What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-11 · 191 added, 278 removed, 1008 unchanged (32% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Balance Sheets as of December 31, 2022 and 2021 60

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Anika Therapeutics, Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), cash flows, and stockholders’

equity for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), stockholders’

equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America (GAAP).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting 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 and our report dated March 10, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2023, expressed an adverse opinion on the Company's internal control over financial reporting.

Basis for Opinion

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We evaluated the reasonableness of the Company's excess and obsolete inventory policy, considering historical experience and the underlying assumptions.

We obtained the Company’s excess and obsolescence reserve calculation and tested the mathematical accuracy.

We tested the calculation of the excess and obsolescence reserve pursuant to the Company's policy, on a sample basis, including the completeness and accuracy of the data used in the calculation.

We performed procedures to evaluate management’s ability to accurately forecast by comparing the historical expiring inventory estimates to subsequent inventory destructions and expirations.

We made inquiries of senior financial and operating management to determine whether any strategic, regulatory, or operational changes in the business were consistent with the projections of future demand that were utilized as the basis for the excess and obsolescence reserve recorded.

We considered the existence of contradictory evidence based on consideration of internal communications to management and the board of directors, Company press releases, and analysts' reports, as well as any changes within the business.

We performed a retrospective review by comparing management’s prior year projections of future demand by product, with actual sales in the current year to identify potential bias in the inventory reserve.

We made inquiries of senior financial and operating management to determine whether any strategic, regulatory, or operational changes in the business were consistent with the projections of future demand that were utilized as the basis for the excess and obsolescence reserve recorded.

We considered the existence of contradictory evidence based on consideration of internal communications to management and the board of directors, Company press releases, and analysts' reports, as well as any changes within the business.

/s/ Deloitte & Touche LLP

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$ 94,386  

Accounts receivable, net of reserves of $ 1,442 and $ 1,523 at December 31, 2021 and 2020, respectively

Accounts receivable, net

34,627  

29,843  

Inventories, net

39,765  

13 unchanged sentences

20,285  

Deferred tax assets

Intangible assets, net

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17,847  

Contingent consideration –

current portion

13,090  

Contingent consideration

Total current liabilities

2 unchanged sentences

Other long-term liabilities

Contingent consideration –

long term portion

22,320  

Deferred tax liability

10,157  

11,895  

Lease liabilities

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(in thousands, except per share data)

For the Years Ended December 31,

Years Ended December 31,

Cost of revenue

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Total operating expenses

Income (loss) from operations

Interest and other (expense) income, net

Income before income taxes

(Benefit from) provision for income taxes

Net income (loss)

(Loss) income from operations

Interest and other income (expense) , net

(Loss) income before income taxes

Benefit from for income taxes

Net (loss) income

Net income (loss) per share:

Weighted average common shares outstanding:

Net income (loss)

Net (loss) income

Foreign currency translation adjustment

Comprehensive income (loss)

Comprehensive (loss) income

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Stockholders' Equity

(in thousands)

(in thousands, except per share data)

Additional Paid

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Repurchase of common stock

Other comprehensive loss

Other comprehensive income

Balance, December 31, 2020

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Vesting of restricted stock units

Forfeiture of restricted stock awards

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

Repurchase of common stock

Other comprehensive income

Other comprehensive loss

Balance, December 31, 2021

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Vesting of restricted stock units

Issuance of common stock from employee purchase plan

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

Other comprehensive income

Other comprehensive loss

Balance, December 31, 2022

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(in thousands)

For the years ended December 31,

Years Ended December 31,

Cash flows from operating activities:

Net income (loss)

Net (loss) income

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

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Deferred income taxes

Provision (recovery) for doubtful accounts

Provision for doubtful accounts

Provision for inventory

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Repayments of long-term debt

Repurchases of common stock

Proceeds from employee stock purchase program

Cash paid for tax withheld on vested restricted stock awards

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Exchange rate impact on cash

(Decrease) increase in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Anika Therapeutics, Inc.

(“the Company”) is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care, including in the areas of osteoarthritis (“OA”) pain management, regenerative solutions, soft tissue repair and bone preserving joint technologies.

In early 2020, the Company expanded its overall technology platform through its strategic acquisitions of Parcus Medical, LLC (“Parcus Medical”), a sports medicine implant and instrumentation solutions provider focused on sports medicine and soft tissue repair, and Arthrosurface Inc.

(“the Company”) is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care, including in the areas of osteoarthritis (“OA”) pain management, regenerative solutions, sports medicine and bone preserving joint solutions.

(“Arthrosurface”), a company specializing in less invasive, bone preserving partial and total joint replacement solutions.

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Food and Drug Administration (“FDA”) and foreign regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.

There continue to be uncertainties regarding the pandemic of the novel coronavirus (“COVID- 19”

), and the Company is closely monitoring the impact of COVID- 19 on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, and business partners.

The Company is unable to predict the specific impact that COVID- 19 may have on its financial position and operations moving forward due to the numerous uncertainties.

Any estimates made herein may change as new events occur and additional information is obtained, and actual results could differ materially from any estimates made herein under different assumptions or conditions.

The Company will continue to assess the evolving impact of COVID- 19.

Since the global COVID pandemic began in 2020, there also continues to be increased volatility and uncertainty in the global macroeconomic environment, including staffing shortages, supply chain disruption, inflation and other direct and indirect impacts of the pandemic.

Summary of Significant Accounting Policies

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All intercompany balances and transactions have been eliminated in consolidation.

Reclassification of Prior Period Amounts

Certain prior period financial information has been reclassified to conform to current period presentation.

