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Item 9A. Controls and Procedures

2023-03-09 compared with 2022-03-15 · 91 added, 26 removed, 185 unchanged (39% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2021.

Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 154-15(e) under the Exchange Act), as of December 31, 2022.

Due to the material weaknesses in internal control over financial reporting as described below, our principal executive officer and principal financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective.

Management’s Annual Report on Internal Control over Financial Reporting

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Our internal control over financial reporting includes those policies and procedures that:

● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of its assets;

● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets.

● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

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Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.

In making this assessment, 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 has concluded that, as of December 31, 2021, our internal control over financial reporting is effective based on those criteria.

The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by EisnerAmper LLP, an independent registered public accounting firm, as stated in their attestation report, which is included herein.

This assessment resulted in management identifying certain material weaknesses in internal control over financial reporting as described below.

As a result, management has concluded that, as of December 31, 2022, our internal control over financial reporting is not effective.

Notwithstanding the identified material weaknesses, management has concluded that the Consolidated Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods disclosed in conformity with U.S.

The Company's independent registered public accounting firm, EisnerAmper LLP, who audited the consolidated financial statements included in this Annual Report on Form 10-K issued an adverse opinion on the effectiveness of the Company's internal control over reporting.

EisnerAmper LLP's report is included herein.

Material Weaknesses in Internal Control over Financial Reporting

Upon evaluation of our internal control over financial reporting we identified certain material weaknesses in our controls at our Novitium subsidiary.

We completed the acquisition of Novitium in November of 2021 and shortly thereafter, began the integration of Novitium’s policies, processes, people, technology, and operations into our system of internal control over financial reporting.

In 2022, we completed the integration of Novitium’s order to cash cycle into ANI’s system of procedures and contracts, and the controls were successfully tested and found to be operating as prescribed, however, we found material weaknesses in other key processes.

The Company did not maintain an effective control environment in the Novitium subsidiary as a result of the following:

● Lack of adequate personnel resources in Novitium team to implement appropriate process controls addressing Novitium activity.

● Turnover in key finance personnel at Corporate that were tasked with driving / managing implementation of internal controls at Novitium, including the Corporate Controller.

While we have seasoned temporary personnel in these corporate positions, we did not have adequate bandwidth to maintain focus on compliance with internal controls.

● Delays in execution of the extraction of the Procure to Pay cycle integration plan for the subsidiary, including creation of the Accounts Payable centers of excellence whereby processes at Novitium would be combined with legacy processes.

These factors contributed to the weaknesses in the following control activities, specifically, the following process areas related to activity at Novitium did not have effective controls in place and were not operating effectively for a sufficient amount of time:

● Purchase to Pay (Purchasing, Accounts Payable, and Cash Disbursements)

● Manufacturing and Inventory

● Human Resources/Payroll

● Financial Statement Close (limited to those pertaining to the Novitium subsidiary level that were not incorporated into overall Company controls)

● Information technology general controls

The areas noted above had one or more of the following specific compliance exceptions:

● Certain controls were not implemented as designed.

● Documented controls not being performed consistently for all applicable transactions.

● Control performance not being adequately documented and evidenced.

● Materiality thresholds used in certain control performance were not consistent with documented control design.

● Controls not in place nor operating for a sufficient amount of time/number or instances.

● Changes to control performance upon employee turnover.

● Information technology general controls (“ITGC”) which could result in misstatements potentially impacting all Novitium related financial statement accounts and disclosures.

Specifically, Novitium user access controls were not appropriately designed and maintained to adequately restrict user and privileged access to financial applications and data to the appropriate personnel.

In addition to the above Material Weaknesses related to our Novitium subsidiary, we also identified a material weakness in our ITGC.

Specifically, our evaluation of our ITGC’s identified that user access controls were not

operating effectively to adequately restrict user access to our network and financial applications and data.

The Company attributes the findings primarily due to significant turnover in its IT personnel during the year.

We determined that the designed internal controls were not operating effectively as detailed above, and therefore did not reduce the risk of a material error occurring and going undetected in our financial statements to an acceptable level giving rise to the material weaknesses in the four Novitium related process areas noted above as well as overall ITGC related to user access.

