Anika Therapeutics, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES   Evaluation of Disclosure Controls and Procedures   Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a 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, as appropriate to allow timely decisions regarding required disclosures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective to provide reasonable assurance due to material weaknesses in internal control over financial reporting described below.   Management ’ s Annual Report on Internal Control over Financial Reporting   Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:     ● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;     ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and     ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.   An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and limitations therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.   Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).  Based on this assessment, our management concluded that as of December 31, 2022, material weaknesses were identified in March 2023 as described below, and, as a result, our internal control over financial reporting was not effective as of December 31, 2022.   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.   89     Material Weaknesses   In March 2023, we identified material weaknesses in the Company’s internal control over financial reporting as of December 31, 2022 resulting from a misappropriation of assets under a legacy credit card program utilized by a limited number of our employees affiliated with one of our subsidiaries. Specifically, in March 2023, during the process of retiring this credit card program, the Company determined that a mid-level accounting employee had charged approximately $4,000 in personal expenses on his corporate credit card, and that certain non-accounting employees also charged personal expenses of an immaterial amount in aggregate. This accounting employee had roles in the Company’s system of internal control over financial reporting, including controls for this subsidiary’s corporate credit card program. As a result, there were individually and in the aggregate deficiencies that represent material weaknesses including: (i) inadequate segregation of duties; (ii) a failure to identify fraud risks; and (iii) a failure in the design and operating effectiveness of control activities for which the accounting employee’s competent authority was compromised.   In response, the Company performed additional analyses, reconciliations and other post-closing procedures to ensure that our consolidated financial statements included in this Form 10-K were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).   These control deficiencies did not have any material impact on our current or prior period consolidated annual or interim financial statements, but could have resulted in material misstatements to the annual or interim financial statements that would not have been prevented or detected. Accordingly, management concluded that the control deficiencies were material weaknesses in the Company’s internal control over financial reporting.   Deloitte & Touche LLP, our independent registered public accounting firm that audited the consolidated financial statements, has issued an audit report on our internal control over financial reporting as of December 31, 2022, which is included in Item 8 of this Annual Report on Form 10-K.   Changes in Internal Control over Financial Reporting   Except for the material weaknesses discussed above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the fourth quarter of our fiscal year ended December 31, 2022.   Remediation of Material Weaknesses   Our management, under the oversight of the Audit Committee, is in the process of remediating the material weaknesses in our internal control over financial reporting as noted above. We have already implemented and will continue to implement measures designed to directly address, or contribute to, the remediation of our material weaknesses and the enhancement of our internal control over financial reporting, including:     ● Termination of the mid-level accounting employee referenced above and reassignment of this employee’s roles and responsibilities within impacted control activities.     ● Complete the transition of all employees from the legacy subsidiary credit card program to the Company’s established credit card program, which is subject to centralized review, approval, monitoring, and reconciliation processes and controls.     ● Enhancement of our fraud risk assessment in order to more fully tailor the design of internal control over financial reporting to ensure appropriate segregation of duties and mitigate the risk of material misstatement caused by fraud.     ● Enhancement of training for employees on compliance with the Company’s travel and entertainment policy and Code of Conduct, as well as its internal control over financial reporting.   The material weaknesses will not be considered remediated until management completes its remediation plan and the enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the related controls are effective. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate.   90     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the Board of Directors and Stockholders of Anika Therapeutics, Inc.   Opinion on Internal Control over Financial Reporting   We have audited the internal control over financial reporting of Anika Therapeutics, Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.   We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated March 16, 2023, expressed an unqualified opinion on those financial statements.   Basis for Opinion   The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.   