The Company reclassified certain prior period amounts in the significant components of the Company’s deferred tax assets and liabilities as of December 31, 2020, in Note 17, Income Taxes , to conform to current year classification.

Foreign Currency Translation

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The Company recognized a gain (loss) from foreign currency transactions of ($ 0.5 ) million, ($ 0.4 ) million, and $ 0.3 million during the years ended December 31, 2022, 2021, and 2020, respectively

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current and reasonable and supportable forecasts of future economic conditions, accounts receivable aging trends, and changes in the Company’s customer payment terms.

A summary of activity in the allowance for doubtful accounts is as follows:

Accounts Receivable

The Company estimates an allowance for credit losses with its accounts receivable resulting from the inability of its customers to make required payments, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

In determining the adequacy of the allowance, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current and reasonable and supportable forecasts of future economic conditions, accounts receivable aging trends, and changes in the Company’s customer payment terms.

The components of the Company’s accounts receivables are as follows:

As of December 31,

Accounts Receivable

$ 36,235  

$ 31,285  

Allowance for credit losses

Net balance, end of the year

34,627  

29,843  

A summary of activity in the allowance for credit losses is as follows:

As of December 31,

Balance, beginning of the year

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( 50 )  

( 72 )  

Balance, end of the year

1 unchanged sentence

$ 1,442  

$ 1,523  

Revenue Recognition

Pursuant to ASC 606, Revenue from Contracts with Customers (“ASC 606”

Pursuant to Accounting Standard Codification 606, Revenue from Contracts with Customers (“ASC 606”

), the Company recognizes revenue when a customer obtains control of promised goods or services.

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and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company generate sales principally through three types of customers:

(i) commercial partnerships (ii) hospitals and ASCs, and (iii) distributors, referred to as the distribution model.

For commercial partnership sales, the Company sells its products directly to these partners, who perform the vast majority of the downstream sales and marketing activities to customers and end-users.

The Company generates sales principally through three types of customers:

(i) commercial partnerships (ii) hospitals and ambulatory surgical centers (“ASCs”), and (iii) distributors, referred to as the distribution model.

For commercial partnership sales, the Company sells its products directly to these partners, who perform most of the downstream sales and marketing activities to customers and end-users.

These arrangements may include the grant of certain licenses, performance of development services, and the supply of product.

The Company’s largest such customer, DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopaedics, Inc., part of the Johnson & Johnson Medical Companies (“Mitek”), represented 45 %, 49 % and 71 % of total revenues for the years-ended December 31, 2021, 2020 and 2019 respectively.

The Company’s largest such customer, DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopedics, Inc., part of the Johnson & Johnson Medical Companies (“Mitek”), represented 43 %, 45 % and 49 % of total revenues for the years-ended December 31, 2022, 2021 and 2020 respectively.

The Company completed the performance obligations related to granted licenses and development services under the agreements with Mitek prior to 2016 and has no remaining material performance obligations.

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The Company records royalty revenues based on estimated net sales of licensed products as reported to the Company by its commercial partners.

Differences between actual and estimated royalty revenues have not been material and are typically adjusted in the following quarter when the actual amounts are known.

The differences between actual and estimated royalty revenues have not been material and are typically adjusted in the following quarter when the actual amounts are known.

Revenue from sales-based royalties is included in revenue in the consolidated statement of operations.

The Company’s certain supply agreements represent a promise to deliver product at the customer’s discretion that are considered distributor options.

The Company’s certain supply agreements represent a promise to deliver products at the customer’s discretion that are considered distributor options.

The Company assesses if these options provide a material right to the licensee, and if so, they are accounted for as separate performance obligations.

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Payment terms fall within the one -year guidance for the practical expedient, which allows the Company to forgo adjustment of the contractual payment amount of consideration for the effects of a significant financing component.

The Company’s contracts with customers do not customarily provide a right of return, unless certain product quality standards are not met.

Some of the Company’s distributor agreements have volume-based discounts with tiered pricing which are generally prospective in nature.

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Revenue allocated to the material right is recognized when the additional goods are transferred to the customer or when the option expires.

During 2021, the consideration allocated to material rights was not significant.

During 2022 and 2021, the consideration allocated to material rights was not significant.

The Company receives payments from its customers based on billing schedules established in each contract.

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Amounts are recorded as accounts receivable when its right to consideration is unconditional.

Deferred revenue was $ 1.0 million and $ 0.2 million as of December 31, 2021 and 2020, respectively.

Deferred revenue was $ 0 and $ 1.0 million as of December 31, 2022 and 2021, respectively.

Generally, customer contracts contain Free on Board (“FOB”) or Ex-Works shipping point terms where the customer pays the shipping company directly for all shipping and handling costs.

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Cash and Cash Equivalents

The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within 90 days from date of purchase to be cash equivalents.

The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within 90 days from the date of purchase to be cash equivalents.

The Company’s cash equivalents consist of money market funds.

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Investments with remaining maturities greater than one year are classified as long-term investments.

The Company had no investments as of December 31, 2021.

The Company had no investments as of December 31, 2022 or December 31, 2021.

All of the Company’s investments are subject to a periodic impairment review.

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Adjustments to the allowance are reported in the consolidated statement of operations as a component of credit loss expense.

Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through earnings when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through earnings when deemed uncollectible by management or when either of the criteria regarding intent or requirement to sell is met.

During the years ended 

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No other single customer accounted for more than 10% of accounts receivable in either period.

Inventories are primarily stated at the lower of standard cost and net realizable value, with approximate cost determined using the first -in, first -out method.

Inventories are primarily stated at the lower of standard cost and net realizable value, with cost determined using the first -in, first -out method.