Remediation of Material Weaknesses

The Company is committed to the planning and implementation of remediation efforts to address the material weaknesses.

The Company is in the process of establishing formal processes through which it intends to remediate the identified material weaknesses and enhance the Company’s overall control environment, including the following:

Novitium Related:

● Refine and complete its plan to incorporate procure to pay cycle into the overall company controls.

● For those controls that remain at the Novitium subsidiary, review the existing control documentation and revise and upgrade as appropriate to address all identified risks.

● Ensure Novitium processes and controls have adequate resources to properly perform identified controls including hiring of additional resources with the requisite skills to consistently perform control procedures without material exception.

● Implement its ERP and other systems as appropriate to support the internal control structure.

● Ensure all personnel are properly trained as to the importance of and specifics over the internal controls for which they are responsible, including consistent, repeatable performance of such controls.

ITGC Related:

● Management will ensure proper staffing of IT personnel and ensure all personnel are properly trained as to the importance of and specifics over the internal controls for which they are responsible, including consistent, repeatable performance of such controls.

When fully implemented, the Company believes that the measures described above will appropriately remediate the identified material weaknesses, although management may determine that taking additional measures to remediate the material weaknesses may be necessary.

As part of its remediation efforts, the Company will continue to implement and document associated policies, procedures and internal controls and will test the ongoing operating effectiveness of the new and existing policies, procedures and internal controls in future periods.

Management intends to begin the above remediation efforts immediately and expects all remediation efforts to be completed in 2023.

While the material weaknesses cannot be considered completely remediated until the applicable policies, procedures, and internal controls have operated for a sufficient period of time, management has determined that our timetable for completing the remediation efforts in 2023 will provide sufficient time to provide its assessment over the effectiveness of internal controls as of December 31, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as noted below.

On November 19, 2021, we acquired all the issued and outstanding equity interests of Novitium Pharma LLC (“Novitium”).

In conjunction with the transaction, we are currently in the process of integrating Novitium’s policies, processes, people, technology, and operations into the consolidated company, and integrating Novitium’s operations into our system of internal control over financial reporting.

As permitted by the Securities and Exchange Commission rules, we excluded Novitium from the assessment of internal control over financial reporting for the year ending December 31, 2021.

Other than the material weaknesses and remediation efforts discussed above, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

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Information required by this item with respect to our executive officers will be set forth under the caption “Executive Officers of the Company” in our definitive proxy statement for our 2023 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.

Information required by this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth under the caption “Delinquent Section 16(a) Reports” in our definitive proxy statement for our 2022 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.

To the extent required, information required by this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth under the caption “Delinquent Section 16(a) Reports” in our definitive proxy statement for our 2023 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.

Information required by this item with respect to our audit committee, our audit committee financial expert, and any material changes to the way in which our security holders may recommend nominees to our Board of Directors will be set forth under the caption “Corporate Governance” in our definitive proxy statement for our 2023 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.

4 unchanged sentences

Certain Relationships and Related Transactions, and Director Independence

Information required by this item with respect to certain relationships and related transactions and director independence will be set forth under the captions “Certain Relationships and Related Transactions” and “Corporate Governance” in our definitive proxy statement for our 2022 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.

Governance” in our definitive proxy statement for our 2023 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.

Principal Accountant Fees and Services

23 unchanged sentences

Incorporated by reference to Exhibit 3.1 to ANI’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013 (File No.

Amended and Restated Bylaws of ANI Pharmaceuticals, Inc.

Incorporated by reference to Exhibit 3.1 to ANI’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 16, 2017 (File No.

Second Amended and Restated Bylaws of ANI Pharmaceuticals, Inc.

Incorporated by reference to Exhibit 3.1 to ANI’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on March 6, 2022 (File No.

Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of the Company, effective as of November 19, 2021.

46 unchanged sentences

ANI Pharmaceuticals, Inc.

Sixth Amended and Restated 2008 Incentive Plan

Incorporated by reference to Exhibit 10.1 to ANI’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020 (File No.

