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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-16 · 320 added, 591 removed, 608 unchanged (60% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ANIKA THERAPEUTICS,  

ANIKA THERAPEUTICS, INC.

AND SUBSIDIARIES

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Consolidated Balance Sheets as of December 31, 2023 and 2022 58

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

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

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

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2023, 2022 and 2021

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

To the Board of Directors and Stockholders of Anika Therapeutics, Inc.

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

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

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

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America (GAAP).

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

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventories —

Refer to Notes 2 and 5 to the financial statements

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Reserve for Excess and Obsolete Inventories — Refer to Notes 2 and 4 to the financial statements

Critical Audit Matter Description

The Company evaluates inventory each reporting period for excess quantities and obsolescence, establishing reserves when necessary, based upon historical experience, assessment of economic conditions, and expected demand.

Once recorded, these reserves are considered permanent adjustments to the carrying value of inventory.

Once recorded, the inventory reserve write-offs are considered permanent adjustments to the carrying value of inventory.

As of December 31, 2023, the Company has total inventories of $64.6 million, net of excess quantities and obsolescence reserves.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the reserve for excess quantities and obsolete inventory including management’s estimate of expected demand, included the following, among others:

We tested the effectiveness of controls over inventory, including those over the estimation of reserves for excess quantities and obsolescence.

Our audit procedures related to the reserve for excess quantities and obsolete inventory including management’s estimate of expected demand, included the following, among others:

We tested the effectiveness of controls over the estimation of reserve for excess quantities and obsolete inventory.

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

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

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

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

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

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

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

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

Fair Value of Intangible Assets within the Arthrosurface and Parcus Asset Groups — Refer to Notes 2 and 6 to the financial statements

Critical Audit Matter Description

The Company has amortizing definite lived intangible assets consisting of the developed technology, tradenames, and customer relationships, which arose from the prior acquisitions for Parcus Medical and Arthrosurface.

The Company's evaluation of the intangible assets for impairment involves the comparison of the fair value to the recorded carrying value.

Management estimated the fair value of these intangible assets upon identification of impairment indicators, using the income approach method of valuation, including a combination of the distributor method for the customer relationships asset and the relief of royalty method for each of the developed technology and tradename assets.

The determination of fair value requires management to make significant estimates and assumptions related to forecasted revenues, including growth rates, the royalty rate, and the discount rate used to estimate the fair value of the intangible assets.

Changes in these assumptions could have a significant impact on the fair value of the intangible assets and the amount of any impairment charge.

As of December 31, 2023, the carrying value of each of the developed technology, customer relationships, and tradename assets were $2.0 million, $0.4 million, and $0.6 million, respectively.

During the year ended December 31, 2023, the Company recognized an impairment charge of $62.2 million related to these intangible assets, since their fair values were lower than the carrying values.

We identified the valuation of these intangible assets as a critical audit matter because of the significant judgments and assumptions management makes in estimating the fair value of these intangible assets.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s forecasted revenues, the selection of the royalty rate and the selection of the discount rate, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasted revenues, the selected royalty rate, and the selected discount rate utilized in estimating the fair value of the intangible assets included the following, among others:

We tested the effectiveness of controls over management’s impairment evaluation, including those over the determination of the fair value of the intangible assets, such as controls related to management’s forecasts of future revenue, and the selection of the royalty rate and the discount rate.

We evaluated management’s ability to accurately forecast revenues by comparing actual revenues to management’s historical forecasts.

We evaluated the reasonableness of management’s forecasts by comparing forecasted revenues to:

The Company’s business strategies and growth plans including consideration of the effects of new products;

Historical results and trends;

Industry reports.

With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and management’s assumptions including the royalty rate and the discount rate by:

Testing the source information underlying the determination of the royalty rate, the discount rate, and the mathematical accuracy of the calculations.

Developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by management.

/s/ Deloitte & Touche LLP

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March 15, 2024

We have served as the Company’s auditor since 2017.

Anika Therapeutics, Inc.

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Cash and cash equivalents

$ 86,327  

$ 94,386  

$ 72,867 $ 86,327

Accounts receivable, net

34,627  

29,843  

39,765  

36,010  

35,961 34,627

46,386 39,765

Prepaid expenses and other current assets

Total current assets

169,547  

168,528  

163,309 169,547

Property and equipment, net

48,279  

47,602  

46,198 48,279

Right-of-use assets

30,696  

20,957  

28,767 30,696

Other long-term assets

17,219  

20,285  

18,672 17,219

Deferred tax assets

Intangible assets, net

74,599  

82,382  

$ 349,128  

$ 347,535  

LIABILITIES AND STOCKHOLDERS ’

$ 270,632 $ 349,128

LIABILITIES AND STOCKHOLDERS ’ EQUITY

Current liabilities:

Accounts payable

$ 9,074  

$ 7,633  

$ 9,860 $ 9,074

Accrued expenses and other current liabilities

18,840  

17,847  

Contingent consideration

21,199 18,840

Total current liabilities

27,914  

29,795  

31,059 27,914

Other long-term liabilities

Deferred tax liability

10,157  

Lease liabilities

28,817  

19,240  

26,904 28,817

Commitments and contingencies (Note 11)

Stockholders’

Stockholders’ equity:

Preferred stock, $ 0.01 par value;

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Common stock, $ .01 par value;

90,000 shares authorized, 14,625 and 14,441 shares issued and outstanding at December 31, 2022 and 2021, respectively

90,000 shares authorized, 14,848 issued and 14,660 outstanding and 14,625 shares issued and outstanding at December 31, 2023 and 2022, respectively

Additional paid-in-capital

81,141  

67,081  

90,009 81,141

Accumulated other comprehensive loss

( 6,443 )  

( 5,943 ) ( 6,443 )

Retained earnings

210,719  

225,578  

Total stockholders’

285,563  

287,085  

Total liabilities and stockholders’

$ 349,128  

$ 347,535  

128,052 210,719

Total stockholders’ equity

212,265 285,563

Total liabilities and stockholders’ equity

$ 270,632 $ 349,128

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

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(in thousands, except per share data)

Years Ended December 31,

For the Years Ended December 31,

Cost of revenue

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Selling, general & administrative

Goodwill impairment charge

Impairment of intangible assets

Change in fair value of contingent consideration

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Vesting of restricted stock units

Forfeiture of restricted stock awards

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

Repurchase of common stock

Other comprehensive income

Other comprehensive loss

Balance, December 31, 2021

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Vesting of restricted stock units

