PART I – FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited statements show a shift from a net loss to a net income in Q1 2024 Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | **Revenue** | **$4,050,799** | **$4,180,379** | | Total operating expenses | $3,725,858 | $5,802,048 | | **Operating income/ (loss)** | **$324,941** | **($1,621,669)** | | **Net income/ (loss)** | **$2,049,676** | **($1,413,447)** | | Diluted income/ (loss) per share | $0.04 | ($0.06) | Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $67,702,471 | $67,860,909 | | Total Liabilities | $30,735,154 | $33,505,598 | | Total Stockholders' Equity | $36,967,317 | $34,355,311 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,475,123 | ($232,040) | | Net cash provided by investing activities | $3,014 | $470,597 | | Net cash used in financing activities | ($740,544) | $0 | | **Net increase in cash and cash equivalents** | **$737,593** | **$238,557** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, a 'going concern' warning, and significant related-party transactions - The company generates income by providing services to financial institutions that serve the cannabis industry, including compliance, account servicing, and loan administration[25](index=25&type=chunk) - Management has concluded there is **substantial doubt about the Company's ability to continue as a going concern** for at least twelve months, despite positive results in the current quarter[32](index=32&type=chunk) Disaggregated Revenue by Type | Revenue Type | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Deposit, activity, onboarding income | $1,620,994 | $2,245,831 | | Safe Harbor Program income | $19,230 | $51,103 | | Investment income | $773,819 | $1,417,152 | | Loan interest income | $1,636,756 | $466,293 | | **Total Revenue** | **$4,050,799** | **$4,180,379** | - On April 5, 2024, the company received a notice from Nasdaq for failing to maintain a minimum closing bid price of $1,00 per share and has until October 2, 2024, to regain compliance[188](index=188&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes improved Q1 2024 profitability driven by lower expenses despite a slight revenue decrease - The company provides a financial services platform for financial institutions serving cannabis-related businesses (CRBs), offering compliance, deposit services, and commercial lending[191](index=191&type=chunk)[193](index=193&type=chunk) Reconciliation of Net Income to Adjusted EBITDA (Non-GAAP) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net income/(loss) | $2,049,676 | ($1,413,447) | | **EBITDA** | **$1,960,672** | **($983,150)** | | **Adjusted EBITDA** | **$1,087,360** | **$409,918** | - Total revenue **decreased by 3.1% YoY**, nearly offset by a **251% increase in loan interest income** as the company expanded its lending activities[217](index=217&type=chunk)[221](index=221&type=chunk) - Total operating expenses **decreased by 35.8% YoY**, primarily due to a **37.7% reduction in compensation** and a **36.0% decrease in general and administrative expenses**[222](index=222&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=57&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from market risk disclosures as a smaller reporting company - As a smaller reporting company, SHF Holdings, Inc, is exempt from providing quantitative and qualitative disclosures about market risk[258](index=258&type=chunk) [Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to two outstanding material weaknesses in financial reporting - The CEO and CFO concluded that **disclosure controls and procedures were not effective** as of March 31, 2024[260](index=260&type=chunk)[264](index=264&type=chunk) - **Two material weaknesses remain outstanding** related to Revenue Recognition and the accounting for Complex Financial Instruments[266](index=266&type=chunk)[268](index=268&type=chunk) - A material weakness related to the provision for credit losses was **successfully remediated** by March 31, 2024[265](index=265&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no legal proceedings for the period - There are no legal proceedings to report[275](index=275&type=chunk) [Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) A material risk arises from non-compliance with Nasdaq's minimum bid price requirement - The company received a notice from Nasdaq on April 5, 2024, for **failing to maintain a minimum closing bid price of $1.00 per share**[276](index=276&type=chunk)[277](index=277&type=chunk) - The company has until **October 2, 2024**, to regain compliance by having its stock close at or above $1.00 for at least 10 consecutive business days[277](index=277&type=chunk)[278](index=278&type=chunk) - **Failure to regain compliance could result in delisting** from Nasdaq, which would adversely impact trading, liquidity, and market price[276](index=276&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales or repurchases of equity securities - There were no unregistered sales of equity securities during the quarter[281](index=281&type=chunk) [Defaults Upon Senior Securities](index=60&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - None[284](index=284&type=chunk) [Other Information](index=60&type=section&id=Item%205.%20Other%20Information) No other information was required to be disclosed - None[285](index=285&type=chunk) [Exhibits](index=62&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including agreements and officer certifications - A list of exhibits filed with the report is provided, including merger agreements, the Commercial Alliance Agreement with PCCU, and required officer certifications[288](index=288&type=chunk)[289](index=289&type=chunk)

Financial Data and Key Metrics Changes - For the full year 2023, total revenue increased by 85.3% to $17.56 million, up from $9.48 million in 2022 [13][18] - Total loan interest income for 2023 was $2.97 million, representing a 163% increase from $1.13 million in 2022 [7][18] - Investment income increased by 176% to $5.84 million in 2023, compared to $2.1 million in 2022 [18][36] - Operating expenses for the fourth quarter of 2023 decreased by approximately 17% to $6.2 million, compared to $7.4 million in the same period last year [19] - The company reported a net income of $2.5 million in the fourth quarter of 2023, compared to a loss of $37 million in the prior year period [21] Business Line Data and Key Metrics Changes - Deposits activity and onboarding income increased by 42% to $8.6 million in 2023, up from $6.1 million in 2022 [18][52] - The average monthly fee revenue per account increased by 35% year-over-year to $8,298, up from $6,154 for the same period in 2022 [27] - The loan book size increased to $55.66 million at the end of December 31, 2023, compared to $18.9 million at the end of December 31, 2022, representing a 194% increase year-over-year [34] Market Data and Key Metrics Changes - The total number of clients decreased from 1,040 as of March 30, 2023, to 721 as of December 31, 2023, due to the termination of a partnership with Central Bank [25] - The company facilitated approximately $4.2 billion in deposits in 2023, representing an increase of approximately 16.67% compared to $3.6 billion in 2022 [51] Company Strategy and Development Direction - The company aims to strengthen its fintech platform with more sophisticated products and services to create additional revenue channels and improved margins [38] - Safe Harbor is focused on diversifying its income streams, which has allowed it to remain competitive in the cannabis banking sector [30][31] - The company is actively engaged with potential new financial partners eager to enter the high-growth cannabis banking industry [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued growth in 2024 and beyond, citing potential regulatory changes such as the Safer Banking Act [9] - The company believes its expertise in compliance management will set it apart as the cannabis industry expands [9] - Management highlighted the importance of maintaining rigorous compliance standards despite regulatory changes [39] Other Important Information - The company reported cash and cash equivalents of $4.9 million as of December 31, 2023, down from $8.4 million at the end of 2022 [40] - The net working capital deficit improved to $135,000 from $39.3 million at the end of 2022 [42] Q&A Session Summary - No specific questions were recorded during the Q&A session, and the call concluded with management expressing gratitude for the participants' interest in Safe Harbor Financial [10][16]