Amended and Restated 2022 Stock Incentive Plan

Incorporated by reference Appendix A to ANI Pharmaceuticals, Inc.’s definitive proxy statement dated March 25, 2022 filed with the Securities and Exchange Commission on March 25, 2022 (File No.

Form of Restricted Stock Grant Agreement

Incorporated by reference to Appendix A to ANI’s Definitive Proxy Statement for the 2020 Virtual Annual Meeting filed on April 23, 2020 (File No.

Form of Option Agreement

Incorporated by reference to Exhibit 10.20 to ANI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (File No.

Incorporated by reference to Appendix A to ANI’s Definitive Proxy Statement for the 2022 Virtual Annual Meeting filed on March 25, 2022 (File No.

Form of Stock Option Agreement

Incorporated by reference to Appendix A to ANI’s Definitive Proxy Statement for the 2022 Virtual Annual Meeting filed on March 25, 2022 (File No.

Employment Agreement between Nikhil Lalwani and ANI Pharmaceuticals, Inc., dated July 24, 2020

3 unchanged sentences

Incorporated by reference to Exhibit 10.2 to ANI’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020 (File No.

Credit Agreement, dated as of November 19, 2021 by and among the Company, certain of the Company’s subsidiaries, as guarantors, Truist Bank, as Administrative Agent and other parties party thereto.

Incorporated by reference to Exhibit 10.1 to ANI’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on November 26, 2021 (File No.

Credit Agreement, dated as of November 19, 2021 by and among the Company, certain of the Company’s subsidiaries, as

Incorporated by reference to Exhibit 10.1 to ANI’s Current Report on Form 8-K as filed with the

guarantors, Truist Bank, as Administrative Agent and other parties party thereto.

Securities and Exchange Commission on November 26, 2021 (File No.

Method of Filing

4 unchanged sentences

Sublicense Agreement, dated as of October 30, 2009, by and between ANIP Acquisition Company, d/b/a ANI Pharmaceuticals, Inc., and Jazz Pharmaceuticals, Inc.

Filed herewith

Incorporated by reference to Exhibit 10.24 to ANI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (File No.

Master Product Development and Collaboration Agreement, dated as of July 11, 2011, by and among ANIP Acquisition Company d/b/a ANI Pharmaceuticals, Inc.

and RiconPharma LLC (2)

Filed herewith

Incorporated by reference to Exhibit 10.25 to ANI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (File No.

Employment Agreement between and Christopher Mutz and the Company, dated February 10, 2021.

Incorporated by reference to Exhibit 10.26 to ANI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (File No.

001-31812Filed herewith

Employment Agreement between Ori Gutwerg and the Company, dated January 18, 2021.

Filed herewith

Incorporated by reference to Exhibit 10.27 to ANI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (File No.

Employment Agreement between Chad Gassert and the Company, dated March 8, 2021.

Filed herewith

Incorporated by reference to Exhibit 10.28 to ANI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (File No.

Employment Agreement between Meredith Cook and the Company, dated June 21, 2022.

Incorporated by reference to Exhibit 10.1 to ANI’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2022 (File No.

Employment Agreement between Krista Davis and ANI Pharmaceuticals, Inc.

dated July 14, 2022.

Incorporated by reference to Exhibit 10.1 to ANI’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022 (File No.

Asset Purchase Agreement between Cranford Pharmaceuticals, LLC and ANI Pharmaceuticals, Inc.

Incorporated by reference to Exhibit 10.1 to ANI’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022 (File No.

Asset Purchase Agreement between Holmdel Pharmaceuticals, LP and ANI Pharmaceuticals, Inc.

Incorporated by reference to Exhibit 10.2 to ANI’s Quarterly Report on Form 10-Q for the

fiscal quarter ended March 31, 2022 (File No.

ANI Pharmaceuticals, Inc.

Executive Incentive Bonus Plan

Incorporated by reference to Exhibit 10.1 to ANI’s Current Report on Form 8-K filed on February 28, 2022 (File No.

List of subsidiaries

64 unchanged sentences

March 9, 2023

/s/ Renee Tannenbaum

March 9, 2023

Renee Tannenbaum

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures