What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-09 · 222 added, 350 removed, 216 unchanged (73% of the section changed)

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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.

Our team is focused on delivering sustainable growth by building a successful 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.

On June 2, 2022, we announced that we intend to cease operations at our Oakville, Ontario, Canada manufacturing plant by first quarter 2023.

This action is part of ongoing initiatives to capture operational synergies following our acquisition of Novitium Pharma LLC (“Novitium”) in November 2021.

We have transitioned the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites.

Our team is focused on delivering sustainable growth by scaling up our Rare Disease business through the successful launch of our lead asset, Cortrophin Gel, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our North American manufacturing capabilities.

We own and operate three pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, and one is located in East Windsor, New Jersey, 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.

We ceased operations at our subsidiary in Oakville, Ontario, Canada as of March 31, 2023.

This action was part of ongoing initiatives to capture operational synergies following our acquisition of Novitium Pharma LLC (“Novitium”) in November 2021.

We have fully completed the transition of the products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites.

On November 6, 2023, ANI Pharmaceuticals Canada Inc., a wholly owned subsidiary of the Company, entered into an agreement with a potential buyer for the sale of the Oakville, Ontario manufacturing facility, however, the agreement was subsequently terminated in December 2023 by mutual agreement.

In February 2024, the Company entered into an agreement for the purchase and sale of the Oakville site, for a purchase price of 19.2 million Canadian Dollars, or approximately $ 14.2 million US Dollars, based on the current exchange rate.

The sale is expected to close in March 2024 ( see Note 19.

Subsequent Events, in the notes to the consolidated financial statements in Part II, Item 8 of this Annual Re port on Form 10-K).

Our objective is to build a sustainable and growing biopharmaceutical company serving patients in need and creating long-term value for our investors.

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We have spent significant time, effort and resources in establishing our Rare Disease platform.

We acquired the NDAs for Cortrophin gel and Cortrophin-Zinc in January 2016 and executed long-term supply agreements with a supplier of our primary raw material for corticotrophin active pharmaceutical ingredient (“API”), a supplier of corticotrophin API with whom we have advanced the manufacture of commercial scale batches of API, and a Cortrophin gel fill/finish contract manufacturer.

We acquired the NDAs for Cortrophin Gel and Cortrophin-Zinc in January 2016 and executed long-term supply agreements with a supplier of our primary raw material for corticotrophin API, a supplier of corticotrophin API with whom we have advanced the manufacture of commercial scale batches of API, and a Cortrophin Gel fill/finish contract manufacturer.

During the second quarter of 2021, we submitted a Supplemental New Drug Application (“sNDA”) to the FDA.

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Cortrophin Gel is an adrenocorticotropic hormone (“ACTH”), also known as purified corticotropin.

During 2021 and 2022, we invested in leadership, expertise and infrastructure in the areas of commercialization of rare disease therapies and developed a launch strategy and commercial plan for this product.

During 2021 and throughout 2022, we hired a significant number of new employees and assembled and trained our Rare Disease field force.

During 2021 and 2022, we invested significantly in leadership, expertise and infrastructure in the areas of commercialization of rare disease therapies and developed a launch strategy and commercial plan for this product.

During this timeframe, we hired a significant number of new employees and assembled and trained our Rare Disease field force.

On January 24, 2022, we announced the commercial launch of Cortrophin Gel in the U.S as our foundational Rare Disease asset.

As a result of the build out of our Rare Disease team, our expenditures in support of these efforts were significantly higher in 2022 as compared to 2021.

We plan to continue to invest behind Cortrophin Gel and our Rare Disease platform in 2023 and beyond.

On October 2, 2023, we announced FDA approval and commercial availability of a 1-mLvial of Cortrophin Gel, appropriate for adjunctive treatment of certain patients with acute gouty arthritis flares.

As a result of the build out of our Rare Disease team, our expenditures in support of these efforts were significantly higher in 2022 as compared to the prior year, and we continued to invest behind Cortrophin Gel and our Rare Disease platform in 2023.

We plan to continue to expand our rare disease business, through a combination of organic growth, as described above, and acquisition.

While we continue to execute against our strategic initiatives that we believe will result in the long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to expand our existing capabilities.

Strengthening our Generics, Established Brands, and Other segment through continued investment in our generic research and development capability and increased focus on niche opportunities

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Our most recent business acquisition was Novitium, including its portfolio of commercial and pipeline generic products, manufacturing and development facilities and expert workforce.

The Novitium acquisition significantly increased our generic pharmaceutical research and development and manufacturing capabilities.

We have begun to increase our focus on niche lower competition opportunities such as injectables, Paragraph IV, and Competitive Generic Therapy designation filings.

Additionally, we will continue to seek opportunities to enhance our capabilities through strategic partnerships and acquisitions of assets and businesses.

On July 21, 2022, we completed an asset acquisition of four ANDAs from Oakrum Pharma, including two that were commercial at the time of acquisition.

The Novitium acquisition significantly increased our generic pharmaceutical research and development and manufacturing capabiliti es.

We have begun to increase our focus on niche lower competition opportunities such as injectables, Paragraph IV, and competitive generic therapy ("CGT") designation filings.

Additionally, we will continue to seek opportunities to enhance our capab ilities through strategic partnerships and acquisitions of assets and businesses.

During 2022, we completed an asset acquisition of four ANDAs from Oakrum Pharma, including two that were co mmercial at the time of acquisition.

During the second quarter of 2023, we acquired two ANDAs and one pipeline product from the Chapter 7 Trustee for the estates of Akorn Holding Company and certain of its affiliates.

During the third quarter of 2023, we acquired an ANDA and registered patents and pending patent applications from Slayback Pharma Limited Liability Company.

During the fourth quarter of 2023, we acquired additional ANDAs and product rights for two products.

We have grown our established brand product offerings through acquisition.

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Generic Product Development Considerations

We consider a variety of criteria in determining which products to develop, all of which influence the level of competition upon product launch.

We consider a variety of criteria in determining which products to develop:

These criteria include:

• Formulation Complexity .

Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are difficult to produce, including highly potent, extended release, combination, and low dosage products.

This ability to manufacture a variety of complex products is a competitive strength that we intend to leverage in selecting products to develop or manufacture.

● Patent Status.

We seek to develop products whose branded bioequivalents do not have long-term patent protection or existing patent challenges.

● Market Size.

When determining whether to develop or acquire an individual product, we review the current and expected market size for that product at launch, as well as forecasted price erosion upon conversion from branded to generic pricing.