Financial Performance - For the fiscal year ending December 31, 2023, the Company reported a total revenue of $17,562,903, an increase of 85.29% compared to $9,478,819 in 2022[199]. - The Company recognized an Adjusted EBITDA of $3,626,411 for 2023, a significant increase from $1,302,093 in 2022[182]. - Operating expenses surged to $38,275,222 in 2023, a 227.79% increase from $11,676,659 in 2022, primarily due to higher compensation and employee benefits[204]. - The Company reported total revenue of $13,836,703 for the year ended December 31, 2023, compared to $8,823,608 for the year ended December 31, 2022, reflecting a significant increase[242]. - Loan interest income grew to $2,972,434 in 2023, a 163.01% increase from $1,130,178 in 2022[199]. - The Company incurred an operating loss of $20,712,319 for the year ended December 31, 2023, with cash used in operations amounting to $832,144, compared to cash provided by operations of $1,697,380 in 2022[213][210]. Banking Services and Operations - The Company provides a range of banking services to Cannabis Related Businesses (CRBs), including business checking and savings accounts, cash management accounts, and commercial lending[160]. - The Company’s proprietary platform enhances financial insight for CRBs, allowing them to operate more efficiently in a cash-intensive industry[160]. - The Company serviced 22 loans in 2023, up from 11 loans in 2022, indicating a focus on expanding its lending operations[202]. - The Company anticipates continued growth in account activity and lending as it focuses on enhancing its lending platform[192]. - The Company’s capacity for CRB related loans at 60% of PCCU's net worth was $77,610,599 as of December 31, 2023, down from $96,683,385 in 2022[242]. Strategic Agreements - The Company entered into a Commercial Alliance Agreement with PCCU on March 29, 2023, to govern lending-related and account-related services[170]. - Under the Commercial Alliance Agreement, the Company is obligated to remit 25% of investment hosting fees to PCCU based on incremental revenue of $549,000 recognized in Q4 2023[240]. - The Commercial Alliance Agreement includes a fee structure where SHF-serviced loans incur a yearly fee of 0.25% and loans financed and serviced by PCCU incur a fee of 0.35%[238]. - The Commercial Alliance Agreement has an initial term of two years with a one-year automatic renewal unless terminated with 120 days' notice[239]. Financial Position and Capital - As of December 31, 2023, the company reported cash and cash equivalents totaling $4,888,769, a decrease from $8,390,195 as of December 31, 2022[209]. - The company reported a net working capital deficit of $135,355 as of December 31, 2023, raising concerns about its ability to continue as a going concern for at least twelve months[213][214]. - CRB related deposits decreased from $161,138,975 on December 31, 2022, to $129,350,998 on December 31, 2023, indicating a decline in available capital[242]. - The Company’s net worth decreased from $133,231,565 on December 31, 2022, to $81,087,746 on December 31, 2023, reflecting a significant reduction in financial strength[242]. Compliance and Internal Controls - The Company has successfully navigated 16 state and federal banking exams, ensuring compliance in a highly regulated environment[161]. - The Company has identified three material weaknesses in internal controls related to Revenue Recognition, Complex Financial Instruments, and Credit Losses as of December 31, 2023[232]. Impairments and Adjustments - The impairment of goodwill and long-lived intangible assets amounted to $18,907,739 in 2023, reflecting a 100% increase from zero in 2022[204]. - The company recognized a goodwill impairment of $13.2 million and impairments of $1,865,668 for market-related intangible assets and $1,814,795 for customer relationships during the interim assessment[226]. - The forward purchase agreement's receivable value decreased from $37.9 million to $4.6 million due to a reset price adjustment influenced by stock trading values[224]. - The company has adopted the modified retrospective method for credit loss provisioning, resulting in a decrease in provisions[208]. Revenue Recognition Changes - A strategic change in Q4 2023 led to an additional $549,000 in revenue due to a new method for calculating interest on customer deposit balances[218]. - The Company has adopted Federal Reserve's interest rates for customer deposits, leading to a strategic shift in revenue recognition starting from Q4 2023[240].

[Financial & Operational Highlights](index=1&type=section&id=Financial%20%26%20Operational%20Highlights) This section summarizes Safe Harbor Financial's key financial and operational achievements for the full year 2023 [Full-Year 2023 Financial & Operational Highlights](index=1&type=section&id=Full-Year%202023%20Financial%20%26%20Operational%20Highlights) Safe Harbor Financial achieved record 2023 performance with 85.3% revenue growth to $17.6M, 194.2% loan book growth to $55.6M, and 176.9% Adjusted EBITDA increase to $3.6M Full-Year 2023 Key Financial Metrics | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $17.6 million | $9.5 million | +85.3% | | Loan Book Value | $55.6 million | $18.9 million | +194.2% | | Adjusted EBITDA | $3.6 million | $1.3 million | +176.9% | | Deposit activity and onboarding income | $8.6 million | $6.1 million | +42% | - Since its inception, the company has facilitated over **$21.5 billion** in deposit activity across 41 states, underscoring its significant role in providing financial services to the regulated cannabis industry[1](index=1&type=chunk) [Management Discussion](index=1&type=section&id=Management%20Discussion) This section provides insights from management regarding the company's strategic initiatives and performance in 2023 [CEO's Remarks](index=1&type=section&id=CEO%27s%20Remarks) CEO Sundie Seefried emphasized 2023 revenue diversification through new lending and deposit products, despite a Central Bank agreement termination, anticipating 2024 deposit growth - The company's strategic focus in 2023 was on broadening its financial service offerings with new lending and deposit products to create a more diversified and high-margin revenue mix[3](index=3&type=chunk) - A mutual agreement to terminate a partnership with Central Bank resulted in a significant loss of deposit accounts in the second half of 2023[3](index=3&type=chunk) - Management expresses confidence in increasing deposit activity in 2024 and beyond, citing strong interest from other national financial institutions and cannabis-related businesses[3](index=3&type=chunk) [Detailed Financial Results](index=2&type=section&id=Detailed%20Financial%20Results) This section presents a detailed breakdown of the company's financial performance for the fourth quarter and full year 2023 [Fourth Quarter 2023 Financial Results](index=2&type=section&id=Fourth%20Quarter%202023%20Financial%20Results) Q4 2023 revenue rose 25% to $4.5M, driven by loan interest and retroactive adjustments, while operating expenses decreased 16.2% to $6.2M, leading to a $2.5M net income Fourth Quarter 2023 Key Financial Metrics | Metric | Q4 2023 | Q4 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $4.5 million | $3.6 million | +25% | | Operating Expenses | $6.2 million | $7.4 million | -16.2% | | Net Income/(Loss) | $2.5 million | ($37.0 million) | N/A | - A strategic shift in how the company applies earned interest to client deposits resulted in an additional **$549,000** of revenue being recognized in Q4 2023, applied retroactively from the beginning of the year[6](index=6&type=chunk)[8](index=8&type=chunk) - Operating expenses included a **$2 million** impairment charge for developed technology during the fourth quarter of 2023[7](index=7&type=chunk) [Full-Year 2023 Financial Results](index=2&type=section&id=Full-Year%202023%20Financial%20Results) FY 2023 revenue grew 85% to $17.6M, but operating expenses surged to $38.3M due to impairments, resulting in a $17.3M net loss, an improvement from prior year Full-Year 2023 Key Financial Metrics | Metric | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $17.6 million | $9.5 million | +85% | | Operating Expenses | $38.3 million | $11.7 million | +227% | | Net Loss | ($17.3 million) | ($35.1 million) | -50.7% | | Cash and cash equivalents | $4.9 million | $8.4 million | -41.7% | - The substantial increase in **2023 operating expenses** was primarily driven by **goodwill and other impairment charges**, expenses related to restructuring the Abaca transaction, and stock-based compensation[10](index=10&type=chunk)[11](index=11&type=chunk) [Key Operational Events](index=2&type=section&id=Key%20Operational%20Events) This section outlines significant operational activities and achievements during and after the fourth quarter of 2023 [Fourth Quarter 2023 and Subsequent Operational Highlights](index=2&type=section&id=Fourth%20Quarter%202023%20and%20Subsequent%20Operational%20Highlights) Safe Harbor engaged in key Q4 2023 and subsequent operational activities, including Abaca acquisition restructuring and originating over $17.7M in secured loans for cannabis operators - Key activities included: - Restructuring