Anika Therapeutics, Inc. 10-Q

anik20230630_10q.htm     UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   FORM 10-Q     ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended June 30, 2023     ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from           to   Commission File Number 001-14027   Anika Therapeutics, Inc. (Exact Name of Registrant as Specified in Its Charter)   Delaware 04-3145961 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)   32 Wiggins Avenue , Bedford , Massachusetts 01730 (Address of Principal Executive Offices) (Zip Code)   ( 781 ) 457-9000 (Registrant’s Telephone Number, Including Area Code)   N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)   Securities registered pursuant to Section 12(b) of the Act:   Title of Each Class Trading Symbol Name of Each Exchange on Which Registered Common Stock, par value $0.01 per share ANIK NASDAQ Global Select Market   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting Emerging growth       company ☐ company ☐             If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒   APPLICABLE ONLY TO CORPORATE ISSUERS:   As of July 31, 2023, there were 14,631,112 outstanding shares of Common Stock, par value $0.01 per share.           ANIKA THERAPEUTICS, INC. TABLE OF CONTENTS       Page Part I Financial Information 3 Item 1. Condensed Consolidated Financial Statements (unaudited): 3   Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 3   Condensed Consolidated Statement of Operations and Comprehensive Income for the three and six months ended June 30, 2023 and 2022 4   Condensed Consolidated Statements of Stockholders ’   Equity for the three and six months ended June 30, 2023 and 2022 5   Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 6   Notes to Condensed Consolidated Financial Statements 7 Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 25 Item 4. Controls and Procedures 25 Part II Other Information 25 Item 1. Legal Proceedings 25 Item 1A. Risk Factors 25 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 5. Other Information 26 Item 6. Exhibits 27 Signatures   28   References in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” “our company,” and other similar references refer to Anika Therapeutics, Inc. and its subsidiaries unless the context otherwise indicates.   ANIKA, ANIKA THERAPEUTICS, ARTHROSURFACE, CINGAL, HYAFF, HYVISC, MONOVISC, ORTHOVISC, PARCUS MEDICAL, and TACTOSET are our registered trademarks that appear in this Quarterly Report on Form 10-Q. For convenience, these trademarks appear in this Quarterly Report on Form 10-Q without ® and â„¢ symbols, but that practice does not mean that we will not assert, to the fullest extent under applicable law, our rights to the trademarks. This Quarterly Report on Form 10-Q also contains trademarks and trade names that are the property of other companies and licensed to us.               PART I: FINANCIAL INFORMATION     ITEM 1. FINANCIAL STATEMENTS   Anika Therapeutics, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except per share data) (unaudited)       June 30,     December 31,   ASSETS   2023     2022   Current assets:                 Cash and cash equivalents   $ 65,071     $ 86,327   Accounts receivable, net     36,737       34,627   Inventories, net     42,604       39,765   Prepaid expenses and other current assets     7,789       8,828   Total current assets     152,201       169,547   Property and equipment, net     47,988       48,279   Right-of-use assets     29,631       30,696   Other long-term assets     19,390       17,219   Deferred tax assets     1,498       1,449   Intangible assets, net     70,707       74,599   Goodwill     7,467       7,339   Total assets   $ 328,882     $ 349,128                     LIABILITIES AND STOCKHOLDERS ’ EQUITY                                   Current liabilities:                 Accounts payable   $ 7,944     $ 9,074   Accrued expenses and other current liabilities     15,512       18,840   Total current liabilities     23,456       27,914   Other long-term liabilities     401       398   Deferred tax liability     3,235       6,436   Lease liabilities     27,775       28,817   Commitments and contingencies (Note 9)                     Stockholders’ equity:                 Preferred stock, $ 0.01 par value; 1,250 shares authorized, no shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively     -       -   Common stock, $ 0.01 par value; 90,000 shares authorized, 14,816 issued and 14,657 outstanding and 14,625 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively     147       146   Additional paid-in-capital     82,397       81,141   Accumulated other comprehensive loss     ( 6,157 )     ( 6,443 ) Retained earnings     197,628       210,719   Total stockholders’ equity     274,015       285,563   Total liabilities and stockholders’ equity   $ 328,882     $ 349,128       The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   3       Anika Therapeutics, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share data) (unaudited)       For the Three Months Ended June 30,     For the Six Months Ended June 30,       2023     2022     2023     2022   Revenue   $ 44,302     $ 39,657     $ 82,226     $ 76,350   Cost of revenue     15,330       14,795       30,411       29,684   Gross Profit     28,972       24,862       51,815       46,666                                     Operating expenses:                                 Research and development     8,914       6,975       17,314       13,132   Selling, general and administrative     23,689       21,268       50,685       40,469   Total operating expenses     32,603       28,243       67,999       53,601   Loss from operations     ( 3,631 )     ( 3,381 )     ( 16,184 )     ( 6,935 ) Interest and other income (expense), net     561       96       1,100       ( 58 ) Loss before income taxes     ( 3,070 )     ( 3,285 )     ( 15,084 )     ( 6,993 ) Benefit from income taxes     ( 329 )     ( 442 )     ( 1,993 )     ( 1,217 ) Net loss   $ ( 2,741 )   $ ( 2,843 )   $ ( 13,091 )   $ ( 5,776 )                                   Net loss per share:                                 Basic   $ ( 0.19 )   $ ( 0.20 )   $ ( 0.89 )   $ ( 0.40 ) Diluted   $ ( 0.19 )   $ ( 0.20 )   $ ( 0.89 )   $ ( 0.40 )                                   Weighted average common shares outstanding:                                 Basic     14,688       14,555       14,671       14,511   Diluted     14,688       14,555       14,671       14,511                                     Net loss   $ ( 2,741 )   $ ( 2,843 )   $ ( 13,091 )   $ ( 5,776 ) Foreign currency translation adjustment     14       ( 847 )     286       ( 928 ) Comprehensive loss   $ ( 2,727 )   $ ( 3,690 )   $ ( 12,805 )   $ ( 6,704 )   The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.     