Secured Promissory Note Schedule of Senior Secured Promissory Note December 31, 2024 December 31, 2023 Senior Secured Promissory Note (current) $ 255,765 $ 3,006,991 Senior Secured Promissory Note (long term) 10,748,408 11,004,175 Total $ 11,004,173 $ 14,011,166 On March 29, 2023, the Company and PCCU entered into definitive transaction documents to settle and restructure the deferred obligation following the Business Combination under which the Company has issued the five-year Senior Secured Promissory Note (the “PCCU Note”) in the principal amount of $ 14,500,000 bearing interest at the rate of 4.25 % and a Security Agreement, as referenced in Exhibit 3 of the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 15, 2023, pursuant to which the Company will grant, as collateral for the PCCU Note, a first priority security interest in substantially all of the assets of the Company. The PCCU Note amount was to be paid in 54 installments of $ 295,487 each, covering both principal and interest, starting from November 5, 2023. For the period between March 29, 2023, and October 5, 2023, the Company had paid only the interest portion. On January 29, 2025, the Company and PCCU agreed to a Letter Agreement to defer principal payments on the PCCU Note for February and March 2025, with interest payments continuing. On March 1, 2025, the Company entered into the Amended PCCU Note, replacing the original note dated March 29, 2023 and the letter agreement. The Amended PCCU Note has a principal balance of $ 10,748,408 , accruing interest at 4.25 % annually, with interest-only payments until January 5, 2027, and full repayment by October 5, 2030. The agreement maintains PCCU’s first-priority security interest and enforces a DSCR of 1.4 to 1.0. Upon the effective date of the Amended PCCU Note and as of December 31, 2024, the Company reflected on its Consolidated Balance Sheet the unpaid balance due to PCCU as a non-current liability The repayment schedule for the outstanding principal balance as on December 31, 2024, is as follows: Schedule of Outstanding Amount on Debt Year 2025 $ 255,765 2026 - 2027 697,614 2028 790,592 2029 826,047 2030 8,434,155 Grand total $ 11,004,173 During the first quarter of 2025, the Company identified that its 2024 Debt Service Coverage Ratio (DSCR), based upon payment terms under the PCCU Note, measured on the balance sheet date, fell below the required threshold, leading to a potential breach of the covenant under the terms of the PCCU Note. The DSCR covenant mandates that the Company maintain a minimum ratio of 1.4 to 1.0 , assessed annually. PCCU waived the potential covenant breach prior to the Amended PCCU Note thus there was no event of default. Management is actively monitoring the Company’s financial performance and liquidity position to ensure compliance with all debt covenants in future periods. The Company continues to evaluate operational and financial strategies to strengthen its ability to meet its debt obligations. Note 10. Deferred underwriter fee As part of the reverse acquisition of the Company and NLIT, the Company executed a note on September 28, 2022 with EF Hutton related to PIPE financing under which the Company was obligated to pay the principal sum of $ 2,166,250 on the following schedule: (i) $ 715,750 on October 14, 2022, and (ii) $ 362,625 on each of October 31, 2022, November 30, 2022, December 31, 2022, and January 31, 2023. The Company made the payment of its first installment of $ 715,750 and defaulted on the remaining outstanding amounts. On March 13, 2023, the Company and EF Hutton entered into a settlement agreement pursuant to which the Company paid $ 550,000 to EF Hutton in full settlement of the amount due and the difference of $ 900,500 has been accounted for in the “Consolidated Statements of Stockholders’ (Deficit) Equity”, as a component of additional paid in capital. Note 11. Leases The Company has non-cancellable operating leases for facility space with varying terms. All of the active leases for facility space qualified for capitalization under FASB ASC 842, Leases. These leases have remaining lease terms between one 1 to seven years and may include options to extend the leases for up to ten years . The extension terms are not recognized as part of the right-of-use assets. The Company has elected not to capitalize leases with terms equal to, or less than, one year. As of December 31, 2024, and December 31, 2023, net assets recorded under operating leases were $ 703,524 and $ 859,861 respectively, and net lease liabilities were $ 874,834 and $ 1,007,993 , respectively. F- 26 Table of Contents The Company analyzes contracts above certain thresholds to identify leases and lease components. Lease and non-lease components are not separated for facility space leases. The Company uses its contractual borrowing rate to determine lease discount rates when an implicit rate is not available. Total lease cost for the year ended December 31, 2024 and December 31, 2023, included in Consolidated Statements of Operations, is detailed in the table below: Schedule of Lease Cost and Right of Use Assets Related to Lease and Future Minimum Lease Payments Year ended December 31, 2024 Year ended December 31, 2023 Operating lease cost $ - $ - Short-term lease cost 258,477 315,615 Total Lease Cost $ 258,477 $ 315,615 ROU assets that are related to lease properties are presented as follows: Beginning balance $ 859,861 $ 1,016,198 Additions to right-of-use assets - - Amortization charge for the year ( 156,337 ) ( 156,337 ) Lease modifications - - Ending balance $ 703,524 $ 859,861 Further information related to leases is as follows: Weighted-average remaining lease term 2.42 Years 3.42 Years Weighted-average discount rate 6.87 % 6.87 % Future minimum lease payments as of December 31, 2024 and December 31, 2023 are as follows: Schedule of Future Minimum Lease Payments Year 2024 - 197,520 2025 217,925 217,925 2026 222,275 222,275 2027 226,705 226,705 2028 231,216 231,216 Thereafter 117,709 117,710 Total future minimum lease payments $ 1,015,830 $ 1,213,351 Less: Imputed interest 140,996 205,358 Operating lease liabilities $ 874,834 $ 1,007,993 Less: Current portion 161,952 132,546 Non-current portion of lease liabilities $ 712,882 $ 875,447 Note 12. Revenue Disaggregated revenue Revenue by type are as follows: Schedule of Disaggregated Revenue 2024 2023 Year ended December 31 2024 2023 Account fee income $ 6,447,201 $ 8,614,945 Investment income 2,092,863 5,844,836 Loan interest income 6,625,576 2,972,434 Safe Harbor Program income 76,920 130,688 Total Revenue $ 15,242,560 $ 17,562,903 F- 27 Table of Contents Account fee income is generated from businesses maintaining accounts with the Company’s financial institution partners and includes deposit account fees, account activity