Item 4. Controls and Procedures
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible
for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
All internal control systems, no matter how well designed, have inherent limitations. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect
to financial statement preparation and presentation.
During the period covered
by this filing, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our internal controls over financial reporting.
Amiga is a small business and represents less than 10.0% of our 2024 revenues and 10.7% of our 2024 net loss. There was no material change
to its internal control over financial reporting due to the acquisition. Based upon our evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, identified as of March 31, 2024, we do not have sufficient internal controls over financial reporting
and procedures to ensure that all the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized
and reported on a timely basis.
The following material weakness
existed as of December 31, 2023:
Material weakness:
·
The Company has a material weakness that was previously identified, that has not yet been completely remediated. The Company currently does not have sufficient controls in place to ensure that all inventory is appropriately tracked and recorded on a timely basis, given the lack of an automated tracking system and the manual nature of its current processes and controls surrounding inventory. This includes a manual process for completing an allocation of labor and overhead to our products on a timely basis. The Company implemented a NetSuite ERP system in Q4 2023 which we believe will remedy this deficiency. The NetSuite ERP system is continually undergoing additional configuration to effectively remediate the internal control weakness when fully implemented.
·
During Q4 2023, the Company implemented NetSuite
ERP system to automate operations and accounting for the San Diego and Chicago locations. We did not implement program change management
and user access controls to ensure that:
a.
IT program and data changes affecting the Company’s financial IT applications & underlying accounting records are identified,
tested, authorized, and implemented appropriately, and
b.
Appropriate segregation of duties that would adequately restrict user access and ensure adequate review of transactions.
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Because we are a small company, many employees
have multiple job responsibilities, and during the implementation in Q4, access was allowed for employees to access necessary tasks.
As we move forward into 2024, we will assign access to ensure the proper segregation of duties. Additionally, we need to ensure the employees
are adequately trained and able to resolve issues timely. The Company needs to establish appropriate procedures for change management
to ensure changes to the system are formally approved, properly restricted to appropriate personnel, and adequately tested.
·
In our review, we noted that the Company did not implement adequate controls relating to documentation of the review and approval of reconciliations and other schedules prepared internally to be included or disclosed in the financial statements. Many of our reports and reconciliations are performed in Excel spreadsheets, and we did not adequately validate the segregation of duties between the preparer and the approver with a signature and time stamp. NetSuite has many robust internal control features that can be configured and utilized to ensure workflow approvals are adhered to and integrated into documentation.
Since these controls have
a pervasive effect across the inventory transaction cycle, management has determined that these circumstances constitute a material weakness,
based on the criteria established in the “Internal Integrated Framework” issued by COSO in 2013 and as a result, we did not
maintain effective internal control over financial reporting as of March 31, 2024.
Changes in Internal Control Over Financial Reporting
The Company is continuing
to actively work to remediate the material weaknesses described above, including the need for additional remediation steps and implementing
additional measures to remediate the underlying causes that give rise to the material weaknesses. During the three months ended March
31, 2024, the Company has taken various actions to strengthen our internal control over financial reporting, including:
· Reviewing access in NetSuite ERP to ensure the proper segregation of duties and training courses to ensure
the employees are adequately trained and able to resolve issues timely.
· Implementing stronger processes related to ordering, counting, warehousing, valuing and transacting our
inventory in NetSuite ERP.
· Increasing the adequacy of staffing levels and expertise with the requisite technical knowledge and skills
to support further enhancement on the controls and procedures surrounding documentation of review and formalization of reconciliations,
accounting policies and controls.
· Implementing a segregation of duties between the preparer and the approver of reconciliation and supporting
schedules which included hiring additional staff.
The material weaknesses will be considered remediated
when management concludes that, through testing, the applicable remedial controls are designed, implemented and operating effectively.
As management continues to evaluate and improve disclosure controls and procedures and internal control over financial reporting, the
Company may decide to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances
not to complete, certain of the remediation measures identified.
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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.