Item 4. Controls and Procedures
Item 4. Controls and Procedures.
Management’s Evaluation of our Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is (1) recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
As of September 30, 2020, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our evaluation, our management concluded that, as of September 30, 2020, our disclosure controls and procedures were not effective because our internal controls over financial reporting were not adequate due to the material weakness described below.
During the fourth quarter of fiscal 2019, we identified a material weakness in our internal control over financial reporting related to our inventory process. Specifically, we did not design and maintain effective controls over the completeness, accuracy, presentation and disclosure of inventory related to (i) the review of inventory unit and valuation reconciliations, (ii) the annual validation of the inventory costing and (iii) the periodic assessment of inventory expiry and related reserves.
During fiscal 2020, we are enhancing our system of internal controls over financial reporting to remediate the material weakness described above with the following remediation efforts: (i) providing training to individuals with internal control responsibilities including review documentation requirements, (ii) evaluating alignment of resources and enhanced management
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review and monitoring inventory controls, (iii) reviewing current inventory process and procedures to identify opportunities to enhance their design and operation and (iv) designing controls that address the completeness and accuracy of any key reports utilized in the execution of internal controls. We will also be performing control testing throughout the year to validate the operating effectiveness of internal controls over financial reporting to gain assurance that such controls are present and functioning as designed.
As the revised and enhanced controls need to be in operation for a sufficient period of time and be tested to ensure that the controls are operating as designed, management has concluded that the material weakness cannot be considered remediated as of September 30, 2020.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2020, we implemented certain internal controls in connection with our remediation efforts described above. There have been no other changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
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