Item 4. Controls and Procedures
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures.
Management,
including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the
end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures
were not effective as of the end of such period because of material weaknesses in internal controls discussed below.
For
Legacy XCF, the following material weaknesses, which were discovered to be material during 2023 and 2024, were present at December 31,
2024: (a) lack of controls for the review and approval of journal entries and (b) lack of formal risk assessment process to reduce the
risk of material misstatement and (c) controls not designed to ensure the financial reporting process operates effectively and (d) inappropriate
design and operation of IT general controls and (e) there were errors in the calculation, presentation, and disclosure of deferred taxes.
As of September 30, 2025, none of these items have been remediated. Our remediation plans regarding material weaknesses are addressed
below.
50
The
Company is in the process of integrating New Rise into its overall internal control framework. New Rise had the following material weaknesses,
which were discovered to be material in 2023 and 2024; (a) no functioning audit committee and (b) lack of segregation of duties within
the accounting function and (c) inability to identify related parties and (d) inappropriate design and operation of IT general controls.
As of December 31, 2024, the Company has remediated material weakness (c) inability to identify related parties by implementing a centralized
process for reporting and tracking all related parties. The Company has also put in place a related party transaction policy and will
require officers, directors and significant shareholders to certify related party relationships annually.
Remediation
of Material Weaknesses.
Management,
with the oversight of the Audit Committee, is currently taking actions to remediate the material weaknesses and is implementing additional
processes and controls to address the underlying causes associated with the material weaknesses described above. These efforts include:
●
To
alleviate the lack of a formal journal entry review and approval process, the Company will be implementing Oracle NetSuite. We plan
to utilize workflow steps to ensure all journal entries are reviewed and approved before posting to the general ledger.
●
To
alleviate the lack of a formal risk assessment process and lack of functioning audit committee, post Business Combination, the Company
will establish a formalized governance program and implement an appropriate risk assessment process at the board level. An Audit
Committee has been established subsequent to the business combination.
●
To
alleviate the material weakness that controls were not designed to ensure the financial reporting process operates effectively, the
Company has hired outside consultants to assist with technical accounting and SEC reporting, and management has hired experienced
accounting and finance personnel to strengthen the internal accounting function.
●
To
alleviate the material weakness related to IT general controls, the Company is in the process of implementing Oracle NetSuite. The
Company will also design and implement IT general controls related to the Company’s financial reporting processes.
●
To
alleviate the errors related to deferred taxes, the Company has hired outside tax consultants to assist with the preparation of the
tax provision. These additional resources along with the new internal personnel hired will help ensure proper presentation and disclosure
of taxes in the consolidated financial statements.
●
To
alleviate the lack of segregation of duties within the accounting function, the Company will hire additional accounting personnel
and implement Oracle NetSuite to configure workflow approvals to address segregation of duties in the accounting processes
As
we progress through these remediation efforts, management is actively involved in ongoing assessments and reviews, with oversight from
the audit committee of our Board of Directors. Whenever additional enhancements are needed to further improve the control environment
and address material weaknesses, we perform assessments to determine their overall impact. We believe that these actions, collectively,
will remediate the material weaknesses identified. However, we will not be able to conclude that we have completely remediated the material
weaknesses until the applicable controls are fully implemented and operated for a sufficient period of time and management has concluded,
through formal testing, that the remediated controls are operating effectively. We will continue to monitor the design and effectiveness
of these and other processes, procedures, and controls and will make any further changes management deems appropriate.
51
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
None.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.