CID Holdco, Inc. 10-Q

Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our current management, including our CEO and CFO, we 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 (the “Exchange Act”), as of September 30, 2025. Based on this evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of September 30, 2025 because of certain material weaknesses in our internal control over financial reporting, as further described below. Notwithstanding the conclusion by our CEO and CFO that our disclosure controls and procedures as of September 30, 2025, were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described below, management believes that the consolidated financial statements and related financial information included in this Interim Report on Form 10-Q fairly present in all material respects our financial condition, results of operations, and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Material Weaknesses Costs of Goods Sold. During the preparation of financial statements for the quarter ended June 30, 2025, management identified multiple costs that were improperly included in cost of goods sold in the quarter ended March 31, 2025, as well as for the three and nine months ended September 30, 2024, as disclosed in Note 4 of this condensed consolidated financial statements. The root cause of the error was a lack of preventative control designed to ensure proper categorization of expenses on purchase orders generated by our operating departments. In addition, the Company lacked detective controls to ensure finance management reviewed period-over-period changes in cost of goods sold relative to budgeted and actual production levels. As a result of these control deficiencies, cost of goods sold was overstated by $310,160 for the three months ended March 31, 2025, with a corresponding understatement of total operating expenses, and by $137,204 for the three and nine months ended September 30, 2024, also with a corresponding understatement of total operating expenses. See Note 4 of the condensed consolidated financial statements (unaudited) included in this Quarterly Report on Form 10-Q. - 32 - Accounting Personnel and Financial Reporting Controls. Management also identified that the Company does not currently have adequate staffing in its accounting department and has not yet designed and implemented the appropriate processes and internal controls to support accurate and timely financial reporting, which (i) may restrict the Company’s ability to review and approve certain material journal entries which increases the likelihood that a material misstatement of interim or annual financial statements might not be prevented; and (ii) resulted in the Company’s inability to have proper segregation of duties between the preparation, review and approval of certain material reconciliations related to financial reporting in a timely manner. Fair Value Calculation Controls. In addition, management identified a material weaknesses in the design of internal controls related to the review of the fair value calculation of SAFE notes performed by a third-party valuation specialist. The controls lacked the precision needed to detect inappropriate inputs that could materially impact valuation. The Company is actively working to develop and implement remediation plans related to the material weakness identified in this section captioned “ Part I, Item 4. Controls and Procedures .” Remediation efforts include enhancing the design and implementation of controls over the accounting for financial instruments and hiring additional qualified accounting personnel. Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. - 33 - PART II - OTHER INFORMATION