Item 4. Controls and Procedures
Item 4. Controls and Procedures
As previously disclosed in the section titled “ Part II, Item 9A. Controls and Procedures ” in our Annual Report on Form 10-K, management concluded that our internal control over financial reporting was not effective at a reasonable assurance level as of December 31, 2022, due to certain deficiencies that constituted material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management has been actively engaged in the implementation of remediation efforts to address the material weaknesses, as well as other identified areas of risk. For a complete description of management ’ s remediation plan, refer to the section titled “ Part II, Item 9A. Controls and Procedures ” in our Annual Report on Form 10-K, as may be updated by Part I. Item 4. “ Controls and Procedures ” of our subsequently filed Quarterly Reports on Form 10-Q. For updates on management ’ s remediation plan as of September 30, 2023, refer to the section titled “ Management ’ s Implementation of Remediation Plan ” below.
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Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures. 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 disclosure controls and procedures are designed to provide a reasonable assurance of achieving their objectives. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2023. Because we commenced implementing efforts to remediate the material weaknesses in our internal control over financial reporting in March 2023 and we have not had a sufficient period of time to test the operating effectiveness of our internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2023.
Nevertheless, based on a number of factors, including the performance of additional procedures by management designed to ensure the reliability of our financial reporting, we believe that the Consolidated Financial Statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows as of the dates, and for the periods, presented, in conformity with U.S. GAAP.
Management ’ s Implementation of Remediation Plan
Management, with oversight from the Audit Committee of our Board of Directors, previously commenced implementing changes to our internal control over financial reporting in order to remediate the control deficiencies that resulted in the material weaknesses as previously disclosed in our Annual Report on Form 10-K. As of September 30, 2023, we are on track with the remediation plan disclosed therein. Our ongoing efforts for remediation include, but are not limited to, the following:
● we have hired a Corporate Controller and an Assistant Controller and are actively continuing to hire additional personnel with public company experience who have the appropriate level of expertise in the respective areas of accounting, SEC financial reporting, and associated internal controls commensurate with the type, volume, and complexity of our accounting operations and reporting requirements. In the interim we continue to supplement our team with advisory consultants to provide additional depth and breadth in our period end closes, technical accounting, financial reporting capabilities, and internal controls compliance. We will continue to utilize such consultants until we have filled vacancies with qualified personnel, with a sufficient period of overlap to ensure successful transition of responsibilities;
● we engaged a third-party service provider who has performed an assessment of our internal control design and operation and provided us recommendations to enhance the effectiveness of such controls, and we are currently in the process of implementing these recommendations;
● we have engaged a third-party consultant who assessed our current enterprise resource planning system and identified opportunities to enhance our use of the system through automating certain controls and processes, for which development of system enhancements are actively underway; and
● we have engaged an accounting advisory consultant who has conducted additional trainings on a regular basis related to internal control over financial reporting with our team members including, but not limited to, finance and accounting personnel, which trainings will continue throughout fiscal year 2023.
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We will continue our efforts through fiscal year 2023 to remediate the material weaknesses described in our Annual Report on Form 10-K and expect to implement all necessary recommendations during fiscal year 2023. We are actively executing the remediation plan and are focused on implementing those recommendations deemed as high priority. We believe that the implementation of the above steps, will allow us to address the deficient controls within our internal control environment, which will facilitate the remediation of the material weaknesses.
Given that many of the remediation efforts described above were recently implemented and continue to undergo independent testing, we will not be able to consider the material weaknesses remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that our controls are operating effectively. We, along with our Audit Committee, will continue to monitor and evaluate the effectiveness of these remedial actions and take further actions as we deem appropriate.
Changes in Internal Control over Financial Reporting
Other than the changes outlined above to remediate the material weaknesses, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have 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.