What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-15 compared with 2021-03-11 · 614 added, 508 removed, 923 unchanged (55% of the section changed)

7 unchanged sentences

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have 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, 2021 based on criteria established in Internal Control - Integrated Framework ( 2013 ) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 15, 2022 expressed an unqualified opinion.

11 unchanged sentences

Critical Audit Matters

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

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

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated 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.

Evaluation of Certain Assumptions Impacting the Chargeback Accrual

1 unchanged sentence

Amounts accrued for chargebacks as of December 31, 2021, are approximately $94.1 million and are evaluated on a quarterly basis.

Management’s estimate of chargebacks is based on the inventory levels in the distribution channel as provided by

wholesalers, as well as the actual average selling price for each product which is impacted by changes in customer mix, changes in negotiated terms with customers, changes in the volume of off-contract purchases, and changes in the wholesaler acquisition cost, in order to estimate the expected provision.

The principal consideration for our determination that performing procedures relating to the chargeback reserve is a critical audit matter is that there was significant judgment required by management with respect to measurement uncertainty, as the calculation of the chargeback reserve includes assumptions such as average selling price, purchasing trends of distributors and historical product sales used to predict future sales.

Management’s estimate of chargebacks is based on the inventory levels in the distribution channel as provided by wholesalers, as well as the actual average selling price for each product which is impacted by changes in customer mix, changes in negotiated terms with customers, changes in the volume of off-contract purchases, and changes in the wholesaler acquisition cost, in order to estimate the expected provision.

trends of distributors and historical product sales used to predict future sales.

This in turn led to a high degree of auditor judgment, subjectivity and effort in applying the procedures related to those assumptions.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the chargeback reserve, including management’s controls over the assumptions used to estimate the corresponding accruals.

We recalculated the chargeback accrual for a selection of products, based on a combination of Company internal data, historical actual information, and executed third-party contracts.

These procedures included assessing the design and testing the effectiveness of controls relating to the chargeback reserve, including management’s control over the assumptions used to estimate the corresponding accruals.

We recalculated the chargeback accrual for a selection of products, based on a combination of Company internal data, historical actual information, and executed third-party contract.

We performed a sensitivity analysis of the Company’s accrual by recalculating the accrual using our independent assumptions.

1 unchanged sentence

We analyzed year over year trends in the reserve in comparison with revenue trends to further evaluate reasonableness of the estimate and consistency with expectations.

Accounting for Acquisition of Novitium - Valuation of Intangible Assets and Contingent Consideration

As described in Note 2 to the consolidated financial statements, the Company acquired Novitium Pharma, LLC (“Novitium”) and the transaction was accounted for using the acquisition method of accounting for business combinations.

Auditing the Company’s accounting for its acquisition of Novitium was complex due to the significant estimation uncertainty required by management to determine the fair value of identified intangible assets of $139.2 million and contingent consideration of $30.5 million.

The determination of the fair value of the intangible assets acquired and contingent consideration required management, with the help of a third-party valuation specialist, to make significant estimates and assumptions including the assumed net revenue growth rate, the achievement of regulatory milestones, gross profits, economic life and discount rate.

The fair value of the contingent consideration represent Level 3 inputs used in measuring fair value as they are unobservable inputs with little or no available market data.

The principal consideration for our determination that the valuation of intangible assets and contingent consideration associated with the acquisition is a critical audit matter is the subjective judgment required by management in selecting the inputs and assumptions used in determining fair value.

The valuation of the intangible assets and contingent consideration are subject to higher estimation uncertainty due to management’s judgment in determining key assumptions that include discount rates, probabilities of achievement of regulatory-based milestones and payments, and projected revenues and gross profits.

Changes in these significant assumptions could have a significant impact on the fair value of the intangible assets and contingent consideration.

This in turn led to a high degree of auditor judgment, subjectivity and effort in applying the procedures related to those assumptions.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures include assessing the design and testing the effectiveness of controls relating to the valuation report and allocation of purchase price which included management’s review of the valuation report for the completeness and mathematical accuracy of the data, and evaluating the reasonableness of assumptions used in the calculation such as economic life and discount rate.

We utilized a valuation specialist to assist in evaluating the appropriateness of the Company’s valuation models developed for acquired assets and evaluating the reasonableness of significant assumptions used including the assumed net revenue growth rate, margin percentages, economic life and discount rate as compared to industry and market data.

We also examined the completeness and accuracy of the underlying data supporting the significant assumptions and estimates used in the valuation report, including historical and projected financial information.

/s/ EisnerAmper LLP

18 unchanged sentences

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

As described in Note 2 to the consolidated financial statements, the Company acquired Novitium Pharma, LLC (“Novitium”) during the year ended December 31, 2021, and management excluded this entity from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 as the Company is currently in the process of integrating Novitium’s policies, processes, people, technology and operations into the consolidated company, and integrating Novitium’s operations into the consolidated internal control over financial reporting.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of this entity.

We conducted our audit in accordance with the standards of the PCAOB.

6 unchanged sentences

An entity’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity;

directors of the entity;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.

11 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of $ 100,328 and $ 59,946 of adjustments for chargebacks and other allowances at December 31, 2020 and 2019, respectively

Accounts receivable, net of $ 105,260 and $ 100,328 of adjustments for chargebacks and other allowances at December 31, 2021 and December 31, 2020, respectively

Inventories, net

2 unchanged sentences

Total Current Assets

Non-current Assets

Property and equipment

Accumulated depreciation

Property and equipment, net

3 unchanged sentences

Other non-current assets

Liabilities and Stockholders’ Equity

Liabilities, Mezzanine Equity, and Stockholders’ Equity

Current Liabilities

1 unchanged sentence

Accounts payable

Accrued expenses and other

Accrued royalties

4 unchanged sentences

Deferred revenue

Accrued expenses and other

Total Current Liabilities

1 unchanged sentence

Non-current debt, net of deferred financing costs and current component

Non-current contingent consideration

Derivatives and other non-current liabilities

1 unchanged sentence

Commitments and Contingencies (Note 12)

Mezzanine Equity

Convertible Preferred Stock, Series A, $ 0.0001 par value, 1,666,667 shares authorized;

25,000 shares issued and outstanding at December 31, 2021;

0 shares issued and outstanding at December 31, 2020

Stockholders’ Equity

8 unchanged sentences

Additional paid-in capital

(Accumulated deficit)/retained earnings

Accumulated deficit

Accumulated other comprehensive loss, net of tax

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

Total Liabilities, Mezzanine Equity, and Stockholders’ Equity

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

9 unchanged sentences

Depreciation and amortization

Cortrophin pre-launch charges

Contingent consideration fair value adjustment

Legal settlement expense

Purified Cortrophin Gel pre-launch charges

Intangible asset impairment charge

4 unchanged sentences

Other expense, net

(Loss)/Income Before Benefit/(Provision) for Income Taxes

Benefit/(provision) for income taxes

(Loss)/Income Before Benefit for Income Taxes

Benefit for income taxes

Net (Loss)/Income

Dividends on Series A Convertible Preferred Stock

Net (Loss)/Income Allocated to Common Shares

Basic and Diluted (Loss)/Earnings Per Share:

10 unchanged sentences

Net (loss)/income

Other comprehensive (loss)/income, net of tax:

(Losses)/gains on interest rate swap

Total other comprehensive (loss)/income, net of tax

Other comprehensive income/(loss), net of tax:

Foreign currency translation adjustment

Gains/(losses) on interest rate swap, net of tax

Total other comprehensive income/(loss), net of tax

Total comprehensive (loss)/income, net of tax

2 unchanged sentences

AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity

For the Years Ended December 31, 2021, 2020, and 2019

(in thousands)

Mezzanine Equity

Series A Convertible

Mezzanine Equity

Series A Convertible

Preferred Stock

Other Comprehensive

(Accumulated Deficit)/

Loss, Net of Tax

Retained Earnings/

and Stockholders'

Preferred Stock

(Loss)/Gain, Net of Tax

(Accumulated Deficit)

Balance, December 31, 2018

Cumulative Effect of Change in Accounting Principle, Net of Tax

Stock-based Compensation Expense

3 unchanged sentences

(Losses)/Gains on Interest Rate Swap

Repurchase of Convertible Notes and Unwind of Call Option Overlay

Balance, December 31, 2019

4 unchanged sentences

Issuance of Restricted Stock Awards

(Losses)/Gains on Interest Rate Swap

Losses on Interest Rate Swap

Balance, December 31, 2020

Cumulative Effect of Change in Accounting Principle, Net of Tax

Stock-based Compensation Expense

2 unchanged sentences

Issuance of Restricted Stock Awards

(Losses)/Gains on Interest Rate Swap

Restricted Stock Awards Forfeitures

Issuance of Common Stock for Novitium Acquisition

Issuance of Common Stock in Public Offering

Dividends on Convertible Preferred Stock

Issuance of Series A Convertible Preferred Stock from Mezzanine Equity

Other comprehensive income

Balance, December 31, 2021

7 unchanged sentences

Net (loss)/income

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

Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities:

Stock-based compensation

3 unchanged sentences

Non-cash interest

Loss on repurchase of Convertible notes

Contingent consideration fair value adjustment

Loss on extinguishment of debt

Asset impairment charge

Gain on sale of ANDAs

Changes in operating assets and liabilities, net of acquisitions:

4 unchanged sentences

Accrued royalties

Current income taxes, net

Current income taxes payable, net

Accrued government rebates

3 unchanged sentences

Cash Flows From Investing Activities

Acquisition of WellSpring Pharma Services Inc., net of cash acquired

Acquisition of Novitium Pharma LLC, net of cash acquired

Acquisition of product rights, IPR&D, and other related assets

Acquisition of property and equipment, net

Proceeds from the sale of long-lived assets

Net Cash and Cash Equivalents Used in Investing Activities

Cash Flows From Financing Activities

Payment of debt issuance and convertible debt repurchase costs

Payments on Term Loan and Delayed Draw Term Loan agreements

Borrowings under Revolver agreement

Payments on Revolver agreement

Borrowings under Delayed Draw Term Loan agreement

Payments on Revolver agreement

Borrowings under Revolver agreement

Repayment of Prior Credit Facility

Borrowings under the Credit Facility

Proceeds from issuance of convertible preferred stock

Convertible preferred stock dividends paid

Proceeds from issuance of common stock in public offering

Cash paid for costs of share issuances

Proceeds from stock option exercises and ESPP purchases

Repayment of Convertible Notes

Unwinding of portion of call option overlay, net

Payments of debt issuance costs

Treasury stock purchases for restricted stock vests

Net Cash and Cash Equivalents (Used in)/Provided by Financing Activities

Net Cash and Cash Equivalents Provided by/(Used in) by Financing Activities

Net Change in Cash and Cash Equivalents

13 unchanged sentences

Supplemental non-cash investing and financing activities:

Fair value of contingent consideration in a business combination

Fair value of equity issued as consideration in a business combination

Acquisition of product rights, IPR&D, and other related assets included in returned goods reserve and derivatives and other non-current liabilities

8 unchanged sentences

ANI Pharmaceuticals, Inc.

and its consolidated subsidiaries, ANIP Acquisition Company and ANI Pharmaceuticals Canada Inc.

(together, “ANI,” the “Company,” “we,” “us,” or “our”) is an integrated specialty pharmaceutical company focused on delivering value to our customers by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals.

ANI was organized as a Delaware corporation in April 2001.

At our three facilities, of which two are located in Baudette, Minnesota and one in Oakville, Ontario, we manufacture oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment.

We also perform contract manufacturing for other pharmaceutical companies.

On August 6, 2018, our subsidiary, ANI Pharmaceuticals Canada Inc.

(“ANI Canada”), acquired all the issued and outstanding equity interests of WellSpring Pharma Services Inc.

(“WellSpring”), a Canadian company that performs contract development and manufacturing of pharmaceutical products.

In conjunction with the transaction, we acquired WellSpring’s pharmaceutical manufacturing facility, laboratory, and offices, its current book of commercial business, as well as an organized workforce.

and its consolidated subsidiaries, (together, “ANI,” the “Company,” “we,” “us,” or “our”) is a diversified bio-pharmaceutical company serving patients in need by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals, including for diseases with high unmet medical need.

We are focused on delivering sustainable growth by building a successful Purified Cortrophin Gel franchise, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our North American manufacturing capabilities.

Our four pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, one is located in East Windsor, New Jersey, and one is located in Oakville, Ontario, are together capable of producing oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

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

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Principles of Consolidation

3 unchanged sentences

Foreign Currency

We have a subsidiary located in Canada.

The subsidiary conducts its transactions in U.S.

We have subsidiaries located in Canada and India.

The Canada-based subsidiary conducts its transactions in U.S.

dollars and Canadian dollars, but its functional currency is the U.S.

The Indian-based subsidiary generally conducts its transactions in Indian rupees, which is also its functional currency.

The results of any non-U.S.

dollar transactions are remeasured in U.S.

dollar transactions and balances are remeasured in U.S.

dollars at the applicable exchange rates during the period and resulting foreign currency transaction gains and losses are included in the determination of net income.

Our gain or loss on transactions denominated in foreign currencies was immaterial for the years ended December 31, 2020, 2019, and 2018.

Our gain or loss on transactions denominated in foreign currencies and the translation impact of local currencies to U.S.

dollars was immaterial for the years ended December 31, 2021, 2020, and 2019.

Unless otherwise noted, all references to “$” or “dollar” refer to the U.S.

2 unchanged sentences

GAAP requires us 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 amount of revenues and expenses during the reporting period.

In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, revenue recognition, allowance for credit losses, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, fair value of long-lived assets, income tax provision or benefit, deferred taxes and valuation allowance, determination of right-of-use assets and lease liabilities, purchase price allocations, and the depreciable lives of long-lived assets.

In the consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, revenue recognition, allowance for credit losses, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government rebates, returns and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent liabilities, including contingent consideration in acquisitions, fair value of long-lived assets, income tax provision or benefit, deferred taxes and valuation allowance, determination of right-of-use assets and lease liabilities, purchase price allocations, and the depreciable lives of long-lived assets.

Because of the uncertainties inherent in such estimates, actual results may differ from those estimates.

1 unchanged sentence

We are subject to risks and uncertainties as a result of the novel coronavirus (“COVID-19”) pandemic.

We are unable to predict the impact that the COVID-19 pandemic will have on our future business, financial condition, and

We are unable to predict the impact that the COVID-19 pandemic will continue to have on our future business, financial condition, and results of operations due to numerous uncertainties.

These uncertainties include the occurrence of recurring outbreaks and their severity and the duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

results of operations due to numerous uncertainties.

While we experienced a negative impact to our net revenues during the year ended December 31, 2020 in part due to the COVID-19 pandemic, we remain unable to predict the future impact on our estimates and assumptions.

There was not a material impact to these estimates or assumptions in our consolidated financial statements as of and for the year ended December 31, 2020.

We remain unable to predict the future impact on our estimates and assumptions.

There was no material impact to these estimates or assumptions in our consolidated financial statements as of and for the years ended December 31, 2021 and 2020.

Actual results could differ from those estimates, which may change our estimates in future periods.

18 unchanged sentences

Generally, only a single source of API is qualified for use in each product due to the costs and time required to validate a second source of supply.

As a result, we are dependent upon our current vendors to supply reliably the API required for ongoing product manufacturing.

During the year ended December 31, 2020, we purchased approximately 10 % of our inventory from one supplier.