Definition and Limitations of Internal Control over Financial Reporting   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   91     Material Weaknesses   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’s assessment identified that there were individually and in the aggregate deficiencies that represent material weaknesses including:     i. inadequate segregation of duties   ii. failure to identify fraud risks; and   iii. a failure in the design and operating effectiveness of control activities for which the accounting employee’s competent authority was compromised.   These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2022, of the Company, and this report does not affect our report on such financial statements.   /s/ Deloitte & Touche LLP   Boston, Massachusetts March 16, 2023                           92     ITEM 9B. OTHER INFORMATION   [None].   ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS   Not applicable.                           93     PART III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2022.   ITEM 11. EXECUTIVE COMPENSATION   The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2022.   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   The information required under this item and Item 5 of this Annual Report on Form 10-K under the heading “Equity Compensation Plan Information” is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2022.   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2022.   ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES   The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2022.         94     PART IV   ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   (a) Documents filed as part of Form 10-K.           (1)            Financial Statements           Report of Independent Registered Public Accounting Firm 58   Consolidated Balance Sheets 60   Consolidated Statements of Operations and Comprehensive Income 61   Consolidated Statements of Stockholders’ Equity 62   Consolidated Statements of Cash Flows 63   Notes to Consolidated Financial Statements 64         (2)            Schedules     Schedules have been omitted as all required information has been disclosed in the financial statements and related footnotes.      (3)            Exhibits     Exhibit Number   Description       +2.1   Agreement and Plan of Merger, dated January 4, 2020, by and between Anika Therapeutics, Inc., Arthrosurface, Inc., Button Merger Sub, Inc. and Boston Millennia Partners Button Shareholder Representation, Inc. +2.2   Agreement and Plan of Merger, dated January 4, 2020, by and between Anika Therapeutics, Inc., Parcus Medical, LLC, Sunshine Merger Sub, LLC and Philip Mundy 3.1   Certificate of Incorporation of Anika Therapeutics, Inc. 3.2   Bylaws of Anika Therapeutics, Inc., effective as of June 6, 2018 ****4.1   Description of Securities of Anika Therapeutics, Inc. 10.1a   Lease, dated January 3, 2007, between Anika Therapeutics, Inc. and Farley White Wiggins, LLC, relating to 32 Wiggins Avenue, Bedford, Massachusetts 10.1b   Amendment No. 1 to Lease, dated February 1, 2007, between Anika Therapeutics, Inc. and Farley White Wiggins, LLC, relating to 32 Wiggins Avenue, Bedford, Massachusetts 10.2a   Translation of Lease Agreement, dated October 9, 2015, between Anika Therapeutics S.r.l. and Consorzio Zona Industriale E Porto Fluviale di Padova relating to Land Registry of the Municipality of Padova, Page 148, cadastral map 516 and 517 10.2b   Translation of Amendment No. 1 to Lease Agreement, dated February 2, 2017, between Anika Therapeutics S.r.l. and Consorzio Zona Industriale E Porto Fluviale di Padova relating to Land Registry of the Municipality of Padova, Page 148, cadastral map 516 and 517 10.3a   Lease Agreement, dated November 26, 2012, between High Properties and Parcus Medical LLC relating to 6423 Parkland Drive, Suites 101 and 102, Sarasota, FL 10.3b   Amendment #1 to the Lease, Renewal Amendement, dated January 4, 2018, between High Properties and Parcus Medical LLC relating to 6423 Parkland Drive, Suites 101 and 102, Sarasota, FL 10.3c   Lease Agreement, dated May 25, 2017, between High Properties and Parcus Medical, LLC relating to 6455 Parkland Drive, Suite 101, Sarasota, FL 10.4a   Credit Agreement, dated as of October 24, 2017, among Anika Therapeutics, Inc., certain subsidiaries of Anika Therapeutics, Inc. as are or may from time to time become parties to the Credit Agreement, Bank of America, N.A., as administrative agent, swingline lender and issuer of letters of credit, and the lenders party thereto 10.4b   Security and Pledge Agreement, dated as of October 24, 2017, among Anika Therapeutics, Inc., certain subsidiaries of Anika Therapeutics, Inc. listed on the signature pages thereto, and Bank of America, N.A., as administrative agent 10.4c   First Amendment effective August 13, 2019, with respect to the Credit Agreement dated as of October 24, 2017 and the Security and Pledge Agreement dated as of October 24, 2017   95     10.4d   Second Amendment effective May 14, 2020, with respect to the Credit Agreement dated as of October 24, 2017 and First Amendment to the Security and Pledge Agreement dated as of October 24, 2017 10.4e   Third Amendment to Credit Agreement dated as of November 12, 2021, by and among Anika Therapeutics, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, Bank of America, N.A., as administrative agent, L/C Issuer and Swingline Lender, and the other parties thereto *10.5   License Agreement, dated as of December 20, 2003, by and between Anika Therapeutics, Inc. and Ortho Biotech Products, L.P. *10.6   License Agreement, dated as of December 21, 2011, by and between Anika Therapeutics, Inc. and DePuy Mitek, Inc. †10.7   Anika Therapeutics, Inc. Senior Executive Incentive Compensation Plan †10.8   Anika Therapeutics, Inc. Non-Employee Director Compensation Policy (restated as of February 9, 2022) †10.9a   Second Amended and Restated 2003 Stock Option and Incentive Plan (adopted April 5, 2011) †10.9b   Amendment to Second Amended and Restated 2003 Stock Option and Incentive