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 Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to management, including its Global Chief Executive Officer (“CEO”) 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 Chief Executive Officer Yueting Jia and CFO Koti Meka (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 June 30, 2026 due to three material weaknesses in internal control over financial reporting related to (i) the identification, evaluation, and accounting for certain non-routine, unusual, or complex transactions, (ii) the design and maintenance of formal accounting policies, procedures, and financial reporting controls, and (iii) the identification, evaluation, accounting for, and disclosure of certain related-party arrangements and transactions, as described below.
125
Table of Contents
Material Weaknesses in 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.
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 consolidated financial statements would not be prevented or detected on a timely basis. As of June 30, 2026, the Company identified the following material weaknesses:
• Non-routine, unusual, or complex transactions: The Company did not design and maintain effective controls to identify, evaluate, and appropriately account for certain non-routine, unusual, or complex transactions, including the proper application of generally accepted accounting principles (“GAAP”) to such transactions.
• Accounting policies, procedures, and financial reporting: The Company did not design and maintain formal accounting policies, procedures, and controls necessary to ensure the completeness, accuracy, and timeliness of its financial accounting, reporting, and disclosures.
• Related-party transactions: The Company did not design and maintain effective controls to identify, evaluate, and appropriately account for and disclose certain arrangements and transactions with related parties.
Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting
The Company remains committed to addressing the material weaknesses in its internal control over financial reporting and strengthening its overall control environment. Management has initiated and continues to implement remediation efforts, including the following:
• Non-routine, unusual, or complex transactions: The Company is designing and implementing controls to enhance the identification, evaluation, and accounting for certain non-routine, unusual, or complex transactions, including the appropriate application of GAAP.
• Accounting policies, procedures, and financial reporting: The Company is formalizing and enhancing its accounting policies and procedures. These efforts include working with third-party consultants and technical accounting advisors to assist with the documentation and enhancement of accounting policies and procedures. In the interim, the Company has implemented compensating controls, including enhanced management review procedures and the preparation of formal accounting memoranda for significant and complex transactions.
• Related-party transactions: The Company has implemented and continues to enhance controls over related-party transactions, including regular management attestations, to strengthen the identification, evaluation, and disclosure of related-party arrangements and transactions.
The Company will continue to monitor the design and operating effectiveness of these controls and assess whether the remediation efforts are successfully implemented and sustained over an appropriate period of time. However, if remediation efforts are not successfully implemented and sustained, the effectiveness of the Company’s internal control over financial reporting could be adversely affected. The material weaknesses will not be considered remediated until management has completed its remediation efforts and concluded, through appropriate testing, that the applicable controls are designed and operating effectively for a sufficient period of time. Internal controls are inherently subject to limitations, including human error, management judgment, resource constraints, and the risk of fraud. Additionally, turnover in key personnel within accounting, finance, or legal functions could impact the Company’s ability to maintain effective internal controls and execute its remediation activities. If the Company is unable to maintain effective internal control over financial reporting, it may not be able to accurately record, process, or report financial information on a timely basis or prepare financial statements within the timeframes required by the SEC. Any such deficiencies could adversely affect the Company’s business, reputation, investor confidence, and the market price of its Class A Common Stock. In addition, failure to maintain effective internal controls could result in increased regulatory scrutiny, litigation exposure, potential delisting of the Company’s securities, and diversion of management’s attention and resources from normal business operations, which could materially and adversely affect the Company’s financial condition and results of operations.
Changes in Internal Control Over Financial Reporting
Other than the ongoing remediation activities described above, there have been no changes in the Company’s internal control over financial reporting during the three and six months ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
126
Table of Contents
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.