As of December 31, 2020, amounts payable to this supplier was $ 0.9 million.

As a result, we are dependent upon our current vendors to supply reliably the API required for on-going product manufacturing.

During the year ended December 31, 2021, no single vendor represented at least 10% of inventory purchases.

During the year ended December 31, 2020, we purchased approximately 10 % of our inventory from one supplier.

27 unchanged sentences

Total net revenues

(1) Primarily includes laboratory services and royalties on sales of contract manufactured products

Timing of Revenue Recognition

3 unchanged sentences

Performance obligations transferred over time

During the year ended December 31, 2020, we did not incur, and therefore did not defer, any material incremental costs to obtain contracts or costs to fulfill contracts.

We recognized a decrease of $ 9.9 million of net revenue from performance obligations satisfied in prior periods during the year ended December 31, 2020, consisting primarily of revised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period sales.

During the year ended December 31, 2021, we did not incur, and therefore did not defer, any material incremental costs to fulfill contracts.

We recognized an increase of $ 9.9 million of net revenue from performance obligations satisfied in prior periods during the year ended December 31, 2021, consisting primarily of an increase of $ 11.2 million related to the final royalty revenue from the Kite license agreement pursuant to the Tripartite Agreement as defined and described herein in Royalties from Licensing Agreements, which was partially offset by a decrease related to revised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period sales.

We provide technical transfer services to customers, for which services are transferred over time.

As a result, we had $ 0.1 million of contract assets related to revenue recognized based on percentage of completion but not yet billed at December 31, 2019.

At December 31, 2020, we did not have any contract assets related to revenue recognized based on percentage of completion but not yet billed.

We also had $ 0.1 million and $ 0.5 million of deferred revenue at December 31, 2020 and 2019, respectively.

For the year ended December 31, 2020, we recognized $ 0.3 million of revenue that was included in deferred revenue as of December 31, 2019.

For the year ended December 31, 2019, we recognized $ 0.1 million of revenue that was included in deferred revenue as of December 31, 2018.

As of December 31, 2021, we did not have any contract assets related to revenue recognized based on percentage of completion but not yet billed.

We had $ 0.1 million of deferred revenue at December 31, 2021 and December 31, 2020.

For the year ended December 31, 2021, we recognized less than $ 0.1 million of revenue that was included in deferred

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

revenue as of December 31, 2020.

For the year ended December 31, 2020, we recognized $ 0.3 million of revenue that was included in deferred revenue as of December 31, 2019.

Revenue from Sales of Generic and Branded Pharmaceutical Products

3 unchanged sentences

Control is generally transferred to the customer upon delivery of the product to the customer, as our pharmaceutical products are generally sold on an FOB destination basis and because inventory risk and risk of ownership passes to the customer upon delivery.

Payment terms for these sales are generally fewer than 100 days.

Payment terms for these sales are generally less than 100 days.

Revenue from Distribution Agreements

9 unchanged sentences

Alternatively, we may pre-authorize wholesalers to offer specified contract pricing to other indirect customers.

Under either arrangement, we provide a chargeback credit to the wholesaler for any difference between the contracted price with the indirect customer and the wholesaler’s invoice price, typically Wholesale Acquisition Cost ("WAC").

Chargeback credits are calculated as follows:

7 unchanged sentences

As necessary, we adjust ASPs based on anticipated changes in the factors above.

The difference between ASP and WAC is recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the consolidated balance sheets, at the time we recognize revenue from the product sale.

The difference between ASP and WAC is recorded as a reduction in both gross revenues in our consolidated statements of operations and accounts receivable in the consolidated balance sheets, at the time we recognize revenue from the product sale.

To evaluate the adequacy of our chargeback accruals, we obtain on-hand inventory counts from the wholesalers.

This inventory is multiplied by the chargeback amount, the difference between ASP and WAC, to arrive at total expected future chargebacks, which is then compared to the chargeback accruals.

We continually monitor chargeback activity and adjust ASPs when we believe that actual selling prices will differ from current ASPs.

This inventory is multiplied by the chargeback amount, the difference between ASP and WAC, to arrive at total

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

expected future chargebacks, which is then compared to the chargeback accruals.

We continually monitor chargeback activity and adjust ASPs when we believe that actual selling prices will differ from current ASPs.

Government Rebates

16 unchanged sentences

We continually monitor our government rebate reserve and adjust our estimates if we believe that actual government rebates may differ from our established accruals.

Accruals for government rebates are recorded as a reduction to gross revenues in the consolidated statements of operations and as an increase to accrued government rebates in the consolidated balance sheets.

Accruals for government rebates are recorded as a reduction to gross revenues in our consolidated statements of operations and as an increase to accrued government rebates in the consolidated balance sheets.

We maintain a return policy that allows customers to return product within a specified period prior to and subsequent to the expiration date.

4 unchanged sentences

We continually monitor our estimates for returns and make adjustments when we believe that actual product returns may differ from the established accruals.

Accruals for returns are recorded as a reduction to gross revenues in the consolidated statements of operations and as an increase to the return goods reserve in the consolidated balance sheets.

Accruals for returns are recorded as a reduction to gross revenues in our consolidated statements of operations and as an increase to the return goods reserve in the consolidated balance sheets.

Administrative Fees and Other Rebates

1 unchanged sentence

We accrue for fees and rebates, by product by wholesaler, at the time of sale based on contracted rates and ASPs.

To evaluate the adequacy of our administrative fee accruals, we obtain on-hand inventory counts from the wholesalers.

This inventory is multiplied by the ASPs to arrive at total expected future sales, which is then multiplied by contracted rates.

The result is then compared to the administrative fee accruals.

We continually

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

monitor administrative fee activity and adjust our accruals when we believe that actual administrative fees will differ from the accruals.

Accruals for administrative fees and other rebates are recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the consolidated balance sheets.

To evaluate the adequacy of our administrative fee accruals, we obtain on-hand inventory counts from the wholesalers.

This inventory is multiplied by the ASPs to arrive at total expected future sales, which is then multiplied by contracted rates.

The result is then compared to the administrative fee accruals.

We continually monitor administrative fee activity and adjust our accruals when we believe that actual administrative fees will differ from the accruals.

Accruals for administrative fees and other rebates are recorded as a reduction in both gross revenues in our consolidated statements of operations and accounts receivable in the consolidated balance sheets.

Prompt Payment Discounts

2 unchanged sentences

We assume, based on past experience, that all available discounts will be taken.

Accruals for prompt payment discounts are recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the consolidated balance sheets.

Accruals for prompt payment discounts are recorded as a reduction in both gross revenues in our consolidated statements of operations and accounts receivable in the consolidated balance sheets.

The following table summarizes activity in the consolidated balance sheets for accruals and allowances for the years ended December 31, 2021, 2020, and 2019:

15 unchanged sentences

Contract Manufacturing Product Sales Revenue

Contract manufacturing arrangements consists of agreements in which we manufacture a pharmaceutical product on behalf of third party.

Contract manufacturing arrangements consist of agreements in which we manufacture a pharmaceutical product on behalf of a third party.

Our performance obligation is to manufacture and provide pharmaceutical products to customers, typically pharmaceutical companies.

The contract manufactured products are sold at pre-determined standalone selling prices and our performance obligations are considered to be satisfied when control of the product is transferred to the customer.

Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our pharmaceutical products are sold on an FOB shipping point basis and the inventory risk and risk of ownership passes to the customer at that time.

Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our contract manufactured pharmaceutical products are sold on an FOB shipping point basis and the inventory risk and risk of ownership passes to the customer at that time.

Payment terms for these sales are generally fewer than two months.

2 unchanged sentences

As of December 31, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open contract manufacturing customer contracts was $ 3.8 million, which consists of firm orders for contract manufactured products.

We will recognize revenue for these performance obligations as they are satisfied, which is anticipated within twelve months .

Royalties from Licensing Agreements

From time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller the right to sell the acquired products.

Therefore, we recognize the revenue associated with sales of the underlying products as royalties.

Because these royalties are sales-based, we recognize the revenue when the

We will recognize revenue for these performance obligations as they are satisfied, which is anticipated within six months .

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

underlying sales occur, based on sales and gross profit information received from the sellers.

Royalties from Licensing Agreements

From time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller the right to sell the acquired products.

Therefore, we recognize the revenue associated with sales of the underlying products as royalties.

Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the sellers.

Upon full transition of the products and upon launching the products under our own labels, we recognize revenue for the products as sales of generic or branded pharmaceutical products, as described above.

From time to time, we enter into supply and distribution agreements with contract manufacturing customers, under which we license to the contract manufacturing customer the right to sell our products, and we are entitled to a royalty on sales made by the contract manufacturing customer under these arrangements.

Therefore, we recognize the revenue associated with sales of the underlying products as royalties.

Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the contract manufacturing customers.

Pursuant to a 2012 Tripartite Agreement (the “Tripartite Agreement”) between the Company, The Regents of the University of California (“The Regents”), and Cabaret Biotech Ltd., an Israeli corporation (“Cabaret”) (as assignee of Dr.

Zelig Eshhar’s rights under the Tripartite Agreement), and subsequent amendments thereto and assignments thereof, we are entitled to receive a percentage of the milestone and sales royalty payments paid to Cabaret by Kite Pharma, Inc.

Zelig Eshhar’s rights under the Tripartite Agreement), and subsequent amendments thereto and assignments thereof, we were entitled to receive a percentage of the milestone and sales royalty payments paid to Cabaret by Kite Pharma, Inc.

(“Kite”), a subsidiary of Gilead Sciences, Inc., under a license agreement.

1 unchanged sentence

Eshhar and Cabaret the patent rights covered by the Tripartite Agreement and agreed to make certain payments to Cabaret based on, among other things, Kite’s sales of Yescarta®.

Under the Tripartite Agreement, portions of these payments are to be distributed to The Regents and to us.

We record royalty income related to Yescarta® on an accrual basis utilizing our best estimate of royalties earned based upon information available in the public domain, our understanding of the various agreements governing the royalty, and other information received from time to time from the relevant parties.

Generally, cash is received directly from Cabaret once a year.

The agreements governing this royalty are subject to multiple litigations in multiple jurisdictions, including litigation between Cabaret and Kite, and separately, the Company and Cabaret.

We recently became aware that the litigation between Cabaret and Kite was dismissed and are working with our counsel to determine the potential impact the resolution of that matter may have on our rights under the agreements.

In addition, the Israeli Tax Authority has taken the position that any payments from Cabaret to us are subject to mandatory withholding tax.

The Company and its tax counsel have disputed this position and are actively seeking to resolve the issue.

The ultimate outcome of these matters, either individually or in the aggregate, may impact the amount of cash due to us, and may result in the termination of future payments or further claims that royalties received by us in the past be repaid.

Under the Tripartite Agreement, portions of these payments were to be distributed to The Regents and to us.

Historically, we recorded royalty income related to Yescarta® on an accrual basis utilizing our best estimate of royalties earned based upon information available in the public domain, our understanding of the various agreements governing the royalty, and other information received from time to time from the relevant parties.

Generally, cash was received directly from Cabaret once a year.

The agreements governing this royalty were subject to multiple actions in multiple jurisdictions, including litigation between Cabaret and Kite, and separately, ANI and Cabaret.

In the first quarter of 2021, we became aware that the litigation between Cabaret and Kite was dismissed.

In April 2021, Cabaret and the Company settled all amounts due for amounts actually received by Cabaret or Eshhar for the licensing or use of the patent rights governed by the Kite license agreement.

As a result, we recognized $ 11.2 million as royalties from licensing agreements in our net revenues during the three month period ended March 31, 2021.

In addition, we agreed to reimburse Cabaret $ 0.4 million, which has been recorded as other expense, net in our consolidated statement of operations, related to certain legal expenditures incurred.

We received final payment from Cabaret in May 2021.

Based upon the events that led to the dismissal of the litigation between Cabaret and Kite, the Company does not expect to receive any future royalty income related to the Kite license agreement.

In conjunction with payment of amounts due to us, all outstanding litigation between the Company and Cabaret were dismissed.

Product Development Services Revenue

5 unchanged sentences

We recognize revenue on a percentage of completion basis, which results in contract assets on our balance sheet.

As of December 31, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations for all product development services contracts was $ 0.6 million.

As of December 31, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations for all product development services contracts was less than $ 0.1 million.

We expect to satisfy these performance obligations within the next 15 months .

1 unchanged sentence

We consider all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents.

All interest bearing and non-interest bearing accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250 thousand.

All interest bearing and non-interest bearing accounts are guaranteed by the Federal Deposit Insurance

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

Corporation (“FDIC”) up to $ 250 thousand.

The majority of our cash balances are in excess of FDIC coverage.

2 unchanged sentences

Additionally, we transferred $ 5.0 million to an escrow account as security for future milestone payments.

This escrow account balance is included in restricted cash in our accompanying consolidated balance sheet as of December 31, 2020.

This escrow account balance is included in restricted cash in our consolidated balance sheet as of December 31, 2021.

Accounts Receivable

1 unchanged sentence

We measure expected credit losses on our financial assets at amortized cost, including trade and unbilled receivables, on a collective basis, based on their similar risk characteristics.

Expected credits losses are based on historical credit loss experience, review of the current aging or

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

status of accounts receivable and current and forward-looking views from an economic and industry perspective.

Expected credits losses are based on historical credit loss experience, review of the current aging or status of accounts receivable and current and forward-looking views from an economic and industry perspective.

We determine trade receivables to be delinquent when greater than 30 days past due.

Receivables are written off when it is determined that amounts are uncollectible.

Our allowance for credit losses was immaterial as of December 31, 2020.

Our allowance for doubtful accounts as of December 31, 2019, as accounted for and reported under previously applicable U.S.

GAAP, was also immaterial.

Our allowance for credit losses was immaterial as of December 31, 2021 and 2020.

Inventories consist of raw materials, packaging materials, work-in-progress, and finished goods.

17 unchanged sentences

Intangible Assets

Intangible assets other than goodwill consist of acquired ANDAs for previously commercialized and marketed drug products, acquired approved ANDAs for generic products yet to be commercialized, an acquired development package for a generic drug product, a license, supply and distribution agreement for a generic drug product, acquired product rights for generic products, acquired NDAs and product rights for branded products, acquired marketing and distribution rights, and a non-compete agreement.

The ANDAs, NDAs and product rights, marketing and distribution rights, and non-compete agreement are amortized over their remaining estimated useful lives, ranging from seven to 10 years , generally based on the straight-line method.

Management reviews definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in a manner similar to that for property and equipment.

During the year ended December 31, 2020, we recognized an impairment charge of $ 0.4 million relating to a marketing and distribution right asset (Note 7).

During the year ended December 31, 2019, we recognized an impairment charge of $ 75 thousand relating to our Ranitidine product right asset (Note 7).

No impairment losses related to intangible assets were recognized in the year ended December 31, 2018.

Goodwill relates to the 2013 merger with BioSante Pharmaceuticals, Inc.

and the acquisition of WellSpring and represents the excess of the total purchase consideration over the fair value of acquired assets and assumed liabilities, using the purchase method of accounting.

Goodwill is not amortized, but is subject to periodic review for

Definite-lived intangible assets consist of acquired ANDAs for previously commercialized and marketed drug products, acquired approved ANDAs for generic products yet to be commercialized, an acquired development package for a generic drug product, a license, supply and distribution agreement for a generic drug product, acquired product rights for generic products, acquired NDAs and product rights for branded products, acquired marketing and distribution rights, acquired customer relationships, and a non-compete agreement.

