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Evaluation of Disclosure Controls and Procedures
−Removed: As of September 30, 2024, our management, with participation of our principal executive officer and principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a – 15(e) under the Exchange Act).
−Removed: While the Company implemented an Authorization Matrix and a Remediation Plan in the second quarter of 2024, our management believes the strengthened controls designed to address the material weaknesses identified in prior periods have not been in place for a sufficient time to conclude on whether or not they have been operating effectively as of September 30, 2024.
−Removed: Our management will continue to evaluate the effectiveness of the internal controls over financing reporting, including the Authorization Matrix and Remediation Plan, in future reporting periods.
−Removed: The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
−Removed: Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
−Removed: Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
−Removed: Management's Report on Internal Control over Financial Reporting
−Removed: Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act).
−Removed: Internal control over financial reporting is a process designed under the supervision and
−Removed: with the participation of our management, including our principal executive officer and our principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.
−Removed: As of September 30, 2024, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
−Removed: Based on this assessment, two material weaknesses over financial reporting were identified (described below).
−Removed: A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or condensed interim financial statements would not be prevented or detected on a timely basis.
−Removed: Two of the material weaknesses were identified in a prior period, as the Company reported in a Current Report on Form 8-K filed with the SEC on May 1, 2024.
−Removed: The Company was a victim of a criminal scheme involving the impersonation of a purchaser of Secured Notes.
−Removed: The scheme resulted in the misdirection of approximately $1.3 million held in Company accounts to a fraudulent account controlled by a third party and a default on a legally binding commitment to purchase Secured Notes.
−Removed: As a result of the default and the related misdirection of funds, management re-evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting as of December 31, 2023.
−Removed: Based on this assessment, management identified material weaknesses in two areas, including the methods used to review, evaluate and accept financing proposals from investors and lenders and the process used to enter unusual significant transactions.
−Removed: As a result of the material weakness to protect the Company’s assets from fraud committed by third parties, there was a $1.3 million loss recognized on the Company’s interim condensed financial statements.
−Removed: During the period ended June 30, 2024, a Remediation Plan was implemented.
−Removed: See “Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting.” Our principal executive officer and principal financial officer concluded there was not yet enough evidence due to the infrequency of significant transactions to assess the effectiveness of internal controls during the period ended September 30, 2024.
−Removed: We will continue to assess the effectiveness of the internal controls in each reporting period, especially those related to significant or unusual transactions contained in the Remediation Plan.
−Removed: As of September 30, 2024, the Company identified two additional material weaknesses in internal controls over financing reporting related to the classification of the Cogent Loan and accounting for the Secured Notes.
−Removed: On August 15, 2022, the Company entered into the 2022 Loan Agreement with Cogent Bank, pursuant to which we received $6.5 million in proceeds to purchase a building.
−Removed: The loan is secured by a first priority lien on the building.
−Removed: As of September 30, 2024, certain subcontractors have filed mechanics liens related to unpaid invoices issued in connection with the Company’s construction and improvements on the building.
−Removed: The 2022 Loan Agreement contains a provision for a discretionary default in the event that the Company fails to pay sums due in connection with construction of any improvements.
−Removed: The Company did not identify and account for the loan as Short-term debt, net, to reflect that the lender has the right to accelerate the loan under a discretionary default provision as of September 30, 2024.
−Removed: As a result, we will enhance the controls we use to evaluate triggering events in debt agreements, to appropriately classify debt as current or noncurrent in the correct period.
−Removed: The second material weakness identified as of September 30, 2024 related to accounting for complex transactions.
−Removed: This involved appropriately accounting for the Secured Notes and disclosing the amended terms that were executed during the third quarter of 2024.
−Removed: The Secured Notes were deemed to be a hybrid instrument, consisting of a debt host with embedded derivatives requiring bifurcation and accounting for separately.
−Removed: Prior to correcting the initial accounting treatment for the Secured Notes, as amended, the Company neglected to identify and account for the embedded derivatives.
−Removed: In addition, the disclosures for the Secured Notes would not have identified the embedded derivatives.
−Removed: The aggregation of these factors could have resulted in a material misstatement in the Company’s financial statements.