We endeavor to manufacture products with sufficient market size to enable us to enter the market with a strong likelihood of being able to price our products both competitively and at a profit.

Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are differentiated and include high potency, modified release, combination, and hormonal products.

This ability to manufacture a variety of differentiated products is a competitive strength that we intend to leverage in selecting products to develop and commercialize.

• Market Size and Patient Need .

When determining whether to develop or acquire an individual product, we review the current and expected market size for that product.

and competitive environment.

We endeavor to pursue products with sufficient market size to enable us to enter the market with a strong likelihood of serving patients in need and thus being able to price our products both competitively and at a profit.

• Profit Potential.

We research the availability and cost of active pharmaceutical ingredients in determining which products to develop or acquire.

In determining the potential profit of a product, we forecast our anticipated market share, pricing, including the expected price erosion caused by competition from other generic manufacturers, and the estimated cost to manufacture the products.

In determining the potential profit of a product, we forecast our anticipated market share, pricing, competitive environment and the estimated cost to manufacture the products.

• Manufacturing.

We generally seek to develop and manufacture products at our own manufacturing plants in order to optimize the utilization of our facilities, ensure quality control in our products, and to more closely control the economic inputs and outputs of our products.

We generally seek to develop and manufacture products at our own manufacturing plants to ensure quality control of our products, supply chain reliability and to more closely control the economic inputs and outputs of our products.

• Competition.

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We seek to develop products for which we can obtain sufficient market share and may decline to develop a product if we anticipate significant competition.

Our specialized manufacturing facilities provide a

means of entering niche markets, such as hormone therapies, in which fewer generic companies are able to compete.

Our manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies typically compete.

Fiscal 2023 Developments

Election of Directors

On August 21, 2023, the Board of Directors of ANI (the “Board”), appointed Matthew Leonard to serve on the Board as a director with a term expiring at the Company’s 2024 annual meeting of stockholders.

Leonard serves as a member of the Audit and Finance Committee and member of the Nominating and Corporate Governance Committee.

On August 22, 2023, Dr.

informed the Board of his decision not to seek reelection as a director on the Board at the Company’s 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”).

Nash will continue to serve for the remainder of his term as a director until the 2024 Annual Meeting.

Nash has served as a member of the Company’s Board since May 2018 and has served as Chair of the Nominating and Corporate Governance Committee and as a Member of the Audit and Finance Committee.

Public Offering

In May 2023, t hrough a public offering, we completed the issuance and sale of 2,183,545 shares of ANI common stock, resulting in net proceeds after issuance costs of $80.6 million.

The proceeds are being used to in-license, acquire or invest in additional businesses, technologies, products or assets, to fund our commercialization efforts, including, but not limited to, sales and marketing and consulting expenses related thereto, and for general corporate purposes.

Restructuring Update

On June 2, 2022, we announced that we intend to cease operations at our Oakville, Ontario, Canada manufacturing plant by the first quarter of 2023.

This action is part of ongoing initiatives to capture operational synergies following our acquisition of Novitium in November 2021.

We have transitioned the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites and are on track to cease operations by the end of the first quarter 2023.

We are seeking to find potential buyers for the Oakville site, though there can be no assurance as to when or if that will occur or the amount of any net proceeds that may be received.

Operating Segment Update

Prior to 2022, we had concluded that we had one operating segment.

Effective in the first quarter of 2022 and prospectively, in conjunction with the principal completion of our buildout of infrastructure in the areas of commercialization of rare disease therapies and the launch of Cortrophin Gel, we determined that we now have two operating segments as follows:

● Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products, product development services, royalties, and other.

● Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions.

The rare disease segment currently consists of operations related to Cortrophin Gel.

Asset Acquisitions

On July 21, 2022, we acquired four ANDAs from Oakrum Pharma, LLC for a purchase price of $8.0 million plus an immaterial amount for the purchase of API and finished goods inventory.

The transaction was funded from cash on hand.

Product Launches

We ceased operations at our subsidiary in Oakville, Ontario, Canada as of March 31, 2023.

This action was part of ongoing initiatives to capture operational synergies following our acquisition of Novitium in November 2021.

We have fully completed the transition of the products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites.

In February 2024, the Company entered into an agreement for the purchase and sale of the Oakville site, for a purchase price of 19.2 million Canadian Dollars, or approximately $14.2 million US Dollars, based on the current exchange rate.

The sale is expected to close in March 2024 ( see Note 19.

Subsequent Events, in the notes to the consolidated financial statements in Part II, Item 8 of this Annual Re port on Form 10-K).

Products Launches

Refer to our website at www.anipharmaceuticals.com for information on the products, including indications/treatments.

Purified Cortrophin Gel Approval and Launch

Purified Cortrophin Gel became available to our customers in late 2021, and we recognized an immaterial amount of revenues during the year ended December 31, 2021.

On January 24, 2022, we announced the full-scale U.S.

commercial availability and launch of Purified Cortrophin Gel.

COVID-19 Impact

We continue to closely monitor the impact of the novel coronavirus (“COVID-19”) pandemic on our business and the geographic regions where we operate.

While total market generic and brand prescriptions were depressed in earlier parts of 2021 as subsequent waves and variants of the virus impacted patient and customer behavior, prescriptions returned to pre-pandemic levels in late 2021 and into 2022.

We continued to see disruptions to our supply chain from the

COVID-19 pandemic during 2022, including significant lead times for purchases of materials.

The pandemic has not impacted our access to capital and has not significantly impacted our use of funds.

We are unable to predict the impact that the COVID-19 pandemic will continue to have on our future financial condition, results of operations and cash flows due to numerous uncertainties, including the continued duration of the pandemic, the appearance of additional variants of the virus, the level of success of continued actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Impacts to our 2023 and 2022 results of operations, including to net revenues, operating expenses, interest and other expense, net, and income taxes are described below.

Our results of operations for the year ended December 31, 2022 were impacted by the November 19, 2021 acquisition of Novitium and related activity subsequent to that date.

The acquisition provides additional revenues and the incurrence of increased costs, including but not limited to the amortization of intangible assets acquired, other operating costs, and increased interest costs on borrowings used to finance the transaction.

During the year ended December 31, 2022, Novitium operations generated $90.3 million in net revenues.