They are stated at cost, net of amortization, generally using the straight-line method over the expected useful lives of the intangible assets.

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

The definite-lived ANDAs, NDAs and product rights, marketing and distribution rights, customer relationships, and non-compete agreement are stated at cost, net of amortization, and generally amortized over their remaining estimated useful lives, ranging from seven to 10 years , based on the straight-line method.

In the case of certain NDA and product rights, we use an accelerated amortization method to better match the anticipated economic benefits expected to be provided.

During the year ended December 31, 2021, we recognized an impairment charge of $ 2.4 million related to a definite-lived ANDA intangible asset.

During the year ended December 31, 2020, we recognized an impairment charge of $ 0.4 million relating to a marketing and distribution right asset.

During the year ended December 31, 2019, we recognized an impairment charge of $ 75 thousand relating to our Ranitidine product right asset.

No events or circumstances arose in 2021, 2020, or 2019 that indicated that the carrying value of any of our other definite-lived intangible assets may not be recoverable.

Our indefinite-lived intangible assets other than goodwill include in-process research and development (“IPR&D”) projects.

IPR&D intangible assets represent the fair value of technology acquired in a business combination for which the technology projects are incomplete but have substance.

IPR&D acquired in a business combination is initially capitalized as an indefinite-lived intangible asset until the project is complete, which is generally when we receive regulatory approval for a product.

Upon approval, we determine the useful life of the asset and begin amortizing the value over that life.

IPR&D acquired in a purchase of assets rather than a business is expensed as incurred.

We test for impairment of indefinite-lived intangible assets at least annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying amount of the asset might not be recoverable.

Judgment is used in determining when these events and circumstances arise.

If we determine that the carrying value of the assets may not be recoverable, judgment and estimates are used to assess the fair value of the assets and to determine the amount of any impairment loss.

No events or circumstances arose in 2021 that indicated that the carrying value of any of our other indefinite-lived intangible assets may not be recoverable.

Goodwill relates to the 2013 merger with BioSante Pharmaceuticals, Inc.

and the acquisitions of WellSpring and Novitium, and represents the excess of the total purchase consideration over the fair value of acquired assets and assumed liabilities, using the purchase method of accounting.

Goodwill is not amortized, but is subject to periodic review for impairment.

Goodwill is reviewed for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying amount of the goodwill might not be recoverable.

2 unchanged sentences

When performing the qualitative assessment, we evaluate events and circumstances that would affect the significant inputs used to determine the fair value of the goodwill.

Events and circumstances evaluated include:

macroeconomic conditions that could affect us, industry and market considerations for the generic pharmaceutical industry that could affect us, cost factors that could affect our performance, our financial performance (including share price), and consideration of any company-specific events that could negatively affect us, our business, or the fair value of our business.

Events and circumstances evaluated include macroeconomic conditions that could affect us, industry and market considerations for the generic pharmaceutical industry that could affect us, cost factors that could affect our performance, our financial performance (including share price), and consideration of any company-specific events that could negatively affect us, our business, or the fair value of our business.

If we determine that it is more likely than not that goodwill is impaired, we will then apply detailed testing methodologies.

6 unchanged sentences

No impairment loss related to goodwill was recognized in the years ended December 31, 2021, 2020, and 2019.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

Collaborative Arrangements

At times, we have entered into arrangements with various commercial partners to further business opportunities.

In collaborative arrangements such as these, when we are actively involved and exposed to the risks and rewards of the activities and are determined to be the principal participant in the collaboration, we classify third party costs incurred and revenues in the consolidated statements of operations on a gross basis.

In collaborative arrangements such as these, when we are actively involved and exposed to the risks and rewards of the activities and are determined to be the principal participant in the collaboration, we classify third party costs incurred and revenues in our consolidated statements of operations on a gross basis.

Otherwise, third party revenues and costs generated by collaborative arrangements are presented on a net basis.

12 unchanged sentences

The value of the award is recognized as expense on a straight-line basis over the employee’s requisite service period and classified where the underlying salaries are classified.

We also account for

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

forfeitures as they occur rather than using an estimated forfeiture rate.

We also account for forfeitures as they occur.

We recognize excess tax benefits or tax deficiencies as a component of our current period provision for income taxes.

2 unchanged sentences

We incurred $ 10.4 million, $ 12.8 million, and $ 9.1 million of non-cash, stock-based compensation cost for the years ended December 31, 2021, 2020, and 2019, respectively, and $ 123 thousand, $ 180 thousand, and $ 147 thousand of the 2021, 2020, and 2019 expense related to the ESPP, respectively.

In 2020, we recognized $ 3.4 million of stock compensation expense related to the modification of awards of our former President and Chief Executive Officer, pursuant to his termination without good cause (Note 9).

Valuation of stock awards requires us to make assumptions and to apply judgment to determine the fair value of the awards.

2 unchanged sentences

We use the asset and liability method of accounting for income taxes.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.

3 unchanged sentences

As a result of a newly adopted transfer pricing policy in 2019, our assessment of the amount of ANI Canada’s deferred tax assets that were more likely than not to be realized changed.

During 2019, we released ANI Canada’s valuation allowance and, as a result, our valuation allowance at December 31, 2020 of $ 0.3 million relates solely to our state NOL carryforwards.

During 2019, we released ANI Canada’s valuation allowance.

As of December 31, 2021, our valuation allowance is $ 0.5 million and relates to state NOL carryforwards.

We have not provided for deferred taxes related to any difference between the tax basis in the shares of ANI Canada and the financial reporting basis in those shares since it has the intent and ability to indefinitely reinvest ANI Canada’s earnings and not repatriate those earnings.

5 unchanged sentences

We are subject to taxation in various U.S.

jurisdictions and Canada and all of our income tax returns remain subject to examination by tax authorities due to the availability of NOL carryforwards.

jurisdictions, Canada, and India, and all of our income tax returns remain subject to examination by tax authorities due to the availability of NOL carryforwards.

We consider potential tax effects resulting from discontinued operations and for gains and losses in other comprehensive income and record intra-period tax allocations, when those effects are deemed material.

In 2020, we entered in an interest rate swap agreement (Note 4) that we designated as cash flow hedges designed to manage exposure to changes in LIBOR-based interest rate underlying our secured term loan (the “Term Loan”) and delayed draw term loan (the “DDTL”) with Citizen’s Bank., N.A.

Due to the effective nature of the hedge, the initial fair value of the hedge and subsequent changes in the fair value of the hedge are recognized in accumulated other

We previously entered into an interest rate swap agreement (Note 4) that we have designated as a cash flow hedge designed to manage exposure to changes in LIBOR-based interest rate underlying our variable rate debt.

Due to the effective nature of the hedge, the initial fair value of the hedge and subsequent changes in the fair value of the hedge are recognized in accumulated other comprehensive loss, net of tax in the consolidated balance sheets.

Income taxes are allocated to the hedge component of accumulated other comprehensive income based on appropriate intra-period tax allocations when those effects are deemed material.

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period.

For periods of net income, and when the effects are not anti-dilutive, we calculate diluted earnings (loss) per share by dividing net income available to common shareholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options, shares to be purchased under our ESPP, unvested restricted stock awards under the treasury stock method, and convertible preferred stock using the if-converted method.

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share.

Our unvested restricted shares and convertible preferred stock shares contain non-forfeitable rights to dividends, and therefore are considered to be participating securities;

in periods of net income, the calculation of basic and diluted earnings (loss) per share excludes from the numerator net income (but not net loss) attributable to the unvested restricted shares and the common shares assumed converted from the preferred shares and excludes the impact of those shares from the denominator.

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

comprehensive loss, net of tax in the accompanying consolidated balance sheets.

Income taxes are allocated to the hedge component of accumulated other comprehensive income based on appropriate intra-period tax allocations when those effects are deemed material.

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period.

For periods of net income, and when the effects are not anti-dilutive, we calculate diluted earnings (loss) per share by dividing net income available to common shareholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options, shares to be purchased under our ESPP, and unvested restricted stock awards, using the treasury stock method.

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive.

Our unvested restricted shares and certain of our outstanding warrants contain non-forfeitable rights to dividends, and therefore are considered to be participating securities;

in periods of net income, the calculation of basic and diluted earnings (loss) per share excludes from the numerator net income (but not net loss) attributable to the unvested restricted shares and excludes the impact of those shares from the denominator.

For purposes of determining diluted earnings (loss) per share in 2019, we elected a policy to settle the principal portion of our 3 % Convertible Senior Notes (the “Notes”), which matured and were settled in December 2019, in cash.

8 unchanged sentences

Net (loss)/income

Net income allocated to restricted stock

Net income allocated to participating securities

Dividends on Series A convertible preferred stock

Net (loss)/income allocated to common shares

3 unchanged sentences

Diluted Weighted-Average Shares Outstanding

(Loss)/Earnings per share

The number of anti-dilutive shares, which have been excluded from the computation of diluted earnings (loss) per share, including the shares underlying the Notes, were 1.3 million, 3.0 million, and 4.4 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Due to the net loss in the year ended December 31, 2020, all dilutive potential common shares were also excluded from the diluted loss per share calculation, as the impact of those potential common shares is anti-dilutive in the case of a net loss.

Anti-dilutive shares consist of out-of-the-

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

money Class C Special stock, out-of-the-money common stock options, common stock options that are anti-dilutive when calculating the impact of the potential dilutive common shares using the treasury stock method, underlying shares related to out-of-the-money bonds issued as convertible debt (for 2019 only) and out-of-the-money warrants exercisable for common stock.

(Loss)/Income per share

The number of anti-dilutive shares, which have been excluded from the computation of diluted earnings (loss) per share, were 1.7 million, 1.3 million, and 3.0 million for the years ended December 31, 2021, 2020, and 2019, respectively.

For the years ended December 31, 2021 and 2020, all potentially dilutive shares were anti-dilutive and excluded from the calculation of diluted loss per share because we recognized a net loss .

For the year ended December 31, 2019, anti-dilutive shares consist of out-of-the-money Class C Special stock, out-of-the-money common stock options, unvested restricted stock awards and common stock options that are anti-dilutive when calculating the impact of the potential dilutive common shares using the two-class or treasury stock method, and underlying shares related to out-of-the-money bonds issued as convertible debt.

Hedge Accounting

3 unchanged sentences

When we determine that a derivative financial instrument qualifies as a cash flow hedge and is effective, the changes in fair value of the instrument are recorded in accumulated other comprehensive (loss)/income, net of tax in our consolidated balance sheets and will be reclassified to earnings when the hedged item affects earnings.

Contingent Consideration

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

The terms of the acquisition agreement between ANI and Novitium Pharma LLC include the potential payment of future consideration that is contingent upon the achievement of certain regulatory and financial performance milestones.

At acquisition date, we recorded this contingent consideration at fair value based on the additional consideration expected to be transferred, which is based on the estimate of probability-weighted future cash flows as discounted to present value.

Significant inputs used in the measurement of the fair value include discount rates, probabilities of achievement of regulatory-based milestones and payments, and projected revenues and gross profits.

The discount rates are derived using accepted valuation methodologies.

The probability of achievement of regulatory milestones is based on historical and projected success rates.

The projected revenues and gross profits are based on our internal forecasts and long-term plans.

We remeasure the fair value of the contingent consideration each reporting period using Level 3 inputs, as discussed further below.

Changes in fair value, which incorporate changes in assumptions and the passage of time, are recognized as an operating expense in our consolidated statement of operations.

As payments are not expected to be made shortly after the acquisition, any future payment of contingent consideration will be reported as a financing cash flow for amounts paid up to the acquisition-date fair value of the consideration, and as an operating cash outflow for any amounts in excess of the acquisition-date fair value in our consolidated statement of cash flows.

Fair Value of Financial Instruments

11 unchanged sentences

Based on the distinct nature of our operations, our internal management structure, and the financial information that is evaluated regularly by our Chief Operating Decision Maker, we determined that we operate in one reportable segment.

Our operations are located in the United States and Canada.

Our operations are located in the United States, Canada, and India.

The majority of the assets of the Company are located in the United States.

The following table depicts the Company’s revenue by geographic operations during the following periods:

The following table depicts our revenue by geographic operations during the following periods:

(in thousands)

3 unchanged sentences

Total Revenue

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

The following table depicts the Company’s property and equipment, net according to geographic location as of:

The following table depicts our property and equipment, net according to geographic location as of:

(in thousands)

2 unchanged sentences

United States

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

Total property and equipment, net

1 unchanged sentence

Recent Accounting Pronouncements Not Yet Adopted

In November 2019, the Financial Accounting Standards Board (“FASB”) issued guidance simplifying the accounting for income taxes by removing the following exceptions:

We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our consolidated statements of operations, comprehensive income, balance sheets, or cash flows.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued guidance simplifying the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity.

The new standard removes the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features.

It also removes certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation for convertible instruments.

We early adopted this guidance as of January 1, 2021.

The adoption of this guidance removed the requirement for an evaluation of a beneficial conversion feature related to our issuance of convertible preferred stock in November 2021 and will impact the calculation of diluted earnings per share in periods of net earnings.

In November 2019, the FASB issued guidance simplifying the accounting for income taxes by removing the following exceptions:

1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

1 unchanged sentence

1) requiring that an entity recognize a franchise tax or similar tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements, 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and 5) making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

The guidance is effective for reporting periods beginning after December 15, 2020, including interim periods within that fiscal year.

Early adoption was permitted, including adoption in an interim period.

We will adopt this guidance as of January 1, 2021.

We expect that the adoption of this guidance will not have a material impact on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

In November 2018, the FASB issued guidance clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under Accounting Standards Codification Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account.

The guidance was effective for reporting periods beginning after December 15, 2019, including interim periods within that fiscal year.

We adopted this guidance as of January 1, 2020.

The adoption of this guidance did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued guidance amending the disclosure requirements on fair value measurements.

The amendments add, modify, and eliminate certain disclosure requirements on fair value measurements.

Most of the provisions of this guidance were to be adopted on a prospective basis.

Items 2) and 3) of the “removal” provisions were to be adopted on either a full or modified retrospective basis and item 4) of the “simplifying” provisions was to be adopted on a full retrospective basis.

The guidance was effective for reporting periods beginning after December 15, 2020, including interim periods within that fiscal year.

1 unchanged sentence

The adoption of this guidance did not have a material impact on our consolidated financial statements.

BUSINESS COMBINATION

On November 19, 2021, we completed our previously announced acquisition of all of the interests of Novitium pursuant to the terms of the Agreement and Plan of Merger, dated as of March 8, 2021, for cash consideration, 2,466,654 restricted shares of our common stock valued at $ 91.2 million based on our closing stock price of $ 43.54

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

In June 2016, the FASB issued guidance with respect to measuring credit losses on financial instruments, including trade receivables.

The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments.

The credit loss estimate now reflects an entity's current estimate of all future expected credit losses.

Under the previous guidance, an entity only considered past events and current conditions.

In April 2019, the FASB further clarified the scope of the credit losses standard and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates, and prepayment.

In May 2019, the FASB issued further guidance to provide entities with an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for eligible financial instruments.

We adopted this guidance as of January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost.

Results for reporting periods beginning after January 1, 2020 are presented under the new guidance while prior period amounts continue to be reported in accordance with previously applicable GAAP.

We recognized an $ 8 thousand decrease to retained earnings as of January 1, 2020 for the cumulative effect of adopting the new guidance.

