Item 4. Controls and Procedures
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the issuer in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized, and reported within the tim e periods specified in the Security Exchange Commission's (“SEC”) rules and forms, and that such information is accumulated and communicated to management, including its Global Co-CEO Matthias Aydt and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.
Based on an evaluation of the Company’s disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Exchange Act), the Company’s Global Co-CEO Matthias Aydt and CFO ( principal executive officer and principal financial and accounting officer, respectively) have concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2025, due to the material weaknesses in the Company’s internal control over financial reporting described below.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including the Company’s Global Co-CEO Matthias Aydt and CFO, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, due to the material weaknesses described below, the Company concluded that the system of internal control over financial reporting was not effective.
The Company identified material weaknesses in its internal control over financial reporting. 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 its annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows:
• The Company did not design and maintain an effective control environment commensurate with its financial reporting requirements. Specifically, the Company lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately. Additionally, management did not establish formal reporting lines in pursuit of its objectives. Further, the lack of a sufficient number of professionals resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of its financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in its finance and accounting functions.
• The Company did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls were not sufficient to respond to changes to the risks of material misstatement to financial reporting, due to growth in the business.
• The Company did not design and maintain effective controls for communicating and sharing information between the legal, capital markets, and accounting and finance departments. Specifically, the accounting and finance departments were not consistently provided the complete and adequate support, documentation, and information including the nature of relationships with certain counterparties to record transactions within the financial statements timely, completely and accurately.
• The Company did not design and maintain effective controls to address the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of generally accepted accounting principles to such transactions. Specifically, the Company did not design and maintain controls to timely identify and account for convertible notes under the fair value option, warrant liabilities, embedded derivatives related to convertible notes, impute interest on related party notes payable with interest rates below market rates, account for failed sale leaseback transactions, and account for warrant instruments.
• The Company did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the period-end financial reporting process addressing areas including financial statement and footnote presentation and disclosures, account reconciliations and journal entries, including segregation of duties, assessing the reliability of reports and spreadsheets used in controls, and the timely identification and accounting for cut-off of expenditures.
• The Company did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of its financial statements, specifically, with respect to (i) program change management controls to ensure that IT program and data changes affecting financial IT applications
117
Table of Contents
and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate company personnel; and (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored. These IT deficiencies did not result in a material misstatement to the consolidated financial statements, however, the deficiencies, when aggregated, could result in material misstatements potentially impacting all financial statement accounts and disclosures.
• The Company did not maintain an effective control environment or demonstrate a commitment to maintain integrity and ethical values. Specifically, members of management failed to reinforce the need for compliance and internal control awareness with certain of the Company’s governance, accounting and finance policies and procedures. This resulted in inaccurate and incomplete disclosures of certain relationships, arrangements, and transactions.
• The Company did not design and maintain effective controls related to the identification and disclosure of certain arrangements and transactions with related parties.
• Although management has established processes for cybersecurity incident assessment and reporting, these processes do not currently include formal procedures for reporting material cybersecurity incidents to the Board.
Each of the material weaknesses described above could result in a material misstatement to substantially all of the Company’s accounts or disclosures.
Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting
The Company remains committed to addressing material weaknesses in internal control over financial reporting and strengthening its overall control environment.
• The Company has added and will continue to add finance and accounting personnel, including hiring a Senior Manager of Risks and Internal Controls in Q2 2025. Reporting directly to the CFO, this role serves as the internal point of contact for ICFR remediation and collaborates with the consulting firm to design, remediate, and implement enhanced controls. During the third quarter of 2025, we continued executing this remediation plan, including design walkthroughs, control documentation, and implementation activities related to entity-level and process-specific controls;
• The Company has implemented and is continuing to develop new accounting policies and procedures;
• The Company has installed and is configuring an IT system to support financial statement preparation, improve interdepartmental communication, and establish adequate structure, accountability, and segregation of duties;
• The Company has implemented and is continuing to develop enhanced controls over related party transactions, including regular attestations;
• The Company adopted an Insider Investment Reporting Policy to strengthen internal oversight of related party transactions; and
• As permitted under SEC guidance, management has excluded the internal control structure of AIXC, which was consolidated on September 29, 2025, from its assessment of internal control over financial reporting. We intend to include AIXC in our ICFR scope once it has been part of the consolidated group for a full fiscal year.
Our remediation activities are ongoing in 2025 and are expected to extend into 2026. There have been substantial changes to the composition of the Board of Directors as a result of the governance settlement entered into between the Company and FF Global, as well as substantial turnover in key management personnel, including accounting, legal and compliance personnel, which could impact its ability to implement the above-described remedial measures. The Company has engaged an external firm in May 2025 to assist with evaluating, designing, and implementing enhancements to its internal controls as part of its ongoing remediation efforts.
The Company has or is planning to put in place processes and controls to mitigate the risks associated to enhance oversight and co rporate governance, including but not limited to:
• Continuing to monitor the segregation of responsibilities and duties in the Company’s user ecosystem, capital markets, human resources and administration, and FFCN;
• Requiring the Board, or a designated committee of the Board, to approve the signing of financing agreements, the hiring, promoting or terminating vice presidents of the Company and above (including additional Section 16 officers), and the adoption of Company-wide compensation policies;
• The Company hired a Compliance Officer (Deputy General Counsel) in March 2023 to support its compliance efforts. Following this individual’s departure in July 2025, the Company continues to assess the need for a Chief Compliance Officer who would report on a dotted line to the Chair of the Audit Committee, and
118
Table of Contents
• In May 2025, the Company engaged an external firm to assist with evaluating, designing, and implementing enhancements to its internal controls. The firm works closely with the Senior Manager of Risks and Internal Controls and provides support for compliance reviews and internal audit functions, reporting to the Chair of the Audit Committee.
In addition to the above actions and in view of the governance changes that the Company implemented pursuant to the Heads of Agreement and Amended Shareholder Agreement and otherwise, the Company expects to engage in additional activities, including, but not limited to:
• Continuing to hire key finance and accounting personnel as the Company scales and until it has sufficient technical accounting resources, combined with engaging external consultants to provide support and to assist in the evaluation of more complex applications of generally accepted accounting principles and to assist with documenting and assessing its accounting policies and procedures;
• Designing and implementing controls in response to the risks of material misstatement to identify and evaluate changes in the Company’s business and the impact on internal controls;
• Designing and implementing controls for communicating and sharing information between legal, capital markets, and accounting to facilitate transactions being recorded timely and accurately;
• Designing and implementing formal processes, accounting policies, procedures, and controls supporting certain business processes and its financial close process, including creating standard balance sheet reconciliation templates and journal entry controls assessing the reliability of reports and spreadsheets used in controls, and timely identification and accounting for expenditure cut-off;
• Designing and implementing controls to address the identification of and accounting for certain non-routine, unusual or complex transactions;
• Designing and implementing controls related to the identification and disclosure of certain arrangements and transactions with related parties;
• Continuing to implement IT systems supporting financial reporting to enhance communication, accountability, and segregation of duties; and
• Designing and implementing IT general controls, including controls over change management, the review and update of user access controls and controls over critical batch jobs and data backups.
While the Company has made progress, the material weaknesses will not be considered remediated until the Company completes the design and implementation of the enhanced controls, the controls operate for a sufficient period of time, and the Company has concluded, through testing, that these controls are effective. The Company believes that the remediation plan will be sufficient to remediate the identified material weakness and strengthen internal control over financial reporting.
As the Company continues to evaluate and work to improve internal control over financial reporting, the Company may determine that additional measures or modifications to the remediation plan are necessary.
The Company is working to remediate the material weaknesses as efficiently and effectively as possible. Full remediation could extend beyond December 31 , 2025. At this time, the Company cannot provide an estimate of costs expected to be incurred in connection with implementing this remediation plan; however, these remediation measures will be time consuming, will result in the Company incurring significant costs, and will place s ignificant demands on the Company’s financial and operational resources.
119
Table of Contents
While the Company believes these efforts will remediate the material weaknesses, there is no assurance that evaluation, testing, or required remediation will be completed on time. It is also possible they may not be completed at all. The Company cannot assure that the measures that have been taken to date and may be taken in the future, will be sufficient to remediate the control deficiencies that led to the material weaknesses in internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. The effectiveness of the Company’s internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. Further turnover in key management personnel, particularly accounting, finance and legal personnel, may negatively impact the Company’s ability to implement its remediation plan. If the Company is unable to remediate its material weaknesses, the Company’s ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the forms of the SEC, could be adversely affected which, in turn, may adversely affect the Company’s reputation and business and the market price of the Class A Common Stock. Any such failures could result in litigation or regulato ry actions by the SEC or other regulatory authorities, loss of investor confidence, delisting of the Company’s securities and harm to the Company’s reputation and financial condition, or diversion of financial and management resources from the operation of the Company’s business. The Company remains focused on executing its remediation plan and strengthening its internal controls to support reliable financial reporting.
Changes in Internal Control Over Financial Reporting
On August 6, 2025, the Board of Directors determined that, during the pendency of the SEC investigation involving the Company and certain current and former executives, Mr. Jia will be excluded from oversight of the Company’s finance, legal, accounting, and public reporting functions (the “Governance Adjustments”). As part of these adjustments, Mr. Jia was also relieved of responsibility for providing certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. These oversight responsibilities have been delegated to Mr. Matthias Aydt, who previously shared such responsibilities with Mr. Jia. The Governance Adjustments became effective on August 13, 2025.
Except for the changes described above, there have been no changes in internal control over financial reporting during the three months ended September 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
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.