ANIK filing — read by section

Item 8. Financial Statements and Supplementary Data

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

 ANIKA THERAPEUTICS, INC. AND SUBSIDIARIES 

 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

 Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 )
 56 

 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, 2023, 2022 and 2021 
 59 

 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022 and 2021 
 60 

 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 
 61 

 Notes to Consolidated Financial Statements 
 62 

 55
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

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

 Opinion on the Financial Statements 

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

 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 

 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 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, 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.

 We identified the reserve for excess quantities and obsolete inventory as a critical audit matter because of the significant estimates and assumptions management makes to quantify and to record the reserve, including the determination of expected demand. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the methodology and the reasonableness of assumptions including expected demand.

 56
 
 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 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 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:
 
 o
 The Company’s business strategies and growth plans including consideration of the effects of new products;
 
 o
 Historical results and trends; and
 
 o
 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:
 
 o
 Testing the source information underlying the determination of the royalty rate, the discount rate, and the mathematical accuracy of the calculations.
 
 o
 Developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by management.
 
 /s/ Deloitte & Touche LLP 

 Boston, Massachusetts 

 March 15, 2024

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

 57
 
 Anika Therapeutics, Inc. and Subsidiaries 

 Consolidated Balance Sheets 

 (in thousands, except per share data) 

 December 31, 
 
 ASSETS 
 2023 
 2022 
 
 Current assets:
 
 Cash and cash equivalents
 $ 72,867 $ 86,327 

 Accounts receivable, net
 35,961 34,627 

 Inventories
 46,386 39,765 

 Prepaid expenses and other current assets
 8,095 8,828 

 Total current assets
 163,309 169,547 

 Property and equipment, net
 46,198 48,279 

 Right-of-use assets
 28,767 30,696 

 Other long-term assets
 18,672 17,219 

 Deferred tax assets
 1,489 1,449 

 Intangible assets, net
 4,626 74,599 

 Goodwill
 7,571 7,339 

 Total assets
 $ 270,632 $ 349,128 

 LIABILITIES AND STOCKHOLDERS ’ EQUITY 
 
 Current liabilities:
 
 Accounts payable
 $ 9,860 $ 9,074 

 Accrued expenses and other current liabilities
 21,199 18,840 

 Total current liabilities
 31,059 27,914 

 Other long-term liabilities
 404 398 

 Deferred tax liability
 - 6,436 

 Lease liabilities
 26,904 28,817 

 Commitments and contingencies (Note 11)
 
 Stockholders’ equity:
 
 Preferred stock, $ 0.01 par value; 1,250 shares authorized, no shares issued and outstanding at December 31, 2023 and 2022, respectively
 - - 

 Common stock, $ .01 par value; 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
 147 146 

 Additional paid-in-capital
 90,009 81,141 

 Accumulated other comprehensive loss
 ( 5,943 ) ( 6,443 ) 

 Retained earnings
 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.

 58
 
 Anika Therapeutics, Inc. and Subsidiaries 

 Consolidated Statements of Operations and Comprehensive Income (Loss) 

 (in thousands, except per share data) 

 For the Years Ended December 31, 
 
 2023 
 
 2022 
 
 2021 
 
 Revenue
 
 $ 
 166,662 
 
 $ 
 156,236 
 
 $ 
 147,794 
 
 Cost of revenue
 
 63,574 
 
 62,660 
 
 64,851 
 
 Gross profit
 
 103,088 
 
 93,576 
 
 82,943 
 
 Operating expenses:
 
 Research & development
 
 32,690 
 
 28,182 
 
 27,327 
 
 Selling, general & administrative
 
 95,847 
 
 84,794 
 
 74,096 
 
 Impairment of intangible assets
 
 62,190 
 
 - 
 
 - 
 
 Change in fair value of contingent consideration
 
 - 
 
 - 
 
 ( 21,095 
 ) 
 
 Total operating expenses
 
 190,727 
 
 112,976 
 
 80,328 
 
 (Loss) income from operations
 
 ( 87,639 
 ) 
 
 ( 19,400 
 ) 
 
 2,615 
 
 Interest and other income (expense), net
 
 2,312 
 
 654 
 
 ( 188 
 ) 
 
 (Loss) income before income taxes
 
 ( 85,327 
 ) 
 
 ( 18,746 
 ) 
 
 2,427 
 
 Benefit from for income taxes
 
 ( 2,660 
 ) 
 
 ( 3,887 
 ) 
 
 ( 1,707 
 ) 
 
 Net (loss) income
 
 $ 
 ( 82,667 
 ) 
 
 $ 
 ( 14,859 
 ) 
 
 $ 
 4,134 
 
 Net income (loss) per share:
 
 Basic
 
 $ 
 ( 5.64 
 ) 
 
 $ 
 ( 1.02 
 ) 
 
 $ 
 0.29 
 
 Diluted
 
 $ 
 ( 5.64 
 ) 
 
 $ 
 ( 1.02 
 ) 
 
 $ 
 0.28 
 
 Weighted average common shares outstanding:
 
 Basic
 
 14,656 
 
 14,561 
 
 14,401 
 
 Diluted
 
 14,656 
 
 14,561 
 
 14,634 
 
 Net (loss) income
 
 $ 
 ( 82,667 
 ) 
 
 $ 
 ( 14,859 
 ) 
 
 $ 
 4,134 
 
 Foreign currency translation adjustment
 
 500 
 
 ( 725 
 ) 
 
 ( 1,176 
 ) 
 
 Comprehensive (loss) income
 
 $ 
 ( 82,167 
 ) 
 
 $ 
 ( 15,584 
 ) 
 
 $ 
 2,958 
 
 The accompanying notes are an integral part of these consolidated financial statements.

