Item 4. Controls and Procedures
Item 4. Controls and Procedures
The Company's management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation of our disclosure controls and procedures as of June 30, 2025, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, due to the material weaknesses described below, our disclosure controls and procedures were not effective as of June 30, 2025.
Notwithstanding the material weaknesses, management has concluded that the financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows in the conformity with U.S. GAAP.
Material Weaknesses
As previously disclosed in Part II, Item 9A. “ Controls and Procedures ” of our 2024 Annual Report on Form 10-K, we have identified the following material weaknesses in our internal control over financial reporting, which were not fully remediated as of June 30, 2025:
• The Company determined that certain actions taken by our Chief Executive Officer failed to set a tone at the top that supported a strong culture of internal controls based on the criteria established by the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which requires the Company to demonstrate a commitment to integrity and ethical values, and for management to establish structures, reporting lines, and appropriate authorities and responsibilities.
• The Company did not maintain an effective control environment, nor did it implement proper control activities required by the COSO Framework due to the limited number of accounting personnel with relevant experience and sufficient capacity.
• The Company previously identified a material error in a valuation provided by a third-party due to the limited number of accounting personnel with relevant experience and sufficient capacity to review the valuation.
The above material weaknesses could result in misstatements to our financial statements in the future, if not remediated.
Remediation Efforts with Respect to Material Weaknesses
With oversight from the Audit Committee of the Company’s board of directors and input from the Company’s board of directors, management is in the process of designing and implementing changes in processes and controls to remediate the material weaknesses described above. The measures we are taking to remediate the identified material weaknesses and further evolve our accounting processes include:
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Actions specific to the remediation of the material weakness in internal control over financial reporting during the year ended December 31, 2024, and quarter ended June 30, 2025, related to the company’s tone at the top including demonstration of a commitment to integrity and ethical values, and the establishment of structures, reporting lines, and appropriate authorities and responsibilities.
• We have established a management ethics and compliance committee reporting directly to the Audit Committee of the Board of Directors which ensures that concerns related to integrity and ethical values are independently evaluated, investigated, and reported to the Audit Committee.
• The Chief Executive Officer has completed Executive Coaching to address behavioral aspects of his management style to the satisfaction of the Board of Directors.
• We have enhanced reporting lines, authorities, and responsibilities with the appointment of an independent director to serve as the Chairman of the Board, and appointment of a President/Chief Operations Officer.
• We have identified and evaluated the design and effectiveness of Entity Level Controls which set the tone at the top, establish and check adherence to standards of conduct, and address deviations promptly.
• We have identified and evaluated the design and effectiveness of certain Entity Level Controls which establish, with governance body oversight, structures, reporting lines and appropriate authorities across the business.
Actions specific to the remediation of the material weaknesses in internal control over financial reporting during the year ended December 31, 2024 and quarter ended June 30, 2025 related to 1) maintaining an effective control environment and implementing proper control activities and 2) review and oversight of complex accounting valuations provided through third parties.
• We have created a Chief Accounting Officer role within the Chief Financial Officer’s organization to specifically focus on developing and maintaining an effective organizational structure defining the roles, responsibilities, and job duties.
• We have invested in key accounting personnel to increase the likelihood that experienced and skilled accounting resources are recruited and retained.
• Designing and implementing internal controls over financial reporting to address risks related to financial reporting.
• Designing and implementing the controls the Company has designed related to complex accounting matters related to estimates, including the review of third-party specialist’s work, as well as the reasonableness of key assumptions, methodologies, and underlying data used in the estimate.
We may modify our remediation plan and will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are designed and operating effectively. In addition, under the direction of the Audit Committee of the Board, our management will continue to review and make necessary changes to the overall design of our internal control environment, as well as to policies and procedures to improve the overall effectiveness of internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, our management may determine to take additional measures to address control deficiencies.
Changes in Internal Control over Financial Reporting
Except for as described above, there were no changes during the quarter ended June 30, 2025, in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.