Issuance of common stock from employee purchase plan

Stock-based compensation expense

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Stock-based compensation expense

Repurchase of common stock

Retirement of common stock for minimum tax withholdings

Other comprehensive loss

Other comprehensive income

Balance, December 31, 2023

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(in thousands)

Years Ended December 31,

For the years ended December 31,

Cash flows from operating activities:

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Non-cash operating lease cost

Goodwill impairment charge

Change in fair value of contingent consideration

Loss on disposal of fixed assets

Loss on impairment of intangible asset

Loss on impairment of intangible assets

Stock-based compensation expense

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Payments of contingent consideration

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

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Proceeds from maturities of investments

Purchases of investments

Purchases of property and equipment

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

Payments made on finance leases

Proceeds from long-term debt

Repayments of long-term debt

Repurchases of common stock

Proceeds from employee stock purchase program

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Payments of contingent consideration

Net cash used by financing activities

Net cash used in financing activities

Exchange rate impact on cash

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

Consideration for acquisitions included in accounts payable and accrued expenses

Contingent consideration fair value on acquisition date

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

Anika Therapeutics,  

Anika Therapeutics, Inc.

and Subsidiaries

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Anika Therapeutics, Inc.

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

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

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.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Principles of Consolidation

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

and its wholly owned subsidiaries, Anika Securities, Inc., Anika Therapeutics S.r.l.

(“Anika S.r.l.”), Anika Therapeutics Limited, Parcus Medical and Arthrosurface.

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

and its wholly owned subsidiaries, Anika Securities, Inc., Anika Therapeutics S.r.l.

(“Anika S.r.l.”), Anika Therapeutics Limited, Parcus Medical and Arthrosurface.

All intercompany balances and transactions have been eliminated in consolidation.

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Revenues and expenses are translated using the average exchange rates for the period.

The translation adjustments resulting from this process are included in stockholders’

equity as a component of accumulated other comprehensive income (loss) which resulted in a gain (loss) from foreign currency translation of ($ 0.7 ) million, ($ 1.2 ) million, and $ 1.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The translation adjustments resulting from this process are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) which resulted in a gain (loss) from foreign currency translation of $ 0.5 million, ($ 0.7 ) million, and ($ 1.2 ) million for the years ended December 31, 2023, 2022, and 2021, respectively.

Gains and losses resulting from foreign currency transactions are recognized in the consolidated statements of operations.

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

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

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

As of December 31,

Accounts Receivable

$ 36,235  

$ 31,285  

$ 37,580 $ 36,235

Allowance for credit losses

Net balance, end of the year

34,627  

29,843  

$ 35,961 $ 34,627

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

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Balance, beginning of the year

$ 1,442  

$ 1,523  

$ 1,608 $ 1,442 $ 1,523

Amounts provided

Amounts recovered

( 180 )  

( 318 ) ( 180 ) ( 92 )

Amounts written off

( 158 )  

( 153 ) ( 158 ) ( 73 )

Translation adjustments

( 50 )  

( 72 )  

( 26 ) ( 50 ) ( 72 )

Balance, end of the year

$ 1,608  

$ 1,442  

$ 1,523  

$ 1,619 $ 1,608 $ 1,442

Revenue Recognition

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

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

Pursuant to Accounting Standard Codification 606, Revenue from Contracts with Customers (“ASC 606” ), the Company recognizes revenue when a customer obtains control of promised goods or services.

The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services.

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The Company generates sales principally through three types of customers:

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

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

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

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

The Company’s largest such customer, DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopedics, Inc., part of the Johnson & Johnson Medical Companies (“Mitek”), represented 45 %, 43 % and 45 % of total revenues for the years-ended December 31, 2023, 2022 and 2021 respectively.

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

The Company recognizes revenue from product sales when the customer obtains control of the Company’s product, which typically occurs upon shipment to the customer.

Commercial partnership agreements may also include sales-based royalties and milestones.

As the Company considered the license to be the predominant item to which the royalties relate for these agreements, sales-based royalties and milestones are only recognized when the later of the underlying sale occurs or the performance obligation to which the sales-based royalty has been satisfied (or partially satisfied).

This is generally in the same period that the Company’s licensees complete their product sales in their territory, for which the Company is contractually entitled to a percentage-based royalty.

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

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

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

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

Substantially all of the Company’s supply agreements do not provide options that are considered material rights.

For sales to hospitals and ASCs, which generally pairs in-house sales representatives with local or regional distributors, the inventory is generally consigned so that products are available when needed for surgical procedures.

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For distributor sales, the Company sells its products principally to distributors, generally outside the United States, who subsequently resell the products to sub-distributors and health care providers, among others.

The Company recognizes revenue from product sales when the distributor obtains control of the Company’s product, which typically occurs upon shipment to the distributor, in return for agreed-upon, fixed-price consideration.

Performance obligations are generally settled quickly after purchase order acceptance;

therefore, the value of unsatisfied performance obligations at the end of any reporting period is generally insignificant.

The Company sells to a diversified base of distributors and, therefore, believes there is no material concentration of credit risk.

The Company’s payment terms are consistent with prevailing practice in the respective markets in which the Company does business.

Most of the Company’s customers make payments based on contract terms, which are not affected by contingent events that could impact the transaction price.

The Company sells to a diversified base of international distributors and, therefore, believes there is no material concentration of credit risk.

The Company’s payment terms are consistent with prevailing practice in the respective markets in which the Company does business.

Most of the Company’s customers make payments based on contract terms, which are not affected by contingent events that could impact the transaction price.

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

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

These prospective discounts together with any free-of-charge sample units offered are evaluated as potential material rights.

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

Up-front payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements.

Any up-front payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements.

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

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

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

The Company had no deferred revenue as of December 31, 2023 and 2022, respectively.

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

In those contracts in which the Company pays for the shipping and handling, the associated costs are generally recorded along with the product sale at the time of shipment in cost of revenue when control over the products has transferred to the customer.

Value-add and other taxes collected by the Company concurrently with revenue-producing activities are excluded from revenue.

The Company’s general product warranty does not extend beyond an assurance that the product or services delivered will be consistent with stated contractual specifications, which does not create a separate performance obligation.

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred as the amortization period of the assets that the Company otherwise would have recognized is one year or less in accordance with the practical expedient in paragraph ASC 340 - 40 - 25 - 4.

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

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

All of the Company’s investments are classified as available-for-sale which consist of U.S.

treasury bills and are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss), net of related income taxes.

