What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-09 · 296 added, 667 removed, 400 unchanged (71% of the section changed)

2 unchanged sentences

and Subsidiaries

Consolidated Balance Sheets

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

September 30,

ASSETS  

Current assets:

2 unchanged sentences

$ 86,327  

Accounts receivable, less allowance for credit losses of $ 1,566 and $ 1,442 at September 30, 2022 and December 31, 2021, respectively

Accounts receivable, net

30,629  

16 unchanged sentences

17,219  

Deferred tax assets

Intangible assets, net

4 unchanged sentences

LIABILITIES AND STOCKHOLDERS ’

EQUITY  

Current liabilities:

5 unchanged sentences

18,840  

Contingent consideration

Total current liabilities

3 unchanged sentences

Deferred tax liability

10,157  

Lease liabilities

4 unchanged sentences

Preferred stock, $ 0.01 par value;

1,250 shares authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

1,250 shares authorized, no shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Common stock, $ 0.01 par value;

90,000 shares authorized, 14,607 and 14,441 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

90,000 shares authorized, 14,741 and 14,625 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in-capital

2 unchanged sentences

Accumulated other comprehensive loss

( 6,171 )  

Retained earnings

10 unchanged sentences

and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share data)

(unaudited)  

Three Months Ended

September 30,

Nine Months Ended

September 30,

$ 40,264  

$ 39,536  

$ 116,614  

$ 111,973  

Three Months Ended March 31,

Cost of revenue

17,485  

16,513  

47,169  

47,164  

22,779  

23,023  

69,445  

64,809  

Operating expenses:

Research & development

20,433  

21,327  

Selling, general & administrative

21,276  

17,500  

61,745  

53,664  

Change in fair value of contingent consideration

Research and development

Selling, general and administrative

Total operating expenses

28,577  

21,723  

82,178  

53,071  

(Loss) income from operations

11,738  

Loss from operations

Interest and other income (expense), net

(Loss) income before income taxes

11,597  

(Benefit from) provision for income taxes

Net (loss) income

$ 9,927  

Net (loss) income per share:

$ 0.04  

$ 0.69  

$ 0.04  

$ 0.68  

Loss before income taxes

Benefit from income taxes

Net (loss) per share:

Weighted average common shares outstanding:

14,603  

14,429  

14,542  

14,389  

14,603  

14,647  

14,542  

14,588  

Net (loss) income

$ 9,927  

Foreign currency translation adjustment

Comprehensive (loss) income

$ 9,150  

Comprehensive loss

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

1 unchanged sentence

and Subsidiaries

Consolidated Statements of Stockholders' Equity

(in thousands)

Nine Months Ended September 30, 2022

Additional Paid

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except per share data)

Three Months Ended March 31, 2023

Comprehensive

1 unchanged sentence

Balance, January 1, 2023

14,441  

$ 67,081  

$ 225,578  

$ ( 5,718 )  

$ 287,085  

Issuance of common stock for equity awards

2 unchanged sentences

Retirement of common stock for minimum tax withholdings

( 30 )  

( 844 )  

( 2,933 )  

Other comprehensive income

( 81 )  

Other comprehensive loss

Balance, March 31, 2023

14,518  

$ 68,796  

$ 222,645  

$ ( 5,799 )  

$ 285,787  

Vesting of restricted stock units

Issuance of ESPP shares

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

( 25 )  

( 2,843 )  

Other comprehensive income

( 847 )  

Balance, June 30, 2022

14,598  

$ 72,851  

$ 219,802  

$ ( 6,646 )  

$ 286,153  

Vesting of restricted stock units

Issuance of ESPP shares

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

( 66 )  

( 4,175 )  

Other comprehensive income

( 851 )  

Balance, September 30, 2022

14,607  

$ 76,661  

$ 215,627  

$ ( 7,497 )  

$ 284,937  

Nine Months Ended September 30, 2021

Additional Paid

Three Months Ended March 31, 2022

Comprehensive

1 unchanged sentence

Balance, January 1, 2022

14,329  

$ 55,355  

$ 221,444  

$ 272,400  

Issuance of common stock for equity awards

2 unchanged sentences

Retirement of common stock for minimum tax withholdings

Other comprehensive income

Other comprehensive loss

Balance, March 31, 2022

14,366  

$ 57,281  

$ 224,282  

$ 276,656  

Issuance of common stock for equity awards

Vesting of restricted stock units

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

( 19 )  

Other comprehensive income

Balance, June 30, 2021

14,418  

$ 60,699  

$ 230,813  

$ ( 4,852 )  

$ 286,804  

Issuance of common stock for equity awards

Vesting of restricted stock units

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

( 71 )  

Other comprehensive income

( 467 )  

Balance, September 30, 2021

14,436  

$ 63,864  

$ 231,371  

$ ( 5,319 )  

$ 290,060  

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

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

Anika Therapeutics, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended

Three Months Ended March 31,

Cash flows from operating activities:

Net (loss) income

$ ( 10,350 )  

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of acquisition related intangible assets

Amortization of acquisition related inventory step-up

Non-cash operating lease cost

Change in fair value of contingent consideration

Loss on disposal of fixed assets

Stock-based compensation expense

Deferred income taxes

Provision (recovery) for doubtful accounts

( 2,373 )  

Provision for credit losses

Provision for inventory

1 unchanged sentence

Accounts receivable

( 3,063 )  

Prepaid expenses, other current and long-term assets

( 462 )  

Accounts payable

( 713 )  

Operating lease liabilities

( 523 )  

Accrued expenses, other current and long-term liabilities

Contingent consideration

Net cash provided by operating activities

Net cash used in operating activities

( 3,618 )  

Cash flows from investing activities:

Acquisition of Parcus Medical and Arthrosurface, net of cash acquired

Proceeds from maturities of investments

Purchases of property and equipment

( 1,389 )  

Net cash used in investing activities

( 1,389 )  

Cash flows from financing activities:

Payments made on finance leases

Cash paid for tax withheld on vested restricted stock awards

( 1,620 )  

Proceeds from exercises of equity awards

Contingent consideration payout

Payments made on finance leases

Net cash used in financing activities

( 1,613 )  

Exchange rate impact on cash

Decrease in cash and cash equivalents

( 6,590 )  

Cash and cash equivalents at beginning of period

86,327  

94,386  

Cash and cash equivalents at end of period

$ 79,737  

$ 90,325  

Supplemental disclosure of cash flow information:

Non-cash investing activities:

Right-of-use assets obtained in exchange for operating lease liabilities

Purchases of property and equipment included in accounts payable and accrued expenses

1 unchanged sentence

Anika Therapeutics, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share and per share amounts or as otherwise noted)

( unaudited )

Nature of Business

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.

(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 Arthrosurface joint solutions.

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.

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

These acquisitions broadened the Company’s product portfolio, developed over its 30 years of expertise in hyaluronic acid technology, into the broader joint preservation and restoration market with greater market potential, added high-growth revenue streams, increased the Company’s commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.

These acquisitions broadened the Company's product portfolio, developed over its 30 years of expertise in hyaluronic acid technology, into joint preservation and restoration space with higher market potential, added new revenue streams, increased and accelerated its commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.

The Company is subject to risks common to companies in the life sciences industry including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with U.S.

Food and Drug Administration 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 ongoing 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, business partners and a broader impact on elective surgeries.

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.

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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”).

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”).

The financial statements include the accounts of Anika Therapeutics, Inc.

1 unchanged sentence

Inter-company transactions and balances have been eliminated.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been or omitted pursuant to SEC rules and regulations relating to interim financial statements.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S.

GAAP have been or omitted pursuant to SEC rules and regulations relating to interim financial statements.

The December 31, 2022 balances reported herein were derived from the audited consolidated financial statements.

In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 

10 -K for the year ended December 31, 2021.

The results of operations for the three -month and nine -month periods ended September 30, 2022, are not indicative of the results to be expected for the year ending December 

The results of operations for the three -month period ended March 31, 2023 are not indicative of the results to be expected for the year ending December 31, 2023.

Segment Information

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision maker is its President and Chief Executive Officer as of September 30, 2022.

Based on the criteria established by Accounting Standards Codification 280,  

Segment Reportin g, the Company has one operating and reportable segment.

Business Combinations

Parcus Medical, LLC

On January 24, 2020, the Company completed the acquisition of Parcus Medical pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 ( the “Parcus Medical Merger Agreement”).