The following table summarizes our results of operations for the periods indicated:

(in thousands) 2023 2022

Net Revenues $ 486,816 $ 316,385

Operating Expenses

Cost of sales (exclusive of depreciation and amortization)

Cost of sales (excluding depreciation and amortization) 181,513 138,785

Research and development 34,286 22,318

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Contingent consideration fair value adjustment 1,426 3,758

Legal settlement expense

Purified Cortrophin Gel pre-launch charges

Restructuring activities 1,132 5,679

Intangible asset impairment charge — 112

Operating loss

Operating Income (Loss) 46,971 (35,283)

Interest expense, net (26,940) (28,052)

Other income/(expense), net

Loss before benefit for income taxes

Benefit for income taxes

Other (expense) income, net (159) 670

Income (Loss) Before Expense (Benefit) for Income Taxes 19,872 (62,665)

Income tax expense (benefit) 1,093 (14,769)

Net Income (Loss) $ 18,779 $ (47,896)

The following table sets forth, for the periods indicated, items in our consolidated statements of operations as a percentage of net revenues.

Net Revenues 100.0 % 100.0 %

Operating Expenses

Cost of sales (exclusive of depreciation and amortization)

Cost of sales (excluding depreciation and amortization) 37.3 % 43.9 %

Research and development 7.0 % 7.1 %

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Contingent consideration fair value adjustment 0.3 % 1.2 %

Legal settlement expense

Purified Cortrophin Gel pre-launch charges

Restructuring activities 0.2 % 1.8 %

Intangible asset impairment charge — % 0.0%

Operating loss

Operating Income (Loss) 9.6 % (11.2) %

Interest expense, net (5.5) % (8.9) %

Other income/(expense), net

Loss before benefit for income taxes

Benefit for income taxes

Other (expense) income, net 0.0% 0.2 %

Income (Loss) Before Expense (Benefit) for Income Taxes 4.1 % (19.9) %

Income tax expense (benefit) 0.2 % (4.7) %

Net Income (Loss) 3.9 % (15.2) %

Results of Operations for the Years Ended December 31, 2023 and 2022

Year Ended December 31,

(in thousands)

(in thousands) 2023 2022 Change % Change

Generics, Established Brands, and Other Segment

Generic pharmaceutical products $ 269,449 $ 210,121 $ 59,328 28.2 %

Established brand pharmaceutical products

Contract manufacturing

Royalty and other

Established brand pharmaceutical products, royalties, and other pharmaceutical services 105,250 64,578 40,672 63.0 %

Generics, established brands, and other segment total net revenues $ 374,699 $ 274,699 $ 100,000 36.4 %

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Total net revenues $ 486,816 $ 316,385 $ 170,431 53.9 %

We derive substantially all of our revenues from sales of generic, established brand, and rare disease pharmaceutical products, contract manufacturing, royalties on net sales of certain products, and other services, including development services, and laboratory services.

We derive substantially all of our revenues from sales of generic, rare disease, and established brand pharmaceutical products, royalties on net sales of certain products, and other pharmaceutical services.

Many of our established brand products as well as our generic products face competition from generic products and we expect them to continue to face competition from generic products in the future.

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Net revenues for the year ended December 31, 2023 were $486.8 million compared to $316.4 million for the same period in 2022, an increase of $170.4 million, or 53.9%, primarily as a result of the following factors:

● Net revenues for generic pharmaceutical products were $210.1 million during the year ended December 31, 2022, an increase of 46.4% compared to $143.6 million for the same period in 2021.

From a product perspective, the increase was principally driven by revenues from products acquired in our acquisition of Novitium, which increased $70.1 million, including Prazosin, Famotidine, Oxybutynin Chloride, Dapsone, Prednisone Rifabutin, and various other products.

The increase was also due to increased revenues of Nebivolol, which ANI launched in September 2021.

Increases were tempered by a decrease in revenues of Penicillamine, EEMT, Propranolol Extended Release, and Bexarotene.

The increase in net generic revenues was principally due to the acquisition of Novitium, which drove an increase in volumes, and was tempered by a decrease in average selling prices.

During the year ended December 31, 2022, generic prescriptions have returned to essentially pre-pandemic levels.

During the year ended December 31, 2021, generic prescription levels continued to be suppressed when compared to pre-pandemic levels, most significantly during the three months ended March 31, 2021, and the revenues for many of our generic pharmaceutical products continued to be negatively impacted .

Per IQVIA/IMS data, total generic market prescriptions increased sequentially during periods in 2021 and approached pre-pandemic levels near the end of the year.

● Net revenues for branded pharmaceutical products were $39.5 million during the year ended December 31, 2022, a decrease of 17.0% compared to $47.6 million for the same period in 2021.

From a product perspective, the net decrease was driven primarily by a decrease in sales of Casodex, InnoPran XL, Inderal XL and Veregen.

These decreases were tempered primarily by an increase in sales of Lipofen, Atacand, and Vancocin.

The decrease in branded pharmaceutical product revenues for the year ended December 31, 2022 was principally due to lower unit volume sales on key branded products in addition to higher levels of returns and rebates.

As of the end of the 2021 fiscal year, brand prescription levels returned to pre-pandemic levels.

● Contract manufacturing revenues were $16.1 million during the year ended December 31, 2022, an increase of 60.4% compared to $10.0 million for the same period in 2021, due to an increase in the volume of orders, primarily related to Novitium contract manufacturing revenues in 2022.

● Royalty and other were $9.0 million during the year ended December 31, 2022, a decrease of $6.0 million from $15.0 million for the same period in 2021, primarily due to the one-time recognition of the final royalty of $11.2 million under the Kite Pharma, Inc.

license agreement (Yescarta®) pursuant to the Tripartite Agreement in the year ended December 31, 2021.

Royalty revenue for the year ended December 31, 2022 includes $5.2 million related to Novitium arrangements.

● Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Purified Cortrophin Gel, were $41.7 million during the year ended December 31, 2022, as the product was launched in late January 2022.

There were no sales of rare disease pharmaceutical products during 2021.

• Net revenues for generic pharmaceutical products were $269.4 million during the year ended December 31, 2023, an increase of 28.2% compared to $210.1 million for the same period in 2022, driven by increased volumes on the base business, increased volumes from the inclusion of 2022 launches in 2023 and 2023 new product launches.

From a product perspective, the increase was principally driven by revenues from year over year increases in products such as Acebutolol, Colestipol, Digoxin, Famotidine, Fluoxetine, Levocarnitine, Mixed Amphetamine Salts Extended Release, Misoprostol, Nitrofurantoin, Pyrazinamide, Thyroid, Tolterodine, Tranexamic Acid, Trimethorpim, and various other products tempered by a decrease in revenues of Cholestyramine, Fenofibrate, Mesalamine, Nicardipine, Oxybutynin Chloride, Paliperidone Extended Release, and Prazosin, among others.

