Item 4. Controls and Procedures
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management conducted an evaluation of the effectiveness of our disclosure controls and procedures (as is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2026. Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of June 30, 2026, our disclosure controls and procedures were not effective at the reasonable assurance level because we have identified a material weakness in our internal control over financial reporting as discussed below, and such material weakness has not been remediated as of June 30, 2026. Our management has concluded that the 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 U.S. GAAP.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. 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. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
Material Weakness in Internal Control Over Financial Reporting
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. Management has concluded that, as of June 30, 2026, we did not maintain effective controls over the preparation, review, presentation and disclosure of our financial statements. Specifically, we noted the following:
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There are limited resources within the finance and accounting departments with sufficient knowledge and experience in applying U.S. GAAP, including but not limited to developing appropriate accounting estimates, reserves, and allowances in a timely manner and to maintain proper segregation of duties; and,
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Policies and procedures with respect to the review, supervision and monitoring of our accounting and SEC reporting functions were either not designed and in place or not operating effectively.
These control deficiencies, if not remediated, could result in a misstatement to the annual or interim consolidated financial statements which would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.
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Remediation - Progress and Actions Taken
Management, with oversight from our Audit Committee, implemented specific remediation actions during fiscal year 2026 which are fully disclosed in our previously filed Form 10-K. We continue to monitor and track progress on a quarterly basis in the following areas:
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Finance Leadership Transition : Appointed an Interim Chief Financial Officer to lead the finance function following the passing of our former Chief Financial Officer in May 2026.
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Strengthened Accounting Team & Expertise : Enhanced in-house CPA oversight over technical accounting, financial reporting, CECL reserves (ASC 326), and internal controls, directly addressing prior control deficiencies.
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Written Accounting Policies & Close Procedures : Updated written accounting policies and procedures, including comprehensive controls documentation each period and improved processes for quarter-end close and revenue recognition (ASC 606).
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Enhanced Technical Research Capabilities : Integrated AI-assisted technical research tools to support complex U.S. GAAP research and financial statement disclosures.
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Inventory Control & Physical Counts : Established and enforced monthly physical inventory counts and formalized quarterly reserve review procedures for slow-moving and excess inventory under ASC 330.
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Cash Management & Monitoring : Maintained a 13-week rolling cash flow forecast and daily bank reconciliations to strengthen treasury monitoring and liquidity tracking.
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Organizational Restructure & Staff Alignment : Conducted a thorough staff review and organizational restructure, establishing an additional layer of management oversight to enhance supervision, realign roles, and enforce proper segregation of duties within the accounting and finance function.
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Continued Training & Third-Party Technical Support : Expanded technical accounting training and retained third-party advisory support for complex reporting topics
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Executive Oversight & Reserve Monitoring : Instituted weekly executive finance meetings to actively track cash management, evaluate liquidity, and perform ongoing reviews of key management estimates, including inventory and CECL reserves (with ongoing Q3 initiatives focused on updating ERP user access controls).
While the material weaknesses had not been fully remediated as of June 30, 2026, management believes the actions taken to date represent meaningful progress in addressing the identified control deficiencies. Full remediation will require operating these enhanced controls for a sufficient period of time and testing their operational effectiveness. Management and the Audit Committee will continue to evaluate and test our internal financial reporting controls throughout fiscal year 2026.
Changes in Internal Control Over Financial Reporting
During the three months ended June 30, 2026 and except as disclosed above regarding the material weaknesses and related remediation plans, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, 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 and internal control over financial reporting 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.
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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.