Parcus Medical is a sports medicine implant and instrumentation solutions provider focused on surgical repair and reconstruction of soft tissue.

Consideration Transferred

Pursuant to the Parcus Medical Merger Agreement, the Company acquired all outstanding equity of Parcus Medical for estimated total purchase consideration of $ 75.1 million, as of January 24, 2020, which consisted of:

Cash consideration

$ 32,794  

Deferred consideration

Estimated fair value of contingent consideration

40,700  

Estimated total purchase consideration

$ 75,136  

Pursuant to the Parcus Medical Merger Agreement, contingent consideration represents additional payments that the Company may be required to make in the future which could total up to $ 60.0 million depending on the level of net sales of Parcus Medical products generated in 2020 through 2022.

The fair value of contingent consideration related to net sales as of January 24, 2020, and at each reporting date, was determined based on a Monte Carlo simulation model in an option pricing framework, whereby a range of possible scenarios were simulated.

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

During the three months ended September 30, 2022, the Company paid the contingent consideration related to net sales in the amount of $ 4.3 million which was included in current liabilities as of December 31, 2021.

The Company does not expect any further milestones to be achieved.

Acquisition-related costs were not included as a component of consideration transferred but were 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.

Fair Value of Net Assets Acquired

The estimate of fair value as of the acquisition date required the use of significant assumptions and estimates.

Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates.

These estimates were based on assumptions that the Company believes to be reasonable, however, actual results may differ from these estimates.

The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of January 24, 2020, and was as follows:

Recognized identifiable assets acquired and liabilities assumed:

Cash and cash equivalents

The Company’s chief operating decision maker as of March 31, 2023 was its President and Chief Executive Officer.

Based on the criteria established by Accounting Standards Codification 280, Segment Reportin g, the Company has one operating and reportable segment.

Accounts Receivable

10,968  

Prepaid expenses and other current assets

Property and equipment, net

Right-of-use assets

Intangible assets

44,000  

Accounts payable, accrued expenses and other current liabilities

Other long-term liabilities

Lease liabilities

Net assets acquired

55,508  

19,628  

Estimated total purchase consideration

$ 75,136  

The acquired intangible assets based on estimates of fair value as of January 24, 2020 were as follows:

Developed technology

$ 41,100  

Customer relationships

Total acquired intangible assets

$ 44,000  

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 goodwill was impaired in 2020 and there was no remaining goodwill as of December 31, 2020.

Arthrosurface, Inc.

On February 3, 2020, the Company completed the acquisition of Arthrosurface pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 ( the “Arthrosurface Merger Agreement”).

Arthrosurface is a joint preservation technology company specializing in less invasive, bone-preserving partial and total joint replacement solutions.

Consideration Transferred

Pursuant to the Arthrosurface Merger Agreement, the Company acquired all outstanding equity of Arthrosurface for estimated total purchase consideration of $ 90.3 million, as of February 3, 2020 which consisted of:

Cash consideration

$ 61,909  

Estimated fair value of contingent consideration

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 receivable are as follows:

December 31,  

Accounts Receivable

$ 32,166  

Estimated total purchase consideration

$ 36,235  

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.

The fair value of contingent consideration related to regulatory milestones as of February 3, 2020 was determined through a scenario-based discounted cash flow analysis using scenario probabilities and regulatory milestone dates.

The fair value of contingent consideration related to net sales achievement as of February 3, 2020 was determined based upon a Monte Carlo simulation approach at acquisition date, whereby a range of possible scenarios were simulated.

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 September 30, 2022, there were no milestones remaining.

Acquisition-related costs were not included as a component of consideration transferred but were 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.

Fair Value of Net Assets Acquired

The estimate of fair value required the use of significant assumptions and estimates.

Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates.

These estimates were based on assumptions that the Company believes to be reasonable.

However, actual results may differ from these estimates.

The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of February 3, 2020, as follows:

Recognized identifiable assets acquired and liabilities assumed:

Cash and cash equivalents

Allowance for credit losses

Net balance, end of period

30,629  

Accounts receivable

34,627  

Prepaid expenses and other current assets

Property, plant and equipment

Other long-term assets

Intangible assets

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

As of March 31,

Balance, beginning of the period

$ 1,608  

Accounts payable, accrued expenses and other liabilities

Deferred tax liabilities

Net assets acquired

$ 1,442  

Amounts provided

Amounts recovered

( 78 )  

Estimated total purchase consideration

Amounts written off

( 106 )  

Intangible assets acquired consist of:

Developed technology

Translation adjustments

Balance, end of period

$ 1,537  

Customer relationships

Total acquired intangible assets

$ 1,350  

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

A total of $ 0.6 million represents the fair value of IPR&D with an indefinite useful life which was impaired during the quarter ended December 31, 2021.

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 goodwill was impaired in 2020 and there was no remaining goodwill as of December 31, 2020.

Fair Value Measurements

1 unchanged sentence

For cash, accounts receivables, accounts payable, and accrued interest, 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.

Contingent consideration related to the previously described business combinations are classified within Level 3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability.

There were no transfers between fair value levels during the nine -month periods ended September 30, 2022 or 2021.

See Note 3, Business Combinations for additional discussion of contingent consideration as of September 30, 2022.

Active Markets

Significant Other

There were no transfers between fair value levels during the three -month periods ended March 31, 2023 or 2022.

The classification of the Company’s cash equivalents within the fair value hierarchy was as follows:

March 31,  

for Identical

September 30, 2022

Amortized Cost

Assets  

Inputs  

Amortized  

Cash equivalents:

3 unchanged sentences

$ 63,450  

Other current liabilities:

Contingent Consideration - Short Term

Active Markets

Significant Other

December 31,  

for Identical

December 31, 2021

Amortized Cost

Assets  

Inputs  

Amortized  

Cash equivalents:

3 unchanged sentences

$ 67,801  

Other current liabilities:

Contingent Consideration - Short Term

$ 4,315  

Contingent Consideration

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

Nine Months Ended

September 30, 2022

September 30, 2021

Balance, beginning

$ 4,315  

$ 35,410  

( 4,315 )  

Change in fair value

Balance, ending

$ 3,490  

Inventories consist of the following:

September 30,

Raw materials

16 unchanged sentences

$ 56,489  

Inventories are stated net of inventory reserves of $ 10.0 million and $ 9.1 million as of September 30, 2022 and December 31, 2021, respectively.

Inventories are stated net of inventory reserves of approximately $ 11.3 million and $ 9.9 million, as of March 31, 2023 and December 31, 2022, respectively.

Intangible Assets

Nine Months Ended

September 30, 2022

Currency Translation

Average Useful

Intangible assets as of March 31, 2023 and December 31, 2022 consisted of the following:

Three Months Ended March 31, 2023

Developed technology

2 unchanged sentences

$ ( 25,135 )  

$ 62,837  

$ 64,286  

( 1,006 )  

Customer relationships

( 2,852 )  

Distributor relationships

2 unchanged sentences

( 189 )  

The aggregate amortization expense related to intangible assets was $ 1.9 million and $ 2.0 million for the three -month periods ended September 30, 2022 and 2021, respectively, and $ 5.8 million and $ 5.9 million for each of the nine -month periods ended September 30, 2022 and 2021.

The Company assesses goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.

Changes in the carrying value of goodwill for the nine months ended September 30, 2022 were as follows:

Nine Months Ended September 30, 2022

Balance, beginning

( 692 )  

Effect of foreign currency adjustments

Balance, ending

( 3,301 )  

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

As of September 30, 2022, the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida, Warsaw, Indiana and Padova, Italy.

In June 2022, the Company finalized renewal options to extend the current term of its leases for its building and manufacturing facility in Bedford as well as its two facilities in Sarasota.

With the extension of these renewal options, the Bedford lease term extends to 2027 with several lease renewal options into 2038 and the two leases in Sarasota extend to 2027 but may be extended by mutual agreement.

The Sarasota leases also include a right to terminate in 2025 at the Company’s option.

The current term of the Franklin lease extends to 2023 and the current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option without penalty.

The following table summarizes the Company’s significant commitments under lease agreements as of September 30, 2022:

Operating Leases

2022 (Remainder of Year)

$ 112,136  

Present value adjustment

Present value of lease payments

$ ( 3,218 )  

Less current portion included in accrued expenses and other current liabilities

Total lease liabilities

$ ( 36,265 )  

During the three and nine months ended September 30, 2022, the Company incurred lease expense of $ 0.8 million and $ 2.1 million, respectively.