4       Anika Therapeutics, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders' Equity (in thousands, except per share data) (unaudited)       Six Months Ended June 30, 2023       Common Stock             Accumulated               Number of     $.01 Par     Additional Paid     Retained     Other Comprehensive     Total Stockholders'       Shares     Value     in Capital     Earnings     Loss     Equity   Balance, January 1, 2023     14,625     $ 146     $ 81,141     $ 210,719     $ ( 6,443 )   $ 285,563   Issuance of common stock for equity awards     1       -       7       -       -       7   Vesting of restricted stock units     177       2       ( 2 )     -       -       -   Stock-based compensation expense     -       -       3,717       -       -       3,717   Retirement of common stock for minimum tax withholdings     ( 62 )     ( 1 )     ( 1,620 )     -       -       ( 1,621 ) Net loss     -       -       -       ( 10,350 )     -       ( 10,350 ) Other comprehensive income     -       -       -       -       272       272   Balance, March 31, 2023     14,741     $ 147     $ 83,243     $ 200,369     $ ( 6,171 )   $ 277,588   Issuance of common stock for equity awards     1       -       30       -       -       30   Vesting of restricted stock units     70       1       ( 1 )     -       -       -   Issuance of ESPP shares     20       -       456       -       -       456   Stock-based compensation expense     -       -       4,150       -       -       4,150   Repurchase of common stock     ( 159 )     ( 1 )     ( 5,049 )     -       -       ( 5,050 ) Retirement of common stock for minimum tax withholdings     ( 16 )     -       ( 432 )     -       -       ( 432 ) Net loss     -       -       -       ( 2,741 )     -       ( 2,741 ) Other comprehensive income     -       -       -       -       14       14   Balance, June 30, 2023     14,657     $ 147     $ 82,397     $ 197,628     $ ( 6,157 )   $ 274,015         Six Months Ended June 30, 2022       Common Stock             Accumulated               Number of     $.01 Par     Additional Paid     Retained     Other Comprehensive     Total Stockholders'       Shares     Value     in Capital     Earnings     Loss     Equity   Balance, January 1, 2022     14,441     $ 144     $ 67,081     $ 225,578     $ ( 5,718 )   $ 287,085   Issuance of common stock for equity awards     1       -       15       -       -       15   Vesting of restricted stock units     106       1       ( 1 )     -       -       -   Stock-based compensation expense     -       -       2,545       -       -       2,545   Retirement of common stock for minimum tax withholdings     ( 30 )     -       ( 844 )     -       -       ( 844 ) Net loss     -       -       -       ( 2,933 )     -       ( 2,933 ) Other comprehensive income     -       -       -       -       ( 81 )     ( 81 ) Balance, March 31, 2022     14,518     $ 145     $ 68,796     $ 222,645     $ ( 5,799 )   $ 285,787   Vesting of restricted stock units     61       1       ( 1 )     -       -       -   Issuance of ESPP shares     20       -       -       -       -       -   Stock-based compensation expense     -       -       4,081       -       -       4,081   Retirement of common stock for minimum tax withholdings     ( 1 )     -       ( 25 )     -       -       ( 25 ) Net loss     -       -       -       ( 2,843 )     -       ( 2,843 ) Other comprehensive loss     -       -       -       -       ( 847 )     ( 847 ) Balance, June 30, 2022     14,598     $ 146     $ 72,851     $ 219,802     $ ( 6,646 )   $ 286,153     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   5       Anika Therapeutics, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)       Six Months Ended June 30,       2023     2022   Cash flows from operating activities:                 Net loss   $ ( 13,091 )   $ ( 5,776 ) Adjustments to reconcile net income to net cash provided by operating activities:                 Depreciation     3,210       3,435   Amortization of acquisition related intangible assets     3,891       3,891   Non-cash operating lease cost     1,086       797   Stock-based compensation expense     7,867       6,626   Deferred income taxes     ( 3,277 )     ( 2,020 ) Provision for credit losses     103       175   Provision for inventory     1,252       675   Changes in operating assets and liabilities:                 Accounts receivable, net     ( 2,116 )     ( 3,103 ) Inventories     ( 6,152 )     ( 1,541 ) Prepaid expenses, other current and long-term assets     756       ( 948 ) Accounts payable     ( 1,029 )     284   Operating lease liabilities     ( 1,048 )     ( 764 ) Accrued expenses, other current and long-term liabilities     ( 3,648 )     ( 1,169 ) Income taxes     285       657   Net cash (used in) provided by operating activities     ( 11,911 )     1,219                     Cash flows from investing activities:                 Purchases of property and equipment     ( 2,846 )     ( 3,266 ) Net cash used in investing activities     ( 2,846 )     ( 3,266 )                   Cash flows from financing activities:                 Proceeds from employee stock purchase program     456       -   Cash paid for tax withheld on vested restricted stock awards     ( 2,049 )     ( 870 ) Proceeds from exercises of equity awards     37       15   Payments made on finance leases     -       ( 53 ) Repurchases of common stock     ( 5,000 )     -   Net cash used in financing activities     ( 6,556 )     ( 908 )                   Exchange rate impact on cash     57       ( 39 )                   Decrease in cash and cash equivalents     ( 21,256 )     ( 2,994 ) Cash and cash equivalents at beginning of period     86,327       94,386   Cash and cash equivalents at end of period   $ 65,071     $ 91,392   Supplemental disclosure of cash flow information:                 Non-cash investing activities:                 Right-of-use assets obtained in exchange for operating lease liabilities   $ -     $ 11,589   Purchases of property and equipment included in accounts payable and accrued expenses   $ 60     $ 680     The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   6     Anika Therapeutics, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (amounts in thousands, except share and per share amounts or as otherwise noted) (unaudited)     1. 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, 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 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 (“FDA”) and foreign regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.     2. 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 (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. and its subsidiaries. Inter-company transactions and balances have been eliminated. 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, 2022. The results of operations for the three -month and six -month periods ended June 30, 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 as of June 30, 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.     7       3. Accounts Receivable   The Company estimates an allowance for credit losses with its accounts receivable resulting from the inability of its customers to make required payments, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. In determining the adequacy of the allowance, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current and reasonable and supportable forecasts of future economic conditions, accounts receivable aging trends, and changes in the Company’s customer payment terms.   The components of the Company’s accounts receivable are as follows:       As of     As of       June 30,     December 31,       2023     2022   Accounts Receivable   $ 38,357     $ 36,235   Less: Allowance for credit losses     1,620       1,608   Net balance, end of period   $ 36,737     $ 34,627     A summary of activity in the allowance for credit losses is as follows:       As of June 30,       2023     2022   Balance, beginning of the period   $ 1,608     $ 1,442   Amounts provided     241       226   Amounts recovered     ( 138 )     ( 48 ) Amounts written off     ( 103 )     ( 111 ) Translation adjustments     12       ( 104 ) Balance, end of period   $ 1,620     $ 1,405     8       4. Fair Value Measurements   The Company has certain cash equivalents in money market funds that are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets. 