Item 4. Controls and Procedures
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “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, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, 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 such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2022, our disclosure controls and procedures were not effective at a reasonable assurance level as a result of the material weakness that existed in our internal control over financial reporting as described below, and which continues to exist.
Material Weakness in Internal Control over Financial Reporting
In connection with the audit of our financial statements as of and for the fiscal year ended December 31, 2021, we identified a material weakness in our internal control over financial reporting related to our financial statement close process. Specifically,
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Although we recently added accounting and financial reporting personnel with requisite knowledge and experience in the application of U.S. GAAP and SEC rules, the Company is still in process of formalizing its processes and procedures, establishing clear authorities and approvals and segregating duties to facilitate accurate and timely financial reporting.
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Our financial accounting system has limited functionality and does not facilitate effective information technology general controls relevant to financial reporting. Additionally, elements of our close process are managed and processed outside the accounting system, increasing the risk of error.
This material weakness could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
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Remediation Efforts to Address the Material Weakness
In light of the material weakness identified, we implemented a remediation plan which includes measures designed to improve our internal control over financial reporting. These measures include adding resources (both internal and external) as well as improving the control environment around financial systems and processes. To date, we have completed the following remedial actions:
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hired additional full-time accounting personnel with appropriate levels of experience, and augmented skills gaps with external experts;
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established and implemented policies surrounding the approval of transactions, related to, but not limited to, account reconciliations and journal entries; and
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completed the design and testing phases of our financial accounting system implementation. We selected a system that can support effective information technology general controls as well as the anticipated growth of the business.
Our management believes that these actions, and additional actions to be taken under our remediation plan, are sufficient to remediate the material weakness identified and strengthen our internal control over financial reporting. The actions we are taking are subject to ongoing senior management review, as well as Audit Committee oversight. The material weakness will not be considered remediated until our remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except as described above under Remediation Plan, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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.