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

The Company may invest its excess cash in investments, which are classified as available-for-sale.

Investments are recognized on a recurring basis at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss), net of related income taxes.

For securities sold prior to maturity, the cost of securities sold is based on the specific identification method.

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The Company had no investments as of December 31, 2023 or December 31, 2022.

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

Investments are subject to a periodic impairment review.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether (i) the Company intends to sell, or (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

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

During the years ended 

December 

31, 2022, 2021 and 2020, the Company did not record any impairment charges on its available-for-sale securities because it is not more likely than not that the Company will be required to sell these securities before the recovery of their cost basis.

During the years ended December 31, 2023, 2022 and 2021, the Company did not record any impairment charges on its available-for-sale securities because it is not more likely than not that the Company will be required to sell these securities before the recovery of their cost basis.

Concentration of Credit Risk

The Company has no significant off-balance sheet risks related to foreign exchange contracts, option contracts, or other foreign hedging arrangements.

The Company’s cash equivalents and investments are held with two major international financial institutions.

The Company’s cash equivalents and investments are held with three major financial institutions.

The Company, by policy, routinely assesses the financial strength of its customers.

As a result, the Company believes that its accounts receivable credit risk exposure is limited.

As of December 

31, 2022 and 2021, Mitek represented 47 % and 41 %, respectively, of the Company’s accounts receivable balance.

As of December 31, 2023 and 2022, Mitek represented 46 % and 47 %, respectively, of the Company’s accounts receivable balance.

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

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

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

The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors including, but not limited to, historical usage rates, forecasted sales or usage, product end of life dates, and estimated current or future market values.

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When recorded, inventory write-downs are intended to reduce the carrying value of inventory to its net realizable value.

If actual demand for the Company’s products deteriorates, or if market conditions are less favorable than those projected, additional inventory write-downs may be required.

Other long-term assets include inventory expected to remain on hand beyond one year.

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Goodwill is the amount by which the purchase price of acquired net assets in a business combination exceeded the fair values of net identifiable assets on the date of acquisition.

Acquired In-Process Research and Development (“IPR&D”) represents the fair value assigned to research and development assets that the Company acquires that have not been completed at the date of acquisition or are pending regulatory approval in certain jurisdictions.

The value assigned to the acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flows to present value.

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The Company has two reporting units:

the legacy Anika reporting unit, which specializes in therapies based on its hyaluronic acid, or HA, technology platform, and a newly formed reporting unit established in 2020 upon the acquisitions of Parcus Medical and Arthrosurface.

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

the legacy Anika reporting unit, which specializes in therapies based on its hyaluronic acid, or HA, technology platform, and a reporting unit established in 2020 upon the acquisitions of Parcus Medical and Arthrosurface.

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

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To conduct quantitative impairment tests of goodwill, the fair value of the reporting unit is compared to its carrying value.

If the reporting unit’s carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of goodwill exceeds its implied fair value, not to exceed the recorded amount of goodwill.

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

Please see Note 8, Goodwill for further details.

The Company performed a qualitative annual assessment for impairment of the remaining goodwill with respect to legacy Anika reporting unit as of November 30, 2022, including consideration of (i) general macroeconomic factors, (ii) industry and market conditions, and (iii) the extent of the excess of the fair value over the carrying value indicated in prior impairment testing.

The Company performed a quantitative annual assessment for impairment of the remaining goodwill with respect to legacy Anika reporting unit as of November 30, 2023, including consideration of (i) general macroeconomic factors, (ii) industry and market conditions, and (iii) the extent of the excess of the fair value over the carrying value indicated in prior impairment testing.

Accordingly, the Company determined it was not more likely than not that the fair value of the legacy Anika reporting unit is less than its carrying amount and thus goodwill was not impaired as of November 30, 2023.

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If the carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of the IPR&D project exceeds its fair value.

The Company estimates the fair value for IPR&D using the income approach, which is based on the Multi-Period Excess Earnings Method (“MPEEM”).

MPEEM measures economic benefit indirectly by calculating the income attributable to an asset after appropriate returns are paid to complementary assets used in conjunction with the subject asset to produce the earnings associated with the subject asset, commonly referred to as contributory asset charges.

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Long-lived assets primarily include property and equipment and intangible assets with finite lives.

The Company’s intangible assets are comprised of purchased developed technologies, patents, trade names, customer relationships and distributor relationships.

These intangible assets are carried at cost, net of accumulated amortization.

Amortization is recorded on a straight-line basis over the intangible assets' useful lives, which range from approximately five  to 

sixteen  years.

Amortization is recorded on a straight-line basis over the intangible assets' useful lives, which range from approximately five to sixteen years.

The Company reviews long-lived assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate.

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If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis.

During the year ended December 31, 2023, the Company determined that certain of its intangible assets related to its Arthrosurface and Parcus reporting unit were impaired.

Please see Note 6 – Acquired Intangible Assets, net for further details.

In determining the useful lives of intangible assets, the Company considers the expected use of the assets and the effects of obsolescence, demand, competition, anticipated technological advances, changes in surgical techniques, market influences and other economic factors.

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The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Three levels of inputs that may be used to measure fair value are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 1 – Valuation is based upon quoted prices (unadjusted) for identical instruments traded in active markets.

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

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

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

These unobservable assumptions reflect the Company’s own estimates of assumptions market participants would use in pricing the instrument.

The Company’s financial assets have been classified as Level 1.

The Company’s financial assets (which include cash equivalents and investments) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services.

The Company’s financial liabilities have been classified as Level 3.

The Company’s financial liabilities (which include contingent considerations as discussed in Note 4 –

Fair Value Measurements ) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing a third -party valuation specialist.

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

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

These unobservable assumptions reflect the Company’s own estimates of assumptions market participants would use in pricing the instrument.

The Company’s financial assets have been classified as Level 1.

The Company’s financial liabilities have been classified as Level 3.

Non-Recurring Fair Value Measurement

In measuring the impairment of intangible assets, the fair value of the Company's developed technology, customer relationship and tradename definite lived intangible assets within the Parcus and Arthrosurface reporting unit are classified within Level 3 of the fair value hierarchy because of the use of unobservable inputs in measuring the estimated fair value.

When performing a quantitative assessment for impairment of these definite lived intangible assets, the Company measures the amount of impairment by calculating the amount by which the carrying value of the definite lived intangible assets exceeds its estimated fair value (as discussed in Note 6 – Acquired Intangible Assets, Net).

Research and Development

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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 December 31, 2022.