−Removed: As of September 30, 2024, there was no impact to the financial statements related to correcting the accounting treatment for embedded derivatives.
−Removed: Another amended term for the Secured Notes is a fixed bonus payment that holders will receive if the Secured Notes are repaid on the Maturity Date.
−Removed: The Company determined that the fixed bonus payment should be accreted to the principal owed to holders over the term.
−Removed: As of and for the three and nine months ended September 30, 2024, the Company did not accrete the fixed bonus payment.
−Removed: Accretion during this reporting period does not materially misstate the amount owed to the holders.
−Removed: In subsequent periods, the Company will accrete the fixed bonus payment as it will be material.
−Removed: If the Company did not correct the accounting treatment, we would understate our obligations.
−Removed: Over the term, this could have resulted in a material misstatement in the Company’s financial statements.
−Removed: Management resolved to allow for more time and resources to determine proper accounting for complex transactions.
−Removed: Remediation Plan for Material Weakness in Internal Control over Financial Reporting
−Removed: We are committed to establishing and maintaining a strong internal control environment.
−Removed: In response to the identified material weakness as described above, the Company’s Board of Directors and its Audit Committee have conducted an internal investigation to determine the root cause of the material weaknesses, with advice from outside advisors.
−Removed: Along with the advice of outside advisors, the board of directors worked with management to evaluate internal controls over financial reporting based on criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
−Removed: As a result, the following two actions were taken by the board of directors:
−Removed: On May 13, 2024, the board of directors adopted a Delegation of Management Authorities (“Authorization Matrix”), which provides for authorization thresholds for significant and unusual transactions, budget and strategic plans, audit and policies, personnel actions, contracts, litigation, major projects, credit or loans, and consulting agreements.
−Removed: On June 11, 2024, the board of directors adopted a Remediation Plan designed to implement and strengthen controls and prevent re-occurrence of fraud on the Company:
−Removed: All lenders, investors or others involved in financial transactions or investing in the Company will undergo a standard due diligence process, including a background check and document verification.
−Removed: The Company will obtain the appropriate background checks, including identity and verification, criminal, civil, and financial searches.
−Removed: The Company will use third parties to verify Know Your Client (“KYC”) documents, including, verification process with the banks providing letters.
−Removed: On May 13, 2024, the Board adopted a Delegation of Management Authorities (the “Authority Matrix”).
−Removed: All Company transactions are required to be performed with U.S.
−Removed: dollars via Company check or wire transfer unless board approval is received.
−Removed: Company funds are not permitted to be transferred to a personal account.
−Removed: All Company accounts will be in the Company name.
−Removed: All significant theft or fraud will be reported to the Board and authorities immediately, and no less than 24 hours after the Company becomes aware of the occurrence of the theft or fraud.
−Removed: The Company shall continue ongoing cybersecurity training for all employees.
−Removed: The Company will annually review with employees, the IT/equipment use policy in Section 404 of the Employee Handbook.
−Removed: Communications with third parties relating to Company business shall take place on Company email or authorized Company accounts.
−Removed: For record keeping purposes, any communications relating to loans, investments, and financing arrangements in the Company shall take place (if electronically) via electronic mail through Company email accounts, or, if necessary to chat, via regular SMS chat on Company authorized phones/accounts.
−Removed: The Company will provide information on its financial condition (including proof of liquidity) only as approved by two executive employees.
+Added: Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended or the Exchange Act, is recorded, communicated to our management to allow timely decisions regarding required disclosure, summarized and reported within the time periods specified in the SEC’s rules and forms.
+Added: Any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures.
+Added: Under the supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2025.
+Added: Based on that evaluation, the CEO and CFO have concluded that, as of such date, our disclosure controls and procedures were effective.
Inherent Limitations of Internal Controls
6 unchanged sentences
While we are committed to continuously improve and strengthen our control environment, over time, our internal controls over financial reporting may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
−Removed: Projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls over financial reporting may become inadequate because of
−Removed: changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
+Added: Projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
−Removed: There have been no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
+Added: There have been no changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.