BUSINESS COMBINATION

On August 6, 2018, our subsidiary, ANI Canada, acquired all the issued and outstanding equity interests of WellSpring, a Canadian company that performs contract development and manufacturing of pharmaceutical products for a purchase price of $ 18.0 million, subject to certain customary adjustments.

Pursuant to these customary adjustments, the total purchase consideration was $ 16.7 million.

The consideration was paid entirely from cash on hand.

We incurred approximately $ 1.1 million in transaction costs related to the acquisition, all of which were expensed in 2018.

Following the consummation of the transaction, WellSpring was merged into ANI Canada with the resulting entity’s name being ANI Pharmaceuticals Canada Inc.

We acquired WellSpring to provide an additional tech transfer site in order to accelerate the re-commercialization of the previously-approved ANDAs in our pipeline, to expand our contract manufacturing revenue base, and to broaden our manufacturing capabilities to three manufacturing facilities.

Pro Forma Condensed Combined Financial Information (unaudited)

The following unaudited pro forma condensed combined financial information summarizes the results of operations for the periods indicated as if the WellSpring acquisition had been completed as of January 1, 2017.

on the date of closing and discounted for lack of marketability due to restrictions on shares, and up to $ 46.5 million in additional contingent consideration.

Additionally, we agreed to pay certain debts of Novitium in the amount of $ 8.5 million, which we deemed to be paid in consummation of the transaction closing, and not assumed liabilities, and thus were included as additional cash consideration.

This acquisition was accounted for as a business combination.

The contingent consideration is based on the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future.

As of the acquisition date, the contingent consideration had a fair value of $ 30.5 million.

As of December 31, 2021, the fair value of the contingent consideration was $ 31.0 million.

Total consideration including cash, restricted shares and contingent consideration was valued at $ 206.2 million.

Purchase consideration consisted of the following:

(in thousands)

Cash consideration

Repayment of Novitium debts

Fair value of restricted shares

Fair value of contingent consideration

Gross consideration

Cash acquired

Net consideration

The cash consideration was funded in part by borrowings under our new credit facility (Note 3) and through issuance of PIPE convertible preferred stock shares (Note 9).

We acquired Novitium due to its proven track record of being a research and development growth engine capable of fueling sustainable growth, to expand our research and development pipeline via niche opportunities, to enhance our contract development and manufacturing organization (“CDMO”) business and U.S.

based manufacturing capacity, and to diversify our revenue base.

The preliminary allocation of the fair value of the Novitium acquisition is shown in the table below.

The allocation of the fair value will be finalized when the valuation is completed and the differences will be trued up for the final allocated amounts.

(in thousands)

Total Purchase Consideration

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Property and equipment

Intangible assets

Other non-current assets

Total assets acquired

Accounts payable

Accrued expense and other current liabilities

Accrued compensation and other related expenses

Accrued government rebates

Returned goods reserve

Other non-current liabilities

Total liabilities assumed

Net assets acquired

The net assets were recorded at their estimated fair value.

In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations,

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

and appropriate discount rates.

In connection with the acquisition, we recognized $ 46.9 million of indefinite-lived in-process research and development intangible assets, $ 67.4 million of acquired ANDA intangible assets, and $ 24.9 million of customer relationship intangible assets.

Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities.

Goodwill established as a result of the acquisition is tax deductible in the U.S.

Novitium operations generated $ 7.7 million of revenue and recorded a net loss of $ 1.4 million from the date of acquisition through December 31, 2021.

Pro Forma Consolidated Financial Information (unaudited)

The following unaudited pro forma consolidated financial information summarizes the results of operations for the periods indicated as if the Novitium acquisition had been completed as of January 1, 2020.

Years Ended December 31,

(in thousands)

Net income/(loss)

(1) Net loss for the year ended December 31, 2017 includes the impact to WellSpring of $ 4.4 million of related party debt forgiveness.

Transaction Costs

In conjunction with the acquisition, we incurred approximately $ 9.4 million in transaction costs, all of which were expensed in 2021 as selling, general, and administrative expense in the consolidated statement of operations.

Restricted Shares

The Novitium acquisition consideration included 2,466,654 restricted shares, which were valued at $ 91.2 million.

These shares contain restrictions on their transfer for periods from three to 24 months following the completion of the acquisition.

A Finnerty model was used to value the restricted shares.

It includes inputs of not readily observable market data, which are Level 3 inputs.

These unobservable inputs include ANI stock volatility with a range of 65 % - 71 %, and the discounted lack of marketability with a range of 7.5 % - 21.5 % depending on the length of restriction.

Credit Facility

Our five-year Senior Secured Credit Facility (the “Credit Facility”) is comprised of a $ 72.2 million Term Loan, a $ 118.0 million DDTL, and a $ 75.0 million revolving credit facility (the “Revolver”), all of which mature in December 2023.

The Credit Facility has a subjective acceleration clause in case of a material adverse event.

The Term Loan includes a repayment schedule, pursuant to which $ 6.3 million of the loan will be paid in quarterly installments during the 12 months ended December 31, 2021.

As of December 31, 2020, $ 6.3 million of the loan is recorded as current borrowings in the consolidated balance sheets.

The DDTL includes a repayment schedule,

On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $ 300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $ 40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”).

The Term Facility proceeds were used to finance the cash portion of the consideration under the merger agreement between ANI and Novitium, repay our existing credit facility, and pay fees, costs and expenses incurred in connection with the merger.

Proceeds of the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes.

The Term Facility matures in November 2027 and the Revolving Facility in November 2026.

Each permits both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00 % above the base rate in the case of ABR Loans under the Term Facility and 6.00 % above the LIBOR Rate (as

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

pursuant to which $ 7.4 million will be paid in quarterly installments during the 12 months ended December 31, 2021.

defined in the Credit Agreement) in the case of LIBOR loans under the Term Facility and (b) 3.75 % above the base rate in the case of ABR Loans under the Revolving Facility and 4.75 % above the LIBOR Rate (as defined in the Credit Facility) in the case of loans under the Revolving Facility.

The interest rate under the Term Facility was 6.75 % at December 31, 2021.

The Credit Facility has a subjective acceleration clause in case of a material adverse effect.

The Term Facility includes a repayment schedule, pursuant to which $ 750 thousand of the loan will be paid in quarterly installments during the twelve months ended December 31, 2022.

As of December 31, 2021, $ 3.0 million of the loan is recorded as current borrowings in the consolidated balance sheets.

In March 2020, we drew $ 15.0 million under the Revolver, of which $ 7.5 million has been repaid as of December 31, 2020.

As of December 31, 2020, $ 67.5 million remained available for borrowing under the Revolver.

Amounts drawn on the Term Loan, DDTL, and Revolver bear an interest rate equal to, at our option, either a LIBOR rate plus 1.50 % to 2.75 % per annum, depending on our total leverage ratio or an alternative base rate plus an applicable base rate margin, which varies within a range of 0.50 % to 1.75 % , depending on our total leverage ratio.

On the Revolver, we incur a commitment fee at a rate per annum that varies within a range of 0.25 % to 0.50 % , depending on our leverage ratio.

As of December 31, 2020, our interest rate on outstanding borrowings is LIBOR plus 2.25 % and our commitment fee rate is 0.4 % .

As of December 31, 2021, we have not drawn on the Revolving Facility and $ 40.0 million remained available for borrowing.

We incurred $ 14.0 million in deferred debt issuance costs associated with the Credit Facility.

Costs allocated to the Term Facility are classified as a direct reduction to the current and non-current portion of the borrowings, depending on their nature.

Costs allocated to the Revolving Facility are classified as other current and other non-current assets, depending on their nature.

We incur a commitment fee of 0.5 % per annum on any unused portion of the Revolving Facility.

The Credit Facility carried a customary ticking fee that commenced after a period post-syndication and ended upon the closing of the Credit Facility.

During the year ended December 31, 2021, we incurred $ 4.2 million in expense related to the ticking fee, all of which was recognized as other expense, net, on the consolidated statement of operations.

In connection with entry into the Credit Facility, on November 19, 2021, we terminated our existing Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders.

In connection with the termination of the Prior Credit Agreement, on November 19, 2021, we used borrowings under the Credit Facility to prepay the full amount of indebtedness under the Prior Credit Agreement, and to pay related accrued and unpaid interest, fees, and expenses.

The repayment and termination of the Prior Credit Agreement was recognized as an extinguishment.

As of November 19, 2021, the carrying amount of the debt related to the Prior Credit Agreement consisted of principal of $ 200.1 million, net of $ 1.4 million in deferred financing fees, or $ 198.7 million.

We made a reacquisition payment of $ 200.1 million, representing the remaining principal balance under this facility of $ 200.1 million plus certain legal fees, resulting in a loss on extinguishment of $ 1.5 million.

The loss is recognized as other expense, net, on our consolidated statement of operations.

The Credit Facility is secured by a lien on substantially all of ANI Pharmaceuticals, Inc.’s and its principal domestic subsidiary’s assets and any future domestic subsidiary guarantors’ assets.

The Credit Facility imposes financial covenants consisting of a maximum total leverage ratio, which was, as of December 31, 2020, no greater than 3.25 to 1.00 and a minimum fixed charge coverage ratio, which shall be greater than or equal to 1.25 to 1.00.

The primary non-financial covenants under the Credit Facility limit, subject to various exceptions, our ability to incur future indebtedness, to place liens on assets, to pay dividends or make other distributions on our capital stock, to repurchase our capital stock, to conduct acquisitions, to alter our capital structure, and to dispose of assets.

As of December 31, 2020, we are compliant with our financial covenants.

The carrying value of the current and non-current components of the Term Loan and DDTL as of December 31, 2020 and 2019 are:

The Credit Facility is subject to customary financial and nonfinancial covenants.

The carrying value of the current and non-current components of the Term Facility as of December 31, 2021 and Term Loan and Delayed Draw Term Loan under the Prior Credit Agreement as of December 31, 2020 are:

(in thousands)

6 unchanged sentences

Non-current debt, net of deferred financing costs and current component

As of December 31, 2020, we had a $ 65.9 million balance on the Term Loan, $ 113.6 million balance on the DDTL, and $ 7.5 million balance on the Revolver.

Of the $ 0.8 million of deferred debt issuance costs allocated to the Revolver, $ 0.5 million is included in other non-current assets in the accompanying consolidated balance sheets and $ 0.3 million is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

Of the $ 0.3 million of deferred debt issuance costs allocated to the DDTL, $ 0.1 million is classified as a direct deduction to the current portion of the DDTL in the accompanying consolidated balance sheets and $ 0.2 million is classified as a direct reduction to the non-current portion of the DDTL in the accompanying consolidated balance sheets.

Of the $ 0.9 million of deferred debt issuance costs allocated to the Term Loan, $ 0.3 million is classified as a direct deduction to the current portion of the Term Loan in the accompanying consolidated balance sheets and $ 0.6 million is classified as a direct deduction to the non-current portion of the Term Loan in the accompanying consolidated balance sheets.

As of December 31, 2021, we had a $ 300.0 million balance on the Term Facility.

Of the $ 1.0 million of deferred debt issuance costs allocated to the Revolving Facility, $ 0.8 million is included in other non-current assets

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

The contractual maturity of our Term Loan, DDTL, and Revolver is as follows for the years ending December 31:

in the consolidated balance sheets and $ 0.2 million is included in prepaid expenses and other current assets in the consolidated balance sheets.

The contractual maturity of our Term Facility is as follows for the years ending December 31:

(in thousands)

The following table sets forth the components of total interest expense related to the Term Loan, DDTL, and Revolver recognized in our consolidated statements of operations for the year ended December 31:

Term Facility

2027 and thereafter

The following table sets forth the components of total interest expense related to the Term Facility and the Term Loan, DDTL, and Revolver under our Prior Credit Agreement recognized in our consolidated statements of operations for the year ended December 31:

Years Ended December 31,

5 unchanged sentences

DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY

In December 2018, we refinanced our previous Credit Agreement and, at the same time, entered into an interest rate swap, which was considered a derivative financial instrument, with Citizens Bank, N.A.

to manage our exposure to changes in LIBOR-based interest rates underlying our Term Loan.

In February 2019, we entered into an interest rate swap, which was considered a derivative financial instrument, with Citizens Bank, N.A.

to manage our exposure to changes in LIBOR-based interest rates underlying our DDTL.

The hedges had been designated as effective cash flow hedges and qualified for hedge accounting.

The interest rate swaps related to the Term Loan and DDTL had a weighted average fixed rate of 2.60 % and 2.47 %, respectively, with a maturity in December 2023.

In April 2020, we terminated the remaining $ 184.2 million notional value of these interest rate swaps.

We discontinued hedge accounting for these instruments and are recognizing the net loss in accumulated other comprehensive loss of $ 13.2 million to interest expense over the remaining terms through December 2023.

At the same time in April 2020, we entered into an interest rate swap with Citizens Bank, N.A.

to manage our exposure to changes in LIBOR-based interest rates underlying total borrowings under our Term Loan and DDTL.

In April 2020, we entered into an interest rate swap with Citizens Bank, N.A.

to manage our exposure to changes in LIBOR-based interest rates underlying total borrowings under term facilities related to our Prior Credit Agreement.

The interest rate swap matures in December 2026.

As of December 31, 2020, the notional amount of the interest rate swap was $ 179.4 million and decreases in line with maturities of our Term Loan and DDTL until December 2023, after which it remains static until maturity in 2026.

The interest rate swap provides an effective fixed interest rate of 1.99 % throughout the term of our Term Loan and DDTL and has been designated as an effective cash flow hedge and therefore qualifies for hedge accounting.

As of December 31, 2020, the fair value of the interest rate swap liability recorded in derivatives and other non-current liabilities in the accompanying consolidated balance sheets was $ 14.1 million.

As of December 31, 2020, $ 11.4 million was recorded in accumulated other comprehensive loss, net of tax in the accompanying consolidated balance sheets.

During the year ended December 31, 2020, the change in fair value of the interest rate swaps was $ 9.2 million.

During the year ended December 31, 2020, losses on the interest rate swap of $ 6.6 million were recorded in accumulated other comprehensive loss, net of tax in our consolidated statements of comprehensive (loss)/income.

Differences between the hedged LIBOR rate and the fixed rate are recorded as interest expense in the same period that the related interest is recorded for the Term Loan and DDTL based on the LIBOR rate.

In the year ended December 31, 2020, $ 3.9 million of interest expense was recognized in relation to the interest rate swaps.

Concurrent with the termination of the Prior Credit Agreement and entry into the Credit Agreement with Truist Bank, the interest rate swap with a notional value of $ 168.6 million was novated and Truist Bank is the new counterparty.

The swap is used to manage changes in LIBOR-based interest rates underlying a portion of the borrowing under the Term Facility.

The interest rate swap provides an effective fixed interest rate of 2.26 % and has been designated as an effective cash flow hedge and therefore qualifies for hedge accounting.

As of December 31, 2021, the notional amount of the interest rate swap was $ 165.8 million and decreases quarterly by approximately $ 4.0 million until December 2023, after which it remains static until maturity in December 2026.

As of December 31, 2021, the fair value of the interest rate swap liability recorded in derivatives and other non-current liabilities in the consolidated balance sheets was $ 6.8 million.

As of December 31, 2021, $ 3.1 million was recorded in accumulated other comprehensive loss, net of tax in the consolidated balance sheets.

During the year ended December 31, 2021, the change in fair value of the interest rate swaps was a gain of $ 5.4 million.