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

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

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The Company considers all relevant factors when making assessments regarding these contingencies.

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

Recent Issued Accounting Pronouncements

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

Business Combinations

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”), by and among the Company, Parcus Medical, the Unitholder Representative, and Sunshine Merger Sub LLC, a Wisconsin limited liability company and a wholly owned subsidiary of the Company.

At the closing date, Parcus Medical became a wholly owned subsidiary of the Company.

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

The acquisition of Parcus Medical has been accounted for as a business combination under ASC 805, Business Combinations (“ASC 805”

Under ASC 805, assets acquired and liabilities assumed in a business combination are recorded at their fair value as of the acquisition date.

The Company’s consolidated financial statements include results of operations for Parcus Medical from the January 24, 2020 acquisition date.

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 could total up to $ 60.0 million depending on the level of net sales of Parcus Medical products generated from 2020 through 2022.

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

There also was deferred consideration related to certain purchase price holdbacks, which was resolved within one year of the acquisition date in accordance with the Parcus Merger.

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

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

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

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

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

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

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 is as follows:

Recognized identifiable assets acquired and liabilities assumed:

Cash and cash equivalents

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 are as follows:

Developed technology

$ 41,100  

Customer relationships

Total acquired intangible assets

$ 44,000  

The fair value of the developed technology intangible assets has been estimated using the multi-period excess earnings method, which is based on the principle that the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable to the asset, after charges for other assets employed by the business.

The fair value of the customer relationships has been estimated using the avoided costs/lost profits method, which is based on the principle that the value of an intangible asset is based on consideration of the total costs that would be avoided by having this asset in place.

The fair value of the trade name has been estimated using the relief from royalty method of the income approach, which is based on the principle that the value of an intangible asset is equal to the present value of the after-tax royalty savings attributable to owning the intangible asset.

Key estimates and assumptions used in these models are projected revenues and expenses related to the asset, estimated contributory asset charges, estimated costs to recreate the asset, and a risk-adjusted discount rate used to calculate the present value of the future expected cash inflows or cash outflows avoided from the asset.

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 reporting unit for Parcus Medical and Arthrosurface.

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

Goodwill will not be amortized and is expected to be deductible for income tax purposes as the acquisition of the limited liability company is an asset purchase for tax purposes.

See Note 8, Goodwill , for further discussion.

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”), by and among the Company, Arthrosurface, the Stockholder Representative, and Button Merger Sub, a Delaware corporation and a wholly owned subsidiary of the Company.

At the closing date, Arthrosurface became a wholly owned subsidiary of the Company.

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

The acquisition of Arthrosurface has been accounted for as a business combination under ASC 805.

Under ASC 805, assets acquired and liabilities assumed in a business combination are recorded at their fair values as of the acquisition date.

Anika’s consolidated financial statements include results of operations for Arthrosurface from the February 3, 2020 acquisition date.

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

28,376  

Estimated total purchase consideration

$ 90,285  

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

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 December 31, 2022, there were no milestones remaining.

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

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

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

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

$ 1,072  

Accounts receivable

15,652  

Prepaid expenses and other current assets

Property, plant and equipment

Other long-term assets

Intangible assets

48,900  

Accounts payable, accrued expenses and other liabilities

Deferred tax liabilities

Net assets acquired

67,393  

22,892  

Estimated total purchase consideration

$ 90,285  

Intangible assets acquired consist of:

Developed technology

$ 37,000  

Customer relationships

Total acquired intangible assets

$ 48,900  

The fair value of the developed technology intangible assets has been estimated using the multi-period excess earnings method, which is based on the principle that the value of an intangible asset is equal to the present value of the incremental after-tax cash flow attributable to the asset, after charges for other assets employed by the business.

The fair value of developed technology that 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.

See Note 7, Acquired Intangible Assets, Net, for further discussion .

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

Goodwill will not be amortized and is not expected to be deductible for income tax purposes as the acquisition of the corporation is a stock purchase for tax purposes.

See Note 8, Goodwill , for further discussion.

Pro forma Information

The Parcus Medical and Arthrosurface acquisitions were both completed in the first quarter of 2020.

Both acquired companies have similar businesses with all of their products in the Joint Preservation and Restoration product family, serving orthopedic surgeons, ambulatory surgical centers and hospitals.

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

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

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

The pro forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisitions.

These pro forma adjustments include:

(i) a net increase in amortization expense to record amortization expense for the aforementioned acquired identifiable intangible assets, (ii) an adjustment to cost of revenue based on the preliminary inventory step-up and the anticipated inventory turnover, (iii) a net decrease in interest expense as a result of eliminating interest expense and interest income related to borrowings that were settled in accordance with the respective Parcus Medical Merger Agreement and Arthrosurface Merger Agreement, (iv) an adjustment to record the acquisition-related transaction costs in the period required, and (v) the tax effect of the pro forma adjustments using the anticipated effective tax rate.

The effective tax rate of the combined company could be materially different from the effective rate presented in this unaudited pro forma combined financial information.

As a result of the transaction, the combined company may be subject to annual limitations on its ability to utilize pre-acquisition net operating loss carryforwards to offset future taxable income.

The amount of the annual limitation is determined based on the value of Anika immediately prior to the acquisition.

As further information becomes available, any such adjustment described above could be material to the amounts presented in the unaudited pro forma combined financial statements.

The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

The following table presents unaudited supplemental pro forma information:

Year Ended December 31,

Total revenue

$ 134,410  

Fair Value Measurements

There were no available-for-sale securities as of December 31, 2023 and 2022.

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

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

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. 

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

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

For cash, current receivables, accounts payable, and 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.

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

Active Markets

Significant Other

for Identical Assets

Observable Inputs

Unobservable Inputs

for Identical

December 31, 2023

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Money Market Funds

$ 67,801  

$ 55,485 $ 55,485 $ - $ - $ 55,485

Active Markets

Significant Other

for Identical Assets

Observable Inputs

Unobservable Inputs

for Identical

December 31, 2022

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Money Market Funds

$ 67,046  

Other current and long-term liabilities:

Contingent Consideration - Short Term

$ 4,315  

$ 67,801 $ 67,801 $ - $ - $ 67,801

There were no transfers between fair value levels in 2023 or 2022.

Contingent Consideration

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

Years Ended December 31

Balance, beginning January 1

$ 4,315  

$ 35,410  

Change in fair value

Balance, ending December 31

$ 4,315  

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

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

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

The unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the probabilities of successful achievement, the net sales estimates, the weighted average cost of capital used for the Monte Carlo simulation, discount rate and the periods in which the milestones are expected to be achieved.