During the three and nine months ended September 30, 2021, the Company incurred lease expense of $ 0.6 million and $ 1.9 million, respectively.

As of September 30, 2022, the weighted average remaining operating lease term was 15.0 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 3.6 %.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

September 30, 2022

December 31, 2021

$ 72,653  

$ 74,599  

The aggregate amortization expense related to intangible assets was $ 1.9 million for the three -month periods ended March 31, 2023 and 2022.

The Company assesses goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.

Changes in the carrying value of goodwill for the three -month ended March 31, 2023 were as follows:

Three Months Ended

Balance, beginning of period

$ 7,339  

Effect of foreign currency adjustments

Balance, ending of period

$ 7,462  

Accrued Expenses

Accrued expenses consist of the following:

Compensation and related expenses

2 unchanged sentences

Professional fees

Operating lease liability –

Parcus arbitration settlement

Operating lease liability - current

Clinical trial costs

Financing lease liability –

Income taxes payable

$ 19,745  

7 unchanged sentences

Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial.

The Company had no accrued warranties as of September 30, 2022 or December 31, 2021 and has no history of claims paid.

The Company had no accrued warranties as of March 31, 2023 or December 31, 2022 and has no history of claims paid.

The Company is also involved from time-to-time in various legal proceedings arising in the normal course of business.

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

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

There are numerous factors that make it difficult to estimate reasonably possible loss or range of loss at this stage of the matter, including the significant number of legal and factual issues still to be resolved in the arbitration process.

The Company intends to vigorously defend against the claims and believes it has strong defenses to the claims asserted.

On October 21, 2021, the Company received notice that the former unitholders of Parcus Medical had filed an arbitration request regarding the earnout provisions of up to $ 60 million, of which the Company paid $ 4.3 million, agreed to in the Parcus Medical Merger Agreement.

On April 20, 2023, the Company and the former unitholders of Parcus Medical entered into a settlement agreement to end the arbitration case.

The Company recorded a liability of $ 3.25 million at March 31, 2023 which was paid to the former unitholders of Parcus Medical in April 2023.

Revenue and Geographic Information

Revenue by product family was as follows: 

Three Months Ended

September 30,

Nine Months Ended

September 30,

Revenue by product family is as follows:

Three Months Ended March 31,

OA Pain Management

1 unchanged sentence

$ 20,964  

$ 74,139  

$ 69,790  

Joint Preservation and Restoration

1 unchanged sentence

12,139  

36,055  

35,296  

Non-Orthopedics

$ 40,264  

$ 39,536  

$ 116,614  

$ 111,973  

Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine (“Mitek”), part of the Johnson & Johnson Medical Companies, as a percentage of the Company’s total revenue was 45 % and 51 % for the three months ended September 30, 2022 and 2021, respectively, and 43 % and 46 % for the nine months ended September 30, 2022 and 2021, respectively

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

Up-front payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements.

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

Deferred revenue was $ 0.1 million and $ 1.0 million as of September 30, 2022 and December 31, 2021, respectively.

Total revenue by geographic location was as follows:

Three Months Ended September 30,

Percentage of

Geographic Location:

United States

$ 31,093  

$ 30,910  

Non-Orthopedic

$ 37,924  

$ 36,693  

Nine Months Ended September 30,

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

Revenue from product sales to veterinary customers amounted to $ 0.5 million and $ 1.8 million for the three months ended March 31, 2023 and 2022, respectively, and are included within the Non-Orthopedic product family for all periods presented.

Accordingly, revenue from product sales to veterinary customers in the prior period have been reclassified to conform to the current period presentation.

Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine, part of the Johnson & Johnson Medical Companies, as a percentage of the Company’s total revenue was 43 % and 39 % for the three months ended March 31, 2023 and 2022, respectively.

Total revenue by geographic location based on the location of the customer in total and as a percentage of total revenue were as follows:

Three Months Ended March 31,  

Percentage of

6 unchanged sentences

$ 36,693  

13,089  

11,181  

$ 116,614  

$ 111,973  

Equity Incentive Plan

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Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.85 million shares of common stock may be issued under the 2017 Plan.

There were 1.2 million shares available for future grant at September 30, 2022 under the 2017 Plan.

There were 0.4 million shares available for future grant at March 31, 2023 under the 2017 Plan.

The Anika Therapeutics, Inc.

3 unchanged sentences

The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended).

There were 4,883 shares available for future grant at September 30, 2022 under the Inducement Plan.

There were 4,883 shares available for future grant at March 31, 2023 under the Inducement Plan.

The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly issued shares or shares reacquired by the Company.

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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):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Cost of revenue

Research & development

Selling, general & administrative

Research and development

Selling, general and administrative

Total stock-based compensation expense

1 unchanged sentence

$ 2,545  

$ 10,502  

$ 7,919  

Stock Options

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

Number of Options

Weighted Average Exercise Price

Weighted Average

Term (in years)

Aggregate Intrinsic

(in thousands)

5 unchanged sentences

( 637 )  

$ 10.87  

Forfeited and canceled

( 11,212 )  

Outstanding as of September 30, 2022

$ 39.77  

Outstanding as of March 31, 2023

1,857,999  

Vested, September 30, 2022

$ 33.95  

Vested, March 31, 2023

915,798  

Vested or expected to vest, September 30, 2022

$ 37.08  

Vested or expected to vest, March 31, 2023

1,857,999  

The aggregate intrinsic value of options exercised for the nine -month period ended September 30, 2022 was immaterial.

The Company granted 486,901 stock options during the nine -month ended September 30, 2022, of which 398,314 shares were premium-priced options.

As of September 30, 2022, there was $ 8.7 million of unrecognized compensation cost related to unvested stock options.

This expense is expected to be recognized over a weighted average period of 1.8 years.

$ 33.95  

The aggregate intrinsic value of options exercised for the three -month period ended March 31, 2023 was immaterial.

The Company granted 339,145 stock options during the three -month ended March 31, 2023.

The Company uses the Black-Scholes pricing model to determine the fair value of options granted.

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 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 were 104,638 TSRs as of September 30, 2022.

The assumptions used in the Black-Scholes pricing model for options granted during the nine months ended September 30, 2022 and 2021, along with the weighted-average grant-date fair values, were as follows:

Nine Months Ended September 30,

The assumptions used in the Black-Scholes pricing model for options granted during the three months ended March 31, 2023 and 2022, along with the weighted-average grant-date fair values, were as follows:

Three Months Ended  

March 31,  

Risk free interest rate

Expected volatility

48.7 %  

49.4 %  

53.8 %  

Expected life (years)

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Fair value per option

 $ 11.71  

 $ 11.37  

As of March 31, 2023, there was $ 9.9 million of unrecognized compensation cost related to unvested stock options.

This expense is expected to be recognized over a weighted average period of 2.1 years.

Restricted Stock Units

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The Company determines the fair value of RSUs based on the closing price of its common stock on the date of grant.

RSU activity for the nine -month period ended September 30, 2022 was as follows:

Number of Shares

Weighted Average Fair Value

RSU activity for the three -month period ended March 31, 2023 was as follows:

Outstanding as of December 31, 2022

4 unchanged sentences

( 177,611 )  

$ 28.98  

Forfeited and cancelled

( 15,010 )  

Outstanding as of September 30, 2022

$ 27.34  

Outstanding as of March 31, 2023

850,953  

The weighted-average grant-date fair value per share of RSUs granted was $ 25.14 for the nine -month period ended September 30, 2022.

The total fair value of RSUs vested was $ 5.8 million and $ 3.9 million for the nine -month periods ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, there was $ 14.8 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 2.0 years.

$ 27.65  

The weighted-average grant-date fair value per share of RSUs granted was $ 26.91 and $ 25.75 for the three -month periods ended March 31, 2023 and 2022, respectively.

The total fair value of RSUs vested was $ 5.7 million and $ 3.3 million for the three -month periods ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, there was $ 19.4 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 2.3 years.

Performance Stock Units

PSU activity for the nine -month ended September 30, 2022 was as follows:

Number of Shares

Weighted Average Fair Value

PSU activity for the three -month ended March 31, 2023 was as follows:

Outstanding as of December 31, 2022

1 unchanged sentence

$ 34.98  

Performance factor adjustment

$ 32.53  

Forfeited and cancelled

( 117,897 )  

Outstanding as of September 30, 2022

$ 34.98  

The total fair value of PSUs vested was $ 0.6 million and $ 0 for the nine -month period ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, none of the milestones related to the outstanding PSUs were expected to be achieved.