During the year ended December 31, 2021, gains on the interest rate swap of $ 8.4 million were recorded in accumulated other comprehensive loss, net of tax in our consolidated statements of comprehensive (loss)/income.

Differences between the hedged LIBOR rate and the fixed rate are recorded as interest expense in the same period that the related interest is recorded for the Term Facility based on the LIBOR rate.

In the year ended December 31, 2021 and 2020, $ 4.8 million and $ 3.9 million, respectively, of interest expense was recognized in relation to the interest rate swaps.

Included in these amounts for the years ended December 31, 2021 and 2020 are reclassifications out of accumulated other comprehensive income/loss of $ 3.5 million and $ 2.5 million in expense, respectively, related to terminated and de-designated cash flow hedges.

ANI Pharmaceuticals, Inc.

10 unchanged sentences

Inventories, net

During the fourth quarter 2019, we recognized a $ 4.6 million inventory reserve charge, primarily related to our exit from the market of Methylphenidate Extended Release.

(1) Includes inventory acquired in the acquisition of Novitium (Note 2).

PROPERTY, PLANT, AND EQUIPMENT

5 unchanged sentences

Property and equipment, net

(1) Includes property and equipment acquired in the acquisition of Novitium (Note 2).

Depreciation expense for the years ended December 31, 2021, 2020, and 2019 totaled $ 5.5 million, $ 4.8 million, and $ 4.4 million, respectively.

2 unchanged sentences

As a result of our 2013 merger with BioSante Pharmaceuticals, Inc., we recorded goodwill of $ 1.8 million.

As a result of our acquisition of WellSpring, we recorded additional goodwill of $ 1.7 million in 2018.

We assess the recoverability of the carrying value of goodwill on an annual basis as of October 31 of each year, and whenever events occur or circumstances changes that would, more likely than not, reduce the fair value of our reporting unit below its carrying value.

From our acquisition of WellSpring, we recorded additional goodwill of $ 1.7 million in 2018.

From our acquisition of Novitium in 2021, we recorded goodwill of $ 24.3 million.

For the goodwill impairment analyses performed at October 31, 2021 and 2020, we performed qualitative assessments to determine whether it was more likely than not that our goodwill asset was impaired in order to determine the necessity of performing a quantitative impairment test, under which management would calculate the asset’s fair value.

When performing the qualitative assessments, we evaluated events and circumstances that would affect the significant inputs used to determine the fair value of the goodwill.

Events and circumstances evaluated include:

macroeconomic conditions that could affect us, industry and market considerations for the pharmaceutical industry that could affect us, cost factors that could affect our performance, our financial performance (including share price), and consideration of any company-specific events that could negatively affect us, our business, or our fair value.

Based on our assessments of the aforementioned factors, it was determined that it was more likely than

Based on our assessments of the aforementioned factors, it was determined that it was more likely than not that the fair value of our one reporting unit is greater than its carrying amount as of October 31, 2021 and 2020, and therefore no quantitative testing for impairment was required.

In addition to the qualitative impairment analysis performed at October 31, 2021, there were no events or changes in circumstances that would have reduced the fair value of our reporting unit below its carrying value from October 31, 2021 to December 31, 2021.

No impairment loss was recognized during the years ended December 31,

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

not that the fair value of our one reporting unit is greater than its carrying amount as of October 31, 2020 and 2019, and therefore no quantitative testing for impairment was required.

In addition to the qualitative impairment analysis performed at October 31, 2020, there were no events or changes in circumstances that could have reduced the fair value of our reporting unit below its carrying value from October 31, 2020 to December 31, 2020.

No impairment loss was recognized during the years ended December 31, 2020, 2019, and 2018, and the balance of goodwill was $ 3.6 million as of December 31, 2020 and 2019.

Definite-lived Intangible Assets

The components of net definite-lived intangible assets are as follows:

2021, 2020, and 2019, and the balance of goodwill was $ 27.9 million and $ 3.6 million as of December 31, 2021 and 2020, respectively.

Intangible Assets

The components of net definite-lived intangible assets and net indefinite-lived intangible assets other than goodwill are as follows:

December 31, 2021

4 unchanged sentences

(in thousands)

Definite-Lived Intangible Assets:

Acquired ANDA intangible assets

2 unchanged sentences

Non-compete agreement

Definite-lived intangible assets are stated at cost, net of amortization, generally using the straight-line method over the expected useful lives of the intangible assets.

In the case of certain NDA, we use an accelerated amortization method to better match the anticipated economic benefits expected to be provided.

Customer relationships

Indefinite-Lived Intangible Assets:

In process research and development

Total Intangible Assets, net

Amortization expense was $ 41.8 million, $ 39.9 million, and $ 40.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Refer to Note 8 for more details on acquired definite-lived intangible assets.

We test for impairment of definite-lived intangible assets when events or circumstances indicate that the carrying value of the assets may not be recoverable.

We recognized an impairment of $ 0.4 million in the year ended December 31, 2020, in relation to a marketing and distribution right asset.

We recognized an impairment of $ 75 thousand in the year ended December 31, 2019, in relation to a product right asset.

No impairment losses related to intangible assets were recognized in the year ended December 31, 2018.

No events or circumstances arose in 2020, 2019, or 2018 that indicated that the carrying value of any of our other definite-lived intangible assets may not be recoverable.

Refer to Note 8 for more details on acquired definite-lived and indefinite-lived intangible assets.

Expected future amortization expense is as follows for the years ending December 31:

1 unchanged sentence

2027 and thereafter

Expected amortization expense is an estimate.

Actual amounts of amortization expense may differ due to timing of regulatory approvals related to IPR&D assets, additional intangible assets acquired, impairment of intangible assets, and other events.

FAIR VALUE DISCLOSURES

3 unchanged sentences

The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of our funds.

The fair value of short-term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current

The fair value of short-term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current liabilities) approximate their carrying values because of their short-term nature.

The Term Facility bears an interest rate that fluctuates with the changes in LIBOR and, because the variable interest rates approximate market borrowing rates available to us, we believe the carrying values of these borrowings approximated their fair values at December 31, 2021 and 2020.

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

liabilities) approximate their carrying values because of their short-term nature.

The Term Loan, DDTL, and Revolver bear an interest rate that fluctuates with the changes in LIBOR and, because the variable interest rates approximate market borrowing rates available to us, we believe the carrying values of these borrowings approximated their fair values at December 31, 2020 and 2019.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Contingent Value Rights

Our contingent value rights (“CVRs”), which were granted coincident with our merger with BioSante Pharmaceuticals, Inc.

6 unchanged sentences

We also determined that the changes in such fair value were immaterial for the years ended December 31, 2021, 2020 and 2019.

In April 2020, we terminated two interest rate swaps used to manage interest rate exposure on underlying interest payments for our Term Loan and DDTL and entered into one new interest rate swap agreement to manage our total exposure under these borrowings (Note 4).

Interest Rate Swap

The fair value of our interest rate swap is estimated based on the present value of projected future cash flows using the LIBOR forward rate curve.

1 unchanged sentence

As described in detail in Note 4, the fair value of the interest rate swap was a $ 6.8 million liability at December 31, 2021.

Contingent Consideration

In connection with the acquisition of Novitium, we may pay up to $ 46.5 million in additional consideration related to the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future.

The discounted cash flow method used to value this contingent consideration includes inputs of not readily observable market data, which are Level 3 inputs.

As of the November 19, 2021 acquisition date, the contingent consideration had a fair value of $ 30.5 million.

The fair value of the contingent consideration was $ 31.0 million as of December 31, 2021 and is reflected as a non-current accrued contingent consideration liability in the consolidated balance sheet.

The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:

Valuation Technique

Unobservable Input

Profit-based milestone payments

Probability-weighted discounted cash flow

Discount rate

Projected fiscal year of payment

Product development-based milestone payments

Probability-weighted discounted cash flow

Discount rate

Probability of payment

Projected fiscal year of payment

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

The following table presents our financial assets and liabilities accounted for at fair value on a recurring basis as of December 31, 2021 and December 31, 2020, by level within the fair value hierarchy:

2 unchanged sentences

December 31, 2021

Contingent consideration

Interest rate swaps

1 unchanged sentence

December 31, 2020

Contingent consideration

Interest rate swaps

Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We have no non-financial assets and liabilities that are measured at fair value on a non-recurring basis.

We have no financial assets and liabilities that are measured at fair value on a non-recurring basis.

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

3 unchanged sentences

These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired.

During the year ended December 31, 2020, we recognized a $ 0.4 million impairment charge related to marketing and distribution right asset (Note 7).

There were no other fair value impairments recognized in the year ended December 31, 2020.

During the year ended December 31, 2019, we

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

recognized a $ 75 thousand impairment charge related to our Ranitidine product right asset (Note 7).

There were no other fair value impairments recognized in the year ended December 31, 2019.

Acquired Non-Financial Assets

In July 2020, we acquired an ANDA and certain related inventories from a private company for total consideration of $ 4.3 million.

During the year ended December 31, 2021, we recognized an impairment charge of $ 2.4 million related to a definite-lived ANDA intangible asset.

During the year ended December 31, 2020, we recognized a $ 0.4 million impairment charge related to marketing and distribution right asset.

There were no other fair value impairments recognized in the years ended December 31, 2021 and 2020.

Acquired Non-Financial Assets Measured at Fair Value

In April 2021, we acquired three NDAs and an ANDA and certain related inventories from Sandoz, Inc.

for total consideration of $ 20.7 million.

We also incurred and paid $ 0.4 million in transaction costs directly related to the acquisition.

The acquisition was funded via borrowings under our Revolver.

We accounted for this transaction as an asset acquisition and capitalized the transaction costs directly related to the acquisition.

We recognized $ 3.0 million as an acquired ANDA intangible asset and $ 1.4 million in inventory at fair value.

We recognized $ 11.4 million as acquired intangible assets and $ 9.7 million of inventory at fair value, including $ 0.6 million of API, $ 1.0 million of sample inventory, and $ 8.1 million in finished goods inventory.

In order to determine the fair value of the intangible assets, we used the present value of the estimated cash flows related to the product rights using a discount rate of 10 % , which are level 3 unobservable inputs.

The fair value of the inventory was determined based on the estimated selling price to be generated from the finished goods, less costs to sell, including a reasonable margin, which are level 3 unobservable inputs.

The ANDA will be amortized in full over its useful life of seven years and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable.

No such triggering events were identified during the period from the date of acquisition to December 31, 2020 and therefore no impairment loss was recognized for the year ended December 31, 2020.

In May 2020, we entered into an agreement with a private company to purchase an ANDA and API for one currently marketed generic drug product and certain API for $ 0.2 million using cash on hand.

We accounted for this transaction as an asset acquisition.

The API inventory was recognized at fair value.

The intangible assets are being amortized in full over a useful life of seven years and are tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable.

No such triggering events were identified during the period from the date of acquisition to December 31, 2021 and therefore no impairment loss was recognized for the year ended December 31, 2021.

In July 2020, we acquired an ANDA and certain related inventories from a private company for total consideration of $ 4.3 million.

We also incurred and paid $ 0.1 million in transaction costs directly related to the acquisition.

We accounted for this transaction as an asset acquisition and capitalized the transaction costs directly related to the acquisition.

We recognized $ 3.0 million as an acquired ANDA intangible asset and $ 1.4 million in inventory at fair value.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

The ANDA was being amortized in full over its useful life of seven years .

During the fourth quarter 2021, we recognized a full impairment of the remaining $ 2.4 million carrying value of the asset, as it was determined that the asset would not generate future cash flows.

In January 2020, we completed the acquisition of the U.S.

portfolio of 23 generic products and API and finished goods related to certain of those products from Amerigen Pharmaceuticals, Ltd.

("Amerigen") for a purchase consideration of $ 56.8 million and up to $ 25.0 million in contingent payments over the subsequent four years from the acquisition.

(“Amerigen”) for a purchase consideration of $ 56.8 million and up to $ 25.0 million in contingent payments over the subsequent four years from the acquisition.

The product portfolio at the time of the acquisition included ten commercial products, three approved products with launches pending, four filed products and four in-development products as well as a license to commercialize two approved products.

10 unchanged sentences

The intangible assets will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable.

No such triggering events were identified during the period from the date of acquisition to December 31, 2020 and therefore no impairment loss was recognized for the year ended December 31, 2020.

In June 2019, we acquired from Coeptis Pharmaceuticals, Inc.

seven development stage generic products, as well as API and reference-listed drug inventory related to certain of the products for a payment of $ 2.3 million.

The entire payment, and $ 24 thousand of transaction costs directly related to the acquisition, was recorded as research and development expense because the potential generic products have significant remaining work required in order to commercialize the products and do not have an alternative future use.

In addition, we could make up to $ 12.0 million in payments for certain development and commercial milestones.

These milestones were determined to be contingent liabilities and will be accrued when they are both estimable and probable.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

In April 2019, we entered into an agreement with PII and BAS, under which a previously-commercialized product will be developed and marketed.

Per the agreement, we paid PII a series of licensing fees in conjunction with the achievement of certain development and commercial milestones.

In the fourth quarter of 2019, the product was launched, triggering a $ 0.5 million payment due to PII.

The payment due as of December 31, 2019 was capitalized as an intangible asset and was being amortized over its 10-year useful life.

During the fourth quarter of 2020, we recognized a full impairment of the remaining $ 0.4 million carrying value of the asset, as it was determined that the asset would not generate future cash flows.

In March 2019, we entered into an agreement with Teva Pharmaceutical Industries Ltd.

to purchase a basket of ANDAs for 35 previously-marketed generic drug products for $ 2.5 million in cash (Note 7).

We accounted for this transaction as an asset purchase.

The $ 2.5 million of ANDAs were recorded at their relative fair value, determined using Level 3 unobservable inputs.

In order to determine the fair value of the product rights intangible assets, we used the present value of the estimated cash flows related to the product rights, using a discount rate of 15 %.

The ANDAs are being amortized in full over their 10-year useful lives and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable.

No such triggering events were identified during the period from the date of acquisition to December 31, 2020 and therefore no impairment loss was recognized for the years ended 2019 and 2020.

In January 2019, we entered into an amendment to asset purchase agreements (the “Asset Purchase Agreement Amendment”) with Teva Pharmaceuticals USA, Inc.

(“Teva”) related to three purchases of baskets of ANDAs.

This transaction was unrelated to the March 2019 transaction with Teva discussed herein.

Under the terms of the Asset Purchase Agreement Amendment, all royalty obligations of the Company owed to Teva with respect to products associated with ten ANDAs under the original asset purchase agreements ceased being effective as of December 31, 2018.

As consideration for the termination of such future royalty obligations, we paid Teva a sum of $ 16.0 million in cash (Note 7).

Upon payment of $ 16.0 million, the purchase price of each basket of ANDAs was increased to reflect the subsequent payment as if that payment had been made on the initial acquisition date.

As a result, in addition to increasing the carrying value of the acquired ANDA intangible assets by $ 9.2 million, we recognized cumulative amortization expense of $ 6.8 million.

The payment was allocated to the three ANDA baskets based on the relative fair value of the ANDA baskets, which were determined using Level 3 unobservable inputs.

In order to determine the fair value of the acquired ANDA intangible assets, we used the present value of the estimated cash flows related to the ANDAs, using a discount rate of 12 %.

The additional carrying value is being amortized over the remaining useful lives of the three ANDA baskets and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable.