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. There were no transfers between fair value levels during the six -month periods ended June 30, 2023 or 2022.   The classification of the Company’s cash equivalents within the fair value hierarchy was as follows:       June 30,     Active Markets for Identical Assets     Significant Other Observable Inputs     Significant Unobservable Inputs     Amortized       2023     (Level 1)     (Level 2)     (Level 3)     Cost   Cash equivalents:                                         Money Market Funds   $ 54,154     $ 54,154     $ -     $ -     $ 54,154           December 31,     Active Markets for Identical Assets     Significant Other Observable Inputs     Significant Unobservable Inputs     Amortized       2022     (Level 1)     (Level 2)     (Level 3)     Cost   Cash equivalents:                                         Money Market Funds   $ 67,801     $ 67,801     $ -     $ -     $ 67,801       5.   Inventories   Inventories consist of the following:       June 30,     December 31,       2023     2022   Raw materials   $ 19,032     $ 20,535   Work-in-process     16,117       10,648   Finished goods     26,254       25,306   Total   $ 61,403     $ 56,489                                       Inventories   $ 42,604     $ 39,765   Other long-term assets     18,799       16,724   Total   $ 61,403     $ 56,489     Inventories are stated net of inventory reserves of approximately $ 10.2 million and $ 9.9 million, as of June 30, 2023 and December 31, 2022, respectively.   9       6. Intangible Assets   Intangible assets as of June 30, 2023 and December 31, 2022 consisted of the following:                                       December 31,                       Six Months Ended June 30, 2023     2022                       Less:                                               Accumulated                             Weighted               Currency     Less:                     Average       Gross     Translation     Accumulated     Net Book     Net Book     Useful       Value     Adjustment     Amortization     Value     Value     Life   Developed technology   $ 89,580     $ ( 1,608 )   $ ( 26,584 )   $ 61,388     $ 64,286       15   IPR&D     2,656       ( 1,006 )     -       1,650       1,650     Indefinite   Customer relationships     9,000             ( 3,077 )     5,923       6,373       10   Distributor relationships     4,700       ( 415 )     ( 4,285 )     -       -       5   Patents     1,000       ( 189 )     ( 704 )     107       131       16   Tradenames     5,200             ( 3,561 )     1,639       2,159       5   Total   $ 112,136     $ ( 3,218 )   $ ( 38,211 )   $ 70,707     $ 74,599       13     The aggregate amortization expense related to intangible assets was $ 2.0 million and $ 1.9 million for the three -month periods ended June 30, 2023 and 2022, respectively, and $ 3.9 million for each of the six -month periods ended June 30, 2023 and 2022, respectively.     7. Goodwill   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 six months ended June 30, 2023 were as follows:       Six Months Ended June 30,       2023   Balance, beginning of period   $ 7,339   Effect of foreign currency adjustments     128   Balance, ending of period   $ 7,467       8. Accrued Expenses   Accrued expenses consist of the following:       June 30,     December 31,       2023     2022   Compensation and related expenses   $ 8,690     $ 11,303   Professional fees     2,802       3,145   Operating lease liability - current     2,085       2,073   Clinical trial costs     462       999   Income taxes payable     931       810   Other     542       510   Total   $ 15,512     $ 18,840       9. Commitments and Contingencies   In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company may also warrant that the products it manufactures do not infringe, violate, or breach any U.S. or international patent or intellectual property right, trade secret, or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligent acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. 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 June 30, 2023 or December 31, 2022 and has no history of claims paid.   10     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 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 24, 2023, the Company and the former unitholders of Parcus Medical entered into a settlement agreement to end the arbitration case. The Company recorded a charge to the statement of operations and a liability of $ 3.3 million at March 31, 2023 which was paid to the former unitholders of Parcus Medical in April 2023.     10. Revenue and Geographic Information   Revenue by product family is as follows:       Three Months Ended June 30,     Six Months Ended June 30,       2023     2022     2023     2022                                     OA Pain Management   $ 29,334     $ 24,093     $ 51,967     $ 45,058   Joint Preservation and Restoration     12,660       12,095       26,113       24,234   Non-Orthopedic     2,308       3,469       4,146       7,058       $ 44,302     $ 39,657     $ 82,226     $ 76,350     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 $ 1.1 million and $ 1.6 million for the three months ended June 30, 2023 and 2022, respectively, and $ 1.6 million and $ 3.4 million for the six months ended June 30, 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 48 % and 45 % for the three months ended June 30, 2023 and 2022, respectively, and 46 % and 42 % for the six months ended June 30, 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 June 30,       2023     2022               Percentage of             Percentage of       Revenue     Revenue     Revenue     Revenue   Geographic Location:                                 United States   $ 32,867       74 %   $ 29,686       75 % Europe     5,675       13 %     5,292       13 % Other     5,760       13 %     4,679       12 % Total   $ 44,302       100 %   $ 39,657       100 %       Six Months Ended June 30,       2023     2022               Percentage of             Percentage of       Revenue     Revenue     Revenue     Revenue   Geographic Location:                                 United States   $ 60,155       73 %   $ 56,459       73 % Europe     11,337       14 %     11,088       15 % Other     10,734       13 %     8,803       12 % Total   $ 82,226       100 %   $ 76,350       100 %   11       11. Equity Incentive Plan   Equity Incentive Plan   The Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020, June 16, 2021, June 8, 2022 and June 14, 2023. On June 14, 2023, the Company’s stockholders approved an amendment to the 2017 Plan increasing the number of shares by 435,000 shares from 4,850,000 shares to 5,285,000 shares. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards, performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SARs will reduce the number of total shares available for grant by two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 5,285,000 shares of common stock may be issued under the 2017 Plan. There were 0.8 million shares available for future grant at June 30, 2023 under the 2017 Plan.   