The discount rates used for the net sales earn-out milestone ranged from 3.1 % - 3.4 %.

The weighted average cost of capital for Parcus Medical decreased from 11.4 % as of December 31, 2020 to 11.3 % as of December 31, 2021.

The weighted average cost of capital for Arthrosurface was 11.4 % as of December 31, 2020.

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

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

This amount was paid in September 2022.

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

This amount was paid in July 2021.

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

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

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

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Raw materials

$ 15,507 $ 20,535

Work-in-process

17,002 10,648

Finished goods

32,084 25,306

$ 64,593 $ 56,489

$ 46,386 $ 39,765

Other long-term assets

18,207 16,724

$ 64,593 $ 56,489

Inventories are stated net of inventory reserves of approximately $ 11.7 million and $ 9.9 million, as of December 31, 2023 and 2022, respectively.

Property  

and Equipment

Property and Equipment

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

As of December 31,

Equipment and software

$ 52,278 $ 52,112

Furniture and fixtures

Leasehold improvements

34,975 34,916

Construction in progress

93,867 94,462

Less accumulated depreciation

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

31, 2022, 2021, and 2020, respectively.

( 47,669 ) ( 46,183 )

$ 46,198 $ 48,279

Depreciation expense was $ 6.4 million, $ 6.7 million, and $ 6.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Acquired Intangible Assets, Net

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Developed technology

$ 89,580  

$ ( 1,608 )  

$ ( 23,686 )  

$ 64,286  

( 1,006 )  

$ 89,580 $ ( 1,608 ) $ ( 56,518 ) $ ( 29,481 ) $ 1,973 15

2,656 ( 1,006 ) - - 1,650 Indefinite

Customer relationships

( 2,627 )  

9,000 - ( 5,113 ) ( 3,527 ) 360 10

Distributor relationships

( 415 )  

( 4,285 )  

( 189 )  

( 680 )  

( 3,041 )  

$ 112,136  

$ ( 3,218 )  

$ ( 34,319 )  

$ 74,599  

4,700 ( 415 ) - ( 4,285 ) - 5

1,000 ( 189 ) - ( 728 ) 83 16

5,200 - ( 559 ) ( 4,081 ) 560 5

$ 112,136 $ ( 3,218 ) $ ( 62,190 ) $ ( 42,102 ) $ 4,626 13

Year Ended December 31, 2022

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Developed technology

$ 89,580  

$ 70,081  

$ 89,580 $ ( 1,608 ) $ - $ ( 23,686 ) $ 64,286 15

2,656 ( 1,006 ) - - 1,650 Indefinite

Customer relationships

9,000 - - ( 2,627 ) 6,373 10

Distributor relationships

$ 112,736  

$ 82,382  

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

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

As a result, the Company recorded an impairment charge in the amount of $ 0.6 million in research and development expenses in the Company’s consolidated statements of operations.

During the fourth quarter of 2020, the Company decided not to further invest in its Hyalobone and Hyalonect IPR&D projects as they were no longer aligned with the Company’s core strategic focus.

As a result, the Company recorded an impairment charge in the period totaling $ 1.4 million recorded in research and development expenses in the Company’s consolidated statements of operations.

The Company performed its annual assessment of the remaining IPR&D intangible asset as of November 30, 2022.

The Company estimated the fair value of the IPR&D intangible assets using the income approach which is based on the Multi-Period Excess Earnings Method (“MPEEM”).

4,700 ( 415 ) - ( 4,285 ) - 5

1,000 ( 189 ) - ( 680 ) 131 16

5,200 - - ( 3,041 ) 2,159 5

$ 112,136 $ ( 3,218 ) $ - $ ( 34,319 ) $ 74,599 13

Total amortization expense with respect to the definite lived acquired intangible assets was $ 7.8 million for each of the years ended December 31, 2023, 2022 and 2021, respectively.

The Company performed an assessment of its definite lived acquired intangible assets during the quarter ended December 31, 2023.

The Company estimated the fair value of its definite lived acquired intangible assets using an income approach method of valuation, including a combination of the distributor method for the customer relationships intangible asset and the relief of royalty method for each of the developed technology and tradename intangible assets.

These valuation approaches incorporate significant estimates and assumptions related to the forecasted results including revenues, expenses, expected economic life of the asset, royalty rates, after-tax royalty savings expected from ownership of the developed technology and tradename assets, contributory asset charges and discount rates to estimate future cash flows.

While assumptions utilized are subject to a high degree of judgment and complexity, the Company made its best estimate of future cash flows under a high degree of economic uncertainty that existed as of December 31, 2023.

In developing its assumptions, the Company also considered observed trends of its industry participants.

The Company recorded a $ 62.2 million charge to intangible assets related to its Arthrosurface and Parcus asset groups during the year ended December 31, 2023 mainly due to slower than expected revenue growth from product sales that have impacted cash flows with these asset groups.

The Company performed its annual assessment of the IPR&D intangible asset as of November 30, 2023.

The Company estimated the fair value of the IPR&D intangible assets using the income approach which is based on the Multi-Period Excess Earnings Method (“MPEEM”).

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No impairment existed as the estimated fair value of the remaining IPR&D intangible asset was greater than its carrying value.

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

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

The following table provides a roll forward of goodwill for the years ended December 31, 2023 and 2022:

Years Ended December 31

As of December 31,

Balance, beginning January 1

$ 7,781  

$ 8,413  

$ 7,339 $ 7,781

Effect of foreign currency adjustments

( 442 )  

Balance, ending December 31

$ 7,339  

$ 7,781  

In the first quarter of 2020, the Company acquired Parcus Medical and Arthrosurface, as further discussed in Note 3, Business Combinations .

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

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

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

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

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

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

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

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

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

As a result, the widespread economic volatility triggered impairment testing in the first quarter of 2020, and accordingly, the Company performed interim impairment testing on the goodwill balances of its reporting units.

The Company also performed its annual impairment testing in the fourth quarter of 2020.

$ 7,571 $ 7,339

The goodwill balance at December 31, 2023 and 2022 was related to the legacy Anika reporting unit.

The Company estimated the fair value of the reporting units using a discounted cash flow method, which is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting units beyond the cash flows from the discrete projection period.

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In developing its assumptions, the Company also considered observed trends of its industry participants.

For the legacy Anika reporting unit, the Company performed a qualitative assessment including consideration of (i) general macroeconomic factors, (ii) industry and market conditions, and (iii) the extent of the excess of the fair value over the carrying value indicated in prior impairment testing.