fees, and onboarding income. These fees are recognized periodically in accordance with the fee schedule established with financial institution partners. The Company also earns income from outsourced support services provided to financial institutions offering banking solutions to the cannabis industry, with revenue recognized based on usage as specified in the agreements. Loan interest income consists of interest earned on both direct and indemnified loans under the PCCU CAA. The Company utilizes a fixed percentage fee structure, under which financial institutions receive a share of interest income from CRB-related loans. Investment income is derived from interest earned on the daily deposit balances of cannabis businesses held with the Company’s financial institution partners and is recognized monthly based on the average net daily deposit balance. The Safe Harbor Program provides financial institutions with a non-exclusive, non-transferable right to implement and utilize the documented process for managing compliance requirements. Revenue from account fee income, loan interest income, and investment income is recognized at a point in time, while revenue from Safe Harbor Program income is recognized over time. Payments for all revenue streams, except for Safe Harbor Program income, are collected on a monthly basis. Under the Safe Harbor Program, any difference between amounts collected and revenue recognized as of the reporting date is recorded as contract assets and contract liabilities. Refunds are applicable only to account fees collected from customers and are granted as part of the ongoing business relationship with the customer. Under the Company’s PCCU CAA, the Company is obligated to remit as a fee, 25 % investment hosting fees to PCCU based on income which is classified as “General and Administrative Expenses” in the Consolidated Statements of Operations. During the year ended December 31, 2024, PCCU’s contributions to the Company’s revenues included $ 4,565,545 from deposits, activities, and client onboarding, $ 1,903,422 from investment income, and $ 6,254,175 from loan interest income. The associated expenses for these revenues were $ 452,371 for account hosting, $ 457,105 for investment hosting fees, and $ 143,217 for loan servicing fees, all in accordance with the PCCU CAA, classified as “General and Administrative Expenses” in the Consolidated Statements of Operations. During the year ended December 31, 2023, PCCU’s contributions to the Company’s revenues included $ 5,150,397 from deposits, activities, and client onboarding, $ 5,803,114 from investment income, and $ 2,883,192 from loan interest income. The related expenses for these revenue streams were $ 529,209 for account hosting, $ 1,445,517 for investment hosting fees, and $ 81,577 for loan servicing fees, all in compliance with the Loan Servicing Agreement, classified as “General and Administrative Expenses” in the Consolidated Statements of Operations. F- 28 Table of Contents Note 13. Commitments and Contingencies Contractual Commitments In connection with the issuance of Class A Common Stock to Abaca shareholders, the Company commits to registering the stock upon the exercise of Abaca Warrants if required by law or regulation to ensure the shares can be sold without restrictive legends, known as the “Warrant Registration Requirement”. Should this requirement arise, the Company is obliged to file a registration statement with the SEC within 45 calendar days of notification of the Warrant Registration Requirement. The failure to file within this timeframe constitutes an event of default. Moreover, the Company is dedicated to making the registration statement effective as promptly as possible and maintaining its effectiveness, along with a current prospectus, until the Warrants expire according to this Agreement’s terms. In the event a registration statement triggered by a Warrant Registration Requirement is not declared effective by the SEC within one year from its filing date, Warrant holders are entitled to exercise their Warrants on a cashless basis from the 366th day post-filing until the statement becomes effective. NASDAQ Listing Compliance ● On April 8, 2024, the Company received a notification letter from the listing qualifications department staff of Nasdaq (the “Staff”) notifying the Company that for the last 30 consecutive business days, the Company did not maintain a minimum closing bid price of $1.00 per share for its common stock, and thus, the Company no longer met Nasdaq’s minimum bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2), requiring a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”). On October 3, 2024, the Company received notice from the Staff advising that the Staff determined the Company is eligible for an additional 180 calendar day period, or until March 31, 2025, to regain compliance with the Minimum Bid Price Requirement based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If at any time before March 31, 2025, the bid price of our common stock closes at $ 1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that the Company has achieved compliance. If the Company does not regain compliance with the Minimum Bid Price Requirement by the end of the second compliance period, our common stock will become subject to delisting. In the event that the Company receives notice that our common stock is being delisted, the Nasdaq listing rules permit the Company to appeal a delisting determination by the Staff to a hearings panel. In an effort to comply with the $ 1.00 Minimum Bid Requirement, on March 4, 2025, we filed an amendment to our Second Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse split of our issued and outstanding Class A Common Stock at a ratio of one for twenty. On April 7, 2025, the Company was informed by the staff that they had determined the minimum closing bid price for the Company’s Class A common stock was at least $ 1.00 per share for 10 consecutive business days, from March 24, 2025, to April 4, 2025. Accordingly, the Staff has determined that the Company has regained compliance with Minimum Bid Price Requirement, and, as such, the Staff has indicated that the matter of the Company’s compliance with Minimum Bid Price Requirement is now closed. ● On April 7, 2025, the Company received a notice from Nasdaq indicating that it no longer meets the continued listing requirements for the Nasdaq Capital Market. Specifically, the Company’s stockholders’ equity as of December 31, 2024, was a deficit of $ 12,288,014 , which is below the minimum required stockholders' equity of $ 2.5 million as stipulated by Nasdaq’s Listing Rule 5550(b)(1). As a result, the Company does not comply with the Nasdaq Capital Market continued listing standards. Furthermore, the Company does not meet the alternative criteria for continued listing, which are based on the market value of listed securities or net income from continuing operations. The Company has been granted 45 calendar days, until May 22, 2025, to submit a plan to regain compliance with Nasdaq’s listing requirements. If the plan is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of this letter for the Company to meet the continued listing standards. The Company intends to timely submit a Compliance Plan to Nasdaq to regain compliance with the Shareholders’ Equity Requirement. There can be no assurance that Nasdaq will accept the Company’s plan or that the Company will be able to regain compliance with Listing Rule 5550(b)(1) or maintain compliance with any other Nasdaq requirement in the future. Legal and Related Matters The Company is involved in, or has been involved in, arbitrations or various other legal proceedings that arise from the normal course of its business. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material impact on the Company’s results of operations, balance sheets and cash flows due to defense costs, and divert management resources. The Company cannot predict the timing or outcome of these claims and other proceedings. With respect to the cases, described below, we evaluate the associated developments on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. Abaca legal case in Denver On 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. v. 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. Given the uncertainty of legal proceedings, the Company will continue to monitor the litigation and assess any potential financial impact in accordance with ASC 450, Contingencies. At this time, no loss contingency has been recorded, as the potential impact cannot be reasonably estimated. F- 29 Table of Contents Note 14. Earnings Per Share Basic net income (loss) per common share is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period. For the Company’s diluted earnings per share calculation, the Company uses the “if-converted” method for preferred stock and convertible debt and the “treasury stock” method for Warrants and Options. Schedule of Earning Per Shares, Basic and Diluted For year Ended December 31 2024 2023 Net loss $ ( 48,319,475 ) $ ( 17,279,847 ) Weighted average shares outstanding – basic 2,772,867 2,128,728 Basic net loss per share $ ( 17.43 ) $ ( 8.12 ) Weighted average shares outstanding – diluted 2,772,867 2,128,728 Diluted net loss per share $ ( 17.43 ) $ ( 8.12 ) Schedule of Weighted Average Shares Outstanding - Basic And Diluted Weighted average shares calculation – basic December 31, 2024 December 31, 2023 Company public shares 196,330 196,330 Company initial stockholders 170,159 170,159 PCCU stockholders 1,129,307 998,896 Issuance of Equity for Marketing Services 3,939 - Shares issued for Abaca acquisition 396,790 157,762 Restricted stock units issued 65,404 49,980 Conversion of Preferred stock 810,938 555,601 Grand total 2,772,867 2,128,728 Certain share-based equity awards and warrants were excluded from the computation of dilutive earnings/ (loss) per share because inclusion of these awards would have had an anti-dilutive effect. The following table reflects the awards excluded. Schedule of Share-based equity awards and Warrants Excluded from Computation of Earnings For year Ended December 31 2024 2023 Warrants 601,829 639,329 Share based payments 113,673 132,164 Shares to be issued to Abaca shareholders 37,500 37,500 Conversion of preferred stock 4,440 44,040 Grand total 757,442 853,033 The holders of Series A Convertible Preferred Stock shall be entitled to receive, and the Company shall pay, dividends on shares of Series A Convertible Preferred Stock equal (on an as-if-converted-to-Class-A-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Class A Common Stock when, as and if such dividends are paid on shares of the Class A Common Stock. No other dividends shall be paid on shares of Series A Convertible Preferred Stock. Note 15. Forward Purchase Agreement On June 16, 2022, the Company entered into a Forward Purchase Agreement (“FPA”) with Midtown East Management NL, LLC (“Midtown East”), which subsequently assigned obligations to purchase 83,334 shares of Class A Common Stock each to Verdun Investments LLC (“Verdun”) and Vellar Opportunity Fund SPV LLC – Series 1 (“Vellar”) through assignment and novation agreements. The collective acquisition involved 0.19 million shares of Class A Common Stock, with Midtown East, Verdun, and Vellar waiving their redemption rights. The Company incurred costs totaling $ 39.6 million, comprising $ 39.3 million for the shares and an additional $ 0.3 million in related expenses post-closing. At the maturity of the FPA holders, the parties will receive the value of their shares multiplied by the Forward Price. The Forward Price is the Redemption Price, as defined in Section 9.2(a) of the Counterparty’s Amended and Restated Certificate of Incorporation, filed by the Counterparty with the Secretary of State of the State of Delaware on June 21, 2021. The FPA holders will also receive an additional amount in cash or shares, at the Company’s discretion. An early termination clause allows for the shares to be sold on the open market, with any proceeds exceeding the Reset Price retained by the sellers. The Reset Price is initially the Redemption Price. The Reset Price shall be adjusted on the first Scheduled Trading Day of each month, commencing on the first calendar month following the closing of the Business Combination, to be the lowest of (a) the then-current Reset Price, (b) $ 200.00 , and (c) the VWAP Price of the last ten (10) Scheduled Trading Days of the prior calendar month, but not lower than $ 100.00 . However, if the Counterparty offers and sells Shares in a follow-on offering or series of related offerings at a price lower than, or upon any conversion or exchange price of currently outstanding or future issuances of any securities convertible or exchangeable for Shares being equal to a price lower than, the then-current Reset Price (the “Offering Price”), the Reset Price shall be further reduced to equal the Offering Price. F- 30 Table of Contents Following a price reset in 2022 to $ 25 per share, the FPA receivable was reduced from $ 37.9 million to $ 4.6 million. As of December 31, 2024, there have been no transactions by the FPA holders, and the value of the FPA receivable has remained unchanged. The reconciliation statement of the Class A Common Stock held by the parties is as follows: Schedule of Forward Purchase Agreement As of December 31, 2023 Shares sold during the year ended December 31, 2024 As of December 31, 2024 S.no Name of the party Opening Shares (a) Amount Shares (b) Amount Shares (c=a-b) Rest price (iii) Amount (c x