The Anika Therapeutics, Inc. 2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on November 4, 2021. The Inducement Plan reserves 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards may be granted only to an individual who was not previously the Company’s employee or director with the Company. The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended). There were 10,374 shares available for future grant at June 30, 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. Stock-based awards are granted with an exercise price equal to or greater than the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over three years with a maximum contractual term of ten years.   The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows (in thousands):       Three Months Ended June 30,     Six Months Ended June 30,       2023     2022     2023     2022   Cost of revenue   $ 167     $ 227     $ 351     $ 403   Research & development     653       503       1,170       870   Selling, general & administrative     3,330       3,351       6,346       5,323   Total stock-based compensation expense   $ 4,150     $ 4,081     $ 7,867     $ 6,626     Stock Options   Stock options are granted to purchase common shares at prices that are equal to the fair market value of the shares on the date the options are granted or, in the case of premium options, are granted with an exercise price at 110 % of the market price of the Company’s common stock on the date of grant. Options generally vest in equal annual installments over a period of three years and expire 10 years after the date of grant. The grant-date fair value of options is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.   12     The following summarizes the activity under the Company’s stock option plans:                       Weighted                               Average                       Weighted     Remaining     Aggregate               Average     Contractual     Intrinsic       Number of     Exercise     Term     Value       Options     Price     (in years)     (in thousands)   Outstanding as of December 31, 2022     1,530,703     $ 34.93                   Granted     361,745     $ 29.51                   Exercised     ( 2,034 )   $ 18.30             $ 20   Forfeited and canceled     ( 45,958 )   $ 36.61                   Outstanding as of June 30, 2023     1,844,456     $ 33.84       8.0     $ 188   Vested, June 30, 2023     955,429     $ 36.75       7.1     $ 38   Vested or expected to vest, June 30, 2023     1,844,456     $ 33.84       8.0     $ 188     The aggregate intrinsic value of options exercised for the six -month period ended June 30, 2023 was immaterial. The Company granted 361,745 stock options during the six -month period ended June 30, 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 assumptions used in the Black-Scholes pricing model for options granted during the six months ended June 30, 2023 and 2022, along with the weighted-average grant-date fair values, were as follows:       Six Months Ended       June 30,       2023     2022   Risk free interest rate     3.5 %     -       4.3 %     1.3 %     -       3.0 % Expected volatility     48.7 %     -       49.4 %     53.8 %     -       55.2 % Expected life (years)             4.5                       4.5           Expected dividend yield             0.0 %                     0.0 %         Fair value per option           $ 11.74                     $ 11.28             As of June 30, 2023, there was $ 8.5 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 2.0 years.   Restricted Stock Units   RSUs generally vest in equal annual installments over a three -year period. The grant-date fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. 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 six -month period ended June 30, 2023 was as follows:               Weighted       Number of     Average       Shares     Fair Value   Outstanding as of December 31, 2022     675,405     $ 28.40   Granted     429,476     $ 26.93   Vested     ( 247,369 )   $ 28.93   Forfeited and cancelled     ( 34,098 )   $ 27.49   Outstanding as of June 30, 2023     823,414     $ 27.52       13     The weighted-average grant-date fair value per share of RSUs granted was $ 26.93 and $ 25.18 for the six -month periods ended June 30, 2023 and 2022, respectively. The total fair value of RSUs vested was $ 6.6 million and $ 5.4 million for the six -month periods ended June 30, 2023 and 2022, respectively.  As of June 30, 2023, there was $ 17.9 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 2.1 years.   Performance Stock Units   PSU activity for the six -month ended June 30, 2023 was as follows:       Number of Shares     Weighted Average Fair Value   Outstanding as of December 31, 2022     117,897     $ 34.98   Forfeited and cancelled     ( 117,897 )   $ 34.98   Outstanding as of June 30, 2023     -     $ -     The total fair value of PSUs vested was $ 0 and $ 0.6 million for the six -month periods ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there are no outstanding PSUs.                 14       12. Income Taxes   The Company recorded an income tax benefit of $ 0.3 million and $ 2.0 million for the three - and six -month periods ended June 30, 2023, resulting in effective tax rates of 10.7 % and 13.2 %, respectively. The income tax benefit was $ 0.4 million and $ 1.2 million for the three - and six -month periods ended June 30, 2022, resulting in effective tax rates of 13.5 % and 17.4 %, respectively.   The change in the effective tax rate for the three -months ended June 30, 2023, as compared to the same period in 2022, is primarily due to a discrete charge of $ 0.4 million related to non-deductible stock compensation during the three -months ended June 30, 2022, partially offset by the valuation allowance recorded against domestic deferred tax assets of $ 0.3 million during the three -months ended June 30, 2023. The change in the effective tax rate for the six -months ended June 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $ 1.2 million for the six -months ended June 30, 2023, partially offset by a discrete charge of $ 0.6 million related to non-deductible stock compensation during the six -months ended June 30, 2022.   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 - and six -month periods ended June 30, 2023 includes an adjustment for the valuation allowance required against the U.S deferred tax assets. As of June 30, 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. states, and in certain foreign jurisdictions. 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.     13. Share Repurchase   In April 2023, the Company agreed to establish a share repurchase program for an aggregate purchase price of $ 20.0 million. Of the $ 20.0 million, the first $ 5.0 million would be effected through an accelerated stock repurchase program, the second $ 5.0 million is to be purchased in the open market and the remaining $ 10.0 million is to be purchased in the open market subject to positive cash flow.   On May 12, 2023, the Company entered into an accelerated share repurchase agreement with Bank of America, N.A. (“Bank of America”) pursuant to a Fixed Dollar Accelerated Share Repurchase Transaction (“ASR Agreement”) to purchase $ 5.0 million of shares of its common stock. Pursuant to the terms of the ASR Agreement, the Company delivered $ 5.0 million in cash to Bank of America and received an initial delivery of 158,983 shares of the Company’s common stock on May 12, 2023 based on a closing market price of $ 25.16 and the applicable contractual discount.  