Item 4. Controls and Procedures
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information isaccumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that thecontrols and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Chief Financial Officer carried out anevaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on theforegoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective for the three months endedSeptember 30, 2012 mainly due to lack of segregation of duties.
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We anticipate that by the next filing deadline date of our June 30, 2013 10K (which is August 15, 2013) we will have resolved the segregation of duties issue bynaming a CFO or new company officer that will resolve any issues surrounding segregation of duties.
In the interim period, to mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with theuse of external legal and accounting professionals. As we grow, we expect to create a new finance and accounting position that will allow for proper segregation ofduties consistent with control objectives, and will increase our personnel resources and technical accounting expertise within the accounting function. As ourfinancing staff grows we will prepare and implement appropriate written policies and checklists which set forth procedures for accounting and financial reporting withrespect to the duties within the internal control framework. These current control deficiencies could result in a misstatement of account balances that would result in areasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. Accordingly, we havedetermined that these control deficiencies as described above together constitute a material weakness.
(b) Limitations on Effectiveness of Controls and ProceduresOur management, including our chief executive officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error andall fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controlsystem are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be consideredrelative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues andinstances of fraud, if any, within our company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decisionmakingcan be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certainassumptions 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 futureconditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. Our managementbelieves that these material weaknesses are due to the small size of our accounting staff. The small size of our accounting staff may prevent adequate controls in thefuture, such as segregation of duties, due to the high cost of such remediation relative the benefit expected to be derived thereby.
We plan to resolve the segregation of duties issue by naming a CFO or new company officer that will resolve any issues surrounding segregation of duties and iscurrently seeking for candidates.
In the interim period, to mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with theuse of external legal and accounting professionals. As we grow, we expect to create a new finance and accounting position that will allow for proper segregation ofduties consistent with control objectives, and will increase our personnel resources and technical accounting expertise within the accounting function. As ourfinancing staff grows we will prepare and implement appropriate written policies and checklists which set forth procedures for accounting and financial reporting withrespect to the duties within the internal control framework. These current control deficiencies could result in a misstatement of account balances that would result in areasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. Accordingly, we havedetermined that these control deficiencies as described above together constitute a material weakness.
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It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives ofthe system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of theseand other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential futureconditions, regardless of how remote.
(c) Changes in Internal Control Over Financial ReportingDuring the three months ended September 30, 2012, there were no changes in our internal control over financial reporting that have materially affected, or are reasonablylikely 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.