iii) 1 Vellar 48,560 $ 1,214,005 - $ - 48,560 25 1,214,005 2 Midtown East 75,896 1,897,405 - - 75,896 25 1,897,405 3 Verdun 58,912 1,472,811 - - 58,912 25 1,472,811 Grand total 183,368 $ 4,584,221 - $ - 183,368 25 4,584,221 Note 16. Warrant Liabilities Public and Private Placement Warrants As of December 31, 2024, and December 31, 2023, the Company has 287,500 Public warrants and 13,205 Private Placement Warrants. The Public and Private Placement Warrants may only be exercised for a whole number of Class A Common Stock. The Public and Private Placement Warrants became exercisable on September 28, 2022, the date of the Business Combination and will expire on September 28, 2027, or earlier upon redemption or liquidation . No warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available. Redemption of warrants become exercisable when the price per share of Class A Common Stock equals or exceeds $ 360.00 . Once the warrants become exercisable, the Company may redeem the warrants: ● in whole and not in part; ● at a price of $ 0.01 per warrant; ● upon not less than 30 days’ prior written notice of redemption to each warrant holder; and ● if, and only if, the reported last sale price of the Class A Common Stock equals or exceeds $ 360.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like and certain issuances of Class A Common Stock and equity-linked securities) for any 20 trading days within a 30-trading day period commencing no earlier than the date the warrants become exercisable and ending on the third business day before the date on which the Company sends the notice of redemption to the warrant holders. If and when the warrants become redeemable by the Company, the Company may exercise its redemption rights; this is also the case if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws. If the Company calls the warrants for redemption, management will have the option to require all holders that wish to exercise the Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A Common Stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. F- 31 Table of Contents The private placement warrants are identical to the public warrants, except that the private placement warrants and the Class A Common Stock issuable upon the exercise of the private placement warrants were not transferable, assignable or saleable, subject to certain limited exceptions. Additionally, the private placement warrants are exercisable on a cashless basis and non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the private placement warrants are held by someone other than the initial purchasers or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants. PIPE Warrants As of December 31, 2024 and December 31, 2023, the Company had 51,125 PIPE Warrants, as referenced in Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed with the SEC on October 4, 2022. The PIPE Warrants have an adjusted exercise price of $ 100.00 per share of Class A Common Stock to be paid in cash except if the shares underlying the warrants are not covered by an effective registration statement after the six-month anniversary of the closing date, in which case cashless exercise is permitted. The PIPE Warrants are also subject to adjustment for other customary adjustments for stock dividends, stock splits and similar corporate actions. The PIPE Warrants are exercisable for a period of five years following the Closing, or September 28, 2027. After exercise of a PIPE Warrant, the Company may be required to pay certain penalties if it fails to deliver the Class A Common Stock within a specified period of time . Abaca Warrants As of December 31, 2024, and December 31, 2023, the Company issued 250,000 Abaca warrants, as referenced in Exhibit 2.2 of the Company’s Current Report on Form 8-K, filed with the SEC on October 27, 2023. The 250,000 Abaca warrants have an exercise price of $ 40.00 per share of Class A Common Stock to be paid in cash. An Abaca Warrant may be exercised only during the period commencing 1 year of the Effective Date and terminating five ( 5 ) years from the effective date of the registration statement. The Company may, in its sole discretion, settle the Abaca Warrant when exercised, in whole or in part, in cash in lieu of issuing shares of common stock underlying the Warrant. The Company may elect to pay the Registered Holder in cash in the amount equal to the difference between the fair market value of the Company’s Class A Common Stock on the date of exercise and the warrant price $ 40.00 multiplied by the number of shares of Class A Common Stock. The Company commits to promptly registering shares of Class A Common Stock issued upon Abaca Warrant exercises if required by law, ensuring these shares can be sold without restrictions. This registration must be filed within 45 days of receiving a notification of such a requirement, with failure to do so constituting a default. The Company will endeavor to keep the registration effective until the Warrants expire. If the registration is not effective within one year, Abaca Warrant holders may exercise their Warrants on a cashless basis, receiving shares based on a defined fair market value calculation. This process aims to facilitate the straightforward and lawful exercise of the Abaca Warrants, ensuring the shares issued are readily tradable without the need for restrictive legends. Note 17. Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows: ○ Level 1 – Observable, unadjusted quoted prices in active markets ○ Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability ○ Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period. Assets and Liabilities Reported at Fair Value on a Recurring Basis Public Warrants: Public warrants are recorded at fair value on a recurring basis. The Company obtains exchange traded price, of Level 1 inputs, based on observable data to value these warrants. Private Placement Warrants: Private Placement Warrants are recorded at fair value on a recurring basis based upon an internal Company assessed value of these derivatives with Level 3 inputs, which are derived from the Black-Scholes model. F- 32 Table of Contents PIPE Warrants: PIPE Warrants are recorded at fair value on a recurring basis based upon an internal Company assessed value of these derivatives with Level 3 inputs, which are derived from the Black-Scholes model. Abaca Warrants: Abaca Warrants are recorded at fair value on a recurring basis. The Company assessed the value of these derivatives with Level 3 inputs. Level 3 inputs, based on unobservable data derived from the Black-Scholes model. Third anniversary payment consideration: Third anniversary payment consideration are recorded at fair value on a recurring basis. The Company values these derivatives based on third party reports for Level 3 inputs. Level 3 inputs are based on unobservable data The Company values these derivatives based on third party reports for Level 3 inputs. Level 3 inputs are based on unobservable data derived from the Monte Carlo Simulation model for 2024 and for 2023 the Black Scholes-Merton model. Forward purchase option derivatives: Forward purchase option derivatives are recorded at fair value on a recurring basis. In 2022, the Company values these derivatives based on third party reports for Level 3 inputs. In 2023 and 2024, no significant risk factors, such as volatility, expected term, reset price, or changes, were observed to affect the values of forward purchase option derivatives. The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy on December 31, 2024 and December 31, 2023: Schedule of Fair Value Assets and Liabilities Measured on Recurring Basis Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Unobservable Inputs (Level 3) Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Unobservable Inputs (Level 3) December 31, 2024 December 31, 2023 Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Unobservable Inputs (Level 3) Total Fair Value Quoted Prices in Active Markets (Level 1) Significant Other Unobservable Inputs (Level 3) Description Liabilities: PIPE warrants $ 79,512 - 79,512 $ 273,124 - 273,124 Public warrants $ 246,445 246,445 - $ 481,850 481,850 - Private placement warrants $ 9,632 - 9,632 $ 25,070 - 25,070 Abaca warrant $ 1,024,900 - 1,024,900 $ 3,384,085 - 3,384,085 Forward purchase derivative liability $ 7,309,580 - 7,309,580 $ 7,309,580 - 7,309,580 Third anniversary payment consideration $ 322,000 - 322,000 $ 810,000 - 810,000 Liabilities $ 322,000 - 322,000 $ 810,000 - 810,000 Assets Measured at Fair Value on a Nonrecurring Basis Assets that are measured at fair value on a nonrecurring basis primarily comprises of property, plant and equipment, right-to-use assets, finite lived intangible assets and goodwill. The Company does not record these at fair value on a recurring basis, however, the carrying value of the assets may be reduced to fair value when the Company determines that impairment has occurred. As of December 31, 2024, each of the Company’s finite-lived intangible assets were measured at fair value on a nonrecurring basis as part of the annual impairment testing. To assess the fair value, the Company utilized the Discounted Cash Flow (DCF) Method and the Guideline Public Company (GPC) Method, incorporating an equally weighted enterprise value derived from both methods. In contrast, as of December 31, 2023, the Company’s developed technology assets were measured at fair value on a nonrecurring basis using the Relief from Royalty Method for the annual impairment test, providing an accurate reflection of market conditions and asset performance. (Refer to note 4 - Goodwill and Finite-lived intangible assets). F- 33 Table of Contents The following table presents the carrying amounts and fair values of financial instruments measured on a nonrecurring basis, by the level of valuation inputs in the fair value hierarchy, as of December 31, 2024, and December 31, 2023: Schedule of Carrying Amounts and Fair Values of Financial Instruments Assets As on December 31, 2024 Carrying amount Fair value Fair value measurement using Level 1 Level 2 Level 3 Assets Market related intangible assets - - - - - Customer relationships - - - - - Developed technology - - - - - Assets As on December 31, 2023 Carrying amount Fair value Fair value measurement using Level 1 Level 2 Level 3 Assets Developed Technology 3,599,754 3,599,754 - - 3,599,754 The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the finite lived intangible assets as of their measurement dates: Schedule of Finite Lived Intangible Assets Measurement As on December 31, 2024 Factor Discount rate 15.00 % Risk-free Rate 4.90 % Tax rate 26.00 % Fair value measurements inputs 26.00 % As on December 31, 2023 Developed technology Royalty rate 6.50 % Discount rate 14.25 % Estimated useful life 5.87 years Tax rate 25 % Fair value measurements inputs 25 % Fair Value of Financial Instruments The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. With the exceptions of loans receivable, warrants and forward purchase option derivatives, the Company considers the carrying amounts of its financial instruments (cash, accounts receivable and accounts payable) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments. The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated: Schedule of Carrying Amounts and Fair Values of Financial Instruments Level 1 Level 2 Level 3 As on December 31, 2024 Carrying amount Fair value Fair value measurement using Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 2,324,647 $ 2,324,647 $ 2,324,647 $ - $ - Forward purchase receivables 4,584,221 4,584,221 4,584,221 - - Loans 360,552 359,505 - - 359,505 Liabilities Deferred consideration 3,016,343 3,016,343 3,016,343 - - Senior Secured Promissory note 11,004,173 10,221,652 - - 10,221,652 Public warrants 246,445 246,445 246,445 - - Private placement warrants 9,632 9,632 - - 9,632 PIPE Warrants 79,512 79,512 - - 79,512 Abaca Warrants 1,024,900 1,024,900 - - 1,024,900 Third anniversary payment consideration 322,000 322,000 - - 322,000 Forward purchase derivative 7,309,580 7,309,580 - - 7,309,580 Level 1 Level 2 Level 3 As on December 31, 2023 Carrying amount Fair value Fair value measurement using Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 4,888,769 $ 4,888,769 $ 4,888,769 $ - $ - Forward purchase receivables 4,584,221 4,584,221 4,584,221 - - Loans 330,579 363,561 - - 363,561 Liabilities Deferred consideration 2,889,792 2,889,792 2,889,792 - - Senior secured promissory note 14,011,166 12,750,204 - - 12,750,204 Public warrants 481,850 481,850 481,850 - - Private placement warrants 25,070 25,070 - - 25,070 PIPE warrants 273,124 273,124 - - 273,124 Abaca warrants 3,384,085 3,384,085 - - 3,384,085 Forward purchase derivative 7,309,580 7,309,580 - - 7,309,580 Third anniversary payment consideration 810,000 810,000 - - 810,000 F- 34 Table of Contents The change in the assets measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value are presented in the following table: Schedule of Fair Value Assets Measured on Recurring Basis For the Year ended December 31, 2024 PIPE Warrants Abaca Warrant Private Placement Warrants Third anniversary payment consideration Forward Purchase Derivative Balance at the beginning of the period $ 273,124 3,384,085 25,070 810,000 7,309,580 Issued to Abaca shareholders Fair value adjustment ( 193,612 ) ( 2,359,185 ) ( 15,438 ) ( 488,000 ) - Balance at the end of the period $ 79,512 1,024,900 9,632 322,000 7,309,580 For the Year ended December 31, 2023 PIPE Warrants Abaca Warrant Private Placement Warrants Third anniversary payment consideration