deferred consideration obligations related to the 2022 Abaca acquisition - Originating a **$3M** secured loan for a cannabis industrial building in California - Originating a **$1.17M** secured loan for a new cannabis retail store in Connecticut - Originating a **$9M** secured loan for a cultivation facility in Colorado (Jan 2024) - Originating a **$4.6M** secured credit facility for a Michigan cannabis operator (Mar 2024)[13](index=13&type=chunk) [Consolidated Financial Statements](index=3&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's consolidated balance sheets, statements of operations, and cash flows [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of Dec 31, 2023, total assets decreased to $67.9M, liabilities to $33.5M, while stockholders' equity significantly increased to $34.4M due to goodwill reduction Consolidated Balance Sheets as of December 31 | Balance Sheet Item | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $4.9 million | $8.4 million | | Goodwill | $6.1 million | $19.3 million | | Total Assets | $67.9 million | $99.5 million | | Total Liabilities | $33.5 million | $94.3 million | | Total Stockholders' Equity | $34.4 million | $5.1 million | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) FY 2023 revenue grew to $17.6M, but operating expenses, including $18.9M in impairments, led to a $20.7M operating loss and a $17.3M net loss, an improvement from 2022 Consolidated Statements of Operations for the Year Ended December 31 | Income Statement Item | FY 2023 ($) | FY 2022 ($) | | :--- | :--- | :--- | | Revenue | 17,562,903 | 9,478,819 | | Total operating expenses | 38,275,222 | 11,676,659 | | Impairment of goodwill & assets | 18,907,739 | 0 | | Operating loss | (20,712,319) | (2,197,840) | | Net loss | (17,279,847) | (35,128,083) | | Diluted net loss per share | (0.41) | (1.85) | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) FY 2023 saw a net cash outflow of $3.5M, with $0.8M used in operations and $2.2M in investing, ending the year with $4.9M cash Consolidated Statements of Cash Flows for the Year Ended December 31 | Cash Flow Item | Year ended Dec 31, 2023 ($) | Year ended Dec 31, 2022 ($) | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | (832,144) | 1,697,380 | | Net cash used in investing activities | (2,180,448) | (2,897,429) | | Net cash (used in)/provided by financing activities | (488,834) | 4,094,339 | | Net (decrease)/increase in cash | (3,501,426) | 2,894,290 | | Cash and cash equivalents - end of period | 4,888,769 | 8,390,195 | [Non-GAAP Financial Measures Reconciliation](index=9&type=section&id=Non-GAAP%20Financial%20Measures%20Reconciliation) This section provides a reconciliation of non-GAAP financial measures to their most directly comparable GAAP measures [Reconciliation of Net Loss to Adjusted EBITDA](index=9&type=section&id=Reconciliation%20of%20Net%20Loss%20to%20Adjusted%20EBITDA) Net loss of $17.3M was reconciled to Adjusted EBITDA of $3.6M for 2023, a 176.9% increase, driven by higher income from deposits and Abaca acquisition activity Reconciliation of Net Loss to Adjusted EBITDA | Reconciliation Item | Year Ended Dec 31, 2023 ($) | Year Ended Dec 31, 2022 ($) | | :--- | :--- | :--- | | Net loss | (17,279,847) | (35,128,083) | | EBITDA | (16,622,375) | (43,486,497) | | Goodwill and long-lived intangible assets impairment | 18,907,739 | 0 | | Stock based compensation | 3,739,156 | 2,806,336 | | **Adjusted EBITDA** | **3,626,411** | **1,302,093** | - The increase in **Adjusted EBITDA** is attributed to a rise in **deposits and activity income**, significantly influenced by the growth in account numbers following the Abaca acquisition[25](index=25&type=chunk)

SHF Holdings Inc. (NASDAQ:SHFS) Q3 2023 Earnings Conference Call November 14, 2023 4:30 PM ET Company Participants Erika Kay - KCSA Strategic Communications Sundie Seefried - Founder & CEO James Dennedy - Chief Financial Officer Conference Call Participants William Waller - M3F, Inc. Operator Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Safe Harbor Financial Third Quarter 2023 Earnings Call. [Operator Instructions]. I w ...

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the Company's unaudited condensed consolidated financial statements and related disclosures [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents SHF Holdings, Inc.'s unaudited condensed consolidated financial statements and detailed notes for periods ending September 30, 2023, and December 31, 2022 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decrease in total assets and liabilities, with a substantial increase in parent-entity net investment and stockholders' equity - Total Assets decreased by approximately **$26.96 million** from December 31, 2022, to September 30, 2023, primarily due to a reduction in goodwill and intangible assets[10](index=10&type=chunk) - Total Liabilities significantly decreased by approximately **$48.88 million**, largely driven by the restructuring of 'Due to Seller' obligations[10](index=10&type=chunk) - Parent-Entity Net Investment and Stockholders' Equity increased substantially by approximately **$21.91 million**, reflecting the impact of the deferred obligation restructuring and stock issuances[11](index=11&type=chunk) Condensed Consolidated Balance Sheets (Unaudited) | Metric | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--------------------------------- | :----------------------- | :------------- | | Total Current Assets | $10,588,595 | $10,231,172 | | Total Assets | $72,378,285 | $99,342,856 | | Total Current Liabilities | $19,969,708 | $49,571,192 | | Total Liabilities | $45,354,318 | $94,229,731 | | Total Parent-Entity Net Investment and Stockholders' Equity | $27,023,967 | $5,113,125 | [Condensed Consolidated Statement of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Operations) The statement of operations reveals a significant increase in revenue but a substantial net loss for the nine months ended September 30, 2023 - Revenue for the nine months ended September 30, 2023, increased by **121.67% to $13,085,861** compared to $5,903,213 in the prior year, primarily driven by increased deposit, activity, onboarding income, investment income, and loan interest income[13](index=13&type=chunk)[260](index=260&type=chunk) - The company reported a significant net loss of **$(19,766,081)** for the nine months ended September 30, 2023, a substantial decrease from a net income of $1,894,179 in the same period last year, largely due to impairment charges for goodwill and finite-lived intangible assets[13](index=13&type=chunk)[265](index=265&type=chunk)[267](index=267&type=chunk) Condensed Consolidated Statement of Operations (Unaudited) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $4,332,974 | $2,379,314 | $13,085,861 | $5,903,213 | | Total operating expenses | $3,801,525 | $1,553,858 | $32,088,848 | $4,239,813 | | Operating (loss) income | $531,449 | $825,456 | $(19,002,987) | $1,663,400 | | Net (loss) income | $(748,067) | $1,056,235 | $(19,766,081) | $1,894,179 | | Basic net (loss) income per share | $(0.02) | $0.06 | $(0.51) | $0.10 | | Diluted (loss) income per share | $(0.02) | $0.05 | $(0.51) | $0.09 | [Condensed Consolidated Statements of Parent-Entity Net Investment and Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Parent-Entity%20Net%20Investment%20and%20Stockholders'%20Equity) Stockholders' equity significantly increased due to stock issuances and deferred obligation restructuring, despite a net loss - Total Shareholders' Equity increased from **$5,113,125** at December 31, 2022, to **$27,023,967** at September 30, 2023, primarily due to the issuance of 11,200,000 shares of Class A Common Stock to PCCU as part of a deferred obligation restructuring, and other equity activities, despite a net loss[16](index=16&type=chunk)[150](index=150&type=chunk) - The adoption of CECL resulted in a cumulative effect adjustment of **$(581,321)** to retained deficit as of January 1, 2023[16](index=16&type=chunk)[96](index=96&type=chunk) Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2023) | Metric | Balance, Dec 31, 2022 | Reversal of deferred underwriting cost | Cumulative effect from adoption of CECL | Conversion of PIPE shares | Restricted stock units | Stock option conversion | Issuance of shares to PCCU (net of tax) | Net loss | Balance, Sep 30, 2023 | | :--------------------------------- | :-------------------- | :----------------------------------- | :------------------------------------ | :------------------------ | :--------------------- | :---------------------- | :-------------------------------------- | :------- | :-------------------- | | Preferred Stock (Shares) | 14,616 | - | - | (10,805) | - | - | - | - | 3,811 | | Preferred Stock (Amount) | $1 | - | - | $(1) | - | - | - | - | $- | | Class A Common Stock (Shares) | 23,732,889 | - | - | 10,394,200 | 1,266,228 | - | 11,200,000 | - | 46,593,317 | | Class A Common Stock (Amount) | $2,374 | - | - | $1,039 | $127 | - | $1,120 | - | $4,660 | | Additional Paid-in Capital | $44,806,031 | $900,500 | - | $11,641,086 | $1,243,446 | $1,707,763 | $38,405,288 | - | $98,704,114 | | Retained Deficit | $(39,695,281) | - | $(581,321) | $(11,642,124) | - | - | - | $(19,766,081) | $(71,684,807) | | Total Shareholders' Equity | $5,113,125 | $900,500 | $(581,321) | - | $1,243,573 | $1,707,763 | $38,406,408 | $(19,766,081) | $27,023,967 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations shifted to a net use, while investing activities provided cash, leading to a net increase in cash and equivalents - Net cash used in operating activities was **$(225,032)** for the nine months ended September 30, 2023, a significant shift from $1,967,767 provided by operating activities in the prior year, primarily due to increased operating expenses and payments related to the reverse acquisition[19](index=19&type=chunk)[280](index=280&type=chunk) - Net cash provided by investing activities increased to **$783,480** for the nine months ended September 30, 2023, compared to cash used of $(483,530) in the prior year, mainly due to higher repayment of loans receivable[19](index=19&type=chunk) Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income | $(19,766,081) | $1,894,179 | | Net cash (used in) provided by operating activities | $(225,032) | $1,967,767 | | Net cash provided by (used in) investing activities | $783,480 | $(483,530) | | Net cash provided by financing activities | $- | $287,834 | | Net increase in cash and cash equivalents | $558,449 | $1,777,107 | | Cash and cash equivalents – end of period | $8,948,644 | $7,273,012 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements [Note 1. Organization and Business Operations](index=10&type=section&id=Note%201.%20Organization%20and%20Business%20Operations) SHF Holdings, Inc. acquired SHF LLC and Abaca, expanding its cannabis industry financial services and restructuring deferred obligations with PCCU - SHF Holdings, Inc. acquired SHF LLC via a Business Combination on September 28, 2022, with an aggregate value of **$185,000,000**, consisting of Class A common stock and cash[22](index=22&type=chunk) - The company provides interest and fee income services to financial institutions servicing the cannabis industry, including origination, onboarding, compliance, and loan administration[25](index=25&type=chunk) - Acquired Abaca on November 15, 2022, for **$30,000,000** in cash and shares, expanding customer base to over 1,000 accounts across 40 states and enhancing its fintech platform[26](index=26&type=chunk)[27](index=27&type=chunk)[108](index=108&type=chunk) - Restructured deferred obligations with PCCU on March 29, 2023, converting **$56,949,800** into a **$14,500,000** Senior Secured Promissory Note and issuing 11,200,000 shares of Class A Common Stock to PCCU[28](index=28&type=chunk)[150](index=150&type=chunk) [Note 2. Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=Note%202.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note details the financial statements' basis of presentation, significant accounting policies, CECL adoption, and going concern risks - The financial statements are prepared under U.S. GAAP for interim information, with certain disclosures condensed or omitted per SEC rules[31](index=31&type=chunk)[33](index=33&type=chunk) - The company adopted ASC Topic 326 (CECL) on January 1, 2023, replacing the incurred loss methodology with an expected credit loss methodology, resulting in a cumulative effect adjustment to retained deficit[47](index=47&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk) - As of September 30, 2023, the company had **$8,948,644** in cash and a net working capital deficit of **$9,381,113**, raising substantial doubt about its ability to continue as a going concern, despite restructuring obligations to PCCU[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - The company's business is concentrated in servicing the cannabis industry, which remains federally illegal, posing a significant concentration of risk[40](index=40&type=chunk) [Note 3. Business Combination](index=22&type=section&id=Note%203.%20Business%20Combination) The September 2022 Business Combination was a reverse recapitalization, deferring cash payments to PCCU and increasing Class A common stock - The Business Combination on September 28, 2022, was accounted for as a reverse recapitalization, with NLIT treated as the acquired company and no goodwill recorded for book purposes[101](index=101&type=chunk) - Approximately **$56.9 million** of the **$70 million** cash proceeds due to PCCU was deferred, with specific payment schedules and interest rates[104](index=104&type=chunk) - As of September 30, 2023, **46,593,317** shares of Class A Common Stock were issued and outstanding, significantly up from 23,732,889 shares at December 31, 2022[104](index=104&type=chunk) - For tax purposes, the transaction was treated as a taxable asset acquisition, resulting in an estimated tax basis Goodwill balance of **$44,102,572** and a deferred tax asset[104](index=104&type=chunk) [Note 4. Acquisition (Abaca)](index=24&type=section&id=Note%204.%20Acquisition) The acquisition of Abaca for $30 million expanded the Company's customer base and fintech platform, resulting in significant goodwill and intangibles - Acquired Abaca on November 15, 2022, for **$30,000,000**, paid in cash and shares, to expand customer base, integrate fintech platform, and increase lending capacity[107](index=107&type=chunk)[108](index=108&type=chunk)[110](index=110&type=chunk) Abaca Purchase Price Allocation | Asset/Liability | Amount | | :-------------------------- | :------------- | | Property, plant & equipment | $27,117 | | Software | $9,189 | | Cash & cash equivalents | $245,524 | | Prepaid expense | $23,061 | | Security deposit | $675 | | Accounts receivables | $232,265 | | Accounts Payable | $(206,508) | | Accrued Expense | $(235,894) | | Fair value of net assets acquired | $95,429 | | Other intangibles | $10,800,000 | | Goodwill | $19,266,276 | | Deferred tax liabilities | $(1,758,769) | | Total purchase consideration | $28,402,936 | Identifiable Intangible Assets from Abaca Acquisition | Intangible Asset | Amount | Useful life (Years) | | :----------------- | :---------- | :------------------ | | Market related | $2,100,000 | 8 | | Customer relationships | $2,000,000 | 10 | | Developed technology | $6,700,000 | 10 | | Total | $10,800,000 | | [Note 5. Goodwill and Finite-lived Intangible Assets](index=26&type=section&id=Note%205.%20Goodwill%20and%20Finite-lived%20Intangible%20Assets) A significant goodwill impairment charge of $13.21 million and a $3.68 million intangible asset impairment were recognized due to declining performance and agreement termination - A non-cash goodwill impairment charge of **$13,208,276** was recognized for the nine months ended September 30, 2023, reducing goodwill from $19,266,276 to $6,058,000[121](index=121&type=chunk)[123](index=123&type=chunk) - The impairment was triggered by a decline in operating margins and cash flows, and the termination of the Master Services and Revenue Sharing Agreement with Central Bank[118](index=118&type=chunk)[120](index=120&type=chunk) - A **$3,680,463** impairment charge was recognized for finite-lived intangible assets (market-related intangibles and customer relationships) for the nine months ended September 30, 2023[126](index=126&type=chunk)[127](index=127&type=chunk) [Note 6. Loans Receivable](index=28&type=section&id=Note%206.%20Loans%20Receivable) Commercial real estate loans receivable decreased, with a corresponding reduction in the allowance for credit losses, and all loans remained current - No loans were past due, classified as non-accrual, or considered impaired as of September 30, 2023, or December 31, 2022[130](index=130&type=chunk) Commercial Real Estate Loans Receivable, Net | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Commercial real estate loans receivable, gross | $407,535 | $1,432,560 | | Less: loan origination charges | $(75,969) | $(109,081) | | Commercial real estate loans receivable, net | $331,566 | $1,323,479 | | Allowance for credit losses | $(14,433) | $(21,488) | | Commercial real estate loans receivable, net (final) | $317,133 | $1,301,991 | Allowance for Credit Losses Activity (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Beginning balance | $21,488 | $14,741 | | Cumulative effect from adoption of CECL | $14,980 | $- | | (Benefits) Provision | $(22,035) | $6,905 | | Ending balance | $14,433 | $21,646 | [Note 7. Indemnification liability](index=29&type=section&id=Note%207.