The Company recorded an income tax benefit of $ 1.2  million and $ 2.4  million for the 

three - and 

nine -month periods ended  

September 30, 2022 ,  resulting in effective tax rates of 

22.1 % and 

19.5 %, respectively.

The Company recorded income tax expense of $ 0.7  million and $ 1.7  million for the 

three - and 

nine -month periods ended  

September 30, 2021, 

based on effective tax rates of 

55.4 % and 

14.4 %, respectively.

The decrease in the effective tax rate for the 

three -month period ended 

September 30, 2022, 

as compared to the same period in 

2021,  was primarily due to non-deductible stock-option activity during the three -month period ended 

September 30, 2021.

The increase in the effective tax rate for the 

nine -month period ended  

September 30, 2022, 

as compared to the same period in 

2021,  was primarily due to the year-to-date net tax benefit in 

2021  on the change in the fair value of contingent consideration, in the amount of $ 1.1  million, and a year-to-date discrete charge of $ 0.7  million in 

2022  related to non-deductible stock compensation.

Outstanding as of March 31, 2023

The total fair value of PSUs vested was $ 0 and $ 0.6 million for the three -month period ended March 31, 2023 and 2022.

As of March 31, 2023, there are no outstanding PSUs.

The Company recorded an income tax benefit of $ 1.7 million for the three -month period ended March 31, 2023, resulting in an effective tax rate of 13.9 %.

The income tax benefit was $ 0.8 million for the three -month period ended March 31, 2022, resulting in an effective tax rate of 20.9 %.

The net change in the effective tax rate for the three -month period ended March 31, 2023, as compared to the same period in 2022, was primarily due to a valuation allowance being recorded against domestic deferred tax assets.

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.

At December 31, 2022, the Company determined that its domestic deferred tax assets were realizable based upon future reversals of existing taxable temporary differences.

The Company expects to incur an operating loss for 2023.

As a result, the Company anticipates that deferred tax assets originating during the year ended December 31, 2023 will exceed the availability of reversing taxable temporary differences.

Due to significant negative evidence, including the Company’s current and prior year operating losses, the Company concluded its anticipated net deferred tax assets in the U.S.

are not more likely than not to be realizable.

Accordingly, the estimated annual effective tax rate used to compute the income tax provision for the three -month period ended March 31, 2023 includes an adjustment for the valuation allowance required against the U.S deferred tax assets.

As of March 31, 2023, the Company continues to believe its foreign deferred tax assets are realizable based upon future reversals of existing taxable temporary differences and projected future taxable income.

The Company files income tax returns in the United States on a federal basis, in certain U.S.

1 unchanged sentence

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, which varies by jurisdiction.

In connection with the preparation of the financial statements, the Company assessed whether it is more likely than 

not  that it will be able to utilize, in future periods, the Company’s deferred income tax assets to offset future taxable income and tax liabilities.

The Company concluded that it is more likely than 

not  that its deferred tax assets will be realized, after evaluation and consideration of both the positive and negative evidence.

December 31, 2021, 

the Company released a valuation allowance that had been previously recorded related to its net deferred tax assets in Italy in the amount of $ 0.9  million.

The Company did 

not  record a valuation allowance on its deferred tax balances as of 

September 30, 2022.

Earnings Per Share ( “

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The following table provides share information used in the calculation of the Company's basic and diluted earnings per share (in thousands):

Three Month Period Ended

September 30,

Nine Months Ended

September 30,

Shares used in the calculation of basic earnings per share

14,603  

14,429  

Three Months Ended March 31,

Shares used in the calculation of basic EPS

14,653  

1 unchanged sentence

Effect of dilutive securities:

Share-based payment awards

Diluted shares used in the calculation of earnings per share

14,603  

14,647  

Share based awards

Diluted shares used in the calculation of EPS

14,653  

14,466  

The Company had a net loss during the three and nine -months ended September 30, 2022, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

Stock options of 1.1 million shares were outstanding for the nine -month period ended September 30, 2021, respectively, and were not included in the computation of diluted EPS because the awards’

The Company had a net loss during the three -month ended March 31, 2023 and 2022, respectively, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS. Stock options of 1.9 million shares and 1.5 million shares were outstanding for the three -month periods ended March 31, 2023 and 2022, respectively.

Restricted stock units and performance stock units totaling 0.9 million and 0.8 million were outstanding for the three -month periods ended March 31, 2023 and 2022, respectively.

These securities were not included in the computation of diluted EPS because the awards’

impact on EPS would have been anti-dilutive.

Subsequent Event

On April 13, 2023, the Company entered into a Cooperation Agreement (the “Cooperation Agreement”) with Caligan Partners LP (collectively with each of their respective affiliates and associates, the “Investor Group”).

Pursuant to the Cooperation Agreement, the Company has agreed to increase the size of the board of directors to eight directors and appointed an additional independent director.

The Company also agreed to commit to a return of capital program, subject to market conditions, applicable legal requirements and other relevant factors, by establishing a share repurchase program for an aggregate purchase price equal to $ 20,000,000 to occur within twelve months from the date of the Cooperation Agreement as follows:

(i) the first $ 5,000,000 of which will be effected through an accelerated stock repurchase program with an investment bank commencing with the Company’s next open trading window, which will open on or before May 12, 2023, ( ii) the second $ 5,000,000 of which to be purchased in the open market, and (iii) the remaining $ 10,000,000 of which to be purchased in the open market subject to positive cash flow.

MANAGEMENT ’

1 unchanged sentence

You should read the following discussion in conjunction with our financial statements and related notes appearing elsewhere in this report and our audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2022, or our 2022 Form 10-K.

In addition to historical information, this report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning our business, consolidated financial condition, and results of operations.

The Securities and Exchange Commission, or the SEC, encourages companies to disclose forward-looking statements so that investors can better understand a company’s prospects and make informed investment decisions.

In addition to historical information, this report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning our business, consolidated financial condition, and results of operations.

The Securities and Exchange Commission, or the SEC, encourages companies to disclose forward-looking statements so that investors can better understand a company ’

s future prospects and make informed investment decisions.

Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements.

Therefore, you should not rely on any of these forward-looking statements.

“potential,”

and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters.

Forward-looking statements can be identified by such words as "will," "likely," "may," "believe," "expect," "anticipate," "intend," "seek," "designed," "develop," "would," "future," "can," "could," and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters.

All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans, and objectives are forward-looking statements.

Examples of forward-looking statements include, among others, statements regarding the effect of COVID-19 and related impacts on our business, operations, and financial results, expected future operating results, expectations regarding the timing and receipt of regulatory results, anticipated levels of capital expenditures, and expectations of the effect on our financial condition of claims, litigation, and governmental and regulatory proceedings.

Please also refer to those factors described in “Part I, Item 1A.

Please also refer to “Item 1A.

Risk Factors”

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Based on our collaborations with clinicians to understand what they need most to treat their patients, we develop minimally invasive products that restore active living for people around the world.

We are committed to leading in high opportunity spaces within orthopedics, including osteoarthritis, or OA, pain management, regenerative solutions, sports medicine soft tissue repair and bone preserving joint technologies.

We have thirty years of global expertise developing, manufacturing and commercializing products based on and/or enhanced with our hyaluronic acid, or HA, technology platform.

We are committed to leading in high opportunity spaces within orthopedics, including osteoarthritis, or OA, pain management, regenerative solutions, sports medicine and Arthrosurface joint solutions (previously Bone Preserving Joint Technologies).

We have over thirty years of global expertise developing, manufacturing and commercializing products our hyaluronic acid, or HA, technology platform.

HA is a naturally occurring polymer found throughout the body that is vital for proper joint health and tissue function.

Our proprietary technologies for modifying the HA molecule allow product properties to be tailored specifically to multiple uses, including enabling longer residence time to support OA pain management and creating a solid form of HA called Hyaff, which is a platform utilized in our regenerative solutions portfolio.

In early 2020, we expanded our overall technology platform, product portfolio, and significantly enhanced and accelerated our commercial infrastructure, especially in the United States, through our strategic acquisitions of Parcus Medical, a sports medicine and instrumentation solutions provider focused on soft tissue repair, and Arthrosurface, a company specializing in bone preserving partial and total joint replacement solutions.