Work-in-process and finished goods inventories include materials, labor, and certain manufacturing overhead.

Manufacturing variances attributable to abnormally low production are expensed in the period incurred.

Inventory costs associated with product candidates that have not yet received regulatory approval are capitalized if the Company believes there is probable future commercial use and future economic benefit.

The Company’s policy is to write down inventory when conditions exist that suggest inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products and market conditions.

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Factors that the Company considers important, on an overall company basis, that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the Company’s use of the acquired assets or the strategy for its overall business, significant negative industry or economic trends, a significant decline in the Company’s stock price for a sustained period, or a reduction of its market capitalization relative to net book value.

Under US GAAP, the Company has the option to perform a qualitative assessment to determine if it is necessary to perform the impairment test.

GAAP, the Company has the option to perform a qualitative assessment to determine if it is necessary to perform the impairment test.

If the Company concludes, based on a qualitative assessment, it is not more likely than not that the Goodwill or the IPR&D asset is impaired, the Company is not required to perform the quantitative test.

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Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are directly observable in the market.

Level 2 – Valuation is based upon quoted prices, unadjusted, for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are directly observable in the market.

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market.

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See Note 14, Equity Incentive Plan , for a description of the types of stock-based awards granted, the compensation expense related to such awards, and detail of equity-based awards outstanding.

The Company’s income tax expense includes U.S. and international income taxes.

Certain items of income and expense are not reported in tax returns and financial statements in the same year.

The tax effects of these timing differences are reported as deferred tax assets and liabilities.

Deferred tax assets are recognized for the estimated future tax effects of deductible temporary differences, tax operating losses, and tax credit carryforwards (including investment tax credits).

Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes that it is more likely than not that all or a portion of deferred tax assets will not be realized, the Company establishes a valuation allowance to reduce the deferred tax assets to the appropriate valuation.

To the extent the Company establishes a valuation allowance or increases or decreases this allowance in a given period, it includes the related tax expense or tax benefit within the tax provision in the consolidated statement of operations in that period.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets, or DTAs, and deferred tax liabilities, or DTLs, for the expected future tax consequences of events that have been included in the financial statements.

Under this method, we determine DTAs and DTLs based on the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized.

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations.

We record uncertain tax positions in accordance with ASC 740, Income Taxes , on the basis of a two -step process in which ( 1 ) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and ( 2 ) for those tax positions that meet the more-likely-than- not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Interest and penalties associated with income tax filings are recorded in income tax expense.

Comprehensive Income (Loss)

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Although the outcomes of any potential legal proceedings are inherently difficult to predict, the Company does not expect the resolution of any potential legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019 - 12, Income Taxes (Topic 740 ) –

Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

ASU 2019 - 12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years.

The Company adopted ASU 2019 - 12 as of January 1, 2021.

The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements and related disclosures.  

Recent Issued Accounting Pronouncements

No new accounting pronouncements issued or effective during the period had, or are expected to have, a material impact on the consolidated financial statements.

Business Combinations

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The liability for contingent and deferred consideration is included in current and long-term liabilities on the consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved.

As of December 31, 2021, the net sales related contingent consideration amounted to $ 4.3 million, which is included in current liabilities.

The Company does not expect any further milestones to be achieved as of December 31, 2021.

See Note 4, Fair Value Measurements , for additional discussion of contingent consideration as of December 31, 2021.

During the three months ended September 30, 2022, the Company paid contingent consideration of $ 4.3 million related to net sales of Parcus Medical products earned in 2021 that was recorded in contingent consideration at December 31, 2021.

As of December 31, 2022, there were no milestones remaining.

Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred.

The Company incurred approximately $ 1.9 million in transaction costs related to the Parcus Medical acquisition during the three -month period ending March 31, 2020.

The transaction costs subsequent to March 31, 2020 were immaterial.

The transaction costs have been included in selling, general and administrative expenses in the consolidated statements of operations.

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The fair value of developed technology will be amortized over a useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of the trade name over 5 years.

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface.

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the reporting unit for Parcus Medical and Arthrosurface.

The goodwill is attributable to the workforce of the business and the value of future technologies expected to arise after the acquisition.

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Cash consideration

$ 61,909  

Estimated fair value of contingent consideration

28,376  

Estimated total purchase consideration

$ 90,285  

Pursuant to the Arthrosurface Merger Agreement, the Company could be required to make future payments of up to $ 40.0 million depending on the achievement of regulatory milestones and the level of net sales of Arthrosurface products from 2020 through 2021.

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The Company paid $ 5.0 million in October 2020 and $ 10.0 million in July 2021 based upon the achievement of two distinct regulatory milestones.

As of December 31, 2021, the remaining regulatory milestone and the net sales milestone were not achieved.

See Note 4, Fair Value Measurements , for additional discussion of contingent consideration as of December 31, 2021 and 2020.

As of December 31, 2022, there were no milestones remaining.

Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred.

The Company incurred approximately $ 2.2 million in transaction costs related to the Arthrosurface acquisition during the three -month period ending March 31, 2020.

The transaction costs subsequent to March 31, 2020 were immaterial.

The transaction costs have been included in selling, general and administrative expenses in the consolidated statements of operations.

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The Company has combined legacy Anika, Parcus Medical and Arthrosurface pro forma supplemental information as follows.

The unaudited pro forma information for the year ended December 31, 2021 and 2020 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments.

The unaudited pro forma information for the year ended December 31, 2020 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments.

The pro forma financial information presents the combined results of operations of Anika, Parcus Medical and Arthrosurface as if the acquisitions had occurred on January 1, 2019 after giving effect to certain pro forma adjustments.