 59
 
 Anika Therapeutics, Inc. and Subsidiaries 

 Consolidated Statements of Stockholders' Equity 

 (in thousands, except per share data) 

 Accumulated 
 
 Common Stock 
 
 Other 
 
 Total 
 
 Number of 
 
 $.01 Par 
 
 Additional Paid 
 
 Retained 
 
 Comprehensive 
 
 Stockholders' 
 
 Shares 
 
 Value 
 
 in Capital 
 
 Earnings 
 
 Loss 
 
 Equity 
 
 Balance, December 31, 2020
 
 14,329 
 
 $ 
 143 
 
 $ 
 55,355 
 
 $ 
 221,444 
 
 $ 
 ( 4,542 
 ) 
 
 $ 
 272,400 
 
 Issuance of common stock for equity awards
 
 32 
 
 - 
 
 1,128 
 
 - 
 
 - 
 
 1,128 
 
 Vesting of restricted stock units
 
 92 
 
 1 
 
 ( 1 
 ) 
 
 - 
 
 - 
 
 - 
 
 Stock-based compensation expense
 
 - 
 
 - 
 
 11,085 
 
 - 
 
 - 
 
 11,085 
 
 Retirement of common stock for minimum tax withholdings
 
 ( 12 
 ) 
 
 - 
 
 ( 486 
 ) 
 
 - 
 
 - 
 
 ( 486 
 ) 
 
 Net income
 
 - 
 
 - 
 
 - 
 
 4,134 
 
 - 
 
 4,134 
 
 Other comprehensive loss
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 1,176 
 ) 
 
 ( 1,176 
 ) 
 
 Balance, December 31, 2021
 
 14,441 
 
 $ 
 144 
 
 $ 
 67,081 
 
 $ 
 225,578 
 
 $ 
 ( 5,718 
 ) 
 
 $ 
 287,085 
 
 Issuance of common stock for equity awards
 
 - 
 
 - 
 
 16 
 
 - 
 
 - 
 
 16 
 
 Vesting of restricted stock units
 
 184 
 
 2 
 
 ( 2 
 ) 
 
 - 
 
 - 
 
 - 
 
 Issuance of common stock from employee purchase plan
 
 35 
 
 - 
 
 665 
 
 - 
 
 - 
 
 665 
 
 Stock-based compensation expense
 
 - 
 
 - 
 
 14,315 
 
 - 
 
 - 
 
 14,315 
 
 Retirement of common stock for minimum tax withholdings
 
 ( 35 
 ) 
 
 - 
 
 ( 934 
 ) 
 
 - 
 
 - 
 
 ( 934 
 ) 
 
 Net loss
 
 - 
 
 - 
 
 - 
 
 ( 14,859 
 ) 
 
 - 
 
 ( 14,859 
 ) 
 
 Other comprehensive loss
 
 - 
 
 - 
 
 - 
 
 - 
 
 ( 725 
 ) 
 
 ( 725 
 ) 
 
 Balance, December 31, 2022
 
 14,625 
 
 $ 
 146 
 
 $ 
 81,141 
 
 $ 
 210,719 
 
 $ 
 ( 6,443 
 ) 
 
 $ 
 285,563 
 
 Issuance of common stock for equity awards
 
 2 
 
 - 
 
 23 
 
 - 
 
 - 
 
 23 
 
 Vesting of restricted stock units
 
 262 
 
 3 
 
 ( 3 
 ) 
 
 - 
 
 - 
 
 - 
 
 Issuance of common stock from employee purchase plan
 
 41 
 
 - 
 
 805 
 
 - 
 
 - 
 
 805 
 
 Stock-based compensation expense
 
 - 
 
 - 
 
 15,243 
 
 - 
 
 - 
 
 15,243 
 
 Repurchase of common stock
 
 ( 188 
 ) 
 
 ( 2 
 ) 
 
 ( 5,048 
 ) 
 
 - 
 
 - 
 
 ( 5,050 
 ) 
 
 Retirement of common stock for minimum tax withholdings
 
 ( 82 
 ) 
 
 - 
 
 ( 2,152 
 ) 
 
 - 
 
 - 
 
 ( 2,152 
 ) 
 
 Net loss
 
 - 
 
 - 
 
 - 
 
 ( 82,667 
 ) 
 
 - 
 
 ( 82,667 
 ) 
 
 Other comprehensive income
 
 - 
 
 - 
 
 - 
 
 - 
 
 500 
 
 500 
 
 Balance, December 31, 2023
 
 14,660 
 
 $ 
 147 
 
 $ 
 90,009 
 
 $ 
 128,052 
 
 $ 
 ( 5,943 
 ) 
 
 $ 
 212,265 
 
 The accompanying notes are an integral part of these consolidated financial statements.

