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 Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not operating effectively as of June 30, 2024. Our disclosure controls and procedures were not effective because of the “material weakness” described below.
We have identified three existing material weaknesses in internal control over financial reporting from prior periods. 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. Because the items described below could have resulted in material misstatement of our annual or interim financial statements, we determined this constitutes a material weakness.
As of June 30, 2024, the Company has still identified the following material weaknesses:
1. The Company lacked expertise and resources to analyze and properly apply U.S. GAAP to complex and non-routine transactions such as complex financial instruments and derivatives and complex sales distributing agreements with select vendors.
2. The Company lacked internal resources to analyze and properly apply U.S. GAAP to accounting for financial instruments included in service agreements with select vendors.
3. The Company has failed to design and implement controls around all accounting and IT processes and procedures and, as such, we believe that all its accounting and IT processes and procedures need to be re-designed and tested for operating effectiveness.
As a result, management concluded that its internal control over reporting was not effective as of June 30, 2024.
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Remediation Plan
Our management is committed to remediating these material weaknesses and has implemented several steps to enhance our internal controls and ensure appropriate resourcing with the required knowledge and expertise to conduct our business activities. Management hired a third-party consultant to help us design and document internal controls and perform a risk assessment of our processes over financial reporting. The risk assessment performed resulted in a qualitative and quantitative view of all processes that will help inform remediation efforts and prioritize high risk processes for remediation. The third-party consultant has also provided recommendations to standardize, automate and implement effectively designed internal controls over financial reporting. We intend to remediate and implement internal controls for high-risk processes over the course of 2024. We also intend to hire and segregate certain duties so that control activities are appropriate and fully mitigate risk. The material weaknesses will not be considered remediated until a sustained period of time has passed to allow management to test the design and operational effectiveness of the corrective actions. Until the material weaknesses are remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with U.S GAAP. In addition, we may discover additional material weaknesses that require additional time and resources to remediate and we may decide to take additional measures to address the material weaknesses or modify the remediation steps described above.
We are also working with an outside vendor to improve our IT general controls over our enterprise resource planning system and set up a proper framework for IT general controls to be executed with the objective to remediate the weaknesses regarding internal controls and provide the framework for testing going forward.
The existence of any material weakness or significant deficiency requires management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and stock price.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2024, that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting, except as disclosed in “Remediation Plan” above.
PART II — OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
For information regarding legal proceedings at June 30, 2024, see Note 14 to the condensed consolidated financial statements, which information is incorporated herein by reference.
Item 1A. RISK FACTORS.
There have been no material changes from our risk factors as previously reported in Part I, Item 1A “Risk Factors” in our 2023 Annual Report.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES ANDUSE OF PROCEEDS.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
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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.