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The following table presents unaudited supplemental pro forma information:

Years Ended December 31,

Year Ended December 31,

Total revenue

$ 134,410  

$ 157,728  

$ ( 22,984 )  

$ 7,144  

Fair Value Measurements

The Company held investments in the form of U.S.

treasury bills of $ 2.5 million at December 31, 2020 that it had classified as available-for-sale securities.

Unrealized losses and the associated tax impact on the Company’s available-for-sale securities were insignificant as of December 31, 2020.

There were no available-for-sale securities as of December 31, 2021.

The Company’s investments are all classified within Levels 1 of the fair value hierarchy and are valued based quoted prices in active markets.

There were no available-for-sale securities as of December 31, 2022 and 2021.

The Company’s investments are all classified within Levels 1 of the fair value hierarchy and are valued based on quoted prices in active markets.

For cash, current receivables, accounts payable, and interest accrual, the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore fair value information is not included in the table below.

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$ 67,801  

Other current liabilities:

Contingent Consideration - Short Term

$ 4,315  

Active Markets

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$ 67,046  

Treasury Bills

$ 2,501  

$ 2,524  

Other current and long-term liabilities:

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$ 4,315  

Contingent Consideration - Long Term

22,320  

Total other current and long-term liabilities

$ 35,410  

There were no transfers between fair value levels in 2022 or 2021.

Contingent Consideration

The following table provides a rollforward of the contingent consideration related to business acquisitions discussed in Note 3, Business Combinations.

The following table provides a roll forward of the contingent consideration related to business acquisitions discussed in Note 3, Business Combinations.

Years Ended December 31

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$ 4,315  

$ 35,410  

Under the Parcus Medical Merger Agreement and Arthrosurface Merger Agreement, there are earn-out milestones totaling up to $ 100 million payable from 2020 to 2022.

Parcus Medical has net sales earn-out milestones annually from 2020 to 2022, while Arthrosurface has both regulatory and net sales earn-out milestones annually in 2020 and 2021.

Under the Parcus Medical Merger Agreement and Arthrosurface Merger Agreement, there were earn-out milestones totaling up to $ 100 million payable from 2020 to 2022.

Parcus Medical had net sales earn-out milestones annually from 2020 to 2022, while Arthrosurface had both regulatory and net sales earn-out milestones annually in 2020 and 2021.

In order to determine the fair value of contingent consideration at each reporting date, the projected contingent payment amounts were discounted back to the current period using a discounted cash flow model or a Monte Carlo simulation approach.

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Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively.

As of December 31, 2020, the probability of successful achievement of the regulatory earn-out milestones was determined to be in a range of 60 %- 75 %.

In October 2020, the Company made a regulatory-based milestone payment of $ 5.0 million pursuant to the terms of the Arthrosurface Merger Agreement as a result of regulatory clearance for the WristMotion Total Arthroplasty System.

As of December 31, 2021, a net sales growth milestone with respect to the Parcus Merger Agreement was achieved, and a liability in the amount of $ 4.3 million was recorded in current liabilities.

As of December 31, 2021, a net sales growth milestone with respect to the Parcus Merger Agreement was achieved for 2021, and a liability in the amount of $ 4.3 million was recorded in current liabilities.

This amount was paid in September 2022.

In June 2021, the Company received regulatory clearance for a reverse shoulder implant system, which triggered a $ 10.0 million regulatory milestone payment per the terms of the Arthrosurface Merger Agreement.

This amount was paid in July 2021.

As of December 31, 2021, the remaining regulatory milestone and the net sales milestone under the Arthrosurface Merger Agreement were not achieved.

The Company does not expect the remaining milestone under the Parcus Medical Merger Agreement to be achieved.

As of December 31, 2022, there were no milestones remaining.

The overall fair value of the contingent consideration decreased by $ 21.1 million and $ 28.7 million during the years ended December 31, 2021 and 2020, respectively, due primarily to the decrease in the likelihood that certain contingent milestones would be achieved.

Inventories consist of the following:

Total inventories included in the balance sheet consist of the following:

As of December 31,

Raw materials

$ 16,881  

$ 14,852  

Work-in-process

11,442  

12,811  

Finished goods

26,731  

33,347  

$ 55,054  

$ 61,010  

$ 36,010  

$ 46,209  

Other long-term assets

19,044  

14,801  

$ 55,054  

61,010  

Inventories are stated net of inventory reserves of approximately $ 9.9 million and $ 9.1 million, as of December 31, 2022 and 2021, respectively.

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Property and equipment is stated at cost and consists of the following:

As of December 31,

Equipment and software

$ 48,804  

$ 48,316  

Furniture and fixtures

Leasehold improvements

34,614  

34,056  

Construction in progress

87,185  

85,300  

Less accumulated depreciation

( 39,583 )  

$ 47,602  

$ 50,613  

Depreciation expense was $ 6.7 million, $ 6.5 million, and $ 6.1 million for the years ended December 

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Year Ended December 31, 2022

Currency Translation

Current Period

Impairment Charge

Net Book Value

Average Useful

Life (in Years)

Developed technology

4 unchanged sentences

( 1,006 )  

( 600 )  

Customer relationships

10 unchanged sentences

$ 74,599  

$ 82,382  

Year Ended December 31, 2021

Currency Translation

Current Period

Impairment Charge

Net Book Value

Average Useful

Developed technology

5 unchanged sentences

$ 82,382  

Total amortization expense with respect to the definite-lived acquired intangible assets was $ 7.8 million, $ 7.4 million and $ 1.0 million for the years ended December 

31, 2021, 2020, and 2019.

