Item 4. Controls and Procedures
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act 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, as appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of September 30, 2020.
As a result of becoming a public company, we will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ended December 31, 2020. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. SEC rules define a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be detected or prevented on a timely basis.
Previously Identified Material Weaknesses and Plans to Remediate
Prior to October 1, 2020, we were a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. As of September 30, 2020, there were three material weaknesses, identified during the audits of our financial statements for the fiscal years ended December 31, 2018 and 2019 and disclosed in our Registration Statement on Form S-1, in the design of our internal control over financial
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reporting which had not yet been remediated. These material weaknesses relate to the lack of review of journal entries, lack of timely and effective review of financial statement account reconciliations and the lack of maintaining a sufficient complement of personnel commensurate with the accounting and financial reporting requirements of a public company.
We have taken steps to begin to remediate the material weaknesses described above. During the third quarter of 2020, and as part of the quarterly close process resulting in the financial statements included in this Quarterly Report on Form 10-Q, we began implementing controls over the review process for journal entries and the timely and effective review of financial statement account reconciliations. We also hired a full-time Chief Financial Officer who has over 35 years of accounting and finance experience, and subsequent to the end of the quarter, we also hired a full-time Corporate Controller who has over 20 years of accounting and finance experience. In addition, we engaged a team of consultants with the requisite knowledge of accounting and financial reporting requirements to supplement our existing management team. In connection with the ongoing implementation of our plans to remediate, we continue to evaluate and further develop our existing internal controls over financial reporting, which may include the addition of new personnel, including one or more employees in our accounting and finance group, and the engagement of additional consultants. Any action we have taken or may take to remediate the above material weaknesses is subject to continued management review supported by testing, as well as oversight by the audit committee of our board of directors. We cannot assure that material weaknesses or significant deficiencies will not occur in the future or that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.
Inherent Limitations on Effectiveness of Controls and Procedures
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are achieved. Further, the design of a control system must be balanced against resource constraints, and therefore, the benefits of controls must be considered relative to their costs. Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls. The design of any system of controls is also 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; over time, controls may become inadequate because of changes in conditions or the degree of compliance with the policies and procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of controls, financial statement misstatements due to error or fraud may occur and may not be detected. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives. We conduct periodic evaluations of our system of controls to enhance, where necessary, our control policies and procedures.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2020, except for the remediation activities described above, there were no changes in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any material legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business.
Item 1A. Risk Factors
You should carefully consider the information described in the “Risks Factors” section of our IPO prospectus filed with the SEC on October 5, 2020. There have been no material changes to the risk factors described therein.
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.