• Net revenues for branded pharmaceutical products, royalties, and other pharmaceutical services were $105.3 million during the year ended December 31, 2023, an increase of 63.0% compared to $64.6 million for the same period in 2022, driven by a net increase in volume.

• Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Purified Cortrophin Gel, were $112.1 million during the year ended December 31, 2023 , which represents an increase of $70.4 million from $41.7 million for the sam e period in 2022 .

This increase was driven by increased volume in this second year of launch (product was launched in late January 2022).

In addition to the above, within our Generic, established brand, and other segment in the current year period, we were successful in supplying incremental volume in markets that were experiencing supply chain disruptions for competing products.

Generally, when opportunities for volume and revenue upside related to our products arise in the marketplace, there is no assurance as to how long these favorable market conditions may persist.

Cost of Sales (Excluding Depreciation and Amortization)

Year Ended December 31,

(in thousands)

Cost of sales (excl.

depreciation and amortization)

Cost of sales consists of direct labor, including manufacturing and packaging, active and inactive pharmaceutical ingredients, freight costs, packaging components, and royalties related to profit-sharing arrangements.

(in thousands) 2023 2022 Change % Change

Cost of sales (excluding depreciation and amortization) 181,513 138,785 $ 42,728 30.8 %

Cost of sales does not include depreciation and amortization expense, which is reported as a separate component of operating expenses on our consolidated statements of operations.

For the year ended December 31, 2023, cost of sales increased to $181.5 million from $138.8 million for the same period in 2022, an increase of $42.7 million or 30.8%.

The increase is primarily due to increased volumes of generic products, including $34.7 million of costs related to activities of Novitium during the year ended December 31, 2022, compared to $4.0 million in the prior year period, and $5.3 million in costs representing the excess of fair value over cost for inventory acquired in an asset acquisition and a business combination, of which $3.2 million relates to inventory acquired from Novitium.

Charges for the excess of fair value over cost for inventory acquired in an asset acquisition were $5.4 million for the comparable period in 2021.

Sales of products subject to profit sharing arrangements also accounted for a $3.0 million increase in the current year period.

Cost of sales as a percentage of net revenues, exclusive of the impacts related to excess of fair value over the cost of inventory sold during the period, increased to 42.2% during the year ended December 31, 2022, from 43.1% during the same period in 2021, primarily as a result of increased volumes in a period of declining average selling prices across generic and brand products, $11.2 million in royalty revenue during the comparable 2021 period with no associated cost of goods sold, and higher costs related to sales of products subject to profit sharing arrangements.

During the year ended December 31, 2022, we purchased 19% of our inventory from one supplier.

As of December 31, 2022, the amount payable to this supplier was $10.9 million.

The increase is primarily due to a significant increase in sales volumes of generic and rare disease pharmaceutical products and a net increase in sales of products that bear a royalty payable, including Purified Cortrophin Gel.

During the year ended December 31, 2022 , we recognized $5.3 million in cost of sales representing the excess of fair value over cost for inventory acquired in acquisitions and subsequently sold during the year ended December 31, 2022 .

There are no comparable expenses in the year ended December 31, 2023 .

Cost of sales, as a percentage of net revenues, decreased from 42.2% to 37.3% for the year ended December 31, 2023 , compared to the same period in 2022 .

The decrease was primarily due to the non-recurrence of $5.3 million expense recognized in the year ended December 31, 2022 , related to the excess of fair value over cost for inventory acquired in a business combination, as well as the increased sales of Established brand pharmaceutical products, royalties, and other pharmaceutical services products and Cortrophin Gel coupled with increased generic volumes with a mix shift in higher margin products.

During the year ended December 31, 2023, no single vendor represented at least 10% of inventory purchases.

During the year ended December 31, 2022, we purc hased 19% of our inventory from one supplier.

Other Operating Expenses

Year Ended December 31,

(in thousands)

(in thousands) 2023 2022 Change % Change

Research and development $ 34,286 $ 22,318 $ 11,968 53.6 %

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Contingent consideration fair value adjustment 1,426 3,758 (2,332) (62.1) %

Legal settlement expense

Purified Cortrophin Gel pre-launch charges

Restructuring activities 1,132 5,679 (4,547) (80.1) %

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Total other operating expenses $ 258,332 $ 212,883 $ 45,449 21.3 %

(1) Not meaningful

For the year ended December 31, 2023, other operating expenses increased to $258.3 million from $212.9 million for the same period in 2022, an increase of $45.4 million, or 21.3%, primarily as a result of the following factors:

● Research and development expenses increased from $11.4 million to $22.3 million, an increase of 96.3%, primarily due to expenses related to Novitium activities during the year ended December 31, 2022, in-process research and development charges of $1.2 million recognized in the current year, tempered by a $1.5 million decrease in expense associated with our Cortrophin development efforts due to approval of the launch of the product.

● Selling, general, and administrative expenses increased from $84.3 million to $124.0 million, an increase of 47.2%, primarily due to a $37.6 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, increases related to the addition of Novitium headcount and activities during the year ended December 31, 2022, tempered by a $8.1 million decrease in transaction expenses related to the Novitium acquisition.

● Depreciation and amortization expense was $57.0 million for the year ended December 31, 2022, compared to $47.3 million for the year ended December 31, 2021.

The increase is primarily due to the amortization of intangible assets acquired in the Novitium acquisition.

● As described in Note 9, Fair Value Disclosures , in the notes to the consolidated financial statements included in Part II, Item 8.

of this Annual Report on Form 10-K, we recognized a contingent consideration fair value

adjustment related to the Novitium acquisition of $3.8 million and $0.5 million in the year ended December 31, 2022 and 2021, respectively.

The expense is principally due to the passage of time (i.e.

moving closer to the ultimate payment date of the consideration, rather than the change in any other variables).

● As described in Note 13, Commitments and Contingencies , in the notes to the consolidated financial statements included in Part II, Item 8.

of this Annual Report on Form 10-K, we recognized legal settlement expense of $8.8 million in the year ended December 31, 2021, principally related to settlement of the Arbor matter.

No legal settlement expenses were recognized in the year ended December 31, 2022.

● As described in Note 14, Purified Cortrophin Gel Pre-Launch Charges , in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K, we recognized Cortrophin pre-launch charges related to purchases of materials of $0.8 million in the year ended December 31, 2021.