Total amortization expense with respect to the definite lived acquired intangible assets was $ 7.8 million for each of the years ended December 31, 2022 and 2021 and $ 7.4 million for the year ended December 

During the fourth quarter of 2021, the Company decided not to further invest in a joint technology IPR&D project, as it is no longer aligned with the Company’s core strategic focus.

10 unchanged sentences

During 2020, the Company determined that it would not pursue CE mark renewals for certain of its legacy products, which resulted in an impairment of certain developed technology related assets in the amount of $ 1.0 million in 2020.

During 2019, the Company recorded $ 0.4 million of impairments, including a $ 0.3 million impairment charge for the Hyalospine developed technology asset as the Company made the decision not to renew its CE Mark as the product was not aligned with the Company’s core strategic focus.

The impairment charges in 2020 and 2019 were recorded in selling, general and administrative expenses on the Company’s consolidated statements of operations.

The following table provides a rollforward of goodwill for the years ended December 31, 2021 and 2020:

This impairment charge was recorded in selling, general and administrative expenses on the Company’s consolidated statements of operations.

The following table provides a roll forward of goodwill for the years ended December 31, 2022 and 2021:

Years Ended December 31

4 unchanged sentences

( 442 )  

42,520  

Balance, ending December 31

3 unchanged sentences

As a result of the acquisitions, the Company determined that it had two reporting units.

The newly formed reporting unit includes Parcus Medical and Arthrosurface, which share similar economic and qualitative characteristics.

This reporting unit produces soft tissue repair surgical products, instruments and joint implants.

The legacy Anika business remains in one reporting unit, which specializes in therapies based on its hyaluronic acid, or HA, technology platform.

At the beginning of 2021, the remaining goodwill balance was related to the legacy Anika reporting unit, as the goodwill related to the newly created reporting unit was entirely impaired in 2020.

2021 Goodwill Impairment Assessment

As part of its annual impairment testing as of November 30, 2021, for the goodwill related to the legacy Anika reporting unit, the Company performed a qualitative assessment including consideration of (i) general macroeconomic factors, (ii) industry and market conditions, and (iii) the extent of the excess of the fair value over the carrying value indicated in prior impairment testing.

It created a reporting unit in 2020 that included Parcus Medical and Arthrosurface, which share similar economic and qualitative characteristics.

This reporting unit produces sports medicine surgical products, instruments and joint repair implants.

The Company also has another reporting unit that comprises the legacy Anika business, which specializes in therapies based on its hyaluronic acid, or HA, technology platform.

The Company impaired the Parcus Medical and Arthrosurface reporting unit in 2020.

The remaining goodwill balance at December 31, 2022 and 2021 was related to the legacy Anika reporting unit.

As part of its annual impairment testing as of November 30 each year for the goodwill related to the legacy Anika reporting unit, the Company performed a qualitative assessment including consideration of (i) general macroeconomic factors, (ii) industry and market conditions, and (iii) the extent of the excess of the fair value over the carrying value indicated in prior impairment testing.

The Company determined it was not more likely than not that the fair value of the legacy Anika reporting unit is less than its carrying amount and thus goodwill was not impaired as of November 30, 2022.

2020 Goodwill Impairment Assessment

Government policy responses to the COVID- 19 pandemic and the resulting changes in healthcare guidelines caused a temporary suspension of global elective surgical procedures.

13 unchanged sentences

The results of the interim impairment test indicated that the estimated fair value of the reporting unit was less than its carrying value.

This was primarily due to decreases in near term revenue and related cash flows as a result of the temporary suspension of domestic elective procedures primarily due to the COVID- 19 pandemic which directly impact the reporting unit.

This was primarily due to decreases in near term revenue and related cash flows as a result of the temporary suspension of domestic elective procedures, primarily due to the COVID- 19 pandemic which directly impacted the reporting unit.

Consequently, a non-cash goodwill impairment charge was recorded in the amount of $ 18.1 million during the first quarter of 2020.

4 unchanged sentences

The total non-cash goodwill impairment charge with respect to the reporting unit amounted to $ 42.5 million for the year ended December 31, 2020.

There was no remaining goodwill with respect the newly created reporting unit as of December 31, 2020.

There was no remaining goodwill with respect to the newly created reporting unit as of December 31, 2020.

The Company leases its buildings and manufacturing facilities under operating leases.

As of December 31, 2022, the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida, Warsaw, Indiana and Padova, Italy.

The current term of the Bedford lease extends to 2022 with several lease renewal options into 2038, and the current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option in 2026 without penalty.

As a result of the acquisition of Parcus Medical and Arthrosurface, the Company acquired operating and finance leases for corporate offices, manufacturing and warehouse facilities and machineries.

In June 2022, the Company finalized a renewal option to extend the current term for its operating headquarters and manufacturing facility in Bedford through 2027.

There are also lease renewal options into 2038.

The current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option in 2026 without penalty.

As a result of the acquisition of Parcus Medical and Arthrosurface, the Company acquired operating and finance leases for corporate offices, manufacturing and warehouse facilities and machinery.

The operating leases consist of one real estate lease in Franklin, Massachusetts (Franklin lease) and two real estate leases in Sarasota, Florida (Sarasota lease).

The current term of the Franklin lease extends to 2023, and the current term of the Sarasota lease extends to 2024 which may be extended by mutual agreement of the parties.

The finance leases include equipment utilized in the Company’s manufacturing facility in Sarasota, Florida.

In October 2022, the Company entered into an option to extend the current term of the Franklin lease through 2024.

In June 2022, the Company finalized an option to extend the current term of the two Sarasota leases through 2027.