This was approximately 80 % of the then estimated total number of shares expected to be repurchased under the ASR Agreement. The Company has recorded the shares being repurchased under the ASR agreement as an equity forward sales contact and the repurchase amount of $ 5.0 million plus excise taxes was included in additional paid-in capital in stockholders’ equity on the condensed consolidated balance sheet at June 30, 2023. Per the terms of the ASR Agreement, the final number of shares and average purchase price would be determined at the end of the applicable purchase period, which was completed in July 2023.  Upon final settlement in July 2023, the Company received 29,046 additional shares at a final settlement price based on the average purchase price of $ 26.59 per share.      14. Earnings Per Share ( “ EPS ” )   Basic EPS is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic EPS. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding share-based awards using the treasury stock method. Due to the Company's loss position, the share-based payment awards are anti-dilutive.   The Company had a net loss during the three - and six -month periods ended June 30, 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 1.8 million shares and 1.5 million shares were outstanding at June 30, 2023 and 2022, respectively. Restricted stock units and performance stock units totaling 0.8 million were outstanding at each of June 30, 2023 and 2022. These securities were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive.   15       ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   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 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. 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 “Item 1A. Risk Factors” of our 2022 Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.   Management Overview   We are a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care. 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 and Arthrosurface joint solutions.   We have over thirty years of global expertise developing, manufacturing and commercializing products with 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 and in multiple forms, 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 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.   16     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;     ● Utilizing HA-based technology and manufacturing expertise to provide new and differentiated solutions for the faster growing joint preservation and regenerative medicine markets;     ● Introducing key HA-based products into the U.S. market upon FDA approval/clearance, such as Cingal, Hyalofast and our arthroscopic patch system for rotator cuff repair;         ● 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; and     ● Energized and experienced team focused on strong values, talent, and culture.   Products   OA Pain Management   Our OA Pain Management product family consists of Monovisc and Orthovisc, our single- and multi-injection, HA-based, high molecular weight viscosupplement offerings that are indicated to provide pain relief from osteoarthritis conditions; and Cingal, our novel, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid. Cingal is our next generation fast-acting, long-lasting, non-opioid, clinically proven osteoarthritis pain product which is designed to provide both short- and long-term pain relief through at least six months. It is currently sold outside the United States in over 35 countries. In 2022, we completed a third Phase III clinical trial for Cingal, which achieved its primary endpoint. Cingal is not currently approved for commercial use in the United States.   17     Joint Preservation and Restoration   Our Joint Preservation and Restoration product family consists of: (a) our portfolio of orthopedic regenerative solutions products utilizing HA, including Hyalofast, currently available outside the United States in over 30 countries and Tactoset products and the planned upcoming release of our arthroscopic regenerative patch system for rotator cuff repair; (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 Arthrosurface portfolio of 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, 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.                     18     Results of Operations   Three and Six Months Ended June 30, 2023 Compared to Three and Six Months Ended June 30, 2022       Three Months Ended June 30,     Six Months Ended June 30,       2023     2022     $ Change     % Change     2023     2022     $ Change     % Change       (in thousands, except percentages)             (in thousands, except percentages)           Revenue   $ 44,302     $ 39,657     $ 4,645       12 %   $ 82,226     $ 76,350     $ 5,876       8 % Cost of revenue     15,330       14,795       535       4 %     30,411       29,684       727       2 % Gross Profit     28,972       24,862       4,110       17 %     51,815       46,666       5,149       11 % Gross Margin     65 %     63 %                     63 %     61 %                 Operating expenses:                                                                 Research & development     8,914       6,975       1,939       28 %     17,314       13,132       4,182       32 % Selling, general & administrative     23,689       21,268       2,421       11 %     50,685       40,469       10,216       25 % Total operating expenses     32,603       28,243       4,360       15 %     67,999       53,601       14,398       27 % Loss from operations     (3,631 )     (3,381 )     (250 )     7 %     (16,184 )     (6,935 )     (9,249 )     133 % Interest and other income (expense), net     561       96       465       484 %     1,100       (58 )     1,158       (1,997 )% Loss before income taxes     (3,070 )     (3,285 )     215       (7 )%     (15,084 )     (6,993 )     (8,091 )     116 % Benefit from income taxes     (329 )     (442 )     113       (26 )%     (1,993 )     (1,217 )     (776 )     64 % Net loss   $ (2,741 )   $ (2,843 )   $ 102       (4 )%   $ (13,091 )   $ (5,776 )   $ (7,315 )     127 %   Revenue   The following table presents revenue by product family for the three- and six-month periods ended June 30, 2023 and 2022, respectively, as follows:       Three Months Ended June 30,       2023     2022     $ Change     % Change       (in thousands, except percentages)   OA Pain Management   $ 29,334     $ 24,093     $ 5,241       22 % Joint Preservation and Restoration     12,660       12,095       565       5 % Non-Orthopedic     2,308       3,469       (1,161 )     (33 %)     $ 44,302     $ 39,657     $ 4,645       12 %       Six Months Ended June 30,       2023     2022     $ Change     % Change       (in thousands, except percentages)   OA Pain Management   $ 51,967     $ 45,058     $ 6,909       15 % Joint Preservation and Restoration     26,113       24,234       1,879       8 % Non-Orthopedic     4,146       7,058       (2,912 )     (41 %)     $ 82,226     $ 76,350     $ 5,876       8 %   Revenue from our OA Pain Management product family increased 22% and 15%, respectively, for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, due to growing customer demand and favorable strategic partner ordering patterns from U.S. and international customers.   