No such triggering events were identified during the period from the date of acquisition to December 31, 2020 and therefore no impairment loss was recognized for the years ended 2019 and 2020.

In April 2018, we entered into an agreement with Impax Laboratories, Inc.

(now Amneal) to purchase the approved ANDAs for three previously-commercialized generic drug products, the approved ANDAs for two generic drug products that had not yet been commercialized at the time of the acquisition, the development package for one generic drug product, a license, supply, and distribution agreement for a generic drug product with an ANDA that was pending approval, and certain manufacturing equipment required to manufacture one of the products, for $ 2.3 million in cash.

At the same time, we entered into a supply agreement with Amneal under which we may elect to purchase the finished goods for one of the products for up to 17 months beginning October 1, 2019, under certain conditions.

If we elected to purchase the finished goods from Amneal for this period, we could have been required to pay a milestone payment of up to $ 10.0 million upon launch, depending on the number of competitors selling the product at the time of launch.

The payment was not triggered.

As a result, no payment was made, and this contingent liability has been resolved.

The launch of one of the acquired products had the potential to trigger a milestone payment of $ 25.0 million to Teva, depending on the number of competitors selling the product at the time of launch.

We launched this product in 2019 and the payment was not triggered.

As a result, no payment was made, and this contingent liability has been resolved.

Additionally, depending on the number of competitors selling the product one year after the launch date, we could have been required to pay a second milestone of $ 15.0 million to Teva.

The one-year anniversary of the launch occurred during the year ended December 31, 2020 and the payment was not triggered.

As a result, no payment was made, and this contingent liability has been resolved.

We made the $ 2.3 million cash payment using cash on hand and capitalized $ 0.1 million of costs directly related to the asset purchase.

We accounted for this transaction as an asset purchase.

The $ 1.0 million acquired ANDA intangible assets were

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

recorded at their relative fair value, determined using Level 3 unobservable inputs.

In order to determine the fair value of the acquired ANDA intangible assets, we used the present value of the estimated cash flows related to the approved ANDAs, using discount rates of 10 % to 15 %.

The acquired ANDAs are being amortized in full over their 10 year useful lives and will be tested for impairment when events or circumstances indicate that the carrying value of the assets may not be recoverable.

The $ 58 thousand of manufacturing equipment used to manufacture one of the products was recorded at its relative fair value, based on the estimated net book value of the equipment purchased.

The equipment is being amortized in full over its five year useful life and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable.

No such triggering events were identified during the period from the date of acquisition to December 31, 2020 and therefore no impairment loss was recognized for the year ended December 31, 2020.

The $ 1.3 million of in-process research and development related to products with significant further work required in order to commercialize the products, and for which there is no alternative future use.

The in-process research and development was recorded at its relative fair value, determined using Level 3 unobservable inputs.

In order to determine the fair value of the in-process research and development, we used the present value of the estimated cash flows related to the products, using a discount rate of 75 %, reflective of the higher risk associated with these products.

As the transaction was accounted for as an asset purchase, the $ 1.3 million of in-process research and development was immediately recognized as research and development expense.

No such triggering events were identified during the period from the date of acquisition to December 31, 2021 and therefore no impairment loss was recognized for the years ended December 31, 2020 and 2021.

MEZZANINE AND STOCKHOLDERS’ EQUITY

Stockholders’ Equity

1 unchanged sentence

We are authorized to issue up to 33.3 million shares of common stock with a par value of $ 0.0001 per share, 0.8 million shares of class C special stock with a par value of $ 0.0001 per share, and 1.7 million shares of undesignated preferred stock with a par value of $ 0.0001 per share at December 31, 2021.

There were 12.4 million and 12.3 million shares of common stock issued and outstanding as of December 31, 2020, respectively, and 12.1 million shares of common stock issued and outstanding as of December 31, 2019.

There were 16.9 million shares of common stock issued and outstanding as of December 31, 2021, and 12.4 million and 12.3 million shares of common stock issued and outstanding as of December 31, 2020, respectively.

During 2021, we issued 1.5 million shares related to a public offering of our common stock and 2.5 million shares as consideration for our acquisition of Novitium.

There were 11 thousand shares of class C special stock issued and outstanding as of December 31, 2021 and 2020.

3 unchanged sentences

The holders of class C special stock have no cumulative voting, preemptive, subscription, redemption, or sinking fund rights.

There were no shares of undesignated preferred stock outstanding as of December 31, 2020 and 2019.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

Mezzanine Equity

Concurrently with the execution of the Agreement and Plan of Merger, and as financing for a portion of the acquisition, on March 8, 2021, we entered into an Equity Commitment and Investment Agreement with Ampersand (the “PIPE Investor”), pursuant to which we agreed to issue and sell to the PIPE Investor, and the PIPE Investor agreed to purchase, 25,000 shares of our Series A Convertible Preferred Stock (the “PIPE Shares”), for a purchase price of $ 1,000 per share and an aggregate purchase price of $ 25.0 million PIPE Investment.

This agreement closed and the 25,000 PIPE Shares were sold and issued for $ 25.0 million on November 19, 2021.

The PIPE Shares are classified as mezzanine equity because the shares are mandatorily redeemable for cash upon a change in control, an event that is not solely in our control.

We incurred $ 0.2 million in issuance costs associated with the transaction.

The PIPE Shares accrue dividends at 6.50 % per year on a cumulative basis, payable in cash or in-kind, and will also participate, on a pro-rata basis, in any dividends that may be declared with respect to our common stock.

The PIPE Shares are convertible into our common shares at the conversion price of $ 41.47 (i) beginning two years after their issuance date, at the election of ANI (in which case the PIPE Investor must convert all of the PIPE Shares), if the volume-weighted average price of our common stock for any 20 trading days out of 30 consecutive trading days exceeds 170 % of the conversion price, and (ii) at any time after issuance, at the election of the PIPE Investor.

As of December 31, 2021, the PIPE shares are currently convertible into a maximum of 602,901 shares of our common stock.

In case of a liquidation event, the holder of the PIPE Shares will be entitled to receive, in preference to holders of our common stock, the greater of (i) the PIPE Shares’ purchase price plus any accrued and unpaid dividends thereon and (ii) the amount the holder of the PIPE Shares would have received in the liquidation event if it had converted its PIPE Shares into our common stock.

The PIPE Shares will have voting rights, voting as one series with our common stock, on as-converted basis, and will have separate voting rights on any (i) amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate”) that adversely amends and relates solely to the terms of the PIPE Shares and (ii) issuance of additional series A convertible preferred stock.

In case of a change of control of ANI, the PIPE Shares will be redeemed at the greater of (i) the PIPE Shares’ purchase price plus any accrued and unpaid dividends thereon and (ii) the change of control transaction consideration that the holder of the PIPE Shares would have received if it had converted into our common stock.

There were no shares of Series A convertible preferred stock outstanding as of December 31, 2020.

STOCK-BASED COMPENSATION

4 unchanged sentences

Under the ESPP, participants can purchase shares of our stock at a 15 % discount.

We issued 13 thousand, six thousand, and five thousand shares in the years ended December 31, 2020, 2019, and 2018, respectively.

We issued 14 thousand, 13 thousand, and six thousand shares in the years ended December 31, 2021, 2020, and 2019, respectively.

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

The following table summarizes ESPP expense incurred under the 2016 Employee Stock Purchase Plan and included in our accompanying consolidated statements of operations:

The following table summarizes ESPP expense incurred under the 2016 Employee Stock Purchase Plan and included in our consolidated statements of operations:

(in thousands)

4 unchanged sentences

Stock Incentive Plan

All equity-based service awards are granted under the ANI Pharmaceuticals, Inc.

Equity-based service awards are granted under the ANI Pharmaceuticals, Inc.

Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”).

As of December 31, 2021, 0.5 million shares of our common stock remained available for issuance under the 2008 Plan.

On September 8, 2020, we granted 179,643 stock options to our President and Chief Executive Officer, through an inducement grant outside of our 2008 Plan to induce him to accept employment with us (the “Inducement Grant”).

The options were granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant date and will be exercisable in four equal annual installments beginning on the first anniversary of the respective grant date.

The grant was made pursuant to inducement grants outside of our shareholder approved equity plan as permitted under the Nasdaq Stock Market listing rules.

From time to time, we may grant stock options to employees through an inducement grant outside of our 2008 Plan to induce prospective employees to accept employment with us (the “Inducement Grants”).

The options are granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant date and are generally exercisable in four equal annual installments beginning on the first anniversary of the respective grant date.

The grants are made pursuant to inducement grants outside of our stockholder approved equity plan as permitted under the Nasdaq Stock Market listing rules.

We measure the cost of equity-based service awards based on the grant-date fair value of the award.

32 unchanged sentences

We calculated an estimated volatility rate based on our historical stock price.

We have not issued a cash dividend in the past nor do we have any current plans to do so in the future;

We have not issued a cash dividend on our common shares in the past nor do we have any current plans to do so in the future;

therefore, an expected dividend yield of zero was used.

A summary of stock option activity under the 2008 Plan and Inducement Grant during the years ended December 31, 2020, 2019, and 2018 is presented below:

A summary of stock option activity under the 2008 Plan and Inducement Grants during the years ended December 31, 2021, 2020, and 2019 is presented below:

(in thousands, except per share and

9 unchanged sentences

The cost is expected to be recognized over a weighted-average period of 2.6 years.

During the year ended December 31, 2021, we received $ 1.7 million in cash from the exercise of stock options and recorded a $ 0.1 million tax provision related to these exercises.

During the year ended December 31, 2020, we received $ 0.3 million in cash from the exercise of stock options and recorded a $ 43 thousand tax provision related to these exercises.

During the year ended December 31, 2019, we received $ 5.5 million in cash from the exercise of stock options and recorded a $ 0.7 million tax benefit related to these exercises.

During the year ended December 31, 2018, we received $ 2.8 million in cash from the exercise of stock options and recorded a $ 0.6 million tax benefit related to these exercises.

ANI Pharmaceuticals, Inc.

19 unchanged sentences

As of December 31, 2021, there was $ 19.8 million of total unrecognized compensation cost related to non-vested RSAs granted under the Plan, which is expected to be recognized over a weighted-average period of 2.8 years.

On January 17, 2020, we entered into employment agreements with our Named Executive Officers (“NEOs”) at that time.

As part of the employment agreements, the NEOs’ Non-Statutory Stock Option, Incentive Option and Restricted Stock Grant agreements (“NEO Stock Agreements”) were modified to provide for accelerated vesting of unvested non-statutory stock options and restricted stock awards in the event of a termination for any reason other than "cause"

as defined in the employment agreements or by the NEOs for “good reason” as defined in the employment agreements.

Additionally, any vested incentive or non-statutory stock options and unvested non-statutory stock options subject to acceleration and held unexercised by the NEOs at the time of such termination at the time will retain their contractual term, which is generally 10 years from grant date.

At this time, we did not recognize any incremental stock-based compensation expense associated with these modifications, as no assumptions regarding the assumed probability of these awards' future vests were changed on this modification date.

In May 2020, our former President and Chief Executive Officer departed the Company.

The departure constituted a Termination Without Good Cause as defined in his employment agreement, and he received separation payments and benefits under his employment agreement in respect of a termination without good cause, including those related to his non-statutory stock options and restricted stock awards as discussed above.

This action was accounted for as a modification of the underlying awards and the full expense related to the modified awards was recognized in the second quarter 2020.

As part of the benefits, 48,448 previously unvested restricted stock awards and 63,305 previously unvested non-statutory stock options vested upon the termination.

Additionally, these 63,305 previously unvested non-statutory stock options that vested upon termination and 101,376 previously

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

vested and unexercised non-statutory stock options retained their original contractual term.

Upon the Termination Without Good Cause, we recognized $ 3.4 million of stock-based compensation expense associated with this termination and modification of awards.

On August 6, 2018, ANI Canada acquired all the issued and outstanding equity interests of WellSpring in a non-taxable transaction (Note 2).

On August 6, 2018, ANI Pharmaceuticals Canada Inc.

(“ANI Canada”) acquired all the issued and outstanding equity interests of WellSpring in a non-taxable transaction.

Following the consummation of the transaction, WellSpring was merged into ANI Canada.

1 unchanged sentence

rather, ANI Canada is subject to income taxes only in Canada and solely based on its stand-alone operations.

The foreign current and foreign deferred provisions (benefits) below represent ANI Canada’s tax provision (benefit) from the Canadian taxing jurisdictions.

The foreign current and foreign deferred provisions (benefits) below represent our tax provision (benefit) from the Canadian, Indian, and Israeli taxing jurisdictions.

We are required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

1 unchanged sentence

We consider the projected future taxable income and tax planning strategies in making this assessment.

As part of purchase accounting, the Company established net deferred tax assets relating to differences in the book bases (determined based on fair value purchase accounting) and tax bases (determined based on the carryover nature of the nontaxable transaction) of ANI Canada’s assets and liabilities of approximately $ 1.9 million, offset by a full valuation allowance due to our determination that it was more likely than not that all of the deferred tax assets would not be realized.

As part of purchase accounting in 2018, we established net deferred tax assets relating to differences in the book bases (determined based on fair value purchase accounting) and tax bases (determined based on the carryover nature of the nontaxable transaction) of ANI Canada’s assets and liabilities of approximately $ 1.9 million, offset by a full valuation allowance due to our determination that it was more likely than not that all of the deferred tax assets would

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

not be realized.

During 2019, we adopted an intercompany transfer pricing policy that uses the “comparable profits method” for pricing intercompany services between ANI Pharmaceuticals, Inc.

7 unchanged sentences

Current income tax provision:

Deferred income tax (benefit)/provision:

Deferred income tax benefit

Change in valuation allowance

Total (benefit)/provision for income taxes

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

Total benefit for income taxes

The difference between our expected income tax provision from applying U.S.

11 unchanged sentences

Effective income tax rate

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

Deferred income taxes reflect the net tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes.

16 unchanged sentences

federal net operating loss carryforwards of approximately $ 17.7 million, all of which arose as a result of the 2013 merger with BioSante Pharmaceuticals, Inc.

and, if not used, expire in annual increments through 2033.

The utilization of the net operating loss carryforwards are limited in future years as prescribed by Section 382 of the U.S.

and from our taxable loss in 2021.

Our net operating loss carryforwards related to our 2013 merger, if not used, expire in annual increments through 2033 and are limited on an annual basis as prescribed by Section 382 of the U.S.

Internal Revenue Code;

our current annual limitation of the federal net operating loss is approximately $ 0.8 million per year.

our current annual limitation is approximately $ 0.8 million per year.

Our net operating losses that arose in 2021 do not expire and are not limited by Section 382.

Additionally, as of December 31, 2021 we have total net operating losses in Canada of $ 4.7 million that begin expiring in 2038.

We are subject to income taxes in numerous jurisdictions in the U.S.

and in Canada.

We are subject to income taxes in numerous jurisdictions in the U.S., Canada, and India.

Significant judgment is required in evaluating our tax positions and determining our provision for income taxes.

4 unchanged sentences

We identified no material uncertain income tax positions as of December 31, 2021 and 2020.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

We are subject to income tax audits in all jurisdictions for which we file tax returns.

7 unchanged sentences

Discount rates used in the calculation of our lease liability ranged between 3.99 % and 8.95 %.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

Rent expense for the years ended December 31, 2021 and 2020 consisted of the following:

12 unchanged sentences

Vendor Purchase Minimums

We have supply agreements with four vendors that include purchase minimums.