Through these acquisitions, we have transformed our company.

We expanded our addressable market from the over $1 billion global OA pain management market to the over $8 billion global joint preservation market (which includes the faster growing sports medicine soft tissue repair and extremities segments), advanced our commercial capabilities, instituted systems and processes to support our transformation, and expanded our product pipeline and research and development expertise in our target markets.

As we look towards the future, our business is positioned to capture value within our target market of joint preservation.

We believe our success will be driven by our:

In early 2020, we expanded our overall technology platform, product portfolio, and significantly expanded our commercial infrastructure, especially in the United States, through our strategic acquisitions of Parcus Medical, LLC, or Parcus Medical, a sports medicine and instrumentation solutions provider, and Arthrosurface, Inc, or Arthrosurface, a company specializing in bone preserving partial and total joint replacement solutions.

These acquisitions have ignited the transformation of our company by augmenting our HA-based OA pain management and regenerative products with a broad suite of products and capabilities focused on early intervention joint preservation primarily in upper and lower extremities such as shoulder, foot/ankle, knee and hand/wrist.

As we look forward, our business is positioned to capture value within our target markets in joint preservation.

We believe our future success will be driven by our:

Decades of experience in HA-based regenerative solutions and early intervention orthopedics combined under new seasoned leadership with a strong financial foundation for future investment in meaningful solutions for our customers and their patients;

Robust network of stakeholders in our target markets to identify evolving unmet patient treatment needs;

Prioritized investment in differentiated pipeline of regenerative solutions, bone preserving implants and sports medicine soft tissue repair products;

Leveraging our global commercial expertise and building out our capabilities to drive growth across the portfolio, with an intentional and increased focus on the ambulatory surgery centers site of care in the United States;

Opportunity to pursue strategic inorganic growth opportunities, including potential partnerships and smaller acquisitions, technology licensing, and leveraging our strong financial foundation and operational capabilities;

Utilizing HA-based technology and manufacturing expertise to provide new and differentiated solutions for the faster growing joint preservation and regenerative medicine markets;

Robust network of stakeholders in our target markets that will allow us to identify evolving unmet patient treatment needs;

Prioritized investment in differentiated pipeline of regenerative solutions, bone preserving implants and sports medicine solutions;

Global commercial expertise, which we will leverage to drive growth across our product portfolio, including an intentional site of care focus in ambulatory surgery centers in the United States and continued international expansion;

Pursuit of strategic inorganic growth opportunities, including potential partnerships and smaller acquisitions and technology licensing, by leveraging our strong financial foundation and operational capabilities;

Energized and experienced team focused on strong values, talent, and culture.

COVID-19 Pandemic and Resulting Supply Chain and Staffing Challenges

COVID-19 Pandemic

In March 2020, the World Health Organization declared the spread of the COVID-19 virus a pandemic.

This pandemic has caused an economic downturn on a global scale, as well as significant volatility in the financial markets.

There has been significant volatility in our results on a quarterly basis due to the worldwide cancellation or delay of elective procedures, staffing shortages and supply chain disruptions, as well as the impact on timelines associated with certain clinical studies.

Resurgence of COVID-19 as a result of emerging variants or other factors could result in additional staffing shortages or supply chain disruptions that could impact our business and operations.

We have had some disruption in our ability to supply products to our customers due to supply chain disruptions and staffing shortages which has caused back orders or delays in certain shipments to our customers.

The companies that produce our products, product components or otherwise support our manufacturing processes, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize and store our products, are or could be disrupted, temporarily close or experience worker shortages for a sustained period of time.

To date, we believe we have taken adequate precaution to mitigate the impact of the current disruption of key materials, components and parts to the extent possible and reasonable.

We expect, however, the current supply chain disruption with certain key suppliers to continue, which could have a material adverse effect on our operations.

For additional information on the impact of supply chain disruption related to the COVID-19 pandemic on our manufacturing operations, please refer to the section captioned “Part II, Item 1A.

Risk Factors.

Our commercial day-to-day operations have been impacted due to the worldwide cancellations and/or delays of elective procedures and restrictions on travel for both our employees and our clinician customers, and timelines associated with certain clinical studies and research and development programs have been delayed.

While the impact has been limited to these items to date, we caution that there continues to be a possibility for potential future implementation of certain additional restrictions or other challenges associated with infections, staffing shortages, volatility in elective surgical procedures or supply chain disruptions due to COVID-19 and its current or new variants in certain jurisdictions. In particular, supply constraints that have continued into 2022 that we have partially been able to mitigate to date have impacted and could be expected to impact our ability to produce and supply our products.

The impact of these challenges is currently unknown but could be significant.

This pandemic has caused an economic downturn globally, which created volatility in our results due to the worldwide cancellation or delay of elective procedures, staffing shortages and supply chain disruptions, as well as the impact on timelines associated with certain clinical studies.

Please see the section captioned “Part I.

Risk Factors”

of our Annual Report on Form 10-K for additional information with respect to the risks faced by our business in light of the COVID-19 pandemic.

The impact of these challenges is currently unknown but could be significant and we continue to take precautions so as not to disrupt our business.

OA Pain Management

Our OA Pain Management product family consists of:

Monovisc and Orthovisc, our single- and multi-injection, HA-based viscosupplement product offerings indicated to provide pain relief from OA conditions solely for use in the knee.

Our OA Pain Management products are generally administered to patients in an office setting.

In the United States, Monovisc and Orthovisc are marketed exclusively by DePuy Synthes Mitek Sports Medicine, or “Mitek”, part of the Johnson & Johnson Medical Companies.

In December 2011, we entered into a fifteen-year licensing agreement with Mitek to exclusively market Monovisc in the United States through December 2026.

In December 2003, we entered into a ten-year licensing agreement with Mitek to exclusively market Orthovisc in the United States.

Mitek extended this agreement for additional five-year terms in 2007, 2012, 2017 and most recently in August 2022.

The current agreement expires on December 20, 2028 unless extended at the option of Mitek.

The Monovisc and Orthovisc products have been the market leaders, based on combined overall revenue in the viscosupplement market, since 2018.

Internationally, we market our OA Pain Management products directly through a worldwide network of commercial distributors.

Cingal, our novel, third-generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid.

Cingal is designed to provide both short- and long-term pain relief.

Cingal is CE Mark approved and for several years has been sold outside the United States directly in over 35 countries through our network of distributors.

In the United States, Cingal is a pipeline product currently in clinical development and is not available for commercial sale.

Hyvisc, our high molecular weight injectable HA veterinary product approved for the treatment of joint dysfunction in horses due to non-infectious synovitis associated with equine OA.

Our OA Pain Management product family consists of Monovisc and Orthovisc, our single- and multi-injection, HA-based viscosupplement offerings that are indicated to provide pain relief from osteoarthritis conditions;

and Cingal, our novel, next-generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid, designed to provide both short- and long-term pain relief, which is currently sold outside the United States in over 35 countries.

Joint Preservation and Restoration

Our Joint Preservation and Restoration product family consists of: 

Bone Preserving Joint Technologies .

Our portfolio of more than 150 bone preserving joint technologies, including partial joint replacement, joint resurfacing, and minimally invasive and bone sparing implants, is designed to treat upper and lower extremity orthopedic conditions as well as knee and hip conditions caused by arthritic disease, acute trauma and injury.

These products span multiple joints including the shoulder, foot/ankle, wrist, knee and hip and are generally intended to restore a patient’s natural anatomy and movement.

These products are often used to treat patients with OA progression beyond where our OA Pain Management products can allow the patients to retain an active lifestyle when early surgical intervention becomes preferable.

Soft Tissue Repair .

Our line of soft tissue repair solutions is used by surgeons to repair and reconstruct damaged ligaments and tendons resulting from sports injuries, acute trauma and disease.

These more traditional sports medicine solutions include screws, sutures, suture anchors, grafts and other surgical systems that facilitate surgical procedures on the shoulder, knee, hip, upper and lower extremities, and other soft tissues.

Regenerative Solutions .

Our portfolio of orthopedic regenerative solutions leveraging our proprietary technologies based on HA and Hyaff, which is a solid form of HA.

