Item 4. Controls and Procedures
Item 4. Controls and Procedures.
Inherent Limitations on Effectiveness of Controls
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure 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 that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2021, due to the material weaknesses described below, our disclosure controls and procedures were not effective at the reasonable assurance level.
Material Weaknesses
Management identified control deficiencies that constituted a material weakness in our internal control over financial reporting for the year ended December 31, 2020 related to our information technology general controls over certain accounting and proprietary systems used in our financial reporting. Specifically, our systems lacked controls over access and program change management that are needed to ensure access to financial data is adequately restricted to appropriate personnel. Additionally, key components of the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) were not fully implemented, including control and monitoring activities related to: (1) electing and developing general controls activities over technology to support the achievement of objectives; and
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(2) electing, developing, and performing ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning.
Remediation Activities
Management has been actively engaged in implementing remedial actions since the fourth quarter of 2020 and has made substantial progress during the nine months ended September 30, 2021, which included the following:
• implemented certain key policies and appropriate controls to strengthen our information technology environment that included access and change management controls, segregation of conflicting roles, and restricting user access to key systems;
• identified and documented relevant business processes and controls and strengthened related policies and procedures; and
• completed our preliminary rounds of control assessments for design and operating effectiveness, and implemented corrective actions to remediate any additional control gaps identified.
In addition, as a result of the correction of prior period amounts as described in “ Part I – Item 1. Financial Statements –Notes to Condensed Consolidated Financial Statements – Note 1. Description of Business and Accounting Policies ” management identified an additional material weakness as of December 31, 2020 related to the accounting and classification of significant and unusual transactions. The review performed to evaluate the accounting for the Business Combination was incomplete in that a thorough analysis of the Warrants was not performed under Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”). Specifically, while the equity classification of warrants with provisions similar to those of the Sponsor Warrants was historically broadly accepted industry practice, our management did not sufficiently analyze the propriety of this classification and did not identify the error in this accounting practice until the SEC’s issuance of the Staff Statement on April 12, 2021. This material weakness resulted in the correction of our consolidated financial statements as of and for the year ended December 31, 2020. This deficiency is a result of our previously smaller accounting team as a private company coupled with insufficient controls to ensure the completeness of all material components of each significant and unusual transaction evaluated. To remediate this material weakness we:
• hired additional personnel subsequent to the Business Combination and are continuing to expand our team; and
• strengthened our controls over accounting for significant and unusual transactions with a focus on ensuring the analysis is complete and includes each of the material components of the transaction.
Management believes the controls designed and implemented in our remediation efforts have effectively addressed the material weaknesses noted above and our enhanced control environment appropriately conforms with the key components of the COSO framework. However, the material weaknesses in our internal control over financial reporting will not be considered remediated until the relevant controls are in operation for a sufficient period of time, tested and concluded by management to be operating effectively.
The process of implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above. Our management and board of directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective.
Notwithstanding the material weaknesses, management has concluded that the financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.
Changes in Internal Control over Financial Reporting
Other than as described above, there have been no material changes in our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2021 that materially affected, or are 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.