 60
 
 Anika Therapeutics, Inc. and Subsidiaries 

 Consolidated Statements of Cash Flows 

 (in thousands) 

 For the years ended December 31, 
 
 2023 
 
 2022 
 
 2021 
 
 Cash flows from operating activities:
 
 Net (loss) income
 
 $ 
 ( 82,667 
 ) 
 
 $ 
 ( 14,859 
 ) 
 
 $ 
 4,134 
 
 Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 Depreciation
 
 6,434 
 
 6,704 
 
 6,480 
 
 Amortization of acquisition related intangible assets
 
 7,783 
 
 7,783 
 
 7,837 
 
 Amortization of acquisition related inventory step-up
 
 - 
 
 - 
 
 6,465 
 
 Non-cash operating lease cost
 
 2,231 
 
 1,850 
 
 1,708 
 
 Change in fair value of contingent consideration
 
 - 
 
 - 
 
 ( 21,095 
 ) 
 
 Loss on disposal of fixed assets
 
 1,917 
 
 - 
 
 993 
 
 Loss on impairment of intangible assets
 
 62,190 
 
 - 
 
 600 
 
 Stock-based compensation expense
 
 15,243 
 
 14,315 
 
 11,085 
 
 Deferred income taxes
 
 ( 6,327 
 ) 
 
 ( 5,270 
 ) 
 
 ( 1,766 
 ) 
 
 Provision for doubtful accounts
 
 190 
 
 378 
 
 64 
 
 Provision for inventory
 
 3,341 
 
 5,329 
 
 6,628 
 
 Other
 
 - 
 
 - 
 
 ( 18 
 ) 
 
 Changes in operating assets and liabilities:
 
 Accounts receivable
 
 ( 1,305 
 ) 
 
 ( 5,630 
 ) 
 
 ( 6,216 
 ) 
 
 Inventories
 
 ( 11,396 
 ) 
 
 ( 6,873 
 ) 
 
 ( 6,619 
 ) 
 
 Prepaid expenses, other current and long-term assets
 
 560 
 
 ( 792 
 ) 
 
 1,424 
 
 Accounts payable
 
 ( 11 
 ) 
 
 1,965 
 
 ( 1,100 
 ) 
 
 Operating lease liabilities
 
 ( 2,149 
 ) 
 
 ( 1,485 
 ) 
 
 ( 1,626 
 ) 
 
 Accrued expenses, other current and long-term liabilities
 
 1,648 
 
 ( 443 
 ) 
 
 3,510 
 
 Income taxes
 
 530 
 
 1,437 
 
 ( 1,311 
 ) 
 
 Payments of contingent consideration
 
 - 
 
 - 
 
 ( 2,780 
 ) 
 
 Net cash (used in) provided by operating activities
 
 ( 1,788 
 ) 
 
 4,409 
 
 8,397 
 
 Cash flows from investing activities:
 
 Acquisition of Parcus Medical and Arthrosurface, net of cash acquired
 
 - 
 
 - 
 
 ( 476 
 ) 
 
 Proceeds from maturities of investments
 
 - 
 
 - 
 
 2,501 
 
 Purchases of property and equipment
 
 ( 5,427 
 ) 
 
 ( 7,486 
 ) 
 
 ( 5,143 
 ) 
 
 Net cash used in investing activities
 
 ( 5,427 
 ) 
 
 ( 7,486 
 ) 
 
 ( 3,118 
 ) 
 
 Cash flows from financing activities:
 
 Payments made on finance leases
 
 - 
 
 ( 284 
 ) 
 
 ( 201 
 ) 
 
 Repurchases of common stock
 
 ( 5,000 
 ) 
 
 - 
 
 - 
 
 Proceeds from employee stock purchase program
 
 805 
 
 665 
 
 - 
 
 Cash paid for tax withheld on vested restricted stock awards
 
 ( 2,152 
 ) 
 
 ( 934 
 ) 
 
 ( 486 
 ) 
 
 Proceeds from exercises of equity awards
 
 23 
 
 16 
 
 1,128 
 
 Payments of contingent consideration
 
 - 
 
 ( 4,315 
 ) 
 
 ( 7,220 
 ) 
 
 Net cash used in financing activities
 
 ( 6,324 
 ) 
 
 ( 4,852 
 ) 
 
 ( 6,779 
 ) 
 
 Exchange rate impact on cash
 
 79 
 
 ( 130 
 ) 
 
 69 
 
 Decrease in cash and cash equivalents
 
 ( 13,460 
 ) 
 
 ( 8,059 
 ) 
 
 ( 1,431 
 ) 
 
 Cash and cash equivalents at beginning of period
 
 86,327 
 
 94,386 
 
 95,817 
 
 Cash and cash equivalents at end of period
 
 $ 
 72,867 
 
 $ 
 86,327 
 
 $ 
 94,386 
 
 Supplemental disclosure of cash flow information:
 
 Cash paid for income taxes, net of refunds
 
 $ 
 3,117 
 
 $ 
 106 
 
 $ 
 1,233 
 
 Right-of-use assets obtained in exchange for operating lease liabilities
 
 $ 
 268 
 
 $ 
 11,703 
 
 $ 
 220 
 
 Non-cash investing activities:
 
 Purchases of property and equipment included in accounts payable and accrued expenses
 
 $ 
 815 
 
 $ 
 108 
 
 $ 
 15 
 
 The accompanying notes are an integral part of these consolidated financial statements.