Plan (adopted April  11, 2013) †10.9c   Form of Incentive Stock Option Agreement under Second Amended and Restated 2003 Stock Option and Incentive Plan     †10.9d   Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under Second Amended and Restated 2003 Stock Option and Incentive Plan †10.10a   Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (as amended effective June 8, 2022) †10.10b   Form of Notice of Grant of Incentive Stock Option, including Terms and Conditions of Stock Option, granted under Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan. †10.10c   Form of Notice of Grant of Nonqualified Stock Option, including Terms and Conditions of Stock Option, granted under Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan †10.10d   Form of Notice of Grant of Restricted Stock Award, including Terms and Conditions of Restricted Stock Award, granted under Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan. †10.10e   Form of Notice of Grant of Restricted Stock Units, including Terms and Conditions of Restricted Stock Units, granted under Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan †10.10f   Form of Notice of Grant of Deferred Stock Awards Units, including Terms and Conditions of Deferred Stock Units, granted under Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan †10.10g   Anika Therapeutics, Inc. 2021 Employee Stock Purchase Plan (adopted March 17, 2021) †10.10h   Anika Therapeutics, Inc. 2021 Inducement Plan (adopted November 4, 2021) †10.10i   Form of Notice of Grant of Nonqualified Stock Option, including Terms and Conditions of Stock Option, granted under Anika Therapeutics, Inc. 2021 Inducement Plan †10.10j   Form of Notice of Grant of Restricted Stock Units Award, including Terms and Conditions of Restricted Stock Award, granted under Anika Therapeutics, Inc. 2021 Inducement Plan †10.10k   Form of Notice of Grant of Deferred Stock Awards Units, including Terms and Conditions of Deferred Stock Units, granted under Anika Therapeutics, Inc. 2021 Inducement Plan †10.11   Employment Agreement, dated April 23, 2020, by and between Anika Therapeutics, Inc., and Dr. Cheryl R. Blanchard †10.12   Executive Retention Agreement, dated August 10, 2020, by and between Anika Therapeutics, Inc. and Michael Levitz ****†10.13   Executive Retention Agreement, dated March 9, 2020, by and between Anika Therapeutics, Inc. and David Colleran 10.14   Fixed Dollar Accelerated Share Repurchase Transaction Confirmation entered into as of May 24, 2018 by and between Morgan Stanley & Co. LLC and Anika Therapeutics, Inc. 10.15   Fixed Dollar Accelerated Share Repurchase Transaction Confirmation entered into as of May 7, 2019 by and between Morgan Stanley & Co. LLC and Anika Therapeutics, Inc. ****21.1   List of Subsidiaries of Anika Therapeutics, Inc. ****23.1   Consent of Deloitte & Touche LLP ****31.1   Certification of Principal Executive Officer pursuant to Section   302 of the Sarbanes-Oxley Act of 2002 ****31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ***101   The following materials from the Annual Report on Form 10-K of Anika Therapeutics, Inc. for the fiscal year ended December 31, 2022, formatted in Inline XBRL:  (i) Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021; (ii) Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2022, December 31, 2021, and December 31, 2020; (iii) Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022, December 31, 2021, and December 31, 2020; (iv) Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, December 31, 2021, and December 31, 2020; and (v) Notes to Consolidated Financial Statements     96     104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)   + Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(2). The omitted information is not material and would likely cause competitive harm to the Company if publicly disclosed. † Management contract or compensatory plan or arrangement. * Certain portions of this document have been omitted pursuant to a confidential treatment request filed with the Securities and Exchange Commission. The omitted portions have been filed separately with the Commission. ** The certification attached as Exhibit 32.1 that accompanies this Form 10-K is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Anika Therapeutics, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing. *** Pursuant to Rule 406T of Regulation S-T, XBRL (Extensible Business Reporting Language) information is deemed not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these sections. **** Filed or furnished herewith       ITEM 16. FORM 10-K SUMMARY   Not applicable.                             97     SIGNATURES   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.     ANIKA THERAPEUTICS, INC.           Date: March 16, 2023 By:  /s/ CHERYL BLANCHARD       Cheryl R. Blanchard, Ph.D.       Chief Executive Officer     SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   Signature   Title   Date                     /s/ CHERYL BLANCHARD   President and Chief Executive Officer     Cheryl R. Blanchard, Ph.D.   ( Principle Executive Officer )   March 16, 2023           /s/ MICHAEL LEVITZ   Executive Vice President, Chief Financial Officer and Treasurer     Michael Levitz   (Principal Financial Officer)   March 16, 2023           /s/ IAN MCLEOD   Vice President, Chief Accounting Officer     Ian McLeod   (Principal Accounting Officer)   March 16, 2023           /s/ JEFFERY S. THOMPSON   Director, Chairman of the Board     Jeffery S. Thompson       March 16, 2023           /s/ SHERYL L. CONLEY   Director     Sheryl L. Conley       March 16, 2023           /s/ JOHN HENNEMAN   Director     John Henneman       March 16, 2023           /s/ GLENN R. LARSEN, PH.D.   Director     Glenn R. Larsen, Ph.D.       March 16, 2023           /s/ STEPHEN RICHARD   Director     Stephen Richard       March 16, 2023           /s/ SUSAN N. VOGT   Director     Susan N. Vogt       March 16, 2023             98