Pursuant to these agreements, we will be required to purchase a total of $ 2.8 million of API from these four vendors during the year ended December 31, 2021.

We have supply agreements with three vendors that include purchase minimums.

Pursuant to these agreements, we will be required to purchase a total of $ 12.6 million of API from these three vendors during the year ended December 31, 2022.

Government Regulation

Our products and facilities are subject to regulation by a number of federal and state governmental agencies, such as the Drug Enforcement Administration (“DEA”), the Food and Drug Administration (“FDA”), the Centers for Medicare and Medicaid Services (“CMS”), Health Canada, the Central Drugs Standard Control Organization (“CDSCO”), The Narcotics Control Bureau (“NCB”), and India’s Ministry of Health and Family Welfare (“MoHFW”).

The FDA, in particular, maintains oversight of the formulation, manufacture, distribution, packaging, and labeling of all of our products.

The DEA and Health Canada maintain oversight over our products that are considered controlled substances.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

The DEA, Health Canada, and NCB maintain oversight over our products that are considered controlled substances.

Unapproved Products

1 unchanged sentence

During the years ended December 31, 2021, 2020, and 2019, net revenues for these products totaled $ 16.2 million, $ 16.9 million, and $ 20.7 million, respectively.

Previously, the FDA’s Unapproved Drug Initiative included publication of their policy with respect to the continued marketing of unapproved products in the September 2011 Compliance Policy Guide Sec.

440.100 titled “Marketed New Drugs without Approved NDAs or ANDAs.” Under this policy, the FDA had stated that it would follow a risk-based approach with regard to enforcement against marketing of unapproved products.

The guideline allowed the FDA to evaluate whether to initiate enforcement action on a case-by-case basis, while giving higher priority to enforcement action against products in certain categories, such as those with potential safety risks or that lack evidence of effectiveness.

In November 2020 (effective December 2020), the Department of Health and Human Services (“HHS”) published a notice in the Federal Register to terminate the FDA’s Unapproved Drug Initiative, which would include the withdrawal of this September 2011 Compliance Policy Guide.

Neither the HHS nor the FDA has provided any additional guidance, notice or statement regarding how they intend to approach enforcement against marketing of unapproved products.

The FDA's policy with respect to the continued marketing of unapproved products appears in the FDA's September 2011 Compliance Policy Guide Sec.

440.100 titled “Marketed New Drugs without Approved NDAs or ANDAs.” Under this policy, the FDA has stated that it will follow a risk-based approach with regard to enforcement against marketing of unapproved products.

The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher priority to enforcement action against products in certain categories, such as those with potential safety risks or that lack evidence of effectiveness.

We continue to believe that, so long as we comply with applicable manufacturing standards, the FDA will continue to operate on a risk-based approach and will not take action against us.

However, we can offer no assurance that the FDA will continue to follow this approach or that it will not take a contrary position with any individual product or group of products.

However, we can offer no assurance

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

that the FDA will continue to follow this approach or that it will not take a contrary position with any individual product or group of products.

If the FDA were to move away from the risk-based approach to enforcement against marketing of unapproved products, we may be required to seek FDA approval for these products or withdraw such products from the market.

12 unchanged sentences

We record accruals for loss contingencies to the extent we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

associated with the resolution of such proceedings is not expected to be material to our results, and therefore remain undisclosed.

From time to time, we are also involved in other pending proceedings for which, in our opinion based upon facts and circumstances known at the time, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to our results, and therefore remain undisclosed.

If and when any reasonably possible losses associated with the resolution of such other pending proceedings, in our opinion, become material, we will disclose such matters.

1 unchanged sentence

The prevalence of these claims could limit our coverage under future insurance policies or cause those policies to become more expensive, which could harm our business, financial condition, and operating results.

Recent trends in the product liability and director and officer insurance markets is to exclude matters related to certain classes of drugs, such as opioids.

Recent trends in the product liability and director and officer insurance markets is to exclude matters related to certain classes of drugs.

Our policies have been subject to such exclusions which place further potential risk of financial loss on us.

1 unchanged sentence

Commercial Litigation

In November of 2017, we were served with a complaint filed by Arbor Pharmaceuticals, LLC, in the United States District Court, District of Minnesota.

The complaint alleges false advertising and unfair competition in violation of Section 43(a) of the Lanham Act, Section 1125(a) of Title 15 of the United States Code, and Minnesota State law, under the premise that we sold an unapproved Erythromycin Ethylsuccinate (“EES”) product during the period between September 27, 2016 and November 2, 2018.

The complaint seeks a trial by jury and monetary damages (inclusive of actual and consequential damages, treble damages, disgorgement of ANI profit, and legal fees) of an unspecified amount.

Discovery in this action closed on March 31, 2019.

Trial is currently expected to be in August 2021.

In light of the significant disagreement over the facts and legal theories in this case which will be determined at trial, we are unable to predict or reasonably estimate the potential loss or effect on our operations at this time.

We have not established any reserves related to this action and it is not covered by insurance.

We believe the action is without merit and continue to defend this lawsuit vigorously.

Any adverse outcome in this case could have a material adverse impact on our financial condition, results of operations or cash flows.

In November of 2017, we were served with a complaint filed by Arbor Pharmaceuticals, LLC, in the United States District Court for the District of Minnesota.

The complaint alleged false advertising and unfair competition in violation of Section 43(a) of the Lanham Act, Section 1125(a) of Title 15 of the United States Code, and Minnesota State law, under the premise that we sold an unapproved Erythromycin Ethylsuccinate (“EES”) product during the period between September 27, 2016 and November 2, 2018.

The complaint sought a trial by jury and monetary

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

damages (inclusive of actual and consequential damages, treble damages, disgorgement of ANI profits, and legal fees) of an unspecified amount.

Discovery in this action closed on March 31, 2019 and trial was scheduled to commence on August 25, 2021.

On August 3, 2021, the Company entered into a Settlement Agreement with Arbor Pharmaceuticals, LLC to resolve all claims related to Civil Action 17-4910, Arbor Pharmaceuticals, LLC (“Arbor”) v.

ANI Pharmaceuticals, Inc., which was pending trial in the United States District Court for the District of Minnesota.

Under the terms of the agreement, ANI paid Arbor $ 8.4 million and Arbor dismissed the action with prejudice.

Neither party admitted wrongdoing in reaching this settlement.

The Company paid the settlement from cash on the balance sheet.

On December 3, 2020, class action complaints were filed against the Company on behalf of putative classes of direct and indirect purchasers of the drug Bystolic.

On December 23, 2020, six individual purchasers of Bystolic:

CVS, Rite Aid, Walgreen, Kroger, Albertsons, and H-E-B, filed substantively identical complaints against the Company.

The plaintiffs in these actions allege that Forest Laboratories, the manufacturer of Bystolic, entered into anticompetitive agreements when settling patent litigation related to Bystolic with seven potential manufacturers of a generic version of Bystolic:

On December 23, 2020, six individual purchasers of Bystolic, CVS, Rite Aid, Walgreen, Kroger, Albertsons, and H-E-B, filed complaints against the Company.

On March 15, 2021, the plaintiffs in these actions filed amended complaints.

All amended complaints are substantively identical.

The plaintiffs in these actions allege that, beginning in 2012, Forest Laboratories, the manufacturer of Bystolic, entered into anticompetitive agreements when settling patent litigation related to Bystolic with seven potential manufacturers of a generic version of Bystolic:

Hetero, Torrent, Alkem/Indchemie, Glenmark, Amerigen, Watson, and various of their corporate parents, successors, subsidiaries, and affiliates.

ANI itself has not been a party to patent litigation with Forest concerning Bystolic and did not settle patent litigation with Forest.

ANI itself was not a party to patent litigation with Forest concerning Bystolic and did not settle patent litigation with Forest.

The plaintiffs named the Company as a defendant based on the Company’s January 8, 2020 Asset Purchase Agreement with Amerigen.

The complaints allege that the 2013 patent litigation settlement agreement between Forest and Amerigen violates federal and state antitrust laws and state consumer protection laws by delaying the market entry of generic versions of Bystolic.

Plaintiffs allege they paid higher prices as a result of delayed generic competition.

Plaintiffs seek treble damages, injunctive relief, and attorneys’ fees.

The complaints do not specify the amount of damages sought from the Company or other defendants and the Company at this early stage of the litigation cannot reasonably estimate the potential damages that the plaintiffs will seek.

The cases have been consolidated in the United States District Court for the Southern District of New York.

The Company has filed a motion to dismiss the complaints that is pending before the Court and disputes any liability.

Industry Related Litigation

In July 2020, we were served with a complaint brought by the Office of the Attorney General of the State of New Mexico against manufacturers and sellers of ranitidine products.

The complaint asserts a public nuisance claim and a negligence claim against the generic ranitidine manufacturer defendants, including the Company.

The public nuisance claim asserts that the widespread sale of ranitidine products in the state created a public nuisance that requires a state-wide medical monitoring program of New Mexico residents for the development of colorectal cancer, stomach cancer, gastrointestinal disorders and liver disease.

As damages, New Mexico asks that the

The complaints alleged that the 2013 patent litigation settlement agreement between Forest and Amerigen violated federal and state antitrust laws and state consumer protection laws by delaying the market entry of generic versions of Bystolic.

Plaintiffs alleged they paid higher prices as a result of delayed generic competition.

Plaintiffs sought damages, trebled or otherwise multiplied under applicable law, injunctive relief, litigation costs and attorneys’ fees.

The complaints did not specify the amount of damages sought from the Company or other defendants and the Company at this early stage of the litigation cannot reasonably estimate the potential damages that the plaintiffs will seek.

The cases have been consolidated in the United States District Court for the Southern District of New York as In re Bystolic Antitrust Litigation, Case No.

20-cv-005735 (LJL).

On April 23, 2021, the Company and other defendants filed motions to dismiss the amended complaints.

On January 24, 2022, the court dismissed all claims brought by the plaintiffs without prejudice.

The court granted the plaintiffs until February 22, 2022 to file amended complaints, which were filed on that date.

The newly amended complaints contain substantially similar claims.

The Company disputes any liability in these matters.

On March 24, 2021, Azurity Pharmaceuticals, Inc.

(“Azurity”) filed a complaint in the United States District Court for the District of Minnesota against ANI Pharmaceuticals, Inc., asserting that ANI’s vancomycin hydrochloride oral solution drug product infringes U.S.

The complaint sought injunctive relief, damages, including lost profits and/or royalty, treble damages, and attorneys’ fee and costs.

On February 15, 2022, the Company entered into a settlement agreement with Azurity to resolve all claims related to this action.

Under the terms of the agreement, Azurity granted ANI a non-exclusive, non-transferable, non-sublicensable, royalty-bearing license under its Patents to sell ANI product in the United States and dismissed the action with prejudice.

In exchange, we paid Azurity $ 1.9 million of royalties from past sales and we will pay Azurity a royalty equal to 20 % of gross margin of sales of the ANI product for a contractually defined term.

We paid the settlement from cash on hand and the $ 1.9 million charge was recorded as cost of sales (excluding depreciation and amortization) on the consolidated statement of operations for the year ended December 31, 2021.

On April 1, 2021, United Therapeutics Corp.

and Supernus Pharmaceuticals, Inc.

(“UTC/Supernus”) filed a complaint in the United States District Court for the District of Delaware against ANI Pharmaceuticals, Inc., asserting that ANI's proposed Treprostinil extended release drug product, which is subject to ANI’s Abbreviated New Drug Application No.

215667, infringes U.S.

7,417,070, 7,544,713, 8,252,839, 8,349,892, 8,410,169, 8,747,897, 9,050,311, 9,278,901, 9,393,203, 9,422,223, 9,593,066 and 9,604,901 (“the Asserted Patents”).

The complaint seeks injunctive relief , attorneys' fee and costs.

ANI filed its answer and counterclaims on May 28, 2021, denying UTC/Supernus’ allegations and seeking declaratory judgment that ANI has not infringed any valid and enforceable claim of the Asserted Patents, that the Asserted Patents are invalid, and an award of attorneys’ fees and costs.

Trial is set for May 8, 2023.

ANI Pharmaceuticals, Inc.

2 unchanged sentences

For the years ended December 31, 2021, 2020, and 2019

defendants fund this medical monitoring program.

Industry Related Litigation

In July 2020, ANI and Novitium were served with a complaint brought by the Office of the Attorney General of the State of New Mexico against manufacturers and sellers of ranitidine products.

The complaint asserts a public nuisance claim and a negligence claim against the generic ranitidine manufacturer defendants, including ANI and Novitium.

As damages, New Mexico asks that the defendants fund this medical monitoring program.

The negligence claims assert that the defendants were negligent in selling the product, essentially alleging that it was unreasonable to have the product on the market.

With respect to that claim, New Mexico asserts that it paid for ranitidine products through state-funded insurance and health-care programs.

The case was removed to federal court and transferred to the In re Zantac multidistrict litigation (“MDL”) on December 15, 2020.

New Mexico has moved for remand to state court.

On December 15, 2020, the case was removed to federal court and transferred to the In re Zantac multidistrict litigation (“MDL”) pending in the United States District Court for the Southern District of Florida.

New Mexico moved for remand to state court.

The MDL court granted the remand motion on February 25, 2021.

In December 2020, the City of Baltimore served ANI with a complaint against manufacturers and sellers of ranitidine products.

On April 16, 2021, New Mexico filed an amended complaint in the New Mexico First Judicial District Court in Santa Fe County.

It did not name ANI in the amended complaint, effectively voluntarily dismissing ANI from the action.

Novitium is named as a Defendant in the amended complaint.

According to Novitium’s records, Novitium sold approximately 42 bottles of ranitidine indirectly into New Mexico, and received no funds from any state funded health care plan or Medicaid.

The Defendants filed a motion to dismiss the claims asserted in the New Mexico litigation based primarily on preemption.

The motion was denied in August 2021.

In December 2020, the City of Baltimore served ANI and Novitium with a complaint against manufacturers and sellers of ranitidine products.

The City of Baltimore complaint tracks the allegations of the New Mexico complaint.

The Baltimore action was removed to federal court and transferred to the In re Zantac MDL on February 1, 2021.

We dispute any liability in these matters and intend to vigorously defend ourselves in the litigation.

The City of Baltimore moved for remand, which was granted on April 1, 2021.

The parties stipulated to allow the City of Baltimore to file an amended complaint in the Circuit Court of Maryland for Baltimore City in “due course,” without a specific filing deadline.

On June 23, 2021, the City of Baltimore filed an amended complaint.

The City of Baltimore did not name ANI in its amended complaint, effectively voluntarily dismissing ANI from the action.

Novitium was named as a defendant in the amended complaint.

Defendants in the Baltimore action filed a motion to dismiss on based primarily on preemption to which Novitium joined.

The motion was granted as to all generic manufacturer defendants on January 28, 2022, and all claims against Novitium were dismissed with prejudice.

The deadline for the City to file an appeal was February 28, 2022.

ANI and Novitium dispute any liability in these matters.

Product Liability Related Litigation

3 unchanged sentences

In March 2019, we were served with a lawsuit in the Superior Court of California, County of Riverside, adding us as a defendant in a complaint filed in July 2017 that is alleged not to have been part of the original settled legacy claims.

This new claim, as well as the impact of the prior settlements on this claim, is currently being evaluated by the Company, its insurers, and its legal counsel.

In June 2020, we were served with a personal injury complaint in the case of Koepsel v.