No Cortrophin pre-launch charges related to purchases of materials were recognized in the year ended December 31, 2022.

● We recognized restructuring activities of $5.7 million of expense in the year ended December 31, 2022, in relation to the anticipated closure of our Oakville, Ontario, Canada facility.

• Research and development expenses increased from $22.3 million to $34.3 million, an increase of 53.6%, primarily due to expenses related to a 505(b)(2) filing for one product of approximately $1.6 million, expenses related to ANDA filings, and a higher level of activity associated with ongoing and new projects in the year ended December 31, 2023.

• Selling, general, and administrative expenses increased from $124.0 million to $161.7 million, an increase of 30.4%, due to increased employment related costs, Rare Disease sales and marketing costs, legal expenses, as well as an overall increase in activities required to support the growth of our business.

• Depreciation and amortization expense was $59.8 million for the year ended December 31, 2023, compared to $57.0 million for the same period in 2022, an increase of $2.8 million.

The increase is primarily due to an increase in amortization expense related to intangible assets acquired during 2023, and amortization of IPR&D which commenced during the year ended December 31, 2023.

• We recognized a loss of $1.4 million and loss of $3.8 million in the year ended December 31, 2023 and 2022, respectively, for the contingent consideration fair value adjustment.

The change in the fair value adjustment is primarily related to changes in the anticipated cash flows, specifically extending the timeframe over which cash flows will be generated by the products, offset by the passage of time (i.e., moving closer to the anticipated payment date of the consideration), an increase to the probability of payment for the product development-based milestone payments, and by fluctuations in the discount rates utilized throughout the year.

• We recognized restructuring activities of $1.1 million of expense in the year ended December 31, 2023, in relation to the closure of our Oakville, Ontario, Canada facility.

Costs included severance and other employee benefits costs of $0.2 million, and $0.7 million of accelerated depreciation costs.

We recognized restructuring activities of $5.7 million of expense in the year ended December 31, 2022, in relation to the closure of our Oakville, Ontario, Canada facility.

Costs included $2.1 million in termination benefits, $3.1 million in fixed asset impairments and accelerated depreciation, and $0.4 million of other costs.

No restructuring activities were recognized in the year ended December 31, 2021.

● We recognized an impairment of $0.1 million in the year ended December 31, 2022, in relation to an ANDA asset.

We recognized an impairment of $2.4 million in the year ended December 31, 2021, in relation to an ANDA asset.

• We recognized an impairment charge of $0.1 million in the year ended December 31, 2022, in relation to an ANDA asset.

No impairm ent charges were recognized in the year ended December 31, 2023.

Other Expense, net

Year Ended December 31,

(in thousands)

(in thousands) 2023 2022 Change % Change

Interest expense, net (26,940) (28,052) $ 1,112 (4.0) %

Other income/(expense), net

Other (expense) income, net (159) 670 (829) (123.7) %

Total other expense, net $ (27,099) $ (27,382) $ 283 (1.0) %

For the year ended December 31, 2022, we recognized other expense, net of $27.4 million versus other expense, net of $16.3 million for the same period in 2021, an increase of $11.1 million.

Interest expense, net for 2022 consisted primarily of interest expense on our Term Facility.

Interest expense, net for 2021 consisted primarily of interest expense on our Term Loan, DDTL, and Revolver under our Prior Credit Facility, and interest expense on our new Term Facility subsequent to the termination of our Prior Credit Facility and entry into new Credit Facility on November 19, 2021.

The increase in interest expense is due to an increase in the debt outstanding during the year ended December 31, 2022, coupled with an increased borrowing rate on the $300.0 million Term Facility, as compared to the borrowing rate on the Prior Credit Agreement borrowings and an increase in amortization of finance fees.

The $5.0 million change in other income/(expense), net is primarily related to the $0.8 million gain on the sale of an ANDA in the year ended December 31, 2022 and the non-recurrence of $4.2 million ticking fee expense related to our Credit Facility that was syndicated on May 24, 2021, a $1.5 million loss on the extinguishment of debt related to our Prior Credit Facility, and $1.8 million in net gains on the sale of ANDAs in the year ended December 31, 2021.

For the year ended December 31, 2022 and 2021, there was $0.1 million of interest capitalized into construction in progress.

Benefit for Income Taxes

Year Ended December 31,

(in thousands)

Benefit for income taxes

Our benefit for income taxes consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation allowance.

We measure our deferred tax assets and liabilities using the tax rates that we believe will apply in the years in which the temporary differences are expected to be recovered or paid.

For the year ended December 31, 2023, we recognized total other expense, net of $27.1 million versus total other expense of $27.4 million for the same period in 2022, a decrease of $0.3 million.

Interest expense, net for the year ended December 31, 2023 and 2022 consisted primarily of interest expense on borrowings under our Term Facility, amortization of deferred debt issuance costs, dividend income earned on our money market funds, the effects of the interest rate swap, and interest earned on cash balances.

The decrease in interest expense is due to dividend income earned on our money market funds, income from our interest rate swap, and increased interest income earned on higher cash balances, offset by an increased borrowing rate on the Term Facility and an increase in amortization of finance fees.

For the year ended December 31, 2023, there was $0.6 million of interest capitalized into construction in progress, compared to less than $0.1 million of interest capitalized for the year ended December 31, 2022, representing an offset to interest expense.

Income Tax Expense (Benefit)

(in thousands) 2023 2022 Change % Change

Income tax expense (benefit) $ 1,093 $ (14,769) $ 15,862 (107.4) %

Incom e tax expense (benef it) consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation allowance.

Income Taxes, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K for further information.

For the year ended December 31, 2023, we recognized an income tax expense of approximately $1.1 million.

The Company's effective tax rate was 5.5% after discrete items for the year ended December 31, 2023.

The effective tax rate differed from the federal statutory rate of 21% primarily due to the recognition of the U.S.

federal research and development credit, permanent differences, and stock based compensation.

For the year ended December 31, 2022, we recognized an income tax benefit of $(14.8) million, an effective benefit rate of 23.6% of consolidated pre-tax losses reported in the period, as well as the net effects of certain discrete items occurring in 2022 which impact our income tax provision in the period in which they occur.

There were no material discrete items occurring during the year ended December 31, 2022.

For the year ended December 31, 2021, we recognized an income tax benefit of $13.5 million, an effective benefit rate of 24.0% of consolidated pre-tax losses reported in the period.