The Company determined it was not more likely than not that the fair value of the legacy Anika reporting unit is less than its carrying amount and thus goodwill was not impaired as of March 31, 2020.

As part of its annual impairment testing, the Company decided to perform a quantitative assessment related to the legacy Anika reporting unit as of November 30, 2020, due to the expectation that the economic recovery will take longer than expected to materialize.

The results of the impairment test indicated that the estimated fair value of the legacy Anika reporting unit was greater than its carrying value, therefore the Company did not record any impairment charges related to the legacy Anika reporting unit for the year ended December 31, 2020.

For its newly created reporting unit, which includes Parcus Medical and Arthrosurface, the Company performed an interim quantitative assessment of goodwill impairment as of March 31, 2020.

The Company estimated the fair value of the reporting unit using a discounted cash flow method.

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

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

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

As part of its annual impairment testing, the Company performed a quantitative assessment related to the newly created reporting unit as of November 30, 2020.

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

This was primarily due to a decline in projected net cash flows as a result of the continued impact of COVID- 19 on revenue and related cash flows, the expectation that the economic recovery will take longer than expected to materialize, and additional projected investment to support future growth.

Consequently, a non-cash goodwill impairment charge was recorded in the amount of $ 24.4 million during the fourth quarter of 2020.

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

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

For the legacy Anika reporting unit, the Company performed a quantitative assessment as of November 30, 2023.

The results of the impairment test indicated that the estimated fair value of the legacy Anika reporting unit was greater than its carrying value, therefore the Company determined that was more likely than not that the fair value of the legacy Anika reporting unit was not impaired as of November 30, 2023.

There was no remaining goodwill with respect to the reporting unit for Parcus Medical and Arthrosurface as of December 31, 2023.

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

2 unchanged sentences

There are also lease renewal options into 2038.

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

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

The Company leases office space in Padova, Italy.

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

the Company also has operating leases for corporate offices, manufacturing and warehouse facilities.

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

1 unchanged sentence

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

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

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

2 unchanged sentences

The incremental borrowing rate represents a collateralized rate of interest the Company would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment.

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

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

The weighted average discount rate at December 31, 2023 was 3.6 % for operating leases.

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

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

Years Ended December 31  

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

Years Ended December 31

Finance lease amortization of right-of-use assets

$ - $ 121 $ 143

Interest on finance lease liabilities

1 unchanged sentence

Operating lease expense

3,320 2,839 2,468

Short-term lease expense

1 unchanged sentence

Total lease expense

$ 3,401  

$ 2,951  

$ 2,857  

$ 3,745 $ 3,401 $ 2,951

Years Ended December 31

1 unchanged sentence

Operating leases

Financing leases

Weighted Average Discount Rate

Operating leases

Financing leases

Other information

Operating cash flows from operating leases

$ 2,471  

$ 2,392  

Operating cash flows from financing leases

$ 3,239 $ 2,471

Future commitments due under these lease agreements as of December 31, 2023 are as follows:

1 unchanged sentence

Operating Leases

$ 3,170  

25,230  

Present value adjustment

Present value of lease payments

30,890  

Less current portion included in accrued expenses and other current liabilities

Total lease liabilities

$ 28,817  

Accrued Expenses

4 unchanged sentences

Operating lease liability- current

Clinical trial costs

Finance lease liability - current

Discontinuation of software development project

Income taxes payable

Clinical trial costs

Revolving Credit Agreement

On November 12, 2021, the Company, entered into a “Third Amendment to Credit Agreement”

amending the existing revolving line of credit agreement dated October 24, 2017 with Bank of America, N.A., as administrative agent, swingline lender and issuer of letters of credit, for a $ 75.0 million senior revolving line of credit (the “Credit Agreement”).

On November 12, 2021, the Company, entered into a “Third Amendment to Credit Agreement” amending the existing revolving line of credit agreement dated October 24, 2017 with Bank of America, N.A., as administrative agent, swingline lender and issuer of letters of credit, for a $ 75.0 million senior revolving line of credit (the “Credit Agreement”).

Subject to certain conditions, the Company may request up to an additional $ 75.0 million in commitments for a maximum aggregate commitment of $ 150.0 million, which requests must be approved by the Revolving Lenders (as defined in the Credit Agreement).

Loans under the Credit Agreement generally bear interest at a rate equal to (a) the Bloomberg Short-Term Bank Yield Index, (“BSBY”), rate plus (b) an additional percentage that will range from 0.25 % to 1.00 %, based on the Company’s consolidated leverage ratio at the time of the borrowings.

The Company is required to pay a commitment fee in an amount that is equal to 0.20 % to 0.30 % per annum, based on the Company’s consolidated leverage ratio, on the actual daily unused amount of the credit facility and that is due and payable quarterly in arrears.

Loan origination costs are included as assets on the balance sheet and are being amortized over the five -year term of the Credit Agreement.

As of December 31, 2022 and 2021, there were no outstanding borrowings under the Credit Agreement and the Company is in compliance with the terms of the Credit Agreement. 

As of December 31, 2023 and 2022, there were no outstanding borrowings under the Credit Agreement and the Company is in compliance with the terms of the Credit Agreement.

The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including financial covenants, events of default, and indemnification provisions in favor of the Lenders.

These include restrictive covenants that require the Company not to exceed certain maximum leverage and interest coverage ratios, limit its incurrence of liens and indebtedness, and its entry into certain merger and acquisition transactions or dispositions and place additional restrictions on other matters, all subject to certain exceptions.

The Revolving Lenders has been granted a first priority lien and security interest in substantially all of the Company’s assets, except for certain intangible assets.

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

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

The Revolving Lenders has been granted a first priority lien and security interest in substantially all of the Company’s assets, except for certain intangible assets.

Commitments and Contingencies

4 unchanged sentences

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 at December 31, 2023 or 2022, respectively, and has no history of claims paid.

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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 flows.

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 the first half of 2023.

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.

Revenue and Geographic Information

1 unchanged sentence

OA Pain Management, Joint Preservation and Restoration, and Non-Orthopedic.

Anika’s consolidated financial statements include results of operations for Parcus Medical from the January 24, 2020 acquisition date and Arthrosurface from the February 3, 2020 acquisition date.