 61
 
 Anika Therapeutics, Inc. and Subsidiaries 

 Notes to Consolidated Financial Statements 

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

 1. Nature of Business 

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

 In early 2020, the Company expanded its overall technology platform through its strategic acquisitions of Parcus Medical, LLC (“Parcus Medical”), a sports medicine implant and instrumentation 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.

 2. 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. All intercompany balances and transactions have been eliminated in consolidation.

 Foreign Currency Translation 

 The functional currency of Anika S.r.l. is the Euro and the functional currency of Anika Therapeutics Limited is the British Pound Sterling. Assets and liabilities of the foreign subsidiaries are translated using the exchange rate existing on each respective balance sheet date. 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 $ 0.5 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. Recorded balances that are denominated in a currency other than the functional currency are remeasured to the functional currency using the exchange rate at the balance sheet date and gains or losses are recorded in the statements of operations. The Company recognized a gain (loss) from foreign currency transactions of ($ 0.1 ) million, ($ 0.5 ) million, and ($ 0.4 ) million during the years ended December 31, 2023, 2022, and 2021, respectively.

 62 
 
 Accounts Receivable 

 The Company estimates an allowance for credit losses with its accounts receivable resulting from the inability of its customers to make required payments, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. In determining the adequacy of the allowance, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current and reasonable and supportable forecasts of future economic conditions, accounts receivable aging trends, and changes in the Company’s customer payment terms.

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

 As of December 31, 
 
 2023 
 2022 
 
 Accounts Receivable
 $ 37,580 $ 36,235 

 Less: Allowance for credit losses
 1,619 1,608 

 Net balance, end of the year
 $ 35,961 $ 34,627 

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

 As of December 31, 
 
 2023 
 2022 
 2021 
 
 Balance, beginning of the year
 $ 1,608 $ 1,442 $ 1,523 

 Amounts provided
 508 554 156 

 Amounts recovered
 ( 318 ) ( 180 ) ( 92 ) 

 Amounts written off
 ( 153 ) ( 158 ) ( 73 ) 

 Translation adjustments
 ( 26 ) ( 50 ) ( 72 ) 

 Balance, end of the year
 $ 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. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five -step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct or distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

 Revenue 

 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 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. The differences between actual and estimated royalty revenues have not been material and are typically adjusted in the following quarter when the actual amounts are known. Revenue from sales-based royalties is included in revenue in the consolidated statement of operations. The Company’s certain supply agreements represent a promise to deliver 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.

 63 
 
 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. No revenue is recognized upon the placement of inventory into consignment, as the Company retains the ability to control the inventory. Revenue is typically recognized as of the date of surgical implantation of the product.

 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 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. If the prospective discounts or free-of-charge sample units are considered material rights, these would be separate performance obligations and a portion of the sales transaction price is allocated to the material right. Revenue allocated to the material right is recognized when the additional goods are transferred to the customer or when the option expires. During 2023, 2022 and 2021, the consideration allocated to material rights was not significant.

 The Company receives payments from its customers based on billing schedules established in each contract. 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. 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. These costs are included in selling, general and administrative expenses.

 Licensing, Milestone and Contract Revenue 

 The agreements with Mitek include variable consideration such as contingent development and regulatory milestones. Since 2016, there have been no remaining regulatory milestones related to the Mitek agreements. In general, variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable to occur.

 Cash and Cash Equivalents 

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

 64 
 
 Investments 

 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. Realized gains and losses on the sale of investments are recorded in interest and other income, net. Interest is recorded when earned. Investments with original maturities greater than approximately three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. The Company had no investments as of December 31, 2023 or December 31, 2022. 

 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. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through earnings. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.

 Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in the consolidated statement of operations as a component of credit loss expense. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through earnings when deemed uncollectible by management or when either of the criteria regarding intent or requirement to sell is met.

 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 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, 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.

 Inventories 

 Inventories are primarily stated at the lower of standard cost and net realizable value, with cost determined using the first -in, first -out method. Work-in-process and finished goods inventories include materials, labor, and certain manufacturing overhead. Manufacturing variances attributable to abnormally low production are expensed in the period incurred. 

 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. Purchasing requirements and alternative usage avenues are explored within these processes to mitigate inventory exposure.

 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.

 Leases 

 At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present and evaluates whether the lease is an operating lease or a finance lease at the commencement date. Operating and finance leases with a term greater than one year are recognized on the consolidated balance sheet as right-of-use assets, lease liabilities, and, if applicable, long-term lease liabilities. The Company includes renewal options to extend the lease in the lease term where it is reasonably certain that it will exercise these options. Operating and finance lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the lease terms. The Company elected an accounting policy to combine the non-lease components (which include common area maintenance, taxes and insurance) with the related lease component. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. Lease contracts do not include residual value guarantees nor do they include restrictions or other covenants. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid, incentives received or lease prepayments. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the finance and operating lease liabilities by using revised inputs as of the reassessment date, and adjust the right-of-use asset. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease expense is recognized based on the effective-interest method over the lease term.