%20Indemnification%20liability) Indemnity liability to PCCU for loan losses significantly increased, with one $3.1 million indemnified loan identified as potentially defaulting - One indemnified loan with an outstanding balance of **$3.1 million** was identified as potentially defaulting and placed on non-accrual status in January 2023, and is now greater than 120 days delinquent[135](index=135&type=chunk)[136](index=136&type=chunk) Indemnity Liability Activity (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Beginning balance | $499,465 | $- | | Cumulative effect from adoption of CECL | $566,341 | $- | | Provision | $399,649 | $377,005 | | Ending balance | $1,465,455 | $377,005 | Loans Funded by PCCU (Indemnified by SHF) | Loan Type | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Secured term loans | $40,939,996 | $18,400,000 | | Unsecured loans and lines of credit | $421,640 | $498,042 | | Total loans funded by Parent | $41,361,636 | $18,898,042 | [Note 8. Property and equipment, net](index=30&type=section&id=Note%208.%20Property%20and%20equipment,%20net) Property and equipment, net, increased, primarily driven by a substantial rise in office furniture and improvements - Office furniture saw a substantial increase from **$7,070** at December 31, 2022, to **$215,504** at September 30, 2023[139](index=139&type=chunk) Property and Equipment, Net | Asset Category | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Equipment | $45,397 | $45,397 | | Software | $51,692 | $51,692 | | Improvement | $71,635 | $71,635 | | Office furniture | $215,504 | $7,070 | | Total Gross | $384,228 | $175,794 | | Less: accumulated depreciation | $(257,865) | $(126,180) | | Property and equipment, net | $126,363 | $49,614 | [Note 9. Related party transactions](index=31&type=section&id=Note%209.%20Related%20party%20transactions) A new Commercial Alliance Agreement with PCCU superseded prior agreements, significantly increasing related party revenue and operating expenses - The Commercial Alliance Agreement, effective March 29, 2023, superseded prior agreements with PCCU, establishing new terms for lending and account-related services, including indemnification for loan losses[143](index=143&type=chunk)[144](index=144&type=chunk) - PCCU's lending capacity for CRB-related loans was limited to **$89,528,805** at September 30, 2023, with $41,334,145 funded and $47,669,660 incremental capacity[147](index=147&type=chunk) Revenue from Related Party Agreements (Nine Months Ended Sep 30) | Agreement Type | 2023 | 2022 | | :--------------------------------- | :------------ | :------------ | | Account servicing agreement | $3,261,284 | $5,777,446 | | Commercial alliance agreement | $6,791,346 | $- | | Total | $10,052,630 | $5,777,446 | Operating Expense from Related Party Agreements (Nine Months Ended Sep 30) | Agreement Type | 2023 | 2022 | | :--------------------------------- | :------------ | :------------ | | Support services agreement | $378,730 | $420,085 | | Loan servicing agreement | $53,790 | $14,264 | | Commercial alliance agreement | $770,928 | $- | | Total | $1,203,448 | $434,349 | [Note 10. Due to Seller](index=33&type=section&id=Note%2010.%20Due%20to%20Seller) The $56.9 million deferred obligation to PCCU was fully settled and restructured into a Senior Secured Promissory Note and Class A Common Stock - The total deferred obligation of **$62,500,391** was settled by issuing a **$14,500,000** Senior Secured Promissory Note and 11,200,000 shares of Class A Common Stock (valued at $38,406,408) to PCCU[155](index=155&type=chunk) Due to Seller (Unsecured) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Due to Seller-Current | $- | $25,973,017 | | Due to Seller-long term | $- | $30,976,783 | | Total | $- | $56,949,800 | [Note 11. Senior Secured Promissory Note](index=35&type=section&id=Note%2011.%20Senior%20Secured%20Promissory%20Note) A five-year, $14.5 million Senior Secured Promissory Note was issued to PCCU, collateralized by company assets, with repayments starting November 2023 - The note has a principal amount of **$14,500,000**, bears interest at **4.25%**, and is secured by substantially all of the Company's assets[156](index=156&type=chunk) - Repayments of **$295,487** (principal and interest) will commence on November 5, 2023, with only interest payments made prior to that date[157](index=157&type=chunk) Senior Secured Promissory Note | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Senior Secured Promissory Note (current) | $2,731,369 | $- | | Senior Secured Promissory Note (long term) | $11,768,631 | $- | | Total | $14,500,000 | $- | [Note 12. Leases](index=35&type=section&id=Note%2012.%20Leases) Operating lease assets and liabilities slightly decreased, while total lease costs increased for the nine months ended September 30, 2023 - The weighted-average remaining lease term was **3.67 years** at September 30, 2023, with a weighted-average discount rate of **6.87%**[161](index=161&type=chunk) Operating Lease Assets and Liabilities | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | ROU assets, net | $898,945 | $1,016,198 | | Lease liabilities, net | $1,021,253 | $1,028,233 | Total Lease Cost (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Total lease cost | $246,694 | $82,087 | [Note 13. Revenue](index=36&type=section&id=Note%2013.%20Revenue) Total revenue significantly increased by 121.67% for the nine months ended September 30, 2023, driven by investment and loan interest income - The increase in deposit, activity, and onboarding income was primarily due to the increase in the number of accounts related to the Abaca acquisition[260](index=260&type=chunk) - Investment income increased significantly due to recent interest rate increases and higher customer deposit balances[262](index=262&type=chunk) Disaggregated Revenue by Type (Nine Months Ended Sep 30) | Revenue Type | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :------------ | :------------ | :------------ | | Deposit, activity, onboarding income | $7,036,444 | $4,179,323 | $2,857,121 | 68.36% | | Safe Harbor Program income | $48,140 | $125,767 | $(77,627) | (61.72)% | | Investment income | $4,023,940 | $935,993 | $3,087,947 | 329.91% | | Loan interest income | $1,977,337 | $662,130 | $1,315,207 | 198.63% | | Total Revenue | $13,085,861 | $5,903,213 | $7,182,648 | 121.67% | [Note 14. Deferred underwriter fee](index=38&type=section&id=Note%2014.%20Deferred%20underwriter%20fee) The Company settled a $1.45 million deferred underwriter fee for $550,000, with the difference recorded in stockholders' equity - The Company settled a **$1,450,500** deferred underwriter fee with EF Hutton for **$550,000** on March 13, 2023[166](index=166&type=chunk) - The **$900,500** difference from the settlement was recorded in the 'Condensed Consolidated Statements of Parent-Entity Net Investment and Stockholders' Equity'[166](index=166&type=chunk) [Note 15. Commitments and contingencies](index=38&type=section&id=Note%2015.%20Commitments%20and%20contingencies) The Company has a $750,000 irrevocable Letter of Credit and is involved in legal proceedings with uncertain financial outcomes - The Company has an irrevocable Letter of Credit for **$750,000** in favor of AFCO Credit Corporation, callable upon default or bankruptcy-related events[169](index=169&type=chunk) - The Company is involved in legal proceedings, the ultimate outcome of which is uncertain and could materially impact its financial condition[169](index=169&type=chunk) [Note 16. Earnings Per Share](index=39&type=section&id=Note%2016.%20Earnings%20Per%20Share) Basic and diluted net loss per share was $(0.51) for the nine months ended September 30, 2023, a significant decline from prior year income - Certain share-based equity awards, totaling **19,870,077**, were excluded from diluted loss per share calculation due to their anti-dilutive effect[173](index=173&type=chunk)[174](index=174&type=chunk) Earnings Per Share (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :--------------------------------- | :------------ | :------------ | | Net loss | $(19,766,081) | $1,894,179 | | Weighted average shares outstanding – basic | 38,725,273 | 18,715,912 | | Basic net (loss) income per share | $(0.51) | $0.10 | | Weighted average shares outstanding – diluted | 38,725,273 | 20,760,912 | | Diluted net (loss) income per share | $(0.51) | $0.09 | [Note 17. Forward Purchase Agreement](index=40&type=section&id=Note%2017.%20Forward%20Purchase%20Agreement) The FPA receivable significantly reduced to $4.6 million, resulting in a $42.3 million charge due to a lower reset price - The FPA receivable significantly reduced to approximately **$4.6 million** from $37.9 million at the end of Q3 2022, resulting in a **$42.3 million** charge to other expense in Q4 2022[180](index=180&type=chunk)[302](index=302&type=chunk) - This reduction was triggered by a lower reset price of **$1.25/share** under the FPA, influenced by preferred shareholders electing to convert their shares at an adjusted conversion price[180](index=180&type=chunk)[301](index=301&type=chunk) Forward Purchase Agreement Shares and Amount (Sep 30, 2023) | Party | Shares Held | Amount | | :--------------------------------- | :---------- | :----------- | | Vellar | 971,204 | $1,214,005 | | Midtown East | 1,517,924 | $1,897,405 | | Verdun | 1,178,249 | $1,472,811 | | Grand total | 3,667,377 | $4,584,221 | [Note 18. Warrant Liability](index=41&type=section&id=Note%2018.