These products include Tactoset Injectable Bone Substitute, an HA-enhanced injectable bone repair therapy designed to treat insufficiency fractures and for augmenting hardware fixation, such as suture anchors and Hyalofast, a biodegradable support for human bone marrow mesenchymal stem cells used for cartilage regeneration and as an adjunct for microfracture surgery.

Tactoset cleared and commercialized principally in the United States, whereas Hyalofast is CE Mark approved and currently available outside the United States in over 35 countries within Europe, South America, Asia, and certain other international markets.

In the United States, Hyalofast is a product under clinical trial studies and is not available for commercial sale.

We currently commercialize Bone Preserving Joint Technologies, Soft Tissue Repair products, and Tactoset (from our Regenerative Solutions portfolio) in the United States by selling to hospitals and ambulatory surgery centers, through an independent network of sales representatives and distributors, and utilize our distributor network for sales in certain international markets.

Our Joint Preservation and Restoration product family consists of:

(a) Our portfolio of orthopedic regenerative solutions products, including Hyalofast and Tactoset;

(b) our line of sports medicine solutions used to repair and reconstruct damaged ligaments and tendons due to sports injuries, trauma and disease;

and (c) our portfolio of over 150 bone preserving joint technologies, including partial joint replacement, joint resurfacing, and minimally invasive and bone sparing implants, designed to treat upper and lower extremity orthopedic conditions caused by trauma, injury and arthritic disease.

Non-Orthopedic

Our Non-Orthopedic product family consists of legacy HA-based products that are marketed principally for non-orthopedic applications.

These products include Hyalobarrier, an anti-adhesion barrier indicated for use after abdomino-pelvic surgeries, Hyalomatrix, used for the treatment of complex wounds such as burns and ulcers, as well as products used in connection with the treatment of ears, nose and throat disorders, and ophthalmic products, including injectable, high molecular weight HA products such as Anikavisc and Nuvisc, used as viscoelastic agents in ophthalmic surgical procedures such as cataract extraction and intraocular lens implantation.

These Non-Orthopedic products are sold through commercial sales and marketing partners around the world.

Our Non-Orthopedic product family consists of legacy HA-based products that are marketed principally for non-orthopedic applications, including our anti-adhesion barrier product, advanced wound care products, our ear, nose and throat products, and our ophthalmic products.

We have also reclassified Hyvisc, our high molecular weight injectable HA veterinary product approved for the treatment of joint dysfunction in horses due to non-infectious synovitis associated with equine OA.

Hyvisc was previously reported in the OA Pain Management product family but has been reclassified to the Non-Orthopedic product family.

Results of Operations

Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except percentages)

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Three Months Ended March 31,

(in thousands, except percentages)  

Cost of revenue

Operating expenses:

Research & development

Selling, general & administrative

Change in fair value of contingent consideration

Research and development

Selling, general and administrative

Total operating expenses

(Loss) income  from operations

Loss from operations

Interest and other income (expense), net

(Loss) income before income taxes

(Benefit from) provision for income taxes

Net (loss) income

Revenue for the three-month period ended September 30, 2022 was $40.3 million, an increase of $0.8 million as compared to $39.5 million for the three-month period ended September 30, 2021.

Revenue for the nine-month period ended September 30, 2022 was $116.6 million, an increase of $4.6 million as compared to $112.0 million for the nine-month period ended September 30, 2021.

The following tables present product revenue by product family:

Three Months Ended September 30,

OA Pain Management

Joint Preservation and Restoration

Non-Orthopedic

Nine Months Ended September 30,

Loss before income taxes

Benefit from for income taxes

The following table presents revenue by product family for the three-month period ended March 31, 2023 and 2022 as follows:

Three Months Ended March 31,

(in thousands, except percentages)

OA Pain Management

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Non-Orthopedic

For the three-month period ended September 30, 2022, the increase in revenue was mainly due to growth in Joint Preservation and Restoration revenues as hospitals and ASCs recover from the COVID 19 pandemic and higher Non-Orthopedic revenues from the sales of certain legacy products related to end-of-life purchases.

This revenue increase was offset by lower US OA Pain Management revenue primarily related to ordering patterns from Mitek in the prior year.

For the nine-month period ended September 30, 2022, the increase in revenue was mainly due an increase in OA Pain Management revenues from international viscosupplement distributors and Hyvisc equine product sales due to recovery from the COVID 19 pandemic as well as favorable ordering patterns, offset by lower US OA Pain Management sales to Mitek as a result of ordering patterns in the prior year.

The increase in total revenue was also due to an increase in Joint Preservation and Restoration revenues as hospitals and ASCs performing more procedures as they recover from COVID 19 pandemic, which however remained limited due in part to constraints on staffing, offset by lower Non-Orthopedic revenue in part related to the timing of orders on legacy products.

Revenue from our OA Pain Management product family increased 8% for the three-month period ended March 31, 2023, as compared to the same period in 2022, due primarily to favorable strategic partner ordering patterns and sales growth on increasing customer demand, offset in part by unfavorable international distributor ordering patterns as strategic partner and distributor ordering patterns can vary significantly on a quarterly basis.

Revenue from our Joint Preservation and Restoration product family increased 11% for the three-month period ended March 31, 2023, as compared to the same period in 2022, due primarily due to improving elective procedure volumes and rapidly growing commercial adoption of our newest products.

Revenue from our Non-Orthopedic product family decreased 49% for the three-month ended March 31, 2023, as compared to the same period in 2022, primarily due to unfavorable timing of distributor ordering patterns as well as due to end of life of certain legacy products.

Gross Profit and Margin

Gross profit for the three -and nine -month periods ended September 30, 2022 decreased by $0.2 million and increased by $4.6 million, to $22.8 million and $69.4 million, respectively.

The decrease in gross profit for the three-month period ended September 30 2022 was related to a reserve of $2.6 million primarily associated with inventory for certain legacy Non-Orthopedic products that the Company no longer expects to sell.

The increase in gross profit for the nine-month period ended September 30, 2022, as compared to the same period in 2021 was primarily due to increased revenue as well as the impact of inventory step-up charges associated with the acquisitions of Arthrosurface and Parcus Medical in 2021.

Gross margin for the three- and nine-month periods ended September 30, 2022 was 57% and 60%, respectively.

Gross margin for the three- and nine-month periods ended September 30, 2021 was 58% for each period.

The decrease in gross margin for the three-month period ended September 30, 2022 was due primarily to product rationalization charges in the third quarter of 2022.

The increase in gross margin for the nine-month period ended September 30, 2022 was due primarily to the unfavorable impact of inventory step-up charges associated with the Arthrosurface and Parcus Medical in 2021.

Gross profit for the three-month period ended March 31, 2023 increased $1.0 million to $22.8 million, representing a 60% gross margin for the period as compared to 59% in the prior year.

The increase in gross profit for the three-month period ended March 31, 2023, as compared to the same period in 2022, was primarily resulted from increased revenue.

Gross margin for the three-month period ended March 31, 2023, increased compared to the same period of prior year due primarily to improved production volumes.

Research and Development

Research and development expenses for the three- and nine-month periods ended September 30, 2022 were $7.3 million and $20.4 million, a decrease of $0.4 million and $0.9 million, respectively as compared to the same period in 2021.

The decreases for the three-month and nine-month periods ended September 30, 2022 were primarily due to lower clinical trial spending, associated with the conclusion of our Cingal Phase III trial in 2022.

Research and development expenses for the three-month period ended March 31, 2023 were $8.4 million, an increase of $2.2 million as compared to the same period in 2022.

The increase was primarily related to increased costs to comply with growing regulatory requirements globally as well as new product development associated with our research and development pipeline and scale-up manufacturing activities.

Selling, General and Administrative

Selling, general and administrative, or SG&A expenses for the three- and nine-month periods ended September 30, 2022 were $21.3 million and $61.7 million representing an increase of $3.8 million and $8.0 million, respectively as compared to the same period in 2021.

This increase in SG&A expense for the three-month and nine-month periods ended September 30, 2022, was primarily due to expansion of our commercial capabilities in the United States and expanded marketing activities and other operational capabilities to support the growing business needs.

Certain marketing and medical education activities also were more limited in 2021 due to the COVID-19 pandemic.

The increase in SG&A expense was also due to higher stock-based compensation expense in 2022 driven by a change in headcount associated with the Company’s strategic transformation that accelerated in 2020 and 2021.

Contingent Consideration Fair Value Change

The fair value of contingent consideration as of September 30, 2022 did not change compared to December 31, 2021.