 65 
 
 Property and Equipment 

 Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which are typically:

 Asset 
 Estimated useful life 
 (in years) 
 
 Computer equipment and software
 3 
 -
 10 
 
 Furniture and fixtures
 5 
 -
 7 
 
 Equipment
 5 
 -
 20 
 
 Leasehold improvements
 Shorter of useful life or term of lease 
 
 Maintenance and repairs are charged to expense when incurred; additions and improvements are capitalized. Fully depreciated assets are retained in the accounts until they are no longer used and no further charge for depreciation is made in respect of these assets. When an item is sold, retired or removed from service, the cost and related accumulated depreciation is relieved, and the resulting gain or loss, if any, is recognized in income.

 Construction-in-process assets are stated at cost, which includes the cost of construction and other direct costs attributable to the construction. Construction-in-process assets are not depreciated until such time as the relevant assets are completed and put into use.

 Goodwill and IPR&D Assets 

 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. 

 Goodwill and IPR&D are not amortized but are evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The goodwill impairment assessment is performed by reporting unit. A reporting unit is the operating segment, or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. 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 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.

 66 
 
 Under U.S. GAAP, the Company has the option to perform a qualitative assessment to determine if it is necessary to perform the impairment test. If the Company concludes, based on a qualitative assessment, it is not more likely than not that the Goodwill or the IPR&D asset is impaired, the Company is not required to perform the quantitative test. The Company has an unconditional option to bypass the qualitative assessment in any period and proceed directly to the quantitative impairment test.

 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 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. 

 To conduct impairment tests of IPR&D, the fair value of the IPR&D project is compared to its carrying value. 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. This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, expected economic life of the asset, contributory asset charges and discount rates to estimate future cash flows.

 Long-Lived Assets 

 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. 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. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. 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. For technology-based intangible assets, the Company considers the expected life cycles of products, absent unforeseen technological advances, which incorporate the corresponding technology.

 Fair Value Measurements 

 Fair value is defined as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. 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 (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 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.
 
 67 
 
 •
 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. 

 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 

 Research and development costs consist primarily of salaries and related expenses for personnel, clinical trial expenses and fees paid to outside consultants and outside service providers. Research and development costs are expensed as incurred.

 Stock-Based Compensation 

 The Company has stock-based compensation plans under which it grants various types of equity-based awards, the cost of which is based on the grant-date fair value of the underlying award and recognized over the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period.

 For performance-equity awards with market-based conditions, compensation cost is measured at the date of the award and is recorded over the vesting period, regardless of the likelihood of achievement of the market-based performance criteria. For performance-based equity awards with financial and business milestone achievement targets, compensation cost is based on the probable outcome of the performance conditions. Changes to the probability assessment and the estimated shares expected to vest will result in adjustments to the related stock-based compensation expense that will be recorded in the period of the change. If the performance targets are not achieved, no compensation cost is recognized, and any previously recognized compensation cost is reversed.

 See Note 13, Equity Incentive Plan , for a description of the types of stock-based awards granted, the compensation expense related to such awards, and detail of equity-based awards outstanding.

 Income Taxes 

 We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets, or DTAs, and deferred tax liabilities, or DTLs, for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs based on the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

 We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations.

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

 Comprehensive Income (Loss) 

 Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments. For the purposes of comprehensive income (loss) disclosures, the Company does not record tax provisions or benefits for the net changes in the foreign currency translation adjustment, as it intends to indefinitely reinvest undistributed earnings of its foreign subsidiary. Accumulated other comprehensive income (loss) is reported as a component of stockholders' equity.

 Segment Information 

 Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its President and Chief Executive Officer as of December 31, 2023. Based on the criteria established by ASC 280, Segment Reportin g, the Company has one operating and reportable segment.

 Contingencies 

 In the normal course of business, the Company is involved from time-to-time in various legal proceedings and other matters such as contractual disputes, which are complex in nature and have outcomes that are difficult to predict. The Company records accruals for loss contingencies to the extent that it concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. 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 flows.

 68 
 
 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.
 
 3. Fair Value Measurements 

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

 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. 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:

 Active Markets 
 Significant Other 
 Significant 
 
 for Identical 
 Assets 
 Observable 
 Inputs 
 Unobservable 
 Inputs 
 
 December 31, 2023 
 (Level 1) 
 (Level 2) 
 (Level 3) 
 Amortized Cost 
 
 Cash equivalents:
 
 Money Market Funds
 $ 55,485 $ 55,485 $ - $ - $ 55,485 

 Active Markets 
 Significant Other 
 Significant 
 
 for Identical 
 Assets 
 Observable 
 Inputs 
 Unobservable 
 Inputs 
 
 December 31, 2022 
 (Level 1) 
 (Level 2) 
 (Level 3) 
 Amortized Cost 
 
 Cash equivalents:
 
 Money Market Funds
 $ 67,801 $ 67,801 $ - $ - $ 67,801 

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

 4. Inventories 

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

 As of December 31, 
 
 2023 
 2022 
 
 Raw materials
 $ 15,507 $ 20,535 

 Work-in-process
 17,002 10,648 

 Finished goods
 32,084 25,306 

 Total
 $ 64,593 $ 56,489 

 Inventories
 $ 46,386 $ 39,765 

 Other long-term assets
 18,207 16,724 

 Total
 $ 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.

