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Our management, with the supervision and involvement of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation 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 report, pursuant to Exchange Act Rule 13a-15.
−Removed: Based upon this evaluation, our chief executive officer and chief financial officer have concluded that, as of September 30, 2024, as a result of the material weaknesses in our internal control over financial reporting discussed below and filed in our amended annual report on Form 10-K for the year ended December 31, 2023 on July 23, 2024 with the SEC, our disclosure controls and procedures were not effective.
+Added: Based upon this evaluation, our chief executive officer and chief financial officer have concluded that, as of March 31, 2025, as a result of the material weaknesses in our internal control over financial reporting discussed below and filed in our Form 10-K for the year ended December 31, 2024 on March 19, 2025 with the SEC, our disclosure controls and procedures were not effective.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
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(i) sufficiency of processes related to identifying and analyzing risks to the achievement of objectives across the entity, (ii) sufficiency of competent personnel with appropriate levels of knowledge, experience, and training in accounting for complex and non-routine transactions, and internal control matters to perform assigned responsibilities and have appropriate accountability for the design and operation of internal control over financial reporting;
−Removed: (iii) performing control activities in accordance with established policies in a timely manner, and (iv) performing ongoing evaluation to ascertain whether the components of internal controls are present and functioning.
+Added: and (iii) ensuring control activities identified were performed in accordance with established policies, and (iv) performing ongoing evaluation to ascertain whether the components of internal controls are present and functioning.
The entity level material weaknesses contributed to other material weaknesses within the Company’s system of internal control over financial reporting as follows:
−Removed: • The Company did not design and implement effective controls, such that, personnel within the Company have incompatible duties which allow for the creation, review and processing of journal entries without independent review and authorization, which affects substantially all financial statement account balances and disclosures.
−Removed: • The Company did not design and implement effective controls over the accounting for share-based payments, including the long-term incentive plan awards and earnout liability.
−Removed: • The Company did not design and implement effective controls over the accounting for its license and release agreement.
−Removed: • The Company did not design and implement effective controls over the inputs and assumptions used in the valuation of the earnout liability and information utilized to classify awards as either equity or liability.
−Removed: • The Company did not maintain effective controls over its determination of reportable segments for purposes of segment reporting and reporting units for purposes of goodwill.
−Removed: These material weaknesses did not result in a misstatement to the consolidated financial statements or disclosures.
−Removed: Based on additional procedures and post-closing review, management concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented, in conformity with principles generally accepted in the United States.
+Added: the Company lacked sufficient controls to accurately identify and present activity within its statements of operations and cash flows.
+Added: Specifically, the Company lacked controls in order to (1) accurately identify and present cash flows as either operating, investing or financing activities and (2) classify expenses within total operating expenses, and correctly classify activity associated with its equity method investment;
+Added: the Company's external reporting process is not appropriately designed to accurately identify, record, present and disclose transactions, including research and development assets, property and equipment and equity transactions.
+Added: These material weaknesses could result in misstatements of our consolidated financial statements that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Plan
−Removed: We have commenced developing a plan to enhance the design and operating effectiveness of our internal controls over financial reporting, including maintaining sufficient contemporaneous documentation of management review controls over accounting for share-based payments, including the long-term incentive plan awards, earnout liability, as well as the accounting for the Company’s license and release agreement, which we believe will address the material weakness described above.
−Removed: At least on an annual basis or as warranted due to organizational changes, we will perform a segment/reporting unit analysis.
−Removed: We expect our remediation will be complete prior to the end of the fourth quarter of fiscal 2024.
−Removed: We have hired a Director of Information Technology at the end of 2023 to, among other responsibilities, segregate financial accounting systems access and system changes between IT and accounting department.
−Removed: The Company will continue to review and modify system access for accounting personnel to ensure proper segregation of duties around manual journal entries.
−Removed: We have implemented enhanced workflows within our ERP system across key financial processes, including journal entry approvals, sales invoice approvals, expense payments, and cash application workflows, to strengthen control activities, ensure proper authorization, and maintain accurate documentation.
−Removed: Additionally, we improved the segregation of duties by refining access controls and reassigning responsibilities to prevent conflicts, reducing the risk of unauthorized transactions.
−Removed: We also expanded our analysis around the sensitivity of our long-term incentive plan awards and earnout liability.
−Removed: Specifically, for the earnout liability, we performed a more thorough review of the volatility component to improve the precision of our financial estimates and ensure compliance with applicable accounting standards.
+Added: Management is actively implementing measures to remediate identified material weaknesses, ensuring controls are properly designed, implemented, and operating effectively.
+Added: To address these weaknesses, the Company has engaged an external advisor, hired additional accounting and finance personnel, and assessed training needs for internal controls.
+Added: For the financial close and reporting process, management has implemented control activities to ensure proper presentation within the statements of operations and cash flows.
+Added: To address deficiencies in research and development assets, property and equipment, and equity transactions, the Company has strengthened controls for transaction identification, recording, presentation, and disclosure, including enhanced review policies and documented accounting considerations.
+Added: As remediation efforts continue, management may implement additional measures or adjust plans as needed.
+Added: Material weaknesses will be considered remediated once controls have been effectively designed, implemented, and tested over a sustained period.
+Added: While management expects these actions to be effective, the exact timing of completion remains uncertain.
+Added: We expect our remediation will be complete by the end of the fourth quarter of fiscal 2025 or sooner.
Changes in Internal Control Over Financial Reporting
−Removed: Other than the material weaknesses and remediation plan described above, there have been no significant changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
+Added: Other than the material weaknesses and remediation plan described above, there have been no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), except as discussed above, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II —OTHER INFORMATION
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We are currently not a party to any material legal proceedings.
+Added: See Note 15 – “Commitments and Contingencies”.
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.