Revenue from our Joint Preservation and Restoration product family increased 5% and 8%, respectively, for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, due primarily to improving elective procedure volumes and growing commercial adoption of our newest products.   Revenue from our Non-Orthopedic product family decreased 33% and 41%, respectively, for the three- and six-month periods ended June 30, 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.   19     Gross Profit and Margin   Gross profit for the three- and six-month periods ended June 30, 2023 increased $4.1 million and $5.1 million, to $29.0 million and $51.8 million, respectively. Gross profit for the three- and six-month periods ended June 30, 2022, was $24.9 million and $46.7 million, respectively. The increases in gross profit for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, primarily resulted from revenue growth and favorable product mix in the period.   Gross margin for the three- and six-month periods ended June 30, 2023 was 65% and 63%, respectively. Gross margin for the three- and six-month periods ended June 30, 2022 was 63% and 61%, respectively. The increases in gross margin compared to the same periods of the prior year were due primarily to higher revenue, particularly on Mitek sales and improved production volumes.   Research and Development   Research and development expenses for the three- and six-month periods ended June 30, 2023 were $8.9 million and $17.3 million, an increase of $1.9 million and $4.2 million respectively as compared to the same periods 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.   Selling, General and Administrative   Selling, general and administrative expenses for the three- and six-month periods ended June 30, 2023 were $23.7 million and $50.7 million representing an increase of $2.4 million and $10.2 million, respectively, as compared to the same periods in 2022. This increase for the three- and six-month periods ended June 30, 2023 was primarily due to $2.7 million and $8.5 million of non-recurring costs incurred during the three- and six-month periods ended June 30, 2023, respectively, related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs. The growth in SG&A expenses also was due to expansion of our commercial capabilities and marketing activities.   Income Taxes   The benefit from income taxes was $0.3 million and $2.0 million for the three- and six-month periods ended June 30, 2023, resulting in an effective tax rate of 10.7% and 13.2%, respectively. The benefit from income taxes was $0.4 million and $1.2 million for the three- and six-month periods ended June 30, 2022, resulting in effective tax rates of 13.5% and 17.4%, respectively. The change in the effective tax rate for the three-months ended June 30, 2023, as compared to the same period in 2022, is primarily due to a discrete charge of $0.4 million related to non-deductible stock compensation during the three-months ended June 30, 2022, partially offset by the valuation allowance recorded against domestic deferred tax assets of $0.3 million during the three-months ended June 30, 2023. The change in the effective tax rate for the six-months ended June 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $1.2 million for the six-months ended June 30, 2023, partially offset by a discrete charge of $0.6 million related to non-deductible stock compensation during the six-months ended June 30, 2022.   Net Loss   For the three- and six-month periods ended June 30, 2023, net loss was $2.7 million and $13.1 million, or $0.19 per diluted share and $0.89 per diluted share, respectfully, compared to net loss of $2.8 million and $5.8 million, or $0.20 per diluted share and $0.44 per diluted share, for the same periods in prior year. The increase in net loss and diluted loss per share for the six-months ended June 30, 2023 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   We present certain information with respect to adjusted gross profit and adjusted gross margin, adjusted Earnings Before Interest, Tax, Depreciation and Amortization, or EBITDA, adjusted net income (loss), adjusted diluted earnings per share or adjusted EPS, which are financial measures not based on any standardized methodology prescribed by accounting principles generally accepted in the United States, or U.S. GAAP, and is not necessarily comparable to similarly titled measures presented by other companies.   20     We have presented adjusted gross profit and adjusted gross margin, adjusted EBITDA, adjusted net income (loss), adjusted EPS, because they are key measures used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business. We believe these financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. In particular, we believe that the exclusion of these items in calculating these measures can provide a useful tool for period-to-period comparisons of our core operating performance. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects and allowing for greater transparency with respect to key financial metrics used by our management in their financial and operational decision-making.   Adjusted Gross Profit and Adjusted Gross Margin   We define adjusted gross profit as our gross profit excluding amortization of certain acquired intangible assets, the impact of inventory fair-value step up associated with our recent acquisitions and certain product rationalization charges. The amortized assets contribute to revenue generation, and the amortization of such assets will likely continue in future periods until such assets are fully amortized. These assets include the fair value of certain identified assets acquired in acquisitions, including developed technology and acquired tradenames. We define adjusted gross margin as adjusted gross profit divided by total revenue.   The following is a reconciliation of GAAP gross profit to Non-GAAP adjusted gross profit for the three- and six-month periods ended June 30, 2023 and 2022, respectively:       For the Three Months Ended June 30,     For the Six Months Ended June 30,       2023     2022     2023     2022   Gross profit   $ 28,972     $ 24,862     $ 51,815     $ 46,666   Acquisition related intangible asset amortization     1,561       1,562       3,123       3,124   Adjusted gross profit   $ 30,533     $ 26,424     $ 54,938     $ 49,790                                     Adjusted gross margin     69 %     67 %     67 %     65 %   Adjusted gross profit for the three- and six-month periods ended June 30, 2023 increased $4.1 million and $5.1 million to $30.5 million and $54.9 million, respectively, representing adjusted gross margin of 69% and 67%, respectively. Adjusted gross profit for the three- and six-month periods ended June 30, 2022 was $26.4 million and $49.8 million, respectively, or adjusted gross margin of 67% and 65%, respectively. The increases in adjusted gross margin for the three- and six-month periods ended June 30, 2023 as compared to 2022, was largely due to revenue growth, favorable product mix and the impact of improved production volumes 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 U.S. GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net (loss) income, which is the nearest U.S. 