{"url_path":"/sec/sos/10-k/2026/item-15","section_key":"item-15","section_title":"Item 15 CONTROLS AND PROCEDURES**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1346610/0001213900-26-057725-index.html","accession_number":"0001213900-26-057725","cik":"0001346610","ticker":"SOS","issuer_name":"SOS Ltd","edgar_url":"https://www.sec.gov/Archives/edgar/data/1346610/0001213900-26-057725-index.html","primary_entity_key":"0001346610","primary_entity_name":"SOS Ltd"},"word_count":2156,"has_tables":true,"body_markdown":"**ITEM\n15. CONTROLS AND PROCEDURES**\n\n \n\n**(a)\nDisclosure Controls and Procedures**\n\n \n\nOur\nmanagement, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our\ndisclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of\nthe period covered by this Annual Report on Form 20-F.\n\n \n\nBased\non such evaluation, our chief executive officer and chief financial officer have concluded that as of December 31, 2025, we did not maintain\neffective disclosure controls and procedures.\n\n \n\n**(b)\nManagement’s Annual Report on Internal Control over Financial Reporting**\n\n \n\nOur\nmanagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f)\nunder the Exchange Act. Our management evaluated the effectiveness of our internal control over financial reporting, as required by Rule\n13a-15(c) of the Exchange Act, based on criteria established in the framework in Internal Control—Integrated Framework (2013) issued\nby the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that\nour internal control over financial reporting was not effective as of December 31, 2025.\n\n \n\nBecause\nof its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections\nof any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls\nmay become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.\n\n \n\nIn\nconnection with the audit of our consolidated financial statements as of December 31, 2025 and the results of our operations and our\ncash flows for each of the three years in the period ended December 31, 2025, our independent registered public accounting firm identified\nfour material weaknesses in our internal control over financial reporting. As defined in standards established by the PCAOB, a “material\nweakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable\npossibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely\nbasis.：\n\n \n\n83\n\n \n\n \n\n**Material\nWeaknesses in Internal Control over Financial Reporting**\n\n \n\nManagement\nhas assessed that the Company did not maintain fully effective internal control over financial reporting as of December 31, 2025, in\naccordance with applicable SEC guidance.\n\n \n\nThe\nidentified material weaknesses primarily relate to deficiencies in controls over:\n\n \n\n●recoverability\nassessment, classification, and expected credit loss evaluation of accounts receivable, advances\nto suppliers, prepayments, and other receivable balances;\n\n \n\n●inventory\nvaluation and existence, including determination of net realizable value, inventory aging\nassessment, and controls over inventories held at third-party locations;\n\n \n\n●monitoring\nand oversight of treasury activities, intercompany fund flows, offshore transactions, and\nspeculative futures trading activities;\n\n \n\n●valuation,\nimpairment assessment, existence, and ownership verification of crypto-related assets and\ncryptocurrency mining equipment; and\n\n \n\n●financial\nreporting and period-end close processes, including review controls over classifications,\nreconciliations, journal entries, and financial statement presentation.\n\n \n\nThese\ndeficiencies indicate that key controls over significant estimates, classifications, valuations, treasury activities, and underlying\nfinancial reporting processes were not designed or operating effectively. As a result, there is a reasonable possibility that material\nmisstatements of the financial statements would not be prevented or detected on a timely basis.\n\n \n\nNature\nof Identified Control Deficiencies\n\n \n\nThe\nmaterial weaknesses identified during the audit can be broadly categorized into the following areas:\n\n \n\nRecoverability,\nclassification, and credit risk assessment controls\n\n \n\nThe\nCompany did not maintain sufficiently effective control over the review and assessment process relating to recoverability, classification,\nand expected credit losses assessments for accounts receivable, supplier advances, prepayments, loans, and other receivable balances.\nThe identified deficiencies primarily related to insufficiently formalized review controls, limited documentation supporting management’s\nreview and approval processes, and inadequate precision in evaluating significant judgments used in determining recoverability and classification\nconclusions.\n\n \n\nInventory\nvaluation and existence controls\n\n \n\nControls over inventory valuation and existence were not consistently effective. The\ninventory valuation process initially did not fully incorporate all reasonably predictable costs to sell in determining net\nrealizable value, and certain inventories were held for extended periods or maintained at third-party locations with limited direct\noversight and reliance on external confirmations operating effectively. The identified deficiencies related primarily to\ninsufficient review controls over net realizable value assessments, inventory aging analyses, and monitoring procedures over\ninventories maintained at third-party locations.\n\n \n\nTreasury,\ncash management, and trading activity controls\n\n \n\nControls\nover treasury management, intercompany fund flows, offshore transactions, and speculative futures trading activities were not sufficiently\nformalized. Significant fund transfers, margin activities, and trading-related transactions required enhanced audit procedures due to\nlimited documentation of business rationale, concentration of trading-related responsibilities among limited personnel, and insufficient\nsegregation of duties and monitoring controls.