Forward Purchase Derivative Balance at the beginning of the period $ 286,300 - 19,110 - 7,309,580 Issued to Abaca shareholders - 1,643,699 - 430,000 - Fair value adjustment ( 13,176 ) 1,740,386 5,960 380,000 - Balance at the end of the period $ 273,124 3,384,085 25,070 810,000 7,309,580 As of December 31, 2024 and on December 31, 2023, the valuation of Private Placement Warrants, PIPE warrants, and Abaca warrants was carried out using the Black-Scholes model, while the fair value of the Abaca third anniversary payment consideration was determined using the Black Scholes Merton Option pricing model. As of December 31, 2024 and December 31, 2023, these warrants were valued using Level 3 inputs. As of December 31, 2024, the Company assessed the fair value of its Forward Purchase Agreement (FPA) derivative utilizing a Monte Carlo Simulation within a risk-neutral setting, which is a particular instance of the Income Approach, based on calculations from December 31, 2022 and December 31, 2023. Throughout the periods ended December 31, of 2023 and 2024, there were no notable alterations in risk factors such as volatility, expected term and reset price that would impact the valuation of the FPA derivative. Consequently, management retained the December 31, 2022, valuation for December 31, 2023 and December 31, 2024. The Company will continue to monitor the fair value of the forward option derivative each reporting period with subsequent revisions to be recorded in the Statements of Operations. During the fiscal years 2023 and 2024, there were no changes in the classification of financial instruments within Level 2 and Level 3 of the fair value hierarchy. The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the private placement warrants and public warrants as of their measurement dates: Schedule of Level 3 Fair Value Measurements Inputs December 31, 2024 December 31, 2023 PIPE Warrants Private Warrants Third Anniversary Payment Consideration Abaca Warrants PIPE Warrants Private Warrants Third Anniversary Payment Consideration Abaca Warrants Exercise price $ 100.00 230.00 - 40.00 $ 100.00 230.00 - 40.00 Share Price $ 9.00 9.00 9.00 9.00 $ 28.40 28.40 28.40 28.40 Expected term (years) 2.74 2.74 0.76 3.84 3.74 3.74 1.76 4.84 Volatility 103.00 % 103.00 % 103.00 % 103.00 % 62.95 % 62.95 % 62.95 % 62.95 % Risk-free rate 4.26 % 4.26 % 4.26 % 4.33 % 4.25 % 4.25 % 4.25 % 4.25 % Warrants and rights outstanding, measurement input 4.26 % 4.26 % 4.26 % 4.33 % 4.25 % 4.25 % 4.25 % 4.25 % F- 35 Table of Contents The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase derivatives as of their measurement dates on December 31, 2024 and December 31, 2023: Schedule of Level 3 Fair Value Measurements Inputs December 31, 2024 December 31, 2023 Reset Price $ 25.00 $ 25.00 Expected term (years) 0.74 1.74 Additional Maturity Consideration per share $ 40.00 $ 40.00 Volatility 46 % 46 % Risk-free rate 4.2 % 4.2 % Risk-adjusted discount rate 13.4 % 13.4 % Derivative liability, measurement input 13.4 % 13.4 % Note 18. Tax The major components of income tax expense (benefit) for the years ended December 31, 2024 and December 31, 2023: Schedule of Major Components of Income Tax For year ended December 31, 2024 2023 Current income tax: Current tax on profits $ 30,665 $ - Deferred tax: Deferred taxation - current year $ 43,829,019 $ ( 1,829,701 ) Income tax expense (benefit) $ 43,859,686 $ ( 1,829,701 ) A reconciliation follows between tax expense (benefit) and the product of accounting loss multiplied by the United States domestic tax rate for the years ended December 31, 2024 and December 31, 2023: Schedule of Effective Income Tax Rate Reconciliation For year ended December 31, 2024 2023 Accounting loss before tax from continuing operations $ ( 4,459,789 ) $ ( 19,109,548 ) Accounting loss before income tax ( 4,459,789 ) ( 19,109,548 ) At federal statutory income tax rate of 21 % ( 936,555 ) ( 4,013,005 ) State income tax benefit, net of federal benefit ( 8,418 ) ( 253,649 ) Permanent differences, net 583,678 2,207,439 Valuation allowance charges affecting the provision for income taxes 44,277,923 - Other ( 56,942 ) 229,514 Total 43,859,686 $ ( 1,829,701 ) Deferred Tax Assets and Liabilities As of December 31, 2024 and December 31, 2023, the significant component of the Company’s deferred tax assets and liabilities: Schedule of Deferred Tax Assets and Liabilities December 31, 2024 December 31, 2023 Change Deferred tax assets: Loan loss reserve $ - $ 340,982 $ ( 340,982 ) Capital loss carryover 70,627 72,914 ( 2,287 ) Stock option expense 1,674,554 1,322,890 351,664 Deferred revenue 6,935 5,366 1,569 Property plant and equipment’s 23,992 20,866 3,126 ) Transaction costs 942,062 1,014,922 ( 72,860 ) Change in Forward Purchase Contract 8,155,953 8,155,953 - Goodwill 28,404,108 30,631,880 ( 2,227,772 ) NOL carryforward 5,030,672 3,210,838 1,819,834 Lease liabilities 214,125 246,716 ( 32,591 ) Total deferred tax assets (A) 44,523,028 45,023,327 ( 500,299 ) Deferred tax liabilities: Right of use assets ( 172,195 ) ( 210,460 ) 38,265 Intangible assets - ( 910,934 ) 910,934 Total deferred tax liabilities (B) ( 172,195 ) ( 1,121,394 ) 949,199 Deferred tax assets (C=A-B) 44,350,833 43,901,933 448,900 Valuation allowance (D) ( 44,350,833 ) ( 72,914 ) ( 44,277,919 ) Deferred tax assets, net (C-D) - 43,829,019 ( 43,829,019 ) F- 36 Table of Contents Reconciliation of deferred tax asset, net: Schedule of Deferred Tax Liabilities Net Year on year change December 31, 2023 Opening balance $ 43,829,019 $ 51,593,302 Tax (expense)/ income during the period recognized in the statement of operations ( 43,829,019 ) 1,829,701 Acquisitions - ( 9,593,985 ) Closing balance $ - $ 43,829,019 The Company offsets tax assets and liabilities only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. The Company does not consider their deferred tax assets to be realizable and has established full valuation allowance during the year ending December 31, 2024. The Company has US federal tax loss carryovers totaling $ 20.4 million arising from 2020 through 2022 which have an unlimited carryover period. The Company has State of Colorado loss carryovers arising in 2022 of $ 21.4 million which begin to expire in 2042. The Company currently has no tax examinations in progress. The Company has open years for examination from Federal and State of Arkansas for the years ending December 31, 2020 and forward and from State of Colorado from December 31, 2021 and forward. The Company does not have any uncertain tax positions as of December 31, 2023. Note 19. 