 69 
 
 5. Property and Equipment 

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

 December 31, 
 
 2023 
 2022 
 
 Equipment and software
 $ 52,278 $ 52,112 

 Furniture and fixtures
 1,884 2,413 

 Leasehold improvements
 34,975 34,916 

 Construction in progress
 4,730 5,021 

 Subtotal
 93,867 94,462 

 Less accumulated depreciation
 ( 47,669 ) ( 46,183 ) 

 Total
 $ 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.

 6. Acquired Intangible Assets, Net 

 Intangible assets consist of the following:

 Year Ended December 31, 2023 
 
 Gross Cost 
 Less: Accumulated 
 Currency Translation 
 Adjustment 
 Less: Current Period 
 Impairment Charge 
 Less: Accumulated 
 Amortization 
 Net Book Value 
 Weighted 
 Average Useful 
 Life (in Years) 
 
 Developed technology
 $ 89,580 $ ( 1,608 ) $ ( 56,518 ) $ ( 29,481 ) $ 1,973 15 

 IPR&D
 2,656 ( 1,006 ) - - 1,650 Indefinite 
 
 Customer relationships
 9,000 - ( 5,113 ) ( 3,527 ) 360 10 

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

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

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

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

 Year Ended December 31, 2022 
 
 Gross Cost 
 Less: Accumulated 
 Currency Translation 
 Adjustment 
 Less: Current Period 
 Impairment Charge 
 Less: Accumulated 
 Amortization 
 Net Book Value 
 Weighted 
 Average Useful 
 Life 
 
 Developed technology
 $ 89,580 $ ( 1,608 ) $ - $ ( 23,686 ) $ 64,286 15 

 IPR&D
 2,656 ( 1,006 ) - - 1,650 Indefinite 
 
 Customer relationships
 9,000 - - ( 2,627 ) 6,373 10 

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

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

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

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

 70 
 
 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”). 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. This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, expected economic life of the asset, 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 November 30, 2023. In developing its assumptions, the Company also considered observed trends of its industry participants. No impairment existed as the estimated fair value of the remaining IPR&D intangible asset was greater than its carrying value.

 7. Goodwill 

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

 As of December 31, 
 
 2023 
 2022 
 
 Balance, beginning January 1
 $ 7,339 $ 7,781 

 Effect of foreign currency adjustments
 232 ( 442 ) 

 Balance, ending December 31
 $ 7,571 $ 7,339 

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

 71 
 
 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. The Company determined that a discounted cash flow model provided the best approximation of fair value of the reporting units for the purpose of performing the impairment test. This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, the achievement of certain cost synergies, terminal growth rates 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 November 30, 2023. In developing its assumptions, the Company also considered observed trends of its industry participants.

 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. 

 8. Leases 

 The Company leases its buildings and manufacturing facilities under operating leases. As of December 31, 2023, the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida, Warsaw, Indiana and Padova, Italy.

 In June 2022, the Company finalized a renewal option to extend the current term for its operating headquarters and manufacturing facility in Bedford through 2027. There are also lease renewal options into 2038. 

 The 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). In October 2022, the Company entered into an option to extend the current term of the Franklin lease through 2024. In June 2022, the Company finalized an option to extend the current term of the two Sarasota leases through 2027. 

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

 Incremental borrowing rate . The Company derives its incremental borrowing rate from information available at the lease commencement date in determining the present value of lease payments. 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.

 72 
 
 Lease term. 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 
 
 2023 
 2022 
 2021 
 
 Finance lease amortization of right-of-use assets
 $ - $ 121 $ 143 

 Interest on finance lease liabilities
 - 11 19 

 Finance lease expense
 - 132 162 

 Operating lease expense
 3,320 2,839 2,468 

 Short-term lease expense
 - 17 2 

 Variable lease expense
 425 413 319 

 Total lease expense
 $ 3,745 $ 3,401 $ 2,951 

 Years Ended December 31 
 
 2023 
 2022 
 
 Weighted Average Remaining Lease Term (in years) 
 
 Operating leases
 13.9 14.8 

 Weighted Average Discount Rate 
 
 Operating leases
 3.6 % 3.6 % 

 Other information 
 
 Operating cash flows from operating leases
 $ 3,239 $ 2,471 

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

 Years ended December 31, 
 Operating Leases 
 
 2024
 $ 3,131 

 2025
 3,142 

 2026
 2,837 

 2027
 2,643 

 2028
 2,329 

 Thereafter
 22,901 

 Present value adjustment
 ( 7,946 ) 

 Present value of lease payments
 29,037 

 Less current portion included in accrued expenses and other current liabilities
 ( 2,133 ) 

 Total lease liabilities
 $ 26,904 

 9. Accrued Expenses 

 Accrued expenses consist of the following:

 As of December 31, 
 
 2023 
 
 2022 
 
 Compensation and related expenses
 
 $ 
 11,828 
 
 $ 
 11,303 
 
 Professional fees
 
 3,240 
 
 3,145 
 
 Operating lease liability- current
 
 2,133 
 
 2,073 
 
 Discontinuation of software development project
 
 1,904 
 
 - 
 
 Income taxes payable
 
 1,240 
 
 810 
 
 Clinical trial costs
 
 460 
 
 999 
 
 Other
 
 394 
 
 510 
 
 Total
 
 $ 
 21,199 
 
 $ 
 18,840 
 
 73 
 
 10. 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”). 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, 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.

