SANUWAVE Health, Inc. 10-Q

Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit 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 by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not operating effectively as of September 30, 2024. Our disclosure controls and procedures were not effective because of the “material weakness” described below. We had identified three material weaknesses in internal control over financial reporting from prior periods that remain unremediated. A material weakness is a deficiency, or a 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. Because the items described below could have resulted in material misstatement of our annual or interim financial statements, we determined each constitutes a material weakness. As of September 30, 2024, the Company has still identified the following material weaknesses: 1. The Company lacked expertise and resources to analyze and properly apply U.S. GAAP to complex and non-routine transactions such as complex financial instruments and derivatives and complex sales distributing agreements with select vendors. 2. The Company lacked internal resources to analyze and properly apply U.S. GAAP to accounting for financial instruments included in service agreements with select vendors. 3. The Company has failed to implement controls around the following accounting processes: Equity, Financial Reporting, Accounts Payable, Expenses, Revenue, Accounts Receivable, Tax, Cash, Debt, Fixed Assets, Inventory, Commissions, Entity-Level, Human Resources/Payroll, and IT processes: change management, operations, access security. As such, we believe that accounting and IT processes and procedures need to be tested for operating effectiveness. 25 Table of Contents As a result, management concluded that its internal control over reporting was not effective as of September 30, 2024. Remediation Plan Management is fully committed to addressing the material weaknesses in our internal controls and has implemented several key initiatives to strengthen them. To that end, the Company has continued to implement and enhance appropriate internal controls and contracted with CliftonLarsonAllen, LLP starting in the third quarter 2023 to conduct a valuation engagement. This engagement aims to provide an estimated conclusion of value and a summary, restricted appraisal report to assist management in determining the fair value of warrants to purchase the Company’s stock, embedded derivatives, and other interests. Additionally, we engaged a third-party consultant to help design and document our internal controls and conduct a thorough risk assessment of our financial reporting processes . We plan to remediate and implement these controls for high-risk processes throughout 2024. We have also hired a highly experienced Director of Internal Audit to review, adjust, as needed, and test our internal controls and ensure they function as intended.We recently acquired GRC (Governance, Risk, and Compliance) software from Workiva to support these efforts. Furthermore, we plan to hire additional personnel and segregate certain duties to enhance our control activities and effectively mitigate risks. Until we fully remediate the material weaknesses, we will perform additional analyses and procedures to ensure our consolidated financial statements comply with U.S. GAAP. We remain vigilant in identifying any additional material weaknesses that may arise and are prepared to adjust our remediation strategies as needed. We are collaborating with an external vendor to enhance our IT general controls over our enterprise resource planning system. This initiative aims to establish a robust framework for executing IT general controls, addressing weaknesses in our internal controls, and providing a solid framework for future testing. The existence of any material weakness or significant deficiency requires management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies, and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, and cause shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and stock price. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024, that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting, except as disclosed in “Remediation Plan” above. PART II — OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. For information regarding legal proceedings at September 30, 2024 , see Note 14 to the condensed consolidated financial statements, which information is incorporated herein by reference. Item 1A. RISK FACTORS. There have been no material changes from our risk factors as previously reported in Part I, Item 1A “Risk Factors” in our 2023 Annual Report. Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None. 26 Table of Contents Item 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. Item 4. MINE SAFETY DISCLOSURES. Not applicable.