Product revenue by product family is as follows:

4 unchanged sentences

OA Pain Management

$ 97,887  

$ 89,503  

$ 83,029  

$ 101,927 61 % $ 91,984 59 % $ 85,084 58 %

Joint Preservation and Restoration

50,402  

48,588  

39,368  

54,879 33 % 50,402 32 % 48,588 33 %

Non-Orthopedic

$ 156,236  

$ 147,794  

$ 130,457  

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

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

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

9,856 6 % 13,850 9 % 14,122 9 %

$ 166,662 100 % $ 156,236 100 % $ 147,794 100 %

Effective January 1, 2023, the Company reported revenue from product sales to veterinary customers within the Non-Orthopedic product family whereas such revenue had historically been reported within the OA Pain Management revenue product family for the prior period years ended December 31, 2022 and 2021.

Revenue from product sales to veterinary customers amounted to $ 4.2 million, $ 5.9 million and $ 4.4 million for 2023, 2022 and 2021, respectively, with the 2022 and 2021 revenue reclassified to Non-Orthopedic to conform to current presentation.

Product revenue from the Company’s sole significant customer, Mitek, as a percentage of the Company’s total product revenue was 45 %, 43 %, and 45 % for the years ended December 31, 2023, 2022, and 2021, respectively.

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

5 unchanged sentences

United States

$ 119,151  

$ 113,833  

$ 103,182  

20,639  

19,580  

14,179  

16,446  

14,381  

13,096  

$ 156,236  

$ 147,794  

$ 130,457  

$ 123,129 74 % $ 119,151 76 % $ 113,833 77 %

21,724 13 % 20,639 13 % 19,580 13 %

21,809 13 % 16,446 11 % 14,381 10 %

$ 166,662 100 % $ 156,236 100 % $ 147,794 100 %

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

Net tangible long-lived assets by principal geographic areas are as follows:

Years Ended December 31,

As of December 31,

United States

$ 47,068  

$ 46,068  

$ 48,279  

$ 47,602  

$ 45,077 $ 47,068

United Kingdom

$ 46,198 $ 48,279

Equity Incentive Plan

1 unchanged sentence

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 and June 16, 2021.

The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), 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 SAR’s 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 4.6 million shares of common stock may be issued under the 2017 Plan.

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 and June 16, 2021 and June 14, 2023.

Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.6 million shares of common stock may be issued under the 2017 Plan.

There are 1.0 million shares available for future grant at December 31, 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.

2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on November 4, 2021in which the Company reserved 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 are 4,883 shares available for future grant at December 31, 2022 under the Inducement Plan.

The Inducement Plan was amended in December 2023 to add 125,000 shares.

There are 0.1 million shares available for future grant at December 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.

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 one to four years with a maximum contractual term of ten years.

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

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

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

For the years ended December 31, 2023, and 2022, the tax benefit associated with stock-based compensation was $ 2.6 million and $ 1.1 million, respectively.

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

Years Ended December 31,

Cost of revenue

$ 646 $ 820 $ 716

Research and development

2,189 1,646 1,233

Selling, general and administrative

12,408 11,849 9,136

Total stock-based compensation expense

$ 15,243 $ 14,315 $ 11,085

For the years ended December 31, 2023, 2022 and 2021, windfall tax benefits (expense) of ($ 0.1 ) million, ($ 0.5 ) million and $ 0.1 million, respectively, are associated with the stock-based compensation expense above.

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

According to the terms of Mr.

Darling’s equity award grants and the 2017 Plan, the unvested portion of his stock-based compensation was forfeited upon his death, resulting in a one -time benefit of $ 1.8 million that was fully recognized during the three -month period ended March 31, 2020 within selling, general and administrative expenses.

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 to four 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.

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

Number of Options

5 unchanged sentences

Outstanding as of December 31, 2022

1,175,993  

$ 39.56  

553,827  

$ 28.07  

( 433 )  

$ 8.83  

1,530,703 $ 34.93

404,903 $ 28.58

( 2,034 ) $ 18.30 $ 20

Forfeited and canceled

( 198,684 )  

$ 43.24  

( 120,843 ) $ 36.59

Outstanding as of December 31, 2023

1,530,703  

$ 34.93  

$ 1,050  

1,812,729 $ 33.42 7.5 $ 127

Vested, December 31, 2023

640,056  

$ 40.08  

983,834 $ 36.66 6.7 $ 5

Vested or expected to vest, December 31, 2023

1,530,703  

$ 34.93  

$ 1,050  

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

1,812,729 $ 33.42 7.5 $ 127

The aggregate intrinsic value of options exercised was immaterial for the years ended December 31, 2023 and 2022, respectively and was $ 0.3 million for the year ended December 31, 2021.

The Company granted 404,903 stock options during the year ended December 31, 2023, of which 323,993 shares were premium-priced options.

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

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

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

The assumptions used in the Black-Scholes pricing model for options granted during the years ended December 31, 2023, 2022 and 2021, along with the weighted-average grant-date fair values, were as follows:

14 unchanged sentences

Outstanding as of December 31, 2022

$ 412,658  

$ 36.33  

507,524  

$ 25.14  

( 164,167 )  

$ 36.77  

$ 675,405 $ 28.40

442,762 $ 26.66

( 261,939 ) $ 29.44

Forfeited and cancelled

( 80,610 )  

( 84,870 ) $ 27.11

Outstanding as of December 31, 2023

$ 675,405  

$ 28.40  

$ 771,358 $ 27.19

The weighted-average grant-date fair value per share of RSUs granted was $ 26.66 , $ 25.14 and $ 35.88 for the years ended December 31, 2023, 2022 and 2021, respectively.

2 unchanged sentences

Performance Stock Units

PSUs generally vest over a three -year period from the grant date and include both a service and performance component.

The PSUs granted to employees in 2019 contained performance conditions with business and financial targets.

The Company granted performance stock units (“PSUs”) to employees in 2019 and 2020 which contained performance conditions with business and financial targets.

The business target, amounting to 30 % of the total performance condition awards, was measured and achieved in the 2019 fiscal year.

3 unchanged sentences

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

The Company has no PSUs outstanding at December 31, 2023.

PSU activity for the year ended December 31, 2023 is as follows:

2 unchanged sentences

Outstanding as of December 31, 2022

158,297  

$ 37.44  

$ 32.53  

( 19,125 )  

$ 32.53  

117,897 $ 34,98

Forfeited and cancelled

( 23,400 )  

$ 41.86  

( 117,897 ) $ 34.98

Outstanding as of December 31, 2023

117,897  

$ 34.98  

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

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

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

Employee Stock Purchase Plan

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

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

Employees that participate in the Company’s ESPP may purchase up to a maximum of 800 shares per six -month offering period or $ 25,000 worth of common stock per calendar year by authorizing payroll deductions of up to 10 % of their base salary.