401(k) Plan The Company offers to all employees a tax-qualified retirement contribution plan, with the Company’s 100 % matching contribution up to 4 % of a participant’s eligible compensation. The Company’s consolidated matching contributions for the year ended December 31, 2024, amounting to $ 119,942 , and December 31, 2023, amounting to $ 62,785 , respectively. Note 20. Stockholders’ (Deficit) Equity On January 28, 2025, the board of directors of the Company approved a reverse stock split of the Company’s Common Stock at a ratio of 1-for-20 shares, which reverse stock split became effective on March 14, 2025. Preferred Stock The Company is authorized to issue 1,250,000 shares of preferred stock, 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, 2024, there were 111 shares of Class A Preferred Stock issued and outstanding, and there were 1,101 shares of Class A Preferred Stock issued and outstanding on December 31, 2023. The holders of preferred stock shall be entitled to receive, and the Company shall pay, dividends on shares of preferred stock equal (on an as-if-converted-to-Class-A-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Class A Common Stock when, as and if such dividends are paid on shares of the Class A Common Stock. No other dividends shall be paid on the preferred stock. The terms of the preferred stock provide for an initial conversion price of $ 10.00 per share of Class A Common Stock, which conversion price is subject to downward adjustment on each of the dates that are 10 days, 55 days, 100 days, 145 days and 190 days after the effectiveness of a registration statement registering the shares of Class A Common Stock issuable upon conversion of the preferred stock to the lower of the Conversion Price and the greater of (i) 80% of the volume weighted average price of the Class A Common Stock for the prior five trading days and (ii) $50.00 (the “Floor Price”), provided that, so long as a preferred stock holders continues to hold any preferred shares, such preferred stock holder will be entitled to receive the aggregate shares of Class A Common Stock that would be issuable based upon its initial purchase of preferred stock at the adjusted Conversion Price . Additionally, on January 25, 2023, at a special meeting of the Company’s stockholders, the stockholders approved a reduction in the floor conversion price of the outstanding preferred stock from $4 0.00 per share to $ 25 .00 per share. Common Stock The Company is authorized to issue up to 130,000,000 shares of Class A Common Stock, with a par value of $ .0001 per share. Holders of the Company’s Class A Common Stock are entitled to one vote for each share. As of December 31, 2024 and December 31, 2023, there were 2,783,667 and 2,728,169 shares of Class A Common Stock issued and outstanding, respectively. As of December 31, 2024 and December 31, 2023, 183,369 Class A Common Stock are held by the purchasers under Forward Purchase Agreement dated June 16, 2022, by and among the Company and such purchasers. 2022 Equity Incentive Plan Share-based compensation expense recognized in the year ended December 31, 2024 and December 31, 2023 totaled $ 1,575,952 and $ 3,739,156 , respectively. The 2022 Equity Incentive Plan was approved by the Company’s stockholders on June 28, 2022. The 2022 Plan permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, and performance compensation awards. The Company has not issued stock appreciation rights, restricted stock, stock bonus awards, or performance compensation awards in the year ended December 31, 2024 and December 31, 2023. Stock Options Stock options are awarded to encourage ownership of the Company’s Class A Common Stock by employees and to provide increased incentive for employees to render services and to exert maximum effort for the success of the Company. The Company’s incentive stock options generally permit net-share settlement upon exercise. The option exercise price, vesting schedule and exercise period are determined for each grant by the administrator (person appointed by board to administer the stock plans) of the applicable plan. The Company’s stock options generally have a 10 -year contractual term. F- 37 Table of Contents The assumptions used to determine the fair value of options granted in the year ended December 31, 2023, using the Black-Scholes-Merton model are as follows: Schedule of Fair Value of Options Granted Black-Scholes-Merton Model Dividend yield - % Risk-free interest rate 3.62 to 4.23 % Expected volatility (weighted-average and range, if applicable) 100 % Expected term 6 to 6.5 years The expected term of the options granted is calculated based on the simplified method by taking average of contractual term and vesting period the awards. The shares and the redeemable warrants of the Company were listed on the stock exchange for a limited period of the time and the share price has also dropped significantly from the date of listing. Based on these factors Management has considered the expected volatility at 100 % for the current period. The risk-free interest rate used is the current yield on U.S. Treasury notes with a term equal to the expected term of the options at the grant date. The expected dividend yield is based on annualized dividends on the underlying share during the expected term of the option. A summary of the Company’s stock option activities and related information for the year ended December 31, 2024 is as follows: Schedule of Stock Option and Related Information Stock Option No. of Stock Option Weighted- Average Grant Date Fair Value Per Stock Option Weighted- Average Remaining Contractual Life (in Years) January 01, 2024 114,301 $ 108.62 1.65 Granted - - - Exercised - - Expired - - - Cancelled / Forfeited ( 9,211 ) ( 76.60 ) - December 31, 2024 105,090 98.55 0.65 A summary of the Company’s stock option activities and related information for the year ended December 31, 2023 is as follows: Stock Option No. of Stock Option Weighted- Average Grant Date Fair Value Per Stock Option Weighted- Average Remaining Contractual Life (in Years) January 01, 2023 108,500 $ 105.80 2.02 Granted 16,837 $ 20.54 1.28 Exercised - - - Expired - - - Cancelled / Forfeited ( 11,036 ) ( 53.46 ) - December 31, 2023 114,301 $ 108.62 1.65 F- 38 Table of Contents The following options were outstanding at their respective exercise price: Schedule of Options Outstanding Exercise price options outstanding December 31, 2024 December 31, 2023 $31.20 18,265 18,826 $51.60 17,500 17,500 $80.00 6,825 15,475 $133.40 62,500 62,500 Total 105,090 114,301 Restricted Stock Units (“RSUs”) A summary of the Company’s RSU activities and related information for the year ended December 31, 2024 is as follows: Schedule of Restricted Stock Units Restricted Stock Units No. of RSU Weighted- Average Grant Date Fair Value Per RSU Weighted- Average Remaining Contractual Life (in Years) January 01, 2024 16,175 $ 26.20 2.00 Granted - - - Vested ( 5,392 ) 26.20 - Expired - - Cancelled / Forfeited ( 2,200 ) 26.20 - December 31, 2024 8,583 