The finance leases include equipment utilized in the Company’s manufacturing facility in Sarasota, Florida and were terminated in September 2022.

The significant assumptions in recognizing the right-of-use asset and lease liability are as follows:

3 unchanged sentences

The Company’s lease agreements do not provide implicit rates.

As the Company did not have any external borrowings at the transition date with comparable terms to its lease agreements, the Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of the lease.

The weighted average discount rate at December 31, 2021 is 4.1 % and 4.9 % for operating leases and finance leases, respectively.

As the Company did not have any external borrowings at either the transition or subsequent renewal dates with comparable terms to its lease agreements, the Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of the lease.

The weighted average discount rate at December 31, 2022 was 3.6 % for operating leases.

 The lease term begins at the lease commencement date and is determined on that date based on the non-cancelable term of the lease together with periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, or periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

The components of lease expense and other information are as follows: 

Years Ended December 31

Finance lease amortization of right-of-use assets

22 unchanged sentences

Years ended December 31,

$ 2,368  

$ 2,500  

Operating Leases

$ 3,170  

1 unchanged sentence

Present value adjustment

( 7,169 )  

( 14 )  

Present value of lease payments

30,890  

21,060  

Less current portion included in accrued expenses and other current liabilities

( 1,526 )  

( 188 )  

Total lease liabilities

$ 28,817  

$ 19,346  

Accrued Expenses

Accrued expenses consist of the following:

As of December 31,

Compensation and related expenses

$ 9,523  

$ 7,345  

Professional fees

2 unchanged sentences

Finance lease liability - current

$ 17,847  

$ 14,793  

Income taxes payable

Revolving Credit Agreement

10 unchanged sentences

In April 2020, the Company borrowed $ 50.0 million available under the previous credit facility, with an initial applicable interest rate of 2.08 %, all of which were repaid during the year ended December 31, 2020.

Interest expense for the year ended December 31, 2020 was $ 0.8 million.

Interest expense for the years ended December 31, 2022, 2021 and 2020 was $ 0 , $ 0 , and $ 0.8 million, respectively.

Commitments and Contingencies

9 unchanged sentences

On October 21, 2021, the Company received notice that the former unitholders of Parcus Medical had filed a request for arbitration regarding the earnout provisions agreed to in the Parcus Medical Merger Agreement.

The Company has engaged in the arbitration process and does not anticipate a resolution during 2022.

The Company has engaged in the arbitration process and does not anticipate a resolution during the first half of 2023.

The Company is unable to estimate the potential liability with respect to this matter at this time.

2 unchanged sentences

Revenue and Geographic Information

The following table summarizes the Company’s disaggregated revenues:

Years Ended December 31,

Product revenue

$ 147,794  

$ 130,457  

$ 114,512  

Licensing, milestone and contract revenue

Total revenue

$ 147,794  

$ 130,457  

$ 114,610  

The Company categorizes its product portfolio into three product families:

3 unchanged sentences

Years Ended December 31,

Percentage of

OA Pain Management

5 unchanged sentences

48,588  

39,368  

Non-Orthopedic

2 unchanged sentences

$ 130,457  

Effective January 1, 2023, the Company will begin to report revenue from product sales to veterinary customers within the Non-Orthopedic product family whereas such revenue had been reported within the OA Pain Management revenue product family.

Revenue from product sales to veterinary customers amounted to $ 5.9 million, $ 4.4  million and $ 3.8 million for 2022, 2021 and 2020, respectively.

Product revenue from the Company’s sole significant customer, Mitek, as a percentage of the Company’s total product revenue was 43 %, 45 %, and 49 % for the years ended December 31, 2022, 2021, and 2020, respectively.

1 unchanged sentence

Years Ended December 31,

Percentage of

Geographic Location:

11 unchanged sentences

$ 147,794  

$ 130,457  

Net long-lived assets, consisting primarily of net property and equipment, are subject to geographic risks because they are generally difficult to move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid.

23 unchanged sentences

Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over one to four years with a maximum contractual term of ten years.

The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows (in thousands):

The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees.

For the year ended December 31, 2022, the tax benefit associated with stock-based compensation was $ 1.1 million.

A summary of the stock-based compensation in the Company’s statements of operations is as follows (in thousands):

Years Ended December 31,

3 unchanged sentences

Total stock-based compensation expense

$ 11,085  

$ 5,386  

$ 6,087  

For the years ended December 31, 2021, 2020 and 2019, tax benefits of $ 0.1 million, $ 0.2 million and $ 0.1 million, respectively, are associated with the stock-based compensation expense above.

For the years ended December 31, 2022, 2021 and 2020, windfall tax benefits (expense) of $( 0.5 ) million, $ 0.1 million and $ 0.2 million, respectively, are associated with the stock-based compensation expense above.

The Company’s former President and Chief Executive Officer, Joseph Darling, passed away unexpectedly in January 2020.

6 unchanged sentences

The following summarizes the activity under the Company’s stock option plans:

Exercise Price

Number of Options

Weighted Average Exercise Price

Weighted Average

Term (in years)

Aggregate Intrinsic

(in thousands)

12 unchanged sentences

$ 34.93  

$ 1,050  

Vested, December 31, 2022

4 unchanged sentences

$ 34.93  

$ 1,050  

The aggregate intrinsic value of options exercised for the years ended December 31, 2021 and 2020 was $ 0.3 million and $ 2.8 million, respectively.

2 unchanged sentences

The calculation of the fair value of stock options is affected by the stock price on the grant date, the expected volatility of the Company’s common stock over the expected term of the award, the expected life of the award, the risk-free interest rate and the dividend yield.

The Company estimates the fair value of TSRs using Monte-Carlo simulation model where the expected volatility assumption is evaluated over 6.3 years.

