Item 4. Controls and Procedures
Item 4.
Controls and Procedures
Internal Control Over Financial Reporting
Previously Identified Material Weaknesses
As previously identified, during the audits of our financial statements for the years ended December 31, 2020 and 2019, three material weaknesses were identified in our internal control over financial reporting. Under standards established by the PCAOB, 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 the financial statements will not be prevented or detected on a timely basis. The material weaknesses that have been identified relate to lack of segregation of duties, lack of a risk assessment process and lack of contemporaneous documentation and accounting analysis.
As an emerging growth company, we have experienced growth such that our existing accounting and finance staff was not adequate to contemplate all the financial transactions facing the company on a contemporaneous basis. This led to positions being taken without appropriate independent reviews by personnel adequately knowledgeable of the technical requirements under U.S. GAAP. Additionally, the Company had not historically completed a formalized risk assessment process on an annual basis, including an assessment of the risks related to fraud. Finally, the Company had taken historical accounting positions, specifically related to stock-based compensation awards, redeemable convertible preferred stock and warrants, which led to restatements of prior financial statements and material adjustments to current financial statements, to correct accounting errors associated with these positions. These positions were taken without complete documentation and full understanding of the technical requirements of the accounting literature as it related to our specific arrangements.
We are in the process of implementing a number of measures to address the material weaknesses and deficiencies that have been identified including: (i) hiring additional accounting and financial reporting personnel with generally accepted accounting principles in the U.S. GAAP and SEC reporting experience, (ii) developing, communicating and implementing an accounting policy manual for our accounting and financial reporting personnel for recurring transactions and period-end
closing processes and (iii) establishing effective monitoring and oversight controls for non-recurring
and complex transactions to ensure the accuracy and completeness of our consolidated financial statements and related disclosures.
These additional resources and procedures are designed to enable us to broaden the scope and quality of our internal review of underlying information related to financial reporting and to formalize and enhance our internal control procedures. With the oversight of senior management and our audit committee, we have begun taking steps and plan to take additional measures to remediate the underlying causes of the material weaknesses.
We intend to complete the implementation of our remediation plan during fiscal year 2021. Although we believe that our remediation plan will improve our internal control over financial reporting, additional time may be required to fully implement it and to make conclusions regarding the effectiveness of our internal controls over financial reporting. Our management will closely monitor and modify, as appropriate, the remediation plan to eliminate the identified material weaknesses.
If our remediation of the material weaknesses is not effective, or if we experience additional material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.
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Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has 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 this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in 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, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control
Other than the changes described above regarding enhancements associated with ongoing remediation efforts, there were no changes in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15
(d) and 15d-15
(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q
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.