26.20 1.00 A summary of the Company’s RSU activities and related information for the year ended December 31, 2023 is as follows: Restricted Stock Units No. of RSU Weighted- Average Grant Date Fair Value Per RSU Weighted- Average Remaining Contractual Life (in Years) January 01, 2023 - $ - - Granted 80,001 19.72 2.00 Vested ( 63,311 ) ( 18.02 ) - Expired - - - Cancelled / Forfeited ( 515 ) ( 26.20 ) - December 31, 2023 16,175 $ 26.20 2.00 The following RSU were outstanding at their respective vest price: Schedule of Exercise Price of Restricted Stock Units Vest price RSU outstanding December 31, 2024 December 31, 2023 $26.20 8,583 16,175 Total 8,583 16,175 F- 39 Table of Contents Stock-Based Compensation to Vendor On September 3, 2024, the Company issued 12,116 shares of common stock to Outside The Box Capital Inc. as compensation for marketing and distribution services under a Marketing Services Agreement. The fair value of the common stock issued was determined based on the market price of the Company’s stock on the grant date, which was $ 12.38 per share, resulting in a total fair value of $ 150,000 . The fair value of the award is recorded as an expense under “General and administrative expenses” in the statement of operations, with the expense being recognized over the service period from September 4, 2024, to March 3, 2025, aligning with the period during which the services are rendered. In accordance with ASC 718, “Compensation—Stock Compensation,” as updated by ASU 2018-07, the stock award has been classified as equity as it is settled through the issuance of common stock and does not contain any terms requiring cash settlement or other liabilities. Note 21. Subsequent events The Company has evaluated events and transactions subsequent to December 31, 2024 through the date the consolidated financial statements were issued. Except as disclosed in the consolidated financial statements previously and items below, there are no other events to report: · Effective January 21, 2025, the Company appointed Terrance E. Mendez as Co-Chief Executive Officer (Co-CEO), alongside Sundie Seefried, whose title changed to Co-CEO. Mr. Mendez, age 49, has extensive leadership experience in cannabis-related businesses and financial management roles. The Company entered into a three-year employment agreement with Mr. Mendez, providing an annual salary of $ 360,000 , eligibility for performance-based incentives, and stock options vesting over three years. The agreement includes a 10-month post-termination non-compete and non-solicitation clause. · On January 28, 2025, Sundie Seefried informed the Board of Directors of the Company of her decision to resign as Co-Chief Executive Officer, effective February 28, 2025. Ms. Seefried will continue to serve as a member of the Board. Her resignation was not due to any disagreement with the Company or concerns regarding its operations, policies, or practices. Upon her departure, Terrance E. Mendez transitioned from Co-Chief Executive Officer to the sole Chief Executive Officer of the Company. · On January 29, 2025, the Company and PCCU entered into a letter agreement to defer the principal payments on the Note for the months of February and March 2025 (the “Deferral Period”). The Company will remain responsible for payment of interest during the Deferral Period and will extend the Note repayment period for an additional two months. · On March 1, 2025, the Company and PCCU modified the PCCU Note. According to the terms of the Amended PCCU Note, the principal balance is $ 10,748,408 , accruing interest at an annual rate of 4.25 %. The Company will make interest-only payments until January 5, 2027, after which it will begin making both principal and interest payments until the maturity date on October 5, 2030. The Amended PCCU Note also includes provisions for early repayment, along with prepayment fees, such as a yield maintenance fee in the case of prepayment or acceleration. Furthermore, the agreement preserves PCCU’s first-priority security interest in the Company’s assets as outlined in the security agreement dated March 29, 2023. The Company executed the Amended PCCU Note to restructure its financial obligations and extend the repayment timeline. ● On April 1, 2025, the Company received a letter from the Staff, indicating that the Company had not regained compliance with the Minimum Bid Price Requirement by March 31, 2025, and unless the Company requests a hearing and appeals the determination by April 8, 2025, the Company’s class A common stock and warrants would be delisted from The Nasdaq Capital Market and that trading of the Company’s securities will be suspended, effective at opening of business on April 10, 2025. Further, the Company was notified that on April 10, 2025, a Form 25-NSE will be filed with the SEC, which will remove the Company’s securities from listing and registration on The Nasdaq Stock Market. On April 7, 2025, the Company was notified by the staff of The Nasdaq Stock Market LLC’s Listing Qualifications Department that the Staff has determined that for 10 consecutive business days, from March 24, 2025 to April 4, 2025, the minimum closing bid price for the Company’s Class A common stock was at least $ 1.00 per share or greater. Accordingly, the Staff has determined that the Company has regained compliance with Minimum Bid Price Requirement, and, as such, the Staff has indicated that the matter of the Company’s compliance with Minimum Bid Price Requirement is now closed. ● On April 7, 2025, the Company received a letter from Nasdaq indicating that the Company was not in compliance with Nasdaq’s Listing Rule 5550(b)(1) because the Company’s shareholders’ equity for the year ended December 31, 2024, as reported in the Company’s Current Report on Form 8-K on April 1, 2025, was below the minimum shareholders’ equity requirement of $ 2,500,000 (the “Shareholders’ Equity Requirement”). The Notice had no immediate effect on the Company’s continued listing on Nasdaq, subject to the Company’s compliance with the other continued listing requirements. In accordance with Nasdaq rules, the Company has been provided 45 calendar days, to submit a plan to regain compliance with the Shareholders’ Equity Requirement (the “Compliance Plan”). If the Compliance Plan is accepted, Nasdaq may grant up to 180 calendar days from the date of the Notice for the Company to regain compliance with the Shareholders’ Equity Requirement. The Company intends to timely submit a Compliance Plan to Nasdaq to regain compliance with the Shareholders’ Equity Requirement. There can be no assurance that Nasdaq will accept the Company’s plan or that the Company will be able to regain compliance with Listing Rule 5550(b)(1) or maintain compliance with any other Nasdaq requirement in the future. F- 40