Our effective tax rate for 2021 was impacted by changes in state tax rates due to our increased presence in certain states, certain non-deductible expenses, and the impact of current period stock-based compensation, among other items.

Liquidity and Capital Resources

The following table highlights selected liquidity and working capital information from our consolidated balance sheets.

(in thousands)

(in thousands) December 31,

2023 December 31,

Cash and cash equivalents $ 221,121 $ 48,228

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Accounts receivable, net 162,079 165,438

Inventories, net

Inventories 111,196 105,355

Prepaid income taxes — 3,827

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Accounts payable 36,683 29,305

Accrued expenses and other

Accrued royalties 16,276 9,307

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Accrued government rebates 12,168 10,872

Income taxes payable 8,164 —

Returned goods reserve 29,678 33,399

Deferred revenue

Current contingent consideration 12,266 —

Accrued expenses and other 5,606 5,394

Total current liabilities $ 145,477 $ 99,439

On December 31, 2022, we had $48.2 million in unrestricted cash and cash equivalents.

As of December 31, 2023, we had $221.1 million in unrestricted cash and cash equivalents.

On December 31, 2022, we had $48.2 million in unrestricted cash and cash equivalents.

In 2022 and 2021, we invested in leadership, expertise, and infrastructure in the areas of commercialization of rare disease therapies and in 2022 commercialized our Cortrophin Gel product.

In 2021, we financed the acquisition of Novitium in part with borrowings under the Credit Facility described below under “Sources and Uses of Cash – Debt Financing,” and by a $25.0 million PIPE Investment by Ampersand 2020 Limited Partnership (“Ampersand”).

In 2023 and 2022, we invested in leadership, expertise, and infrastructure in the areas of commercialization of rare disease therapies, and in 2022 began to commercialize our Cortrophin Gel product.

We are focused on expanding our business and product pipeline through collaborations, and also through acquisitions of products and companies.

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Our working capital ratio, defined as total current assets divided by total current liabilities, is 3.6 as of December 31, 2023 .

Despite a use of cash of $31.2 million by operating activities, we believe that our financial resources, consisting of net current working capital of approximately $244.8 million, anticipated future operating revenue and corresponding collections from customers, and our Credit Facility, under which $40.0 million remains available for borrowing as of December 31, 2022, will be sufficient to enable us to meet our working capital requirements and debt obligations for at least the next 12 months.

We believe that our financial resources, consisting of net current working capital of approximately $374.3 million, anticipated future operating revenue and corresponding collections from customers, and our Credit Facility, under which $40.0 million remains available for borrowing as of December 31, 2023, will be sufficient to enable us to meet our working capital requirements and debt obligations for at least the next 12 months.

If our assumptions underlying estimated revenue and expenses are wrong, or if our cash requirements change materially as a result of shifts in our business or strategy, we could require additional financing.

If we are not profitable or do not generate cash from operations as anticipated and additional capital is needed to support operations, we may be unable to obtain such financing, or obtain it on favorable terms, in which case we may be required to curtail development of new products, limit expansion of operations, or accept financing terms that are not as attractive as desired.

If we are not able to continue to be profitable in future years or are not able to continue to generate cash from operations as anticipated and additional capital is needed to support operations, we may be unable to obtain such financing, or obtain it on favorable terms, in which case we may be required to curtail development of new products, limit expansion of operations, or accept financing terms that are not as attractive as desired.

Consolidation among wholesale distributors, chain drug stores, and group purchasing organizations has resulted in a smaller number of companies each controlling a larger share of pharmaceutical distribution channels.

Our net revenues were concentrated among three customers representing 26%, 18%, and 15% of net revenues during the year ended December 31, 2022.

As of December 31, 2022 accounts receivable from these three customers totaled approximately 82% of accounts receivable, net.

Our net revenues were concentrated among four customers representing 31%, 13%, 13%, and 12% of net revenues during the year ended December 31, 2023.

As of December 31, 2023 accounts receivable from these four customers totaled approximately 81% of accounts receivable, net.

Our net revenues were concentrated among three customers representing 26%, 18%, and 15% of net revenues during the year ended December 31, 2022.

As a result, negotiated payment terms with these customers have a material impact on our liquidity and working capital.

Our Cortrophin Gel product accounted for approximately 13% of our net revenues in 2022.

None of our products accounted for 10% or more of our net revenues in 2021.

Our Cortrophin Gel product accounted for approximately 23% and 13% of our net revenues in 2023 and 2022, respectively.

We pay to Merck Sharpe & Dohme B.V.

("Merck") quarterly contingent consideration in the form of a perpetual, tiered royalty expressed as a percentage of Cortrophin Gel net sales.

During the initial two years of commercialization (2022 and 2023) this royalty approximated 10% of net sales.

We currently anticipate the blended Merck royalty rate to be in the upper teens in 2024.

In the case of significant revenue growth beyond 2024, we anticipate the blended rate may reach the low 20 percent range.

Sources and Uses of Cash

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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 Credit Facility is secured by substantially all our assets and the assets of our domestic subsidiaries.

The Term Facility proceeds were used to finance the cash portion of the consideration for the Novitium acquisition, repay borrowings under our Prior Credit Agreement, and pay fees, costs and expenses incurred in connection with the acquisition of Novitium.

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

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

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 (or alternate benchmark rate as defined in the Credit Agreement, which includes a floor of 0.75%) in the case of 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 Agreement) in the case of loans under the Revolving Facility.

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

The Credit Facility 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 SOFR Rate (or alternate benchmark rate as defined in the Credit Agreement) in the case of SOFR 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 SOFR Rate (as defined in the Credit Facility) in the case of loans under the Revolving Facility.

Amendment No.

1 also includes the addition of a credit spread adjustment of 0.11448% for an interest period of one-month duration, 0.26161% for a three-month duration, and 0.42826% for a six-month duration, in addition to SOFR and the applicable margin, as noted above.

There were no other changes or modifications to the Credit Agreement.

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 12 months ending December 31, 2024.

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Equity Financing

Concurrently with the execution of the merger agreement related to the Novitium acquisition, on March 8, 2021, we entered into that certain Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership (the “PIPE Investor”) pursuant to which, on November 19, 2021, we issued and sold to the PIPE Investor, and the PIPE Investor purchased, 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, in a private placement issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder.

In November 2021, through a public offering, we completed the issuance and sale of 1,500,000 shares of ANI common stock, resulting in net proceeds after issuance costs of $69.7 million.

The proceeds are being used to fund our Purified Cortrophin Gel commercialization efforts, including sales and marketing and consulting expenses related thereto, and for general corporate purposes.