The Company estimated the fair value of TSRs using Monte-Carlo simulation model where the expected volatility assumption is evaluated over 6.3 years.

The actual number of TSR options that may be earned ranges from 0 % to 150 % of the target number, depending on the total shareholder return of the Company relative to the peer group over the vesting period of 2.7 years.

There are 104,638 TSRs as of December 31, 2021.

The Company completed its evaluation of the TSR award and vested 139,168 TSRs as of December 31, 2022.

The assumptions used in the Black-Scholes pricing model for options granted during the years ended December 31, 2022 2021 and 2020, along with the weighted-average grant-date fair values, were as follows:

Risk-free interest rate

0.29 % -  

0.21 % -  

1.41 % -  

Expected stock price volatility

54.80 % -  

56.35%  

46.48 % -  

54.06%  

44.27 % -  

48.52%  

Expected life of options (in years)

8 unchanged sentences

RSU activity for the year ended December 31, 2022 is as follows:

Number of Shares

Weighted Average Fair Value

Outstanding as of December 31, 2021

7 unchanged sentences

( 80,610 )  

$ 35.94  

Outstanding as of December 31, 2022

10 unchanged sentences

The PSUs granted to employees in 2020 contained performance conditions with business and financial targets.

One of the business targets, amounting to 20 % of the total performance condition awards, was not achieved in the 2021 fiscal year, while the remaining business target, amounting to 20% of the total performance condition awards, will ultimately be measured with respect to the regulatory approval process in the 2022 fiscal year.

The financial targets, amounting to 60 % of the total performance condition awards, will ultimately be measured with respect to the Company’s operating results in the 2022 fiscal year.

One of the business targets, amounting to 20 % of the total performance condition awards, was not achieved in the 2021 fiscal year, while the remaining business target related to a certain timely regulatory approval, amounting to 20 % of the total performance condition awards, was not achieved in the 2022 fiscal year.

The financial targets, amounting to 60 % of the total performance condition awards, were not achieved in the 2022 fiscal year.

PSU activity for the year ended December 31, 2022 is as follows:

Number of Shares

Weighted Average Fair Value

Outstanding as of December 31, 2021

1 unchanged sentence

$ 37.44  

$ 32.53  

( 19,125 )  

$ 32.53  

Forfeited and cancelled

5 unchanged sentences

The weighted-average grant-date fair value per share of PSUs granted was $ 32.53 , $ 0 and $ 36.93 for the years ended December 31, 2022, 2021 and 2020, respectively.

The total fair value of PSUs vested was $ 0 for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, there was $ 0.1 million of unrecognized compensation cost related to PSUs in which milestones are expected to be achieved, which is expected to be recognized over a weighted-average period of 0.2 years.

The total fair value of PSUs vested was $ 0.6 million, $0 and $0 for the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, there was no unrecognized compensation cost related to PSUs in which milestones are expected to be achieved.

Employee Stock Purchase Plan

On March 17, 2021, the Company adopted the 2021 Employee Stock Purchase Plan (ESPP).

On March 17, 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“ESPP”).

The ESPP is authorized to issue up to 200,000 shares of common stock to participating employees.

1 unchanged sentence

The purchase price for each share purchased is 85 % of the lower of the fair market value of the common stock on the first or last day of the offering period.

The Company uses the Black-Scholes pricing model to determine the fair value of shares purchased under the ESPP.

The calculation of the fair value of shares purchased is affected by the stock price on the grant date, the expected volatility of the Company’s stock over the expected term and the risk-free interest rate.

The estimated fair value of shares purchased under the ESPP were based on the following assumptions:

Risk-free interest rate

Expected stock price volatility

Expected life of options (in years)

Expected dividend yield

Employee Benefit Plan

5 unchanged sentences

31, 2022, 2021, and 2020, respectively.

Accelerated Share Repurchases

On May 2, 2019, the Company announced that its Board of Directors had authorized the repurchase of up to $ 50.0 million shares of the Company’s common stock with $ 30.0 million to be repurchased through an accelerated share repurchase program and up to $ 20.0 million to be potentially repurchased on the open market from time-to-time.

Through December 31, 2019, no open market repurchases had been executed.

On May 7, 2019, the Company entered into an accelerated share repurchase agreement with Morgan Stanley & Co.

LLC (“Morgan Stanley”) pursuant to a Fixed Dollar Accelerated Share Repurchase Transaction (“ASR Agreement") to purchase $ 30.0 million of shares of its common stock.

Pursuant to the terms of the ASR Agreement, the Company delivered $ 30.0 million cash to Morgan Stanley and received an initial delivery of 0.5 million shares of the Company’s common stock on May 8, 2019 based on a closing market price of $ 39.85 and the applicable contractual discount.

This was approximately 60 % of the then estimated total number of shares expected to be repurchased under the ASR Agreement.

On January 14, 2020, the Company settled the approximately $ 12.0 million remaining under the ASR Agreement, which was recorded as an equity forward sale contract and was included in additional paid-in-capital in stockholders' equity in the consolidated balance sheet as it met the criteria for equity accounting.

Pursuant to the terms of the ASR Agreement, the final number of shares and the average purchase price was determined at the end of the applicable purchase period, which was January 14, 2020.

Based on the volume-weighted average price since the effective date of the ASR Agreement less the applicable contractual discount, Morgan Stanley delivered 0.1 million additional shares to the Company on January 17, 2020.

In total, 0.6 million shares were repurchased under the ASR Agreement at an average repurchase price of $ 50.78 per share.

These shares are held by the Company as authorized but unissued shares.