\n\n \n\nCrypto-related\nasset valuation and existence controls\n\n \n\nThe Company’s controls over the impairment assessment of cryptocurrency\nmining equipment and verification of digital assets ownership were not sufficiently formalized. The identified deficiencies primarily\nrelated to documentation, review, and verification controls over management’s assessment processes and supporting records.\n\n \n\n84\n\n \n\n \n\nFinancial\nreporting and close process controls\n\n \n\nThe\nCompany’s financial reporting process relied significantly on manual adjustments, post-closing reclassifications, and management\nreview processes that were not consistently formalized or independently reviewed. Significant reclassifications and presentation adjustments\nwere required during the audit relating to liabilities, related party balances, trading financial assets, intercompany balances, and\naccrued liabilities. Supporting schedules and reconciliations were not consistently organized or clearly reconciled to final reported\nbalances.\n\n \n\nThe\naudit identified significant post-closing reclassifications and financial statement presentation adjustments, including the reclassification\nof futures trading margin deposits and settlement balances from cash and cash equivalents to trading financial assets, together with\nrelated accounting policy and disclosure enhancements. These matters indicated that controls over financial statement classification,\npresentation, and review of non-routine transactions were not operating effectively.\n\n \n\nIn\naddition, significant manual adjustments and reconciliation efforts were required to appropriately classify and present certain liability,\nrelated party, intercompany, and accrued balances within the financial statements. Supporting schedules and reconciliations were not\nconsistently organized or clearly reconciled to final reported balances.\n\n \n\nThese\ndeficiencies were pervasive across multiple financial statement areas and required significant audit effort, expanded substantive testing,\nand additional professional judgment to address.\n\n \n\nManagement’s\nRemediation Plan\n\n \n\nManagement\nhas initiated remediation measures intended to strengthen the Company’s internal control environment and financial reporting processes,\nincluding:\n\n \n\n●formalizing\nprocedures and review controls relating to recoverability assessments, classification of\nbalances, expected credit loss evaluations, and impairment assessments;\n\n \n\n●enhancing\ncontrols over inventory valuation, inventory aging analysis, third-party inventory monitoring,\nand net realizable value assessments;\n\n \n\n●strengthening\ntreasury governance, including controls over significant fund transfers, intercompany transactions,\noffshore counterparties, and speculative futures trading activities;\n\n \n\n \n●\nenhancing review and approval controls over non-routine transactions, journal entries, reconciliations, and financial statement preparation and disclosures processes;\n\n \n\n●formalizing\nfinancial close procedures and improving reconciliation processes between supporting schedules,\nsub-ledgers, and financial statement balances; and\n\n \n\n \n●\npolicies, documentation standards, and verification procedures relating to digital asset management, including wallet access controls, valuation review processes, and independent reconciliation procedures.\n\n \n\nManagement\nhas also initiated enhancements relating to the review and classification of trading financial assets, futures trading balances, related\nparty balances, and long-outstanding liabilities to improve the consistency and accuracy of financial statement presentation.\n\n \n\nThese remediation activities are intended to strengthen the overall control environment and improve the design\nand operation of controls over significant accounting processes and financial reporting activities. However, the remediation measures\nhave not operated for a sufficient period of time for management or the auditors to conclude that the controls are operating effectively.\n\n \n\nAccordingly,\nthe material weaknesses identified continue to exist as of December 31, 2025.\n\n \n\n85\n\n \n\n \n\n**Conclusion\non Effectiveness of ICFR**\n\n \n\nAs\na result of the material weaknesses described above, management concluded that the Company did not maintain effective internal control\nover financial reporting as of December 31, 2025.\n\n \n\n*Remediation\nof Material Weaknesses*\n\n* *\n\nTo\nremediate the identified material weaknesses, management has developed and is implementing a comprehensive plan to strengthen the Company’s\ninternal control over financial reporting. The remediation plan focuses on enhancing the control environment, strengthening technical\naccounting capabilities, and establishing robust and sustainable financial reporting processes.\n\n \n\nThe\nkey remediation measures include:\n\n \n\n**(1)\nStrengthening accounting and financial reporting resources**\n\n \n\n●Hiring\nadditional qualified accounting personnel, including a financial controller with U.S. GAAP\nand SEC reporting experience;\n\n \n\n●Implementing\nongoing U.S. GAAP and financial reporting training programs.\n\n \n\n**(2)\nEstablishing governance and internal audit functions**\n\n \n\n●Establishing\nan internal audit function to enhance monitoring of internal controls;\n\n \n\n●Engaging\nexternal advisors to support Sarbanes-Oxley compliance and internal control improvements.