Customer Payments

In addition to the financings in prior years, payments from customers are a significant source of cash in 2022, 2021, and 2020 and were our primary source of cash in 2022 and 2021.

In May 2023, through a public offering, we completed the issuance and sale of 2,183,545 shares of ANI common stock, resulting in net proceeds after issuance costs of $80.6 million.

Th e proceeds are intended to be used to in-license, acquire or invest in additional businesses, technologies, products or assets, to fund our commercialization efforts, including, but not limited to, sales and marketing and consulting expenses related thereto, and for general corporate purposes.

Our primary cash requirements are to fund operations, including Purified Cortrophin Gel commercialization efforts, research and development programs and collaborations, to support general and administrative activities, to purchase equipment and machinery to expand our manufacturing capabilities as our product lines grow, and to expand our business and product pipeline through acquisitions of products and companies.

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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, legal fees, and expenses.

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, legal fees, and expenses.

We made a reacquisition payment of $200.1 million, representing the remaining principal balance on the debt of $200.1 million plus certain legal fees.

In the second quarter 2021, we drew $24.0 million under the Revolver of our Prior Credit Agreement, of which $20.7 million was used to fund the acquisition of three NDAs and an ANDA and certain related inventories from Sandoz Inc.

In the third quarter 2021, we utilized $8.4 million of cash on hand to settle litigation with Arbor.

Discussion of Cash Flows

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Financing Activities $ 67,439 $ (5,126)

Net Cash (Used in) / Provided by Operating Activities

Net cash used in operating activities was $31.2 million for the year ended December 31, 2022, compared to $3.3 million provided by operating activities during the same period in 2021, a change of $34.5 million.

The use of cash was driven by our net loss and changes in working capital, including increases to accounts receivable and inventory of $31.4 million and $26.9 million, respectively, since December 31, 2021, due in part to a number of new product launches during the year ended December 31, 2022.

Net Cash Provided by (Used in) Operations

Net cash provided by operating activities was $119.0 million for the year ended December 31, 2023, compared to $31.2 million used in operating activities during the same period in 2022, a change of $150.2 million.

The increase was driven by net income in the current year period due to increased sales and gross profit and the non-recurrence of significant utilization of cash during the initial launch period of Cortrophin Gel in 2022, as well as other net changes in our assets and liabilities.

Net Cash Used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2022 was $15.7 million, principally due to the acquisition of four ANDAs from Oakrum Pharma LLC for $8.0 million consisting of $7.2 million of cash and $0.8 million of other consideration, and $8.9 million of capital expenditures partially offset by $0.8 million proceeds from sale of long-lived assets during the period.

Net Cash (Used in) / Provided by Financing Activities

Net cash used in financing activities was $5.1 million for the year ended December 31, 2022 compared to $194.6 million in cash provided by financing activities for the year ended December 31, 2021, principally due to the $3.0 million maturity payments on the Term Facility, $2.0 million of treasury stock purchased in relation to restricted stock vests, and $1.6 million convertible stock dividends paid.

Net cash used in investing activities for the year ended December 31, 2023 was $18.5 million, principally due to $8.9 million of capital expenditures and consideration paid for asset acquisitions of ANDAs and other product rights from Akorn Holding Company, Slayback Pharma Limited Liability Company, and Alvogen, Inc.

totaling $9.6 million.

Net cash used in investing activities for the year ended December 31, 2022 was $15.7 million, principally due to $8.9 million of capital expenditures and the consideration paid for asset acquisitions of intangible assets totaling $7.6 million, partially offset by $0.8 million of proceeds from the sale of long-lived assets during the period.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $67.4 million for the year ended December 31, 2023, principally due to $80.6 million in net proceeds from the May 2023 public offering and $9.0 million from proceeds from stock option exercises and ESPP purchases.

This is offset by cash used in financing activities related to $12.5 million to Company Members of Novitium, $3.0 million maturity payments on the Term Facility, $5.0 million of treasury stock purchased in

relation to restricted stock vests, and $1.6 million convertible preferred stock dividends paid.

Net cash used in financing activities for the year ended December 31, 2022 was $5.1 million, principally due to the $3.0 million maturity payments on the Term Facility, $2.0 million of treasury stock purchased in relation to restricted stock vests, and $1.6 million convertible preferred stock dividends paid.

Contractual Obligations

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As of December 31, 2023 , the principal amount of our Term Facility was $294.0 million.

The interest rate on our Term Facility is currently 1-month LIBOR plus 6.00%, subject to a 0.75% floor.

The interest rate on our Term Facility is currently 1-month SOFR plus 6.00% per annum, plus a credit spread adjustment of 0.11448% for an interest period of one-month duration, subject to a 0.75% floor.

The interest rate under the Term Facility as of December 31, 2023 is 11.46% .

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of this Annual Report on Form 10-K for additional information and timing on our principal payments on debt.

We also have an interest rate swap used to manage changes in LIBOR-based interest rates underlying a portion of the

borrowing under the Term Facility.

Under the swap agreement, ANI pays the counterparty a fixed rate of 2.26% and receives variable 1-month LIBOR, subject to a 0.75% floor, on the outstanding notional value.

We also have an interest rate swap used to manage changes in SOFR-based interest rates underlying a portion of the borrowing under the Term Facility.

Under the swap agreement, ANI pays the counterparty a fixed rate of 2.26% and receives variable 1-month SOFR, subject to a 0.75% floor, on the outstanding notional value.

As of December 31, 2023 , the notional value of the interest rate swap was $139.4 million .

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As leases expire, we do not anticipate difficulty in negotiating renewals or finding other satisfactory space if the premise becomes unavailable.

See Note 13, Commitments and Contingencies, in the notes to the consolidated financial statements in Part II, Item 8.

See Note 15, Co mmitments and Contingencies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K for additional discussion and timing of payments related to these operating lease obligations.

Purchase obligations primarily includes contractual obligation for inventory/material purchase minimums and service agreements.

We have a supply agreement with one vendor that includes purchase minimums.

Pursuant to this agreement, we will be required to purchase a total of $0.1 million of API from this vendor during the year ended December 31, 2023.

Most of our other purchase obligations are related to purchases of information technology services, marketing arrangements, or other service contracts.

Our convertible preferred stock (“PIPE Shares”) also accrue dividends at 6.50% per year on a cumulative basis, payable in cash or in-kind.