All shares were repurchased in accordance with the publicly announced program, and the Company will not make any further purchases under the program.

The initial delivery of shares resulted in an immediate reduction of the number of outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share on the effective date of the ASR Agreement.

Income Taxes  

2 unchanged sentences

Years ended December 31,

Income (loss) before income taxes

$ ( 2,529 )  

(Loss) income before income taxes

$ ( 19,080 )  

4 unchanged sentences

$ 1,005  

( 635 )  

Total current

4 unchanged sentences

( 5,273 )  

Total (benefit from) provision for income taxes

$ ( 1,707 )  

Total benefit from income taxes

$ ( 3,887 )  

5 unchanged sentences

$ 4,684  

Inventory reserves

Net operating loss carry forwards

Capitalized research expenditures

Stock-based compensation expense

Inventory reserves

Compensation accrual

Net operating loss carry forwards

Accrued expenses

Foreign currency exchange

Accrued expenses and other

Gross deferred tax assets

17,772  

17,419  

valuation allowance

Deferred tax assets

7 unchanged sentences

( 7,252 )  

Accrued expenses and other

Deferred tax liabilities

2 unchanged sentences

$ ( 4,987 )  

As of December 31, 2021, the Company had a federal net operating loss (“NOL”) carryforward of $ 4.6 million and state NOL carryforwards of $ 2.7 million.

The federal NOL carryforward will begin to expire in 2029 and the state NOL carryforwards will begin to expire in 2026 through 2039, if unutilized.

Federal NOLs generated in tax years after 2017 do not expire but are limited to 80% of taxable income.

As of December 31, 2022, the Company had no Federal net operating loss (“NOL”) carryforwards and state net NOL carryforwards of $ 3.1 million that will begin to expire in 2026.

The Company also had NOL carryforwards in Italy of $ 6.1 million that do not expire but are limited to 80% of taxable income.

As of December 31, 2022, the Company had federal and state research and development tax credit carryforwards of $ 0.4 million and $ 0.5 million, respectively, that will begin expiring in 2023.

In 2021, the Company transferred certain intellectual property held by its Italian subsidiary to the U.S.

in exchange of cash consideration, resulting in a gain in Italy, to more closely align the economic ownership of this intellectual property with the Company’s current and future business operations.

The Company evaluated the likelihood that it would realize the deferred income taxes to offset future taxable income and concluded that it is more likely than not that the majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. 

As a result, during the year ended December 31, 2021, the Company released the valuation allowance recorded related to the net deferred tax assets in Italy in the amount of $0.9 million. 

The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and experimental (“R&D”) expenditures for tax years beginning after December 31, 2021.

This rule became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of R&D costs of $ 23.4 million.

The Company will amortize these costs for tax purposes over 5 years if the R&D was performed in the U.S.

and over 15 years if the R&D was performed outside the U.S.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized.

In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations.

Based upon future reversals of existing taxable temporary differences, the Company believes it is more likely than not that it will realize its domestic deferred tax assets.

Based upon future reversals of existing taxable temporary differences and projected future taxable income, the Company believes it is more likely than not it will realize its foreign deferred tax assets.

During the year ended December 31, 2021, the Company released the valuation allowance recorded related to the net deferred tax assets in Italy in the amount of $ 0.9 million. 

Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $ 0.5 million at December 31, 2022.

The Company expects to be able to take a 100% dividend received deduction to offset any U.S.

federal income tax liability on the undistributed earnings.

Determination of the amount of unrecognized state and local deferred income tax liability is not practicable due to the complexities associated with its hypothetical calculation.

Effective Tax Rate

5 unchanged sentences

State tax expense, net of federal benefit

( 3.2 %)  

Stock compensation

1 unchanged sentence

Section 162(m) limitation

( 8.2 % )  

Goodwill impairment

Change in fair value of contingent consideration

( 36.7 %)  

Change in state apportionment

( 29.8 %)  

Change in tax rates and state apportionment

Federal, state and foreign tax credits

( 28.4 %)  

Valuation allowance

( 35.3 %)  

Return to provision adjustments

Other permanent items

11.0 %  

Effective income tax rate

7 unchanged sentences

The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate.

With few exceptions, the Company is no longer subject to income tax examinations for years prior to 2018.

Upon the settlement of certain stock-based awards (i.e., exercise, vesting, forfeiture, or cancellation), the actual tax deduction is compared with cumulative financial reporting compensation cost, and any excess tax deduction related to these awards is considered a windfall tax benefit.

The Company records windfall tax benefits to income tax expense.

The Company follows the with-and-without approach for the direct effects of windfall/shortfall items and to determine the timing of the recognition of any related benefits.

The Company recorded a windfall tax benefit in income tax expense of $ 0.1 million in 2021 compared to $ 0.2 million in 2020 and an immaterial amount in 2019.

With a few exceptions, the Company is no longer subject to income tax examinations for years prior to 2019.

Earnings per Share ( “

14 unchanged sentences

14,222  

Stock options of 1.1 million and 0.5 million shares were outstanding for the years ended December 31, 2021 and 2019, respectively, and were not included in the computation of diluted EPS because the awards’

Stock options of 1.1 million shares were outstanding for the year ended December 31, 2021 and were not included in the computation of diluted EPS because the awards’

impact on EPS would have been anti-dilutive.

The Company was in a loss position during the year ended December 31, 2020, therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

At December 

31, 2021 and 2020 there were no outstanding unvested RSAs.

At December 31, 2019 a total of 13,000 shares of unvested RSAs were excluded from the basic earnings per share.

The Company was in a loss position during the years ended December 31, 2022 and 2020, therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data