 11. Commitments and Contingencies 

 In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company may also warrant that the products it manufactures do not infringe, violate or breach any U.S. or international patent or intellectual property rights, trade secret, or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligent acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The Company had no accrued warranties at December 31, 2023 or 2022, respectively, and has no history of claims paid. 

 The Company is also involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flows.

 12. Revenue and Geographic Information 

 The Company categorizes its product portfolio into three product families: OA Pain Management, Joint Preservation and Restoration, and Non-Orthopedic.

 74 
 
 Product revenue by product family is as follows:

 Years Ended December 31, 
 
 2023 
 2022 
 2021 
 
 Revenue 
 Percentage of
 Product
 Revenue 
 Revenue 
 Percentage of
 Product
 Revenue 
 Revenue 
 Percentage of
 Product
 Revenue 
 
 OA Pain Management
 $ 101,927 61 % $ 91,984 59 % $ 85,084 58 % 

 Joint Preservation and Restoration
 54,879 33 % 50,402 32 % 48,588 33 % 

 Non-Orthopedic
 9,856 6 % 13,850 9 % 14,122 9 % 

 Total
 $ 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:

 Years Ended December 31, 
 
 2023 
 2022 
 2021 
 
 Total 
 Percentage of 
 Total 
 Percentage of 
 Total 
 Percentage of 
 
 Revenue 
 Revenue 
 Revenue 
 Revenue 
 Revenue 
 Revenue 
 
 Geographic Location: 
 
 United States
 $ 123,129 74 % $ 119,151 76 % $ 113,833 77 % 

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

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

 Total
 $ 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:

 As of December 31, 
 
 2023 
 2022 
 
 United States
 $ 45,077 $ 47,068 

 Italy
 1,075 1,211 

 United Kingdom
 46 - 

 Total
 $ 46,198 $ 48,279 

 75 
 
 13. Equity Incentive Plan 

 Equity Incentive Plan 

 The Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020 and June 16, 2021 and June 14, 2023. 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. 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, 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). 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.

 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, 
 
 2023 
 2022 
 2021 
 
 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.

 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.

 76 
 
 The following summarizes the activity under the Company’s stock option plans:

 Number of Options 
 Weighted Average Exercise Price 
 Weighted Average 
 Remaining 
 Contractual 
 Term (in years) 
 Aggregate Intrinsic 
 Value 
 (in thousands) 
 
 Outstanding as of December 31, 2022
 1,530,703 $ 34.93 

 Granted
 404,903 $ 28.58 

 Exercised
 ( 2,034 ) $ 18.30 $ 20 

 Forfeited and canceled
 ( 120,843 ) $ 36.59 

 Outstanding as of December 31, 2023
 1,812,729 $ 33.42 7.5 $ 127 

 Vested, December 31, 2023
 983,834 $ 36.66 6.7 $ 5 

 Vested or expected to vest, December 31, 2023
 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 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:

 2023 
 2022 
 2021 
 
 Risk-free interest rate
 3.52% 
 -
 4.64% 
 1.28% 
 -
 4.28% 
 0.29% 
 -
 1.00% 
 
 Expected stock price volatility
 48.19 %
 -
 49.44 %
 53.80 %
 -
 55.55 %
 54.80 %
 -
 56.35 %
 
 Expected life of options (in years)
 4.5 
 4.5 
 4.0 
 
 Expected dividend yield
 0.0% 
 0.0% 
 0.0% 
 
 Fair value per option
 11.45 
 11.45 
 14.80 
 
 As of December 31, 2023, there was $ 5.9 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 1.7 years.

 77 
 
 Restricted Stock Units 

 RSUs generally vest in equal annual installments over a three - or four -year periods. The grant-date fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company determines the fair value of restricted stock units based on the closing price of its common stock on the date of grant.

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

 Number of Shares 
 Weighted Average Fair Value 
 
 Outstanding as of December 31, 2022
 $ 675,405 $ 28.40 

 Granted
 442,762 $ 26.66 

 Vested
 ( 261,939 ) $ 29.44 

 Forfeited and cancelled
 ( 84,870 ) $ 27.11 

 Outstanding as of December 31, 2023
 $ 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. The total fair value of RSUs vested was $ 6.9 million, $ 6.0 million and $ 3.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

 As of December 31, 2023, there was $ 11.9 million of unrecognized compensation cost related to time-based RSUs, which is expected to be recognized over a weighted-average period of 1.7 years.

