SHF Holdings, Inc.
For the period ended Jun 30, 2025. Filed Aug 14, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2025 · Filed Aug 14, 2025
Extracted filing text, with the paragraph anchors used by the comparison.
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Item 4A. Controls and Procedures
Management’s Report On Internal Control Over Financial Reporting
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.
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 this evaluation, it was concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2025, due to the material weaknesses described below. Considering these material weaknesses, we performed additional analysis as deemed necessary to ensure that our interim financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company does 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.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Interim Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, solely due to the below-mentioned material weaknesses, the Company’s disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of June 30, 2025.
Material Weaknesses
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The following are the material weaknesses over financial reporting identified by management:
| ● | Revenue Recognition: The Company is unable to support the completeness and accuracy of its activity fee income generated from deposits held at PCCU, as such activity fees are compiled from a system from which the Company does not have the ability to fully rely upon. As such, there is a potential that revenues recognized could have been misstated. |
| ● | Accounting for Financial Instruments: 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. As a result, management deemed that remediation efforts related to previously reported matter relating to the accounting, disclosure and valuation of complex financial instruments unsuccessful. |
| ● | Accounting for Forward Purchase Receivables: During the three months ended March 31, 2025, the Company did not appropriately reclassify the forward purchase receivables to additional paid-in-capital after certain conditions preventing its classification as equity were overcome. The Company did not have adequate documentation regarding the valuation of these receivables in accordance with the relevant accounting literature. This matter, corrected prior to issuance of the quarterly report, could have resulted in a misstatement in the valuation of the reported forward purchase receivables and additional paid-in-capital. |
| ● | Going Concern: In applying ASC 205-40 and SEC Staff Accounting Bulletin No. 59 (Topic 1.M), management failed to recognize that substantial doubt about the Company’s ability to continue as a going concern existed as of the December 31, 2024. Management’s evaluation initially failed to be evaluated based on financial cash flow projections from the date the financial statements would be issued. This matter could affect the accuracy and completeness assertions related to the presentation of liquidity and going concern disclosures in the financial statements. |
| ● | Information Technology: The Company did not regularly monitor, review, and restrict privileged user access to key financial applications, most significantly, the Jack Henry system utilized by PCCU which tracks account activity fees and the Company’s accounting system. Certain individuals, including the former Chief Financial Officer (CFO), retained unnecessary privileged access to these systems during the reporting period. Although audit logs confirm that no unauthorized transactions were executed and there is no evidence of intentional misuse of access, the presence of such elevated access created an environment where critical controls—particularly those relying on the segregation of duties—could have been overridden or bypassed. |
| ● | Determination of stock compensation expense: During the three months ended March 31, 2025, the Company initially reversed all previously recognized stock compensation expense under ASC 718 related to stock options that were fully vested at the time of the employee’s contract termination. Further, the fair value of certain stock option awards was not calculated correctly. The Black-Scholes option pricing model contained incorrect inputs, specifically for the expected term and stock price. The error in recording stock-based compensation resulted from a material weakness in the management review process. |
The Company has implemented a remediation plan for each of the matters listed above. Management is in the process of assessing the effectiveness of these remediation efforts. Such remediation efforts include replacing the former Chief Financial Officer with a Senior Vice President (SVP) Controller with substantial SEC Registrant experience, enhancing the support provided to the SVP Controller, and implementing enhanced technology security procedures. 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 as noted above in, the June 30, 2025, material weaknesses, there were no changes in our internal control over financial reporting that occurred during six months ended June 30, 2025 covered by this Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation of the material weaknesses 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.
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