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 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;   21       ● 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;     ● we exclude certain other non-recurring expenses, such as Parcus arbitration settlement and costs associated with shareholder activism;     ● 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;   The following is a reconciliation of GAAP Net loss to Non-GAAP Adjusted EBITDA for the three- and six-month periods ended June 30, 2023 and 2022, respectively:       For the Three Months Ended June 30,     For the Six Months Ended June 30,       2023     2022     2023     2022   Net loss   $ (2,741 )   $ (2,843 )   $ (13,091 )   $ (5,776 ) Interest and other expense, net     (561 )     (96 )     (1,100 )     58   Benefit from income taxes     (329 )     (442 )     (1,993 )     (1,217 ) Depreciation and amortization     1,764       1,933       3,528       3,753   Share-based compensation     4,150       4,081       7,867       6,626   Arbitration settlement     -       -       3,250       -   Acquisition related intangible asset amortization     1,787       1,787       3,574       3,574   Costs of shareholder activism     2,202       -       3,033       -   Adjusted EBITDA   $ 6,272     $ 4,420     $ 5,068     $ 7,018     Adjusted EBITDA in the three-month period ended June 30, 2023 increased $1.9 million as compared with the same period in 2022. The increase in adjusted EBITDA for the period was primarily due to an increase in revenues partially offset by $0.5 million of certain non-recurring corporate costs.   Adjusted EBITDA for the six-month period ended June 30, 2023, decreased $1.9 million as compared with the same period in 2022. The decrease in adjusted EBITDA for the period was due to $2.2 million of 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 U.S. 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 GAAP Net Loss to Non-GAAP Adjusted net (loss) income to net (loss) income for the three- and six-month periods ended June 30, 2023 and 2022, respectively:       For the Three Months Ended June 30,     For the Six Months Ended June 30,       2023     2022     2023     2022   Net loss   $ (2,741 )   $ (2,843 )   $ (13,091 )   $ (5,776 ) Arbitration settlement, tax effected     -       -       2,800       -   Acquisition related intangible asset amortization; tax effected     1,598       1,219       3,080       2,565   Costs of shareholder activism, tax effected     1,970       -       2,613       -   Adjusted net income (loss)   $ 827     $ (1,624 )   $ (4,598 )   $ (3,211 )   22     The following is a reconciliation of GAAP Diluted loss per share (EPS) to Non-GAAP Adjusted diluted earnings (loss) per share EPS for the three- and six-month periods ended June 30, 2023 and 2022, respectively:       For the Three Months Ended June 30,     For the Six Months Ended June 30,       2023     2022     2023     2022   Diluted (loss) earnings per share (EPS)   $ (0.19 )   $ (0.20 )   $ (0.89 )   $ (0.40 ) Arbitration settlement, tax effected     -       -       0.19       -   Acquisition related intangible asset amortization; tax effected     0.11       0.08       0.21       0.18   Cost of shareholder activism, tax effected     0.14       -       0.18       -   Adjusted diluted (loss) earnings per share (EPS)   $ 0.06     $ (0.12 )   $ (0.31 )   $ (0.22 )   Adjusted net income (loss) and adjusted diluted income (loss) per share in the three-month period ended June 30, 2023 increased $2.5 million and $0.18, respectively, as compared with the same period in 2022. The increase in adjusted net income for the period was primarily due to higher revenue offset in part by certain non-recurring corporate costs.   Adjusted net loss and adjusted diluted loss per share in the six-month period ended June 30, 2023, increased $1.4 million or $0.09, as compared with the same period in 2022. The increase in adjusted net loss for the period was due to certain non-recurring corporate costs.   Liquidity and Capital Resources   We require cash to fund our operating activities and to make capital expenditures and other investments in the business. We expect that our requirements for cash to fund these uses will increase as our operations expand. 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 $65.1 million and $86.3 million, and working capital totaled $128.7 million and $141.6 million, at June 30, 2023 and December 31, 2022, respectively.   On November 12, 2021, we entered into a Third Amendment to Credit Agreement with Bank of America N.A. as administrative agent, which amended our existing revolving line of credit agreement dated October 24, 2017 which provides up to $75.0 million in the form of a senior revolving line of credit. 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 June 30, 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):       Six Months Ended June 30,       2023     2022   Cash provided by (used in)                 Operating activities   $ (11,911 )   $ 1,219   Investing activities     (2,846 )     (3,266 ) Financing activities     (6,556 )     (908 ) Effect of exchange rate changes on cash     57       (39 ) Net decrease in cash and cash equivalents   $ (21,256 )   $ (2,994 )   The following changes contributed to the net change in cash and cash equivalents in the six-month period ended June 30, 2023 as compared to the same period in 2022.   Operating Activities   Cash used in operating activities was $11.9 million for the six-month period ended June 30, 2023, as compared to cash provided by operating activities of $1.2 million for the same period in 2022. The increase in cash used in operating activities in 2023 was primarily due payment of $8.5 million in non-recurring costs incurred during the six-month period ended June 30, 2023 related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs, as well as an increase in working capital associated with the growth of the business.    For the foreseeable future, we expect to continue to invest in research and development as well as 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.   23     Investing Activities   Cash used in investing activities was $2.8 million for the six-month period ended June 30, 2023, as compared to cash used in investing activities of $3.3 million for the same period in 2022. The change was primarily due to a decrease in capital expenditures related to software development that occurred in 2022.   Financing Activities   Cash used in financing activities was $6.6 million for the six-month period ended June 30, 2023, as compared to cash used in financing activities of $0.9 million for the same period in 2022. The increase in cash used in financing activities was primarily attributable to the repurchase of common stock for $5.0 million during the three-months ended June 30, 2023.   Critical Accounting Policies and Estimates   The preparation of our condensed consolidated financial statements in conformity with U.S. 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 2022 Form 10-K for the year ended December 31, 2022. 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. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.   