During the three-month and six-month periods ended September 30, 2021, the change in the fair value of contingent consideration liabilities was $3.5 million and $21.9 million, respectively, resulting in a non-cash benefit to net income in those periods.

The benefit from income taxes was $1.2 million and $2.4 million for the three- and six-month periods ended September 30, 2022, resulting in effective tax rates of 22.1% and 19.5%, respectively.

The provision for income taxes was $0.7 million and $1.7 million for the three- and nine-month periods ended September 30, 2021, based on effective tax rates of 55.4% and 14.4%, respectively.

The decrease in the effective tax rate for the three-month period ended September 30, 2022, as compared to the same period in 2021, was primarily due to non-deductible stock-option activity during the three-month period ended September 30, 2021.

The increase in the effective tax rate for the nine-month period ended  September 30, 2022, as compared to the same period in 2021, was primarily due to the net tax benefit in 2021 on the change in the fair value of contingent consideration and non-deductible stock compensation in 2022.

Net (Loss) Income

For the three and nine-month periods ended September, 2022, net loss was $4.2 million and $10.0 million, or $0.29 per diluted share and $0.68 per diluted share, respectively, compared to net income of $0.6 million and $9.9 million, or $0.04 per diluted share and $0.68 per diluted share, for the same periods in prior year.

The decrease in net income and diluted earnings per share was primarily due to the change in fair value of contingent consideration of $21.9 million for the nine-months ended September 30, 2021, as well as increased spending to expand our commercial capability in the United States, partially offset by increased revenue.

Selling, general and administrative expenses for the three-month period ended March 31, 2023 were $27.0 million, an increase of $7.8 million, as compared to the same period in 2022.

This increase for the three-month period ended March 31, 2023 was primarily due to $5.8 million of non-recurring costs incurred during the quarter related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs.

The growth in SG&A expenses also reflects expansion of our commercial capabilities and marketing activities, as well as higher stock-based compensation expense in part driven by forfeitures in the first quarter of 2022.

The benefit from income taxes was $1.7 million for the three-month period ended March 31, 2023, resulting in an effective tax rate of 13.9%.

The benefit from income taxes was $0.8 million for the three-month period ended March 31, 2022, resulting in an effective tax rate of 20.9%.

The net change in the effective tax rate for the three-month period ended March 31, 2023, as compared to the same period in 2022, was primarily due to a valuation allowance in 2023 being recorded against domestic deferred tax assets.

For the three-month period ended March 31, 2023, net loss was $10.4 million, or $0.71 per diluted share, compared to net income of $2.9 million, or $0.20 per diluted share, for the same period in prior year.

The decrease in net income and diluted earnings per share was primarily due to the non-recurring expenses related to the Parcus Medical arbitration settlement, shareholder activism and other non-recurring corporate costs.

Non-GAAP Financial Measures

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We define adjusted gross margin as adjusted gross profit divided by total revenue.

The following is a reconciliation of adjusted gross profit to gross profit for the three- and nine-month periods ended September 30, 2022 and 2021, respectively:

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Product rationalization related charges

The following is a reconciliation of adjusted gross profit to gross profit for the three-month periods ended March 31, 2023 and 2022, respectively:

Three-Month Periods Ended March 31,

Acquisition related intangible asset amortization

Acquisition related inventory step up

Adjusted gross profit

Adjusted gross margin

Adjusted gross profit for the three- and nine-month periods ended September 30, 2022 increased by $1.0 million and decreased $1.0 million to $27.0 million and $76.8 million, respectively, representing adjusted gross margin of 67% and 66%.

Adjusted gross profit for the three- and nine-month periods ended September 30, 2021 was $26.0 million and $77.8 million, respectively, representing gross margin of 66% and 69%, respectively.

The decrease in adjusted gross margin for the nine-month period ended September 30, 2022, was primarily due to higher manufacturing costs and production inefficiencies caused in part by supply chain and staffing challenges.

Adjusted EBITDA  

We present information below with respect to adjusted EBITDA, which we define as our net income (loss) excluding interest and other income, net, income tax benefit (expense), depreciation and amortization, stock-based compensation, product rationalization, and acquisition related expenses.

In light of the COVID-19 pandemic, we have also excluded the impacts of goodwill impairment charges and changes in the fair value of contingent consideration associated with our acquisition transactions in early 2020.

Adjusted gross profit for the three-month period ended March 31, 2023 increased $1.0 million to $24.4 million representing adjusted gross margin of 64%.

Adjusted gross profit for the three-month period ended March 31, 2022 was $23.4 million, or adjusted gross margin of 64%.

There was no change in adjusted gross margin for the three-month period ended March 31, 2023 as compared to 2022, as the impact of improved production volumes was offset by unfavorable product mix in 2023.

Adjusted EBITDA

We present information below with respect to adjusted EBITDA, which we define as our net income (loss) excluding interest and other expense, net, income tax benefit, depreciation and amortization, stock-based compensation, and acquisition-related expenses.

Adjusted EBITDA is not prepared in accordance with US GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with US GAAP.

There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest US GAAP equivalent.

There are a number of limitations related to the use of adjusted EBITDA rather than net (loss) income, which is the nearest US GAAP equivalent.

Some of these limitations are:

adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;

we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our employee compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses likely would be higher, which would affect our cash position;

we exclude acquisition related expenses, including transaction costs and other related expenses, amortization and depreciation of acquired assets in recent acquisitions, and the impact of inventory fair-value step up on cost of revenue;

we exclude certain impairment charges, including certain product rationalization charges as a result of managing our financial position in light of our recent acquisitions, the impact of COVID-19 and changing regulatory requirements;

we exclude goodwill impairment charges and changes in the fair value of contingent consideration;

the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

adjusted EBITDA does not reflect (benefit from) provision for income taxes or the cash requirements to pay taxes; and

adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments.

The following is a reconciliation of net income (loss) to adjusted EBITDA for the three- and nine-month periods ended September 30, 2022 and 2021, respectively:

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Net (loss) income

Interest and other expense, net

(Benefit from) provision for income taxes

we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;

we exclude acquisition related expenses, including, amortization and depreciation of acquired assets in recent acquisitions, and the impact of inventory fair-value step up on cost of revenue;

The following is a reconciliation of adjusted EBITDA to net loss for the three-month periods ended March 31, 2023 and 2022, respectively:

Three Months Ended March 31,

(in thousands)

Interest and other (income) expense, net

Benefit from income taxes

Depreciation and amortization

Share-based compensation

Product rationalization

Arbitration settlement

Acquisition related intangible asset amortization

Acquisition related inventory step up

Change in fair value of contingent consideration

Costs of shareholder activism

Adjusted EBITDA

Adjusted EBITDA for the three-month period ended September 30, 2022, decreased by $1.6 million as compared with the same period in 2021.

The decrease in adjusted EBITDA for the period was primarily due to increased commercial spending to support future growth as certain marketing and medical education activities were more limited in 2021.

Adjusted EBITDA for the nine-month period ended September 30, 2022, decreased $5.9 million as compared with the same period in 2021.

The decrease in adjusted EBITDA for the period was primarily due to lower adjusted gross profit, from higher manufacturing costs and production inefficiencies caused in part by supply chain and staffing challenges, as well as an increase in operating expenses primarily attributable to expansion of our commercial capability in the United States.

Adjusted Net Income (Loss) and Adjusted EPS

We present information below with respect to adjusted net income (loss) and adjusted EPS.

We define adjusted net income (loss) as our net income (loss) excluding acquisition-related expenses, amortization and depreciation of acquired assets, the impact of inventory fair-value step up on cost of revenue and the impacts of goodwill impairment charges and changes in the fair value of contingent consideration, as well as certain impairment charges, including product rationalization charges, on a tax effected basis.

Acquisition related expenses are those that we would not have incurred except as a direct result of acquisition transactions.

Acquisition related expenses consist of investment banking, legal, accounting, and other professional and related expenses.

Adjusted EBITDA in the three-month period ended March 31, 2023 decreased $3.8 million as compared with the same period in 2022.

The decrease in adjusted EBITDA for the period was primarily due to an increase in operating expenses largely attributable to costs to comply with growing regulatory requirements globally, expansion of our operational capabilities to support our continued growth as well as certain non-recurring corporate costs.

Adjusted Net (Loss) Income and Adjusted EPS

We present information below with respect to adjusted net (loss) income and adjusted EPS.