 Performance Stock Units 

 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. One of the financial targets, amounting to 55 % of the total performance condition awards, was measured and achieved in the 2022 fiscal year, while the remaining financial target, amounting to 15 % of the total performance condition awards, was not achieved. The PSUs granted to employees in 2020 contained performance conditions with business and financial targets. One of the business targets, amounting to 20 % of the total performance condition awards, was not achieved in the 2021 fiscal year, while the remaining business target related to a certain timely regulatory approval, amounting to 20 % of the total performance condition awards, was not achieved in the 2022 fiscal year. The financial targets, amounting to 60 % of the total performance condition awards, were not achieved in the 2022 fiscal year. The Company has no PSUs outstanding at December 31, 2023. 

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

 Number of Shares 
 Weighted Average Fair Value 
 
 Outstanding as of December 31, 2022
 117,897 $ 34,98 

 Granted
 - $ - 

 Vested
 - $ - 

 Forfeited and cancelled
 ( 117,897 ) $ 34.98 

 Outstanding as of December 31, 2023
 - $ - 

 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. 

 78 
 
 14. 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. In addition, the Company may make annual discretionary contributions. 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.

 15. Income Taxes 

 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, 
 
 2023 
 2022 
 2021 
 
 (Loss) income before income taxes
 
 Domestic
 $ ( 86,061 ) $ ( 19,080 ) $ ( 2,529 ) 

 Foreign
 734 334 4,956 

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

 Years ended December 31, 
 
 2023 
 2022 
 2021 
 
 Provision for (benefit from) income taxes:
 
 Current:
 
 Federal
 $ 3,153 $ 1,005 $ 494 

 State
 309 285 ( 635 ) 

 Foreign
 312 96 167 

 Total current
 3,774 1,386 26 

 Deferred:
 
 Federal
 ( 5,045 ) ( 3,243 ) ( 553 ) 

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

 Foreign
 29 ( 774 ) ( 754 ) 

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

 Total benefit from income taxes
 $ ( 2,660 ) $ ( 3,887 ) $ ( 1,707 ) 

 79 
 
 Deferred Tax Assets and Liabilities 

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

 December 31, 

 2023 
 2022 
 
 Deferred tax assets:
 
 Capitalized research expenditures
 $ 11,266 $ 5,451 

 Lease liability
 7,082 7,468 

 Acquisition-related intangible asset
 5,040 - 

 Stock-based compensation expense
 3,881 2,795 

 Inventory reserves
 3,552 2,763 

 Compensation accrual
 1,685 1,635 

 Net operating loss carry forwards
 1,161 1,551 

 Accrued expenses
 947 519 

 Tax credits
 515 741 

 Foreign currency exchange
 121 221 

 Gross deferred tax assets
 35,250 23,144 

 Less: Valuation allowance
 ( 18,062 ) - 

 Deferred tax assets
 $ 17,188 $ 23,144 

 December 31, 
 
 2023 
 2022 
 
 Deferred tax liabilities:
 
 Acquisition-related intangible asset
 $ ( 288 ) $ ( 12,075 ) 

 Depreciation
 ( 8,567 ) ( 8,804 ) 

 Right of use asset
 ( 6,844 ) ( 7,252 ) 

 Deferred tax liabilities
 $ ( 15,699 ) $ ( 28,131 ) 

 Net deferred tax liabilities
 $ 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, 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. and over 15 years if the R&D was performed outside the U.S.

 The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. Based upon future reversals of existing taxable temporary differences 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, 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. federal income tax liability on the undistributed earnings. Determination of the amount of unrecognized state and local deferred income tax liability is not practicable due to the complexities associated with its hypothetical calculation.

 80 
 
 Effective Tax Rate 

 The reconciliation between the U.S. federal statutory rate and the Company’s effective rate is summarized as follows:

 Years ended December 31, 
 
 2023 
 2022 
 2021 
 
 Statutory federal income tax rate
 21.0 % 21.0 % 21.0 % 

 State tax expense, net of federal benefit
 3.2 % 1.4 % ( 3.2 %) 

 Stock compensation
 ( 0.5 %) ( 4.7 %) 22.3 % 

 Section 162(m) limitation
 ( 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
 3.1 % 20.7 % ( 70.4 %) 

 Accounting for Uncertainty in Income Taxes 

 The Company had no unrecognized tax benefits for the years ended December 31, 2023 and 2022, respectively. The Company does not anticipate experiencing any significant increase or decrease in its unrecognized tax benefits within the twelve months following December 31, 2023. 

 In the normal course of business, Anika and its subsidiaries may be periodically examined by various taxing authorities. The Company files income tax returns in the United States on a federal basis, in certain U.S. states, and in certain foreign jurisdictions. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. With a few exceptions, the Company is no longer subject to income tax examinations for years prior to 2019. 

 16. Earnings per Share ( “ EPS ” ) 

 Basic EPS is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic EPS. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding share-based awards using the treasury stock method.

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

 Years Ended December 31, 
 
 2023 
 2022 
 2021 
 
 Shares used in the calculation of basic EPS
 14,656 14,561 14,401 

 Effect of dilutive securities:
 
 Share based awards
 - - 233 

 Diluted shares used in the calculation of EPS
 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. 

 81 
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 

 None.
Anika Therapeutics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data