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

The weighted-average grant-date fair value per share of PSUs granted was $ 32.53 for the year ended December 31, 2022.

The total fair value of PSUs vested was $ 0.6 million for the year ended December 31, 2022.

There were no PSUs granted or vested during the years ended December 31, 2023 and 2021, respectively.

There are no PSUs outstanding as of December 31, 2023.

Employee Benefit Plan

The Company’s U.S.

employees are eligible to participate in the Company’s 401 (k) savings plan.

Employees may elect to contribute a percentage of their compensation to the plan, and the Company will make 140 % matching contributions up to a limit of 5 % of an employee’s eligible compensation.

The Company’s U.S.

employees are eligible to participate in the Company’s 401 (k) savings plan.

Employees may elect to contribute a percentage of their compensation to the plan, and the Company will make 140 % matching contributions up to a limit of 5 % of an employee’s eligible compensation.

In addition, the Company may make annual discretionary contributions.

The Company made matching contributions of $ 2.3  million, $ 2.0 million, and $ 1.7 million for the years ended December 

31, 2022, 2021, and 2020, respectively.

Income Taxes  

The Company made matching contributions of $2.7 million, $ 2.3 million, and $ 2.0 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Income Tax Expense

The components of the Company’s income (loss) before income taxes and its provision for (benefit from) income taxes consist of the following:

Years ended December 31,

(Loss) income before income taxes

$ ( 19,080 )  

$ ( 18,746 )  

$ 2,427  

$ ( 86,061 ) $ ( 19,080 ) $ ( 2,529 )

734 334 4,956

$ ( 85,327 ) $ ( 18,746 ) $ 2,427

Years ended December 31,

Provision for (benefit from) income taxes:

$ 1,005  

$ 3,153 $ 1,005 $ 494

309 285 ( 635 )

Total current

( 3,243 )  

( 1,256 )  

( 774 )  

3,774 1,386 26

( 5,045 ) ( 3,243 ) ( 553 )

( 1,418 ) ( 1,256 ) ( 426 )

29 ( 774 ) ( 754 )

Total deferred

( 5,273 )  

( 6,434 ) ( 5,273 ) ( 1,733 )

Total benefit from income taxes

$ ( 3,887 )  

$ ( 2,660 ) $ ( 3,887 ) $ ( 1,707 )

Deferred Tax Assets and Liabilities

Significant components of the Company’s deferred tax assets and liabilities consist of the following:

Deferred tax assets:

Lease liability

$ 7,468  

$ 4,684  

Capitalized research expenditures

$ 11,266 $ 5,451

Lease liability

Acquisition-related intangible asset

Stock-based compensation expense

4 unchanged sentences

Foreign currency exchange

Gross deferred tax assets

35,250 23,144

Valuation allowance

Deferred tax assets

$ 23,144  

$ 17,772  

$ 17,188 $ 23,144

Deferred tax liabilities:

Acquisition-related intangible asset

$ ( 12,075 )  

( 8,804 )  

$ ( 288 ) $ ( 12,075 )

( 8,567 ) ( 8,804 )

Right of use asset

( 7,252 )  

( 6,844 ) ( 7,252 )

Deferred tax liabilities

$ ( 28,131 )  

$ ( 15,699 ) $ ( 28,131 )

Net deferred tax liabilities

$ ( 4,987 )  

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

$ 1,489 $ ( 4,987 )

As of December 31, 2023, the Company had no Federal net operating loss (“NOL”) carryforwards and state net NOL carryforwards of $ 1.0 million that will begin to expire in 2027.

The Company also had NOL carryforwards in Italy of $ 4.7 million that do not expire but are limited to 80% of taxable income.

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

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

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

As of December 31, 2023, the Company had no federal research and development tax credit carryforwards and state research and development tax credit carryforwards of $ 0.7 million that will begin expiring in 2024.

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

This rule became effective for the Company during the year ended December 31, 2022 and resulted in the capitalization of R&D costs of $ 22.9 million and $ 23.4 million as of December 31, 2023 and 2022, respectively.

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

2 unchanged sentences

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

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

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

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

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

During the year ended December 31, 2023, the Company determined that its domestic deferred tax assets originating during the year ended December 31, 2023 would 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 net deferred tax assets in the U.S.

are not more likely than not to be realizable.

As a result, the Company recorded a valuation allowance of $ 18.1 million against its U.S deferred tax assets at December 31, 2023.

As of December 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 in the Company’s foreign jurisdictions.

Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $ 0.6 million at December 31, 2023.

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

3 unchanged sentences

The reconciliation between the U.S.

federal statutory rate and the Company’s effective rate is summarized as follows:

Years ended December 31,

Statutory federal income tax rate

21.0 %  

21.0 % 21.0 % 21.0 %

State tax expense, net of federal benefit

3.2 % 1.4 % ( 3.2 %)

Stock compensation

( 4.7 % )  

( 0.5 %) ( 4.7 %) 22.3 %

Section 162(m) limitation

( 8.2 % )  

Goodwill impairment

( 1.0 %) ( 8.2 %) 8.7 %

Change in fair value of contingent consideration

- % - % ( 36.7 %)

Change in tax rates and state apportionment

- % 1.2 % ( 29.8 %)

Federal, state and foreign tax credits

1.3 % 5.1 % ( 28.4 %)

Valuation allowance

( 21.2 %) - % ( 35.3 %)

Return to provision adjustments

0.2 % 5.0 % - %

Other permanent items

0.1 % ( 0.1 %) 11.0 %

Effective income tax rate

20.7 %  

3.1 % 20.7 % ( 70.4 %)

Accounting for Uncertainty in Income Taxes

6 unchanged sentences

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

Earnings per Share ( “

Earnings per Share ( “ EPS ” )

Basic EPS is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period.

4 unchanged sentences

Shares used in the calculation of basic EPS

14,561  

14,401  

14,222  

14,656 14,561 14,401

Effect of dilutive securities:

1 unchanged sentence

Diluted shares used in the calculation of EPS

14,561  

14,634  

14,222  

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

impact on EPS would have been anti-dilutive.

14,656 14,561 14,634

Stock options of 1.1 million shares were outstanding for the year ended December 31, 2021 and were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive.

The Company was in a loss position during the years ended December 31, 2023 and 2022, therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

1 unchanged sentence

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data