We define adjusted net (loss) income as our net (loss) income excluding amortization and depreciation of acquired assets, the impact of inventory fair-value step up on cost of revenue and changes in the fair value of contingent consideration, on a tax effected basis.

The amortized assets contribute to revenue generation, and the amortization of such assets will recur in future periods until such assets are fully amortized.

These assets include the estimated fair value of certain identified assets acquired in acquisitions, including in-process research and development, developed technology, customer relationships and acquired tradenames.

We define adjusted EPS as US GAAP diluted earnings (loss) per share excluding the above adjustments to net income used in calculating adjusted net income, each on a per share and tax effected basis.

The following is a reconciliation of adjusted net income (loss) to net income (loss) for the three- and nine-month periods ended September 30, 2022 and 2021, respectively:

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Net (loss) income

Product rationalization, tax effected

Impairment on property and equipment;

Acquisition related intangible asset amortization;

Acquisition related inventory step up, tax effected

Change in fair value of contingent consideration, tax effected

Adjusted net (loss) income

The following is a reconciliation of adjusted EPS to diluted earnings (loss) per share for the three- and nine-month periods ended September 30, 2022 and 2021:

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

Diluted (loss) earnings per share (EPS)

Product rationalization, tax effected

Impairment on Property and Equipment

Acquisition related intangible asset amortization;

Acquisition related inventory step up, tax effected

Change in fair value of contingent consideration, tax effected

Adjusted diluted (loss) earnings per share (EPS)

Adjusted net (loss) income and adjusted diluted (loss) income per share in the three-month period ended September 30, 2022 decreased by $1.5 million or $0.10, respectively, as compared with the same period in 2021.

The decrease for the period was primarily due to increased commercial spending to support future growth as certain marketing and medical education activities were more limited in 2021.

Adjusted net (loss) income in and adjusted diluted (loss) income per share the nine-month period ended September 30, 2022, decreased $6.9 million or $0.48, as compared with the same period in 2021.

The decrease in adjusted net income for the period was primarily due to lower adjusted gross profit, from higher manufacturing costs and production inefficiencies caused in part by supply chain and staffing challenges due largely to the impact of the COVID-19 pandemic, as well as an increase in selling and marketing expenses primarily attributable to increased cost to support our commercial capability in the United States and an increase in stock-based compensation expense driven by incremental headcount associated with the Company’s strategic transformation that accelerated in 2020 and 2021.

We define adjusted EPS as GAAP diluted earnings per share excluding the above adjustments to net (loss) income used in calculating adjusted net (loss) income, each on a per share and tax effected basis.

The following is a reconciliation of adjusted net (loss) income to net (loss) income for the three-month periods ended March 31, 2023 and 2022, respectively:

Three Months Ended March 31,

(in thousands)

Arbitration settlement, tax effected

Acquisition related intangible asset amortization, tax effected

Costs of shareholder activism, tax effected

Adjusted net loss

The following is a reconciliation of adjusted diluted EPS to diluted EPS for the three-month periods ended March 31, 2023 and 2022, respectively:

Three Months Ended March 31,

Diluted loss per share

Arbitration settlement, tax effected

Acquisition related intangible asset amortization, tax effected

Costs of shareholder activism, tax effected

Adjusted diluted loss per share

Adjusted net loss and adjusted diluted loss per share in the three-month period ended March 31, 2023 increased $3.8 million and $0.25, respectively, as compared with the same period in 2022.

The increase for the period was primarily due to an increase in operating expenses largely attributable to expansion of our operational capabilities to support our growing business needs as well as non-recurring expenses related to the Parcus Medical arbitration settlement, shareholder activism and other non-recurring corporate costs.

Liquidity and Capital Resources

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We continue to generate cash from operating activities and believe that our operating cash flows, cash currently on our condensed consolidated balance sheet and availability under our credit facility will be sufficient to allow us to continue to invest in our existing business, to manage our capital structure on a short and long-term basis, and to meet our anticipated operating cash needs.

Cash, cash equivalents, and investments aggregated $87.8 million and $94.4 million, and working capital totaled $141.4 million and $138.7 million, at September 30, 2022 and December 31, 2021, respectively.

Cash, cash equivalents, and investments aggregated $79.7 million and $86.3 million, and working capital totaled $131.6 million and $141.6 million, at March 31, 2023 and December 31, 2022, respectively.

We are closely monitoring our liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on our operations.

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Subject to certain conditions, we may request up to an additional $75.0 million for a maximum aggregate commitment of $150.0 million.

As of September 30, 2022, and December 31, 2021, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

Nine Months Ended

September 30,

As of March 31, 2023, and December 31, 2022, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

Summary of Cash Flows (in thousands):

Three Months Ended March 31,

Cash provided by (used in)

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Net decrease in cash and cash equivalents

The following changes contributed to the net change in cash and cash equivalents in the nine-month period ended September 30, 2022 as compared to the same period in 2021.

The following changes contributed to the net change in cash and cash equivalents in the three-month period ended March 31, 2023 as compared to the same period in 2022.

Operating Activities

Cash provided by operating activities was $3.9 million for nine-month period ended September 30, 2022 was consistent with the same period in 2021, as the higher net loss was in part a result of higher non-cash stock compensation expense, and was offset by an improvement in working capital attributable to timing of collections and inventory purchases.

For the foreseeable future, we expect to continue to invest in research and development for new products and clinical studies as well as continued investment in our commercial infrastructure to support our growth strategy.

These costs will be funded with a combination of cash on hand and cash expected to be generated from future operations. 

Cash used in operating activities was $3.6 million for the three-month period ended March 31, 2023, as compared to cash used in operating activities of $1.9 million for the same period in 2022.

The increase in cash used in operating activities in 2023 was primarily due to a higher net loss and an increase in inventories.

For the foreseeable future, we expect to continue to invest substantial resources in research and development as well as continued investment in our commercial and operational infrastructure to support our growth strategy.

These costs will be funded with a combination of cash on hand and cash expected to be generated from future operations.

Investing Activities

Cash used in investing activities was $5.0 million for the nine-month period ended September 30, 2022, as compared to cash used in investing activities of $1.9 million for the same period in 2021.

The change was primarily due to an increase in capital expenditures to support commercial growth of the business in the nine-month period ended September 30, 2022 and proceeds from maturities of investments that occurred in 2021.

Cash used in investing activities was $1.4 million for the three-month period ended March 31, 2023, as compared to cash used in investing activities of $1.3 million for the same period in 2022.

The change was primarily due to an increase in capital expenditures to support commercial growth of the business in the three-month period ended March 31, 2023.

Financing Activities

Cash used in financing activities was $5.5 million for the nine-month period ended September 30, 2022, as compared to cash used in financing activities of $6.8 million for the same period in 2021.

The change was primarily attributable to lower contingent consideration payments in 2022 and lower stock option exercises in 2022.

Cash used in financing activities was $1.6 million for the three-month period ended March 31, 2023, as compared to cash used in financing activities of $0.9 million for the same period in 2022.

In both periods, the cash used in financing activities was primarily attributable to utilization of cash for employee tax withholding in exchange for shares surrendered by equity award holders.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with US GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We believe that our accounting policies for revenue recognition, accounts receivable and allowance for credit losses, goodwill, acquired in-process research and development, inventory and contingencies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties.

There have been no significant changes to the above critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our 2021 Form 10-K for the year ended December 31, 2021 We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future.

We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future.

Changes in estimates are recorded in the period in which they become known.

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Recent Accounting Pronouncements

A discussion of Recent Accounting Pronouncements is included in our 2021 Form 10-K for the fiscal year ended December 31, 2021.

A discussion of Recent Accounting Pronouncements is included in our 2022 Form 10-K for the fiscal year ended December 31, 2022 and is updated in the Notes to the condensed consolidated financial statements included in this report.

Contractual Obligations and Other Commercial Commitments

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in our 2022 Form 10-K for the year ended December 31, 2022.

There were no material changes to our contractual obligations reported in our 2021 Form 10-K during the nine months ended September 30, 2022 other than changes in operating leases reported in Note 8.

There were no material changes to our contractual obligations reported in our 2022 Form 10-K during the three months ended March 31, 2023.

For additional discussion, see Note 9 to the condensed consolidated financial statements included in this report.

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No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.

Off-Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing techniques that we believe have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.

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-Q

Item 1. Financial Statements