\n\n \n\n**(3)\nFormalizing accounting policies and financial close processes**\n\n \n\n●Developing\ncomprehensive accounting policies, manuals, and standardized closing procedures;\n\n \n\n●Enhancing\ncontrols over period-end close, including cut-off, reconciliations, and accruals;\n\n \n\n●Implementing\nformal documentation and review protocols.\n\n \n\n**(4)\nEnhancing controls over significant and non-routine transactions**\n\n \n\n●Establishing\ncontrol processes for identification and accounting assessment of significant transactions;\n\n \n\n●Requiring\nrobust supporting documentation;\n\n \n\n●Strengthening\napproval workflows;\n\n \n\n●Enhancing\ncontrols over loan arrangements, payment flows, and inter-company transactions.\n\n \n\n**(5)\nEnhancing valuation and estimation processes**\n\n \n\n●Implementing\nformal methodologies for expected credit losses and inventory NRV;\n\n \n\n●Strengthening\nimpairment assessment processes for long-lived assets;\n\n \n\n●Enhancing\nfair value methodologies for digital assets;\n\n \n\n●Improving\ndocumentation, consistency, and review of key assumptions.\n\n \n\n86\n\n \n\n \n\n**(6)\nStrengthening cash management and treasury controls**\n\n \n\n●Implementing\ncontrols over large or unusual transactions;\n\n \n\n●Enhancing\ndocumentation of business purpose;\n\n \n\n●Performing\ncounter-party due diligence;\n\n \n\n●Strengthening\nclassification controls for financing-related transactions;\n\n \n\n●Partnering\nwith third-party service providers and custodian banks to enhance oversight of bank accounts.\n\n \n\nManagement\nis in the process of implementing these remediation measures and will continue to monitor their design and operating effectiveness. The\nmaterial weaknesses will not be considered remediated until the relevant controls have been fully implemented, have operated effectively\nfor a sufficient period of time, and have been tested for operating effectiveness.\n\n \n\n**Issues\nIdentified:**\n\n \n\nThe\nCompany identified material weaknesses in its internal control over the procurement and payment cycle in relation to a significant software\nupgrade acquisition. These deficiencies included inadequate vendor due diligence, absence of a formal business needs assessment, lack\nof a comprehensive feasibility study (including financial projections), insufficient approval procedures with unclear authorization and\nsegregation of duties, and inadequate contract and scope documentation. As a result, the vendor misunderstood the Company’s requirements,\noverestimated its technical capabilities, and may fail to deliver in accordance with contractual terms, exposing the Company to significant\nfinancial and operational risks.\n\n \n\n**Remediation\nMeasures**\n\n** **\n\nTo\naddress these deficiencies, the Company plans to implement a series of remediation measures to strengthen its internal control framework.\nThese include establishing a formal vendor due diligence policy, requiring the preparation of detailed Business Requirements Documents\nand feasibility studies for all material procurement, implementing a structured procurement approval matrix with defined authorization\nthresholds and independent cross-functional review, and enhancing contract governance through clearly defined Statements of Work, acceptance\ncriteria, milestone-based deliverable, and protective contractual provisions. These measures are designed to improve decision-making,\nensure proper oversight, and mitigate risks associated with large-scale procurement activities.\n\n \n\nHowever,\nthere can be no assurance that these remediation measures will be sufficient to fully remediate the material weaknesses or prevent future\ndeficiencies.\n\n \n\nWe\nbelieve that the actions we are taking, as listed above, will help remedy the material weaknesses referred to above, and help strengthen\nour general internal controls and procedures over financial reporting. However, the process of designing and implementing an effective\nfinancial reporting system represents a continuous effort that requires us to anticipate and react to changes in our business and the\neconomic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to\nsatisfy our reporting obligations. While we have developed a remediation plan to address these material weaknesses, this remediation\nplan or any additional plan we plan to implement may be insufficient to address our material weaknesses and additional material weaknesses\nmay be discovered in the future. We plan to continue to address and remediate additional control deficiencies we may identify during\nour evaluation process in 2025. If we fail to implement and maintain an effective system of internal controls or fail to remediate the\nmaterial weaknesses in our internal control over financial reporting that have been identified, we may be unable to accurately report\nour results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of\nour Class A Ordinary Shares may be materially and adversely affected.\n\n \n\n87\n\n \n\n \n\n**(c)\nAttestation Report on Internal Control over Financial Reporting of the Registered Public Accounting Firm**\n\n \n\nWe\ndid not include an attestation report of the Company’s registered public accounting firm due to rules of the SEC where domestic\nand foreign registrants that are non-accelerated filers, which we are, are not required to provide the auditor attestation report.  \n\n \n\n**(d)\nChanges in Internal Control over Financial Reporting**\n\n \n\nThere\nwere no changes in the Company’s internal control over financial reporting during the year ended December 31, 2025 that have materially\naffected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management continues\nto evaluate and enhance its internal control framework and may identify additional control deficiencies in the future."}