%20Warrant%20Liability) The Company had 5.75 million Public Warrants, 264,088 Private Placement Warrants, and 1,022,500 PIPE Warrants outstanding, exercisable until September 2027 - As of September 30, 2023, the Company had **5,750,000** Public Warrants, **264,088** Private Placement Warrants, and **1,022,500** PIPE Warrants outstanding[179](index=179&type=chunk)[185](index=185&type=chunk) - Public and Private Placement Warrants became exercisable on September 28, 2022, and expire on September 28, 2027[179](index=179&type=chunk)[186](index=186&type=chunk) - Public warrants are redeemable by the Company if the Class A Common Stock price equals or exceeds **$18.00 per share** for 20 trading days within a 30-trading day period[182](index=182&type=chunk) [Note 19. Financial Instruments (Fair Value Measurements)](index=43&type=section&id=Note%2019.%20Financial%20Instruments) Financial instruments are fair valued using Level 1 (public warrants) and Level 3 inputs (private placement, PIPE warrants, FPO derivatives), with warrant liabilities increasing due to adjustments - Public warrants are valued using Level 1 inputs (exchange traded price), while Private Placement Warrants, PIPE Warrants, and Forward Purchase Option Derivatives are Level 3, valued using Black-Scholes or Monte-Carlo Simulation models[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk)[198](index=198&type=chunk) Fair Value of Financial Instruments (Sep 30, 2023) | Description | Total Fair Value | Level 1 | Level 3 | | :--------------------------------- | :--------------- | :----------- | :----------- | | Public warrants | $797,329 | $797,329 | $- | | Private placement warrants | $36,620 | $- | $36,620 | | PIPE warrants | $250,359 | $- | $250,359 | | Forward purchase option derivative | $7,309,580 | $- | $7,309,580 | Level 3 Fair Value Measurement Inputs (Sep 30, 2023) | Metric | PIPE Warrants | Private Placement Warrants | Forward Purchase Derivatives | | :--------------------------------- | :------------ | :------------------------- | :--------------------------- | | Exercise price | $5.00 | $11.50 | Reset Price: $5.00 | | Share Price | $0.80 | $0.80 | Additional maturity consideration per share: $2.00 | | Expected term (years) | 3.99 | 3.99 | 1.99 | | Volatility | 88.58% | 88.58% | 46% | | Risk-free rate | 5.31% | 5.31% | 4.2% | | Risk-adjusted discount rate | | | 13.4% | [Note 20. Tax](index=48&type=section&id=Note%2020.%20Tax) The Company recorded a $1.2 million income tax benefit for the nine months ended September 30, 2023, with an effective tax rate of (5.72%) due to various adjustments - Income tax benefit of **$1,199,483** was recorded for the nine months ended September 30, 2023, with an effective tax rate of **(5.72%)**[202](index=202&type=chunk) - The effective tax rate deviation from the **21.0%** federal rate is primarily due to state income taxes, goodwill impairment, warrant liability adjustments, and a valuation allowance on capital loss carryovers[202](index=202&type=chunk) - Net deferred tax assets were **$43,198,800** as of September 30, 2023, with a valuation allowance of $72,914 against capital loss carryovers[202](index=202&type=chunk) [Note 21. 401(k) Plan](index=48&type=section&id=Note%2021.%20401(k)%20Plan) The Company's 401(k) plan offers a 100% match up to 4% of compensation, with matching contributions increasing to $48,955 for the nine months ended September 30, 2023 - The Company's 401(k) plan includes a **100% matching contribution** up to **4%** of eligible compensation[204](index=204&type=chunk) 401(k) Matching Contributions | Period | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Three months ended Sep 30 | $14,866 | $13,517 | | Nine months ended Sep 30 | $48,955 | $38,947 | [Note 22. Share based compensation](index=49&type=section&id=Note%2022.%20Share%20based%20compensation) Share-based compensation expense significantly increased to $2.95 million for the nine months ended September 30, 2023, reflecting grants under the 2022 Equity Incentive Plan - Share-based compensation expense for the nine months ended September 30, 2023, was **$2,951,336**, compared to $0 in the prior year[205](index=205&type=chunk) - As of September 30, 2023, there is **$317,583** of unrecognized share-based compensation expense related to RSU awards[210](index=210&type=chunk) Stock Option Activity (Nine Months Ended Sep 30, 2023) | Metric | No. of Stock Option | Weighted Average Grant Date Fair Value Per Stock Option | | :--------------------------------- | :------------------ | :------------------------------------------------------ | | December 31, 2022 | 2,170,000 | $3.53 | | Granted | 336,730 | $1.03 | | Cancelled / Forfeited | (251,880) | $3.62 | | September 30, 2023 | 2,254,850 | $3.15 | Restricted Stock Unit (RSU) Activity (Nine Months Ended Sep 30, 2023) | Metric | No. of RSU | Weighted Average Grant Date Fair Value Per RSU | | :--------------------------------- | :--------- | :--------------------------------------------- | | December 31, 2022 | - | $- | | Granted | 1,600,028 | $0.99 | | Cancelled / Forfeited | (10,300) | $1.31 | | September 30, 2023 | 1,589,728 | $0.98 | [Note 23. Subsequent events](index=50&type=section&id=Note%2023.%20Subsequent%20events) The Abaca merger agreement was amended, redefining deferred cash and future stock consideration, including new stock warrants and a board nomination right - Second amendment to Abaca merger agreement on October 26, 2023, redefined deferred consideration[211](index=211&type=chunk) - **5,835,822** shares of common stock to be issued as stock consideration on the first anniversary of the merger[212](index=212&type=chunk) - A **$1,500,000** Third Anniversary Consideration Payment was added, payable in cash, stock, or both[213](index=213&type=chunk) - The Company will issue stock warrants equal to **5,000,000** shares of common stock with an initial exercise price of **$2.00 per share**[213](index=213&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Company's financial condition, operations, business reorganization, key metrics, revenue/expense trends, liquidity, and critical accounting policies [Overview](index=51&type=section&id=Overview) SHF Holdings, Inc. provides compliant banking, lending, and financial services to the legal cannabis industry, leveraging its proprietary platform and compliance expertise - SHF provides access to reliable and compliance-driven banking, lending, and financial services for the legal cannabis industry[220](index=220&type=chunk) - Services include business checking/savings, cash management, commercial lending, and compliance monitoring for CRBs[221](index=221&type=chunk)[222](index=222&type=chunk) - SHF has assisted PCCU in processing over **$20 billion** in cannabis-related funds and successfully navigated 16 state and federal banking exams[225](index=225&type=chunk) [Business Reorganization](index=53&type=section&id=Business%20Reorganization) SHF LLC was reorganized from PCCU, acquired by SHF Holdings, Inc. for $185 million, and subsequently restructured deferred obligations with PCCU - SHF LLC's operations were reorganized from PCCU in July 2021[226](index=226&type=chunk) - SHF Holdings, Inc. acquired SHF LLC on September 28, 2022, for **$185,000,000**, with **$56,949,801** of cash consideration deferred[228](index=228&type=chunk)[232](index=232&type=chunk) - PCCU became the majority shareholder of the Company, owning **60.8%** of outstanding shares, after the business combination[233](index=233&type=chunk) - Deferred obligations to PCCU were restructured on March 29, 2023, into a **$14,500,000** Senior Secured Promissory Note and 11,200,000 shares of Class A Common Stock[239](index=239&type=chunk) [Key Metrics](index=56&type=section&id=Key%20Metrics) Adjusted EBITDA increased, average monthly deposits and active accounts grew, but average account balance and fees per account decreased due to client mix shift - The decrease in average account size and fees per account is attributed to a churn of larger clients being replaced by smaller businesses, a trend expected to shift with the growth of the lending program[254](index=254&type=chunk) EBITDA and Adjusted EBITDA (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | | :--------------------------------- | :------------ | :------------ | | Net (loss) income | $(19,766,081) | $1,894,179 | | EBITDA | $(18,334,250) | $1,933,757 | | Adjusted EBITDA | $2,313,415 | $2,153,250 | Operational Key Metrics (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :-------------- | :-------------- | :------------ | :------------ | | Average monthly ending deposit balance | $226,798,931 | $148,191,118 | $78,607,813 | 53.04% | | Average monthly account fees | $717,945 | $469,375 | $250,493 | 53.37% | | Average active accounts | 1,010 | 616 | 386 | 62.66% | | Average account balance | $223,037 | $240,440 | $(17,533) | (7.29)% | | Average fees per account | $718 | $762 | $(44) | (5.77)% | [Components of our Results of Operations](index=58&type=section&id=Components%20of%20our%20Results%20of%20Operations) Revenue is derived from interest and fee income for CRB banking services, while operating expenses include compensation, professional services, and credit loss provisions - Revenue sources include fees from deposit accounts, Safe Harbor Program income, investment income, and loan interest income[256](index=256&type=chunk) - Operating expenses include compensation and benefits, professional services, rent, provision for credit losses, and general and administrative expenses[257](index=257&type=chunk) - The Company reports a provision for credit losses for both internally funded loans and indemnified loans carried by PCCU or other financial institutions[258](index=258&type=chunk) [Discussion of our Results of Operations —2023 Compared to 2022 (Nine months ended September 30)](index=59&type=section&id=Discussion%20of%20our%20Results%20of%20Operations%20%E2%80%942023%20Compared%20to%202022%20(Nine%20months%20ended%20September%2030)) Total revenue increased by 121.67%, but total operating expenses surged by 656.85% due to significant goodwill and intangible asset impairment charges - Compensation and employee benefits increased due to stock-based compensation and an increase in headcount in anticipation of growth[265](index=265&type=chunk) - General and administrative expenses rose significantly across investment hosting fees, marketing, amortization/depreciation, and business insurance[266](index=266&type=chunk) Revenue Trends (Nine Months Ended Sep 30) | Revenue Type | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :------------ | :------------ | :------------ | | Deposit, activity, onboarding income | $7,036,444 | $4,179,323 | $2,857,121 | 68.36% | | Safe Harbor Program income | $48,140 | $125,767 | $(77,627) | (61.72)% | | Investment income | $4,023,940 | $935,993 | $3,087,947 | 329.91% | | Loan interest income | $1,977,337 | $662,130 | $1,315,207 | 198.63% | | Total Revenue | $13,085,861 | $5,903,213 | $7,182,648 | 121.67% | Operating Expenses Trends (Nine Months Ended Sep 30) | Expense Category | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :------------ | :------------ | :------------ | | Compensation and employee benefits | $8,269,761 | $2,383,117 | $5,886,644 | 247.01% | | General and administrative expenses | $4,874,255 | $856,205 | $4,018,050 | 469.29% | | Professional services | $1,431,785 | $534,494 | $897,291 | 167.88% | | Impairment of goodwill | $13,208,276 | $- | $13,208,276 | 100.00% | | Impairment of finite lived intangible assets | $3,680,463 | $- | $3,680,463 | 100.00% | | Rent expense | $246,694 | $82,087 | $164,607 | 200.53% | | Provision for credit losses | $377,614 | $383,910 | $(6,296) | (1.64)% | | Total operating expenses | $32,088,848 | $4,239,813 | $27,849,035 | 656.85% | [Discussion of our Results of Operations —2023 Compared to 2022 (Three Months Ended September 30)](index=60&type=section&id=Discussion%20of%20our%20Results%20of%20Operations%20%E2%80%942023%20Compared%20to%202022%20(Three%20Months%20Ended%20September%2030)) Total revenue increased by 82.11%, while operating expenses rose by 144.65%, with a credit loss benefit offsetting some expense increases - The increase in deposit, activity, and onboarding income was primarily attributable to the increase in the number of accounts related to the Abaca acquisition[270](index=270&type=chunk) - The provision for credit losses decreased (became a benefit) due to a decrease in the loss rate and an increase in the absolute value of loans[278](index=278&type=chunk) Revenue Trends (Three Months Ended Sep 30) | Revenue Type | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :------------ | :------------ | :------------ | | Deposit, activity, onboarding income | $2,233,203 | $1,369,559 | $863,644 | 63.06% | | Safe Harbor Program income | $7,312 | $38,599 | $(31,287) | (81.06)% | | Investment income | $1,186,246 | $558,860 | $627,386 | 112.26% | | Loan interest income | $906,213 | $412,296 | $493,917 | 119.80% | | Total Revenue | $4,332,974 | $2,379,314 | $1,953,660 | 82.11% | Operating Expenses Trends (Three Months Ended Sep 30) | Expense Category | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------------ | :------------ | :------------ | :------------ | | Compensation and employee benefits | $2,069,910 | $865,595 | $1,204,315 | 139.13% | | General and administrative expenses | $1,482,792 | $373,695 | $1,109,097 | 296.79% | | Professional services | $361,804 | $195,464 | $166,340 | 85.10% | | Rent expense | $87,951 | $30,759 | $57,192 | 185.94% | | Provision (benefit) for credit losses | $(200,932) | $88,345 | $(289,277) | (327.44)% | | Total operating expenses | $3,801,525 | $1,553,858 | $2,247,667 | 144.65% | [Financial Condition](index=62&type=section&id=Financial%20Condition) Cash and cash equivalents slightly increased, but a significant net working capital deficit raises substantial doubt about the Company's going concern ability - The net working capital deficit at September 30, 2023, includes a **$12,011,163** equity commitment towards the Abaca acquisition, which is a non-cash liability[282](index=282&type=chunk)[284](index=284&type=chunk) - Management has determined there is a risk of substantial doubt about the Company's ability to continue as a going concern for at least twelve months from the financial statements' issuance date[283](index=283&type=chunk) Cash and Working Capital | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $8,948,644 | $8,390,195 | | Net working capital deficit | $(9,381,113) | $(39,340,020) | [Critical Accounting Policies and Estimates](index=63&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant estimates for revenue, indemnity liability, stock-based compensation, and impairment of goodwill and intangibles - Key estimates include allowance for credit losses, indemnification liabilities, valuation and useful lives of intangibles, and fair value of financial instruments[29](index=29&type=chunk) - Revenue recognition follows ASC Topic 606, identifying performance obligations and allocating transaction price[287](index=287&type=chunk) - Indemnity liability reflects management's estimate of probable credit losses under agreements, sensitive to risk ratings and economic assumptions[292](index=292&type=chunk) - A **$13.21 million** non-cash goodwill impairment charge and a **$3.68 million** finite-lived intangible asset impairment charge were recognized for the nine months ended September 30, 2023, due to declining operating margins and the termination of a key agreement[312](index=312&type=chunk)[317](index=317&type=chunk) [Emerging Growth Company Status](index=70&type=section&id=Emerging%20Growth%20Company%20Status) SHF is an emerging growth company, electing to delay new accounting standard adoption, which may affect comparability of financial statements - SHF is an emerging growth company (EGC) and has elected to use the extended transition period for complying with new or revised financial accounting standards[319](index=319&type=chunk) - This election means the Company's financial statements may not be comparable to companies that do not elect JOBS Act relief or choose to early adopt different accounting pronouncements[319](index=319&type=chunk) [Internal Control Over Financial Reporting](index=70&type=section&id=Internal%20Control%20Over%20Financial%20Reporting) Management identified material weaknesses in revenue recognition, complex financial instruments, and credit losses, but is implementing controls to address them - As of September 30, 2023, the Company identified three material weaknesses in internal control over financial reporting: Revenue Recognition, Complex Financial Instruments, and Credit Losses[320](index=320&type=chunk)[338](index=338&type=chunk)[340](index=340&type=chunk)[342](index=342&type=chunk) - Material weaknesses related to Going Concern and Deferred Tax Asset have been remediated as of March 31, 2023, and June 30, 2023, respectively[335](index=335&type=chunk)[337](index=337&type=chunk) - The Company is implementing enhanced management review controls to address the outstanding material weaknesses[339](index=339&type=chunk)[341](index=341&type=chunk)[343](index=343&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=73&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, SHF Holdings, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - SHF Holdings, Inc. is a smaller reporting company and is exempt from providing quantitative and qualitative disclosures about market risk[329](index=329&type=chunk) [Item 4. Controls and Procedures](index=73&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective due to material weaknesses in revenue recognition, complex financial instruments, and credit losses, despite remediation of prior issues - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023[331](index=331&type=chunk)[334](index=334&type=chunk) - Material weaknesses identified relate to Revenue Recognition, Complex Financial Instruments, and Credit Losses[338](index=338&type=chunk)[340](index=340&type=chunk)[342](index=342&type=chunk) - Prior material weaknesses regarding Going Concern and Deferred Tax Asset have been remediated[335](index=335&type=chunk)[337](index=337&type=chunk) - Management believes the financial statements are fairly presented despite the identified material weaknesses, due to additional analysis performed[331](index=331&type=chunk) [PART II - OTHER INFORMATION](index=76&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers other required information including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=76&type=section&id=Item%201.