Recent Accounting Pronouncements   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   Our contractual obligations and other commercial commitments are summarized in the section captioned “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Other Commercial Commitments” 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 2022 Form 10-K during the six months ended June 30, 2023. For additional discussion, see Note 9 to the condensed consolidated financial statements included in this report.   To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and others, or through other sources. 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.     24     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   Our market risks and the ways we manage them are summarized in the section captioned “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes in the first six months of 2023 to our market risks or to our management of such risks.   ITEM 4. CONTROLS AND PROCEDURES   (a) Evaluation of disclosure controls and procedures.   Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the chief executive officer and chief financial officer have concluded as of June 30, 2023 that our disclosure controls and procedures were not effective because of the material weaknesses in our internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).   (b) Changes in internal controls over financial reporting.   There were no material changes in our internal control over financial reporting during the quarter ended June 30, 2023, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.   We are in the process of remediating the material weaknesses in our internal control over financial reporting as noted in Part II, Item 9A of the 2022 Form 10-K. We have undertaken a number of measures designed to directly address, or contribute to, the remediation of our material weaknesses and the enhancement of our internal control over financial reporting including establishment of additional review procedures and monitoring activities at a centralized level in order to verify that process level controls are present and functioning as designed. In addition, we have begun training finance personnel on internal control over financial reporting, the importance of monitoring control activities, and fraud risk assessment. The material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.   PART II: OTHER INFORMATION   ITEM 1. LEGAL PROCEEDINGS   For a discussion of material pending legal proceedings, please read Note 9, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item I, “Financial Statements (Unaudited),” of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.   ITEM 1A. RISK FACTORS   There have been no material changes to the risk factors described in the section captioned “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended and supplemented by the information in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section captioned “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K and such subsequently filed Quarterly Report on Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition, and/or operating results.   25     ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   Issuer Purchases of Equity Securities   Under our equity compensation plans, and subject to the specific approval of the Compensation Committee of our Board of Directors, grantees have the option of electing to satisfy tax withholding obligations at the time of vesting or exercise by allowing us to withhold shares of stock otherwise issuable to the grantee. During the three-month period ended June 30, 2023, there were no shares withheld to satisfy grantee tax withholding obligations on restricted stock award vesting events.   Following is a summary of stock repurchases for the three-month period ended June 30, 2023 (in thousands, except share and per share data):   Period   Total Number of Shares Withheld (1)     Average Price per Share     Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs   April 1 to 30, 2023     0     $ -     $ 20,000   May 1 to 31, 2023     158,983     $ 25.16     $ 15,000   June 1 to 30, 2023     0     $ -     $ 15,000   Total     158,983                     (1) In April 2023, we agreed to establish a share repurchase program for an aggregate purchase price of $20.0 million. Of the $20.0 million, the first $5.0 million is to be effected through an accelerated stock repurchase program, the second $5.0 million is to be purchased in the open market and the remaining $10.0 million is to be purchased in the open market subject to positive cash flow. On May 12, 2023 the Company entered into an accelerated share repurchase agreement with Bank of America, N.A. (“Bank of America”) pursuant to a Fixed Dollar Accelerated Share Repurchase Transaction (“ASR Agreement”) to purchase $5.0 million of shares of its common stock. During the second quarter of 2023, 158,983 shares were delivered to us, constituting the initial delivery of shares and representing 80% of the then estimated total number of shares expected to be repurchased under the ASR Agreement.     ITEM 5. OTHER INFORMATION.   Rule 10b5 - 1 Trading Plans   During the fiscal quarter ended June 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5 - 1 (c) or any “non-Rule 10b5 - 1 trading arrangement.   26       ITEM 6. EXHIBITS   Exhibit No. Description     3.1 Certificate of Incorporation of Anika Therapeutics, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No.  001-14027) filed by the Registrant on June 6, 2018)     3.2 Bylaws of Anika Therapeutics, Inc., effective as of June 6, 2018 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-14027) filed by the Registrant on June 6, 2018)     †10.1 Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (as amended effective June 14, 2023) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 21, 2023)     10.2 Cooperation Agreement, dated April 13, 2023, by and among the Company and Caligan Partners LP, Caligan Partners Master Fund LP and David Johnson (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on April 13, 2023)     (31) Rule 13a-14(a)/15d-14(a) Certifications     *31.1 Certification of Dr. Cheryl R. Blanchard, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     *31.2 Certification of Michael Levitz, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     (32) Section 1350 Certifications     **32.1 Certification of Dr. Cheryl R. Blanchard, and Michael Levitz, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of   the Sarbanes-Oxley Act of 2002.     (101) XBRL     *101 The following materials from Anika Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 as filed with the SEC on August 8, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language), as follows:     i. Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022 (unaudited)     ii. Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2023 and June 30, 2022 (unaudited)     iii. Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2023 and June 30, 2022 (unaudited)     iv. Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and June 30, 2022 (unaudited)     v. Notes to Condensed Consolidated Financial Statements (unaudited)   104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)   * Filed herewith. ** Furnished herewith. † Management contract or compensatory plan or arrangement.   27     SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.       ANIKA THERAPEUTICS, INC.     (Registrant)       Date: August 8, 2023 By: /s/ MICHAEL LEVITZ     Michael Levitz     Executive Vice President, Chief Financial Officer and Treasurer     (Authorized Officer and Principal Financial Officer)       28