Boehringer Ingelheim Pharmaceuticals, et al., MDL No.

This new claim was dismissed with prejudice in July 2021 and the matter is now closed.

In June 2020, ANI was served with a personal injury complaint in the case of Koepsel v.

Boehringer Ingelheim Pharmaceuticals, et al.

20-MD-2924, Case No.

9:20-cv-80882-RLR, filed in the Southern District of Florida, in which the plaintiff alleges that he developed kidney cancer in 2018 as a result of taking over the counter medication containing ranitidine.

9:20-cv-80882-RLR, filed in the United States District Court for Southern District of Florida, in which the plaintiff alleges that he developed kidney cancer in 2018 as a result of taking over the counter medication containing ranitidine.

The Koepsel action was filed within an existing multidistrict litigation concerning ranitidine-containing drugs pending in the Southern District of Florida before Judge Robin L.

Rosenberg, In re Zantac MDL , 20 MDL 2924.

A Master Personal Injury Complaint (“MPIC”) in that MDL that was filed on June 22, 2020 also named the Company as a defendant.

The Company was dismissed from the Koepsel case on August 21, 2020 and was dismissed from the MPIC on September 8, 2020.

On December 31, 2020, after ANI was dismissed, the district court dismissed the MPIC claims against generic manufacturer defendants partially with prejudice and partially with leave to replead.

A Master Personal Injury Complaint (“MPIC”) in that MDL that was filed on June 22, 2020 also named ANI and Novitium as defendants.

ANI was dismissed from the Koepsel case on August 21, 2020 and was dismissed from the MPIC on September 8, 2020.

On December 31, 2020,

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

after ANI was dismissed, the district court dismissed the MPIC claims against generic manufacturer defendants partially with prejudice and partially with leave to replead.

The failure to warn and design defect claims were dismissed with prejudice on preemption grounds.

An Amended Master Personal Injury Complaint was filed on February 8, 2021, which does not name ANI.

The Company has been named in other individual personal injury complaints filed in MDL 20 MD 2924 in which plaintiffs allege that they developed cancer after taking prescription and over the counter medication containing ranitidine.

To date, the Company has been served with complaints in five of those additional cases:

Boehringer Ingelheim Pharmaceuticals, et al., MDL No.

An Amended Master Personal Injury Complaint was filed on February 8, 2021, which did not name ANI but did name Novitium.

By opinion dated July 8, 2021, the district court dismissed all claims against the generic manufacturer defendants with prejudice on preemption grounds.

That decision is on appeal to the Eleventh Circuit Court of Appeals.

ANI and Novitium were named in other individual personal injury complaints filed in MDL 20 MD 2924 in which plaintiffs allege that they developed cancer after taking prescription and over the counter medication containing ranitidine.

ANI was served with complaints in five of those additional cases:

Boehringer Ingelheim Pharmaceuticals, et al.

20-MD-2924, Case No.

9:20-cv-81130-RLR (served September 30, 2020), Lineberry v.

Amneal Pharmaceuticals, LLC, et al., MDL No.

Amneal Pharmaceuticals, LLC, et al.

20-MD-2924, Case No.

9:20-cv-81079-RLR (served August 20, 2020), Lovette v.

Amneal Pharmaceuticals, LLC, et al., MDL No.

Amneal Pharmaceuticals, LLC, et al.

20-MD-2924, Case No.

3 unchanged sentences

9-20-cv-82214-RLR (served December 16, 2020) and Bird v.

Boehringer Ingelheim Pharmaceuticals, et al., MDL No.

Boehringer Ingelheim Pharmaceuticals, et al.

20-MD-2924, Case No.

9-20-cv-80837-RLR (served December 30, 2020).

We have informed counsel for the plaintiffs that we did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited two-month period of time, from July 2019 to September 2019.

Our product was voluntarily recalled in January 2020.

We have informed counsel for the plaintiffs that ANI did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited two-month period of time, from July 2019 to September 2019.

ANI’s product was voluntarily recalled in January 2020.

Each of the plaintiffs in the five pending cases alleges a cancer diagnosis prior to the time that ANI sold ranitidine, and we have informally sought dismissal from these cases on that basis.

ANI was voluntarily dismissed from the Cooper , Lineberry and Lovette actions on November 20, 2020.

ANI’s informal dismissal requests are pending for the Hightower and Bird actions.

We dispute any liability in these MDL matters and intend to vigorously defend ourselves in the litigation.

ANI was voluntarily dismissed from the Bird action on March 15, 2021 and from the Hightower action on March 29, 2021.

Novitium has been named in 150 short form complaints filed by claimants in the MDL.

Those complaints were effectively dismissed with prejudice with the MPIC on July 8, 2021.

Counsel for the plaintiffs have been notified that Novitium did not sell an over the counter ranitidine product and sold a generic prescription ranitidine product for a limited period of time, from December 2019 until September 2019.

Novitium’s product was voluntarily recalled in October 2019.

Out of the 150 claimants, approximately 109 claimants either were diagnosed with cancer before Novitium began manufacturing the product, only took over the counter ranitidine, or took ranitidine before Novitium began manufacturing it.

In light of the Court’s dismissal of all claims with prejudice, Novitium has not pursued dismissal of the short form complaints against it at this time.

On February 3, 2022, a complaint was filed in Cook County, Illinois, naming Novitium as a Defendant.

The complaint incorrectly identifies Novitium as a “repackager.” The case is styled Ross v.

Boehringer Ingelheim Pharmaceuticals, Inc., et.

The complaint has not yet been served on Novitium.

The complaint asserts claims of strict liability/failure to warn, strict liability/design defect, negligent failure to warn, negligent product design, general negligence, negligent misrepresentation, breach of express and implied warranties, and unjust enrichment.

At this point, there is no indication that the Plaintiff used a Novitium product.

ANI and Novitium dispute any liability in these MDL matters.

Other Industry Related Matters

On or about September 20, 2017, the Company and certain of its employees were served with search warrants and/or grand jury subpoenas to produce documents and possibly testify relating to a federal investigation of the

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

generic pharmaceutical industry.

1 unchanged sentence

However, no assurance can be given as to the timing or outcome of the investigation.

CORTROPHIN PRE-LAUNCH CHARGES

PURIFIED CORTROPHIN PRE-LAUNCH CHARGES

In January 2016, we acquired the right, title and interest in the NDAs for Cortrophin Gel and Cortrophin-Zinc.

Subsequently, we assembled a Cortrophin re-commercialization team of scientists, executed a long-term supply agreement with a supplier of pig pituitary glands, our primary raw material for corticotrophin API, executed a long-term supply agreement with an API manufacturer, with whom we have advanced the manufacture of corticotropin API via manufacture of commercial-scale batches, and executed a long-term commercial supply agreement with a current good manufacturing practice (“cGMP”) aseptic fill contract manufacturer.

Subsequently, we assembled a Cortrophin Gel re-commercialization team of scientists, executed a long-term supply agreement with a supplier of pig pituitary glands, our primary raw material for corticotrophin API, executed a long-term supply agreement with an API manufacturer, with whom we have advanced the manufacture of corticotropin

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

API via manufacture of commercial-scale batches, and executed a long-term commercial supply agreement with a current good manufacturing practice (“cGMP”) aseptic fill contract manufacturer.

Prior to the third quarter 2019, all purchases of material, including pig pituitary glands and API, related to the re-commercialization efforts were consumed in research and development activities and recognized as research and development expense in the period in which they were incurred.

In the third quarter of 2019, we began purchasing materials that are intended to be used commercially in anticipation of FDA approval of Cortrophin Gel and the resultant product launch.

GAAP, we cannot capitalize these pre-launch purchases of materials as inventory prior to FDA approval, and accordingly, they are charged to expense in the period in which they are incurred.

We expect these pre-launch purchases of material to increase significantly in the future as we build raw materials, API and finished goods for the expected launch of this product.

During the years ended December 31, 2020 and 2019, we incurred related charges for the purchase of materials of $ 11.3 million and $ 6.7 million, respectively.

Due to the inherent uncertainty of the timing of FDA approval for this product, we cannot reasonably predict whether these materials will ultimately be eligible for use in commercial finished goods inventory.

In the future, we also expect to incur other charges directly related to the Cortrophin pre-launch commercialization efforts, including, but not limited to, sales and marketing and consulting expenses, which will vary in frequency and impact on our results of operations.

CEO DEPARTURE

In May 2020, our former President and Chief Executive Officer departed the Company.

The departure constituted a Termination Without Good Cause as defined in his employment agreement, and he receives separation payments and benefits under his employment agreement in respect of a termination without good cause, including cash payments for salary continuation, bonus and fringe benefits for two years , and benefits related to his non-statutory stock options and restricted stock awards.

During the year ended December 31, 2020, we recognized $ 6.5 million of expense associated with his termination, comprised of $ 3.1 million for salary continuation, bonus, and fringe benefits and $ 3.4 million of stock-based compensation expense (Note 10).

The FDA granted approval of the sNDA of this product on October 29, 2021.

Prior to FDA approval, under U.S.

GAAP, we were prohibited from capitalizing these pre-launch purchases of materials as inventory, and accordingly, they were charged to expense in the period in which they were incurred.

Subsequent to approval, these purchases are recorded as inventory at net realizable value.

During the years ended December 31, 2021, 2020, and 2019, we incurred $ 0.8 million, $ 11.3 , million, and $ 6.7 million, respectively, of charges for the purchase of materials that were not capitalizable.

We also incurred other charges directly related to the Cortrophin pre-launch commercialization efforts, including, but not limited to, sales and marketing and consulting expenses.

During the year ended December 31, 2021, we incurred $ 14.0 million of these charges, which are included on the consolidated statements of operations as a selling, general, and administrative expense.

There were no comparable expenses in 2020 and 2019.

RELATED PARTY TRANSACTIONS

On March 8, 2021, we entered into an Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership, pursuant to which we agreed to issue and sell 25,000 shares of our Series A Convertible Preferred Stock for a purchase price of $ 1,000 per share and an aggregate purchase price of $ 25.0 million.

This agreement closed and the shares were sold and issued for $ 25.0 million on November 19, 2021.

Our Chairman of the Board of Directors is an operating partner of Ampersand Capital Partners, an affiliate of Ampersand 2020 Limited Partnership.

In August 2020, we appointed Jeanne Thoma as a director of the Company.

3 unchanged sentences

We made payments totaling approximately $ 352,000 and $ 208,000 in the years ended 2020, and 2019, respectively, to SPI, related to the purchase of ingredients.

In connection with our acquisition of Novitium, we entered into employment agreements with the two executives and founders of Novitium, Muthusamy Shanmugam and Chad Gassert.

Both will serve as executive officers of the Company and Mr.

Shanmugam was also appointed to the board of directors.

Shanmugam holds a minority interest in Scitus Pharma Services (“Scitus”), which provides clinical research services to Novitium, majority interest in SS Pharma LLC (“SS Pharma”), which acquires and supplies API to Novitium, majority interest in Esjay Pharma LLC (“Esjay”), which provides research and development and facilities consulting services, and a minority interest in Nuray Chemical Private Limited (“Nuray”), which manufactures and supplies API to Novitium.

Gassert holds a minority interest in Scitus.

During the period from November 19, 2021 and December 31, 2021, subsequent to our acquisition of Novitium, we paid Esjay an immaterial amount and paid Nuray $ 0.4 million.

As of December 31, 2021, the outstanding balances due to Scitus, SS Pharma, Esjay, and Nuray were $ 0.2 million, $ 0.1 million, $ 22 thousand, and $ 0.9 million, respectively.

SUBSEQUENT EVENT

On March 8, 2021, ANI Pharmaceuticals, Inc.

(“Parent”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Parent, Nile Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“Merger Sub”), Novitium Pharma LLC, a Delaware limited liability company (“Novitium”), Esjay LLC, a Delaware limited liability company (“Esjay”), Chali Properties, LLC, a New Jersey limited liability company (“Chali”), Chad Gassert, Muthusamy Shanmugam, and Thorappadi Vijayaraj (collectively, the “Key Persons”, and Muthusamy Shanmugam and Thorappadi Vijayaraj, together with Esjay and Chali, the “Principal Members”) and Shareholder Representative Services LLC, a Colorado limited liability company, as the representative of the equity holders of Novitium.

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Novitium, with Novitium surviving the merger as a wholly-owned subsidiary of Parent (the “Merger”).

The closing of the Merger (the “Closing”) will occur (a) within five business days after all of the conditions to the Closing set forth in the Merger Agreement are satisfied or waived or (b) at such other time, date and place as may be agreed by Parent and Novitium, subject to the completion of a minimum period.

The Merger consideration will consist of a combination of (i) an estimated cash amount of $ 89.5 million, subject to various adjustments and expected to be financed in part by a $ 25.0 million Private Investment in Public Equity (“PIPE Investment”) (as defined below) and in part by new debt financing, (ii) an aggregate of 2,466,667 shares of Parent common stock, and (iii) up to $ 46.5 million in contingent future earn-out payments.

We will finance the transaction with a new $ 340.0 million Senior Secured Credit Facility (the “Facility”), consisting of a $ 300.0 million term loan and a $ 40.0 million revolving credit facility, the issuance of approximately $ 74.0 million in equity to the sellers, and a $ 25.0 million PIPE Investment by Ampersand Capital Partners.

The new debt financing will be secured by substantially all the assets of ANI and its subsidiaries and used for the cash portion of the acquisition and to refinance ANI’s existing senior credit facilities.

Concurrently with the execution of the Merger Agreement, on March 8, 2021, Parent entered into an Equity Commitment and Investment Agreement (the “Investment Agreement”) with Ampersand 2020 Limited Partnership (the “PIPE Investor”), an affiliate of Ampersand Capital Partners, pursuant to which we agreed to issue and sell to the PIPE Investor, and the PIPE Investor agreed to purchase, 25,000 shares of our Series A Convertible Preferred Stock (the “PIPE Shares”), for a purchase price of $ 1,000 per share and an aggregate purchase price of $ 25.0 million, in a private placement (the “PIPE Investment”).

The completion of the Merger transaction is subject to various closing conditions, including approval by ANI stockholders of the issuance of ANI common stock in connection with the Merger.

For more information about the pending Merger transaction, please see the Form 8-K filed on March 9, 2021 by ANI Pharmaceuticals, Inc.

, which is incorporated by reference herein.

QUARTERLY FINANCIAL DATA (unaudited)

The following table presents unaudited quarterly consolidated operating results for each of our last eight fiscal quarters.

The information below has been prepared on a basis consistent with our audited consolidated financial statements.

2020 Quarters (unaudited)

(in thousands, except per share data)

Total operating expenses

Operating (loss)/income

Benefit/(provision) for income taxes

Net (loss)/income

Basic and diluted (loss)/earnings per share:

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

ANI Pharmaceuticals, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

2019 Quarters (unaudited)

(in thousands, except per share data)

Total operating expenses

Operating income/(loss)

(Provision)/benefit for income taxes

Net income/(loss)

Basic and diluted earnings/(loss) per share:

Basic earnings/(loss) per share

Diluted earnings/(loss) per share

(1) During the fourth quarter 2019, we recognized a $ 4.6 million inventory reserve charge, primarily related to our exit from the market of Methylphenidate Extended Release.

We also recognized Cortrophin pre-launch charges of $ 6.5 million.

On February 15, 2022, we settled an outstanding litigation with Azurity Pharmaceuticals, Inc.

Refer to Note 12 for more information.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data