%20Legal%20Proceedings) The Company reports no material legal proceedings as of the filing date - No material legal proceedings are reported[346](index=346&type=chunk) [Item 1A. Risk Factors](index=76&type=section&id=Item%201A.%20Risk%20Factors) The Company received a Nasdaq non-compliance notice for minimum bid price and is considering options, including a reverse stock split, to regain compliance - The Company received a Nasdaq notice for not maintaining a minimum closing bid price of **$1 per share**[347](index=347&type=chunk) - An additional **180-day period**, until March 11, 2024, has been granted to regain compliance[348](index=348&type=chunk)[349](index=349&type=chunk) - The Company is considering options, including a reverse stock split, to regain compliance[350](index=350&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of public offering proceeds are reported, beyond prior disclosures - No unregistered sales of equity securities or use of proceeds from public offerings are reported, other than prior disclosures[352](index=352&type=chunk) [Item 3. Defaults Upon Senior Securities](index=76&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reports no defaults upon senior securities - No defaults upon senior securities are reported[354](index=354&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the Company's operations - Mine Safety Disclosures are not applicable[355](index=355&type=chunk) [Item 5. Other Information](index=76&type=section&id=Item%205.%20Other%20Information) No other information is applicable to report in this section - No other information is applicable[355](index=355&type=chunk) [Item 6. Exhibits](index=78&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - The exhibits include Unit Purchase Agreements, Certificate of Incorporation, Registration Rights Agreement, Forbearance Agreement, and various certifications[358](index=358&type=chunk)

SHF Holdings Inc. (NASDAQ:SHFS) Q2 2023 Results Conference Call August 14, 2023 4:30 PM ET Company Participants Erika Kay - KCSA Strategic Communications Sundie Seefried - Founder & CEO James Dennedy - Chief Financial Officer Operator Greetings, and welcome to Safe Harbor Financial's Second Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Erika Kay from KCSA. Thank you. Erika Kay You may begin. Thank you. Good afternoon, ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to_______ Commission File Number: 001-40524 SHF Holdings, Inc. (Exact name of registrant as specified in its charter) | Delaware | 86-2409612 | | --- | --- | | (St ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to_______ Commission File Number: 001-40524 SHF Holdings, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation o ...

Financial Performance - The total revenue for the year ended December 31, 2022, was $9,478,819, representing a 35.30% increase from $7,005,579 in 2021[293]. - Loan interest income surged by 997.68% to $1,130,178 in 2022 from $102,961 in 2021[293]. - The investment income increased by 462.63% to $2,120,640 in 2022 from $376,918 in 2021, driven by higher interest rates[293]. - The Company reported a net loss of $35,128,083 for the year ended December 31, 2022, compared to a net income of $3,286,887 in 2021[278]. - Total operating expenses increased to $11,676,659 in 2022, up 214.00% from $3,718,692 in 2021[298]. - Cash provided by operations decreased to $1,697,380 in 2022 from $2,946,383 in 2021, primarily due to reduced net income[303]. Ownership and Business Combination - The Business Combination resulted in the acquisition of SHF for an aggregate of $185 million, consisting of $115 million in Class A common stock and $70 million in cash[258]. - PCCU holds a 60.8% ownership stake in the Company following the Business Combination, changing its status to majority shareholder[264]. - The deferred payment of $56,949,800 from the Business Combination will be paid in installments, including a total of $38,500,002 with interest[267]. Lending and Services - The Company generates interest and fee income through various services, including compliance and reporting for financial institutions servicing the cannabis industry[265]. - The Company offers competitive loan options to Cannabis Related Businesses (CRBs), with collateral types including real estate and equipment[252]. - The Company has established a proprietary platform to facilitate banking services for CRBs, addressing the limited availability of financial solutions in the cannabis industry[252]. - The Company serviced 11 loans in 2022, up from 4 loans in 2021, indicating a focus on expanding lending operations[296]. - The number of loans serviced by the company increased from 4 in 2021 to 11 in 2022, indicating growth in lending activities[300]. Expenses and Financial Management - The Company reported expenses of $775,259 for the year ended December 31, 2022, related to the Loan Servicing Agreement with PCCU[259]. - Compensation and employee benefits rose to $6,695,319, a 213.56% increase from $2,135,243 in 2021, driven by stock-based compensation and increased headcount[298]. - Provision for loan losses surged to $506,212, reflecting a 36,083.85% increase from $1,399 in 2021, as the company expanded lending activities[298]. - General and administrative expenses increased to $2,390,539, a 320.95% rise from $567,892 in 2021, with significant increases in account fees, advertising, and business insurance[301]. Cash and Working Capital - Cash and cash equivalents totaled $8,390,195 as of December 31, 2022, compared to $5,495,905 in 2021[302]. - The company reported a net working capital deficit of ($39,340,020) as of December 31, 2022, compared to a positive working capital of $5,922,023 in 2021[305]. Internal Controls and Compliance - The Company has identified four material weaknesses in internal controls over financial reporting as of December 31, 2022[332]. - The Company provides compliance, validation, and monitoring services to financial institutions, ensuring adherence to the Bank Secrecy Act and related regulations[253]. Going Concern and Risk Management - Management has identified substantial doubt about the company's ability to continue as a going concern for at least twelve months from the issuance of the financial statements[306]. - The company has implemented cost-cutting measures and renegotiated payables to mitigate going concern risks[307]. Stock and Derivative Transactions - NLIT entered into a Forward Purchase Agreement, resulting in the purchase of approximately 3.8 million shares of Class A common stock at market price[327]. - The fair value of the forward purchase derivative was estimated at approximately $4.6 million as of December 31, 2022, down from approximately $37.9 million at the end of September 2022[330]. - The trading value of common stock led to a lower reset price of $1.25/share under the forward purchase agreement[332]. - The Company recognized a $42.3 million charge to other expense on the statement of operations due to the reset price under the forward purchase agreement[332]. Shareholder Information - The Company has authorized the issuance of up to 130,000,000 shares of Class A Common Stock, with 20,815,912 shares issued as of December 31, 2022[273]. - As of December 31, 2022, there were 20,450 shares of preferred stock issued and outstanding, with no voting rights[329]. Agreements and Alliances - The Company entered into a Commercial Alliance Agreement with PCCU on March 29, 2023, superseding previous agreements related to lending and account services[266]. - The Loan Servicing Agreement stipulates a monthly servicing fee of 0.25% on the outstanding principal balance of loans funded by PCCU[340].