Dividends are payable until the preferred stock is converted, either at the option of the PIPE investor, at any time, or the option of ANI, beginning two years after the November 19, 2021 issuance provided ANI’s stock price reaches a certain level.

See Note 10, Mezzanine and Stockholders’ Equity, in the notes to the consolidated financial statements in Part II, Item 8.

Our convertible preferred stock (“PIPE Shares”) accrue dividends at 6.50% per year on a cumulative basis, payable in cash or in-kind.

See Note 11, Mezz anine and Stockholders’ Equity, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K for additional discussion of dividends.

Consideration of the Novitium acquisition includes $46.5 million in contingent future earn-out payments.

Consideration of the Novitium acquisition included $46.5 million in contingent future earn-out payments.

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.

Payments of $25.0 million would be due if gross profit and regulatory milestones are achieved by November 30, 2023, and up to $21.5 million of payments may be made for up to ten years based on a percentage of net profits on products launched in the future.

See Note 2, Business Combination, in the notes to the consolidated financial statements in Part II, Item 8.

Pursuant to the terms of the Agreement and Plan of Merger, dated as of March 8, 2021, on December 12, 2023, the Company paid $12.5 million of cash consideration to the Company Members, defined as the holders of Novitium ownership interests in the Agreement and Plan of Merger, of Novitium for the achievement of the "ANDA Filing Earn-Out," as defined in the Agreement.

On February 22, 2024, the Company paid $12.5 million to Novitium related to the achievement of the milestone, see Note 2 and Note 10, Business Combination and Fair Value, respectively, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K for additional information on our contingent consideration.

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Critical Accounting Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

Based on this definition, we have identified the critical accounting policies and judgments addressed below.

We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results.

Our significant accounting policies are discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K.

The preparation of financial statements and related disclosures in conformity with U.S.

generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported.

Our significant accounting policies are discussed in Note 1, "Description of Business and Summary of Significant Accounting Policies" of the Notes to the consolidated financial statements in Part II, Item 8.

of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements.

On an ongoing basis, we evaluate these estimates and assumptions, including those described below.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

These estimates and assumptions form the basis for making judgments about the carrying values of assets

and liabilities that are not readily apparent from other sources.

These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily

apparent from other sources.

Actual results could differ from those estimates.

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Revenue Recognition

We recognize revenue using the following steps:

● Identification of the contract, or contracts, with a customer;

● Identification of the performance obligations in the contract;

● Determination of the transaction price, including the identification and estimation of variable consideration;

● Allocation of the transaction price to the performance obligations in the contract;

● Recognition of revenue when we satisfy a performance obligation.

We derive our revenues primarily from sales of generic and branded pharmaceutical products.

Revenues are primarily derived from sales of generic, rare disease, and established brand pharmaceutical products, royalties, and other pharmaceutical services.

Revenue is recognized when our obligations under the terms of our contracts with customers are satisfied, which generally occurs when control of the products we sell is transferred to the customer.

We estimate variable consideration after considering applicable information that is reasonably available.

We generally do not have incremental costs to obtain contracts that would otherwise not have been incurred.

We do not adjust revenue for the promised amount of consideration for the effects of a significant financing component because our customers generally pay us within 100 days.

Our revenue recognition accounting methodologies contain uncertainties because they require management to make assumptions and to apply judgment to estimate the amount of discounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments, which are accounted for as reductions to revenue.

We make these estimates based on historical experience.

In addition, for our product development services revenue, we recognize revenue on a percentage of completion basis, which requires judgments related to how much work has been completed on various components our projects.

Revenue from Sales of Generic and Branded Pharmaceutical Products

Product sales consists of sales of our generic and brand pharmaceutical products.

Our sole performance obligation in our contracts is to provide pharmaceutical products to customers.

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

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.

We recognized $249.6 million and $191.1 million of revenue related to sales of generic and branded pharmaceutical products in 2022 and 2021, respectively.

Revenue from Distribution Agreements

From time to time, we enter into marketing and distribution agreements with third parties in which we sell products under ANDAs or NDAs owned or licensed by these third parties.

These products are sold under our own label.

We have assessed and determined that we control the products sold under these marketing and distribution agreements and therefore are the principal for sales under each of these marketing and distribution agreements.

As a result, we recognize revenue on a gross basis when control has passed to the customer and we have satisfied our performance obligation.

Under these agreements, we pay these third parties a specified percentage of the gross profit earned on sales of the products.

These profit-sharing percentages are recognized in cost of sales in our consolidated statements of operations and are accrued in accrued royalties in our consolidated balance sheets until payment has occurred.

As discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K, we estimate the amount of

chargebacks based our actual historical experience.

A number of factors influence current period chargebacks by impacting the average selling price (“ASP”) of products, including customer mix, negotiated terms, volume of off-contract purchases, and wholesale acquisition cost (“WAC”).

Variable consideration is estimated after the consideration of applicable information that is reasonably available.

The Company generally does not have incremental costs to obtain contracts that would otherwise not have been incurred.

The Company does not adjust revenue for the promised amount of consideration for the effects of a significant financing component because our customers generally pay us within 100 days.

Our gross product revenue is subject to a variety of deductions, which are estimated and recorded in the same period that the revenue is recognized, and primarily represent chargebacks, rebates, prompt payment (cash) discounts, Medicaid and other government pricing programs, price protection and shelf stock adjustments, sales returns, and other potential adjustments.

Those deductions represent estimates of rebates and discounts related to gross sales for the reporting period and, as such, knowledge and judgment of market conditions and practice are required when estimating the impact of these revenue deductions on gross sales for a reporting period.

Historically, our changes of estimates reflecting actual results or updated expectations have not been material to our overall business.

If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate predictors of our future experience, our results could be materially affected.

The sensitivity of our estimates can vary by program, type of customer and geographic location.

However, estimates associated with governmental allowances, Medicaid and other performance-based contract rebates are most at risk for material adjustment because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally range up to one year.

Because of this time lag, in any given quarter, our adjustments to actual can incorporate revisions of several prior quarters.

If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to chargeback estimates could cause an increase or decrease in revenue recognized during the year and increase or decrease accounts receivable.

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Government Rebates

As discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K, our estimates for government rebates are based upon several factors.

Our estimates for Medicaid rebates are based upon our average manufacturer price, best price, product mix, levels of inventory in the distribution channel that we expect to be subject to Medicaid rebates, and historical experience, which are invoiced in arrears by state Medicaid programs.

Our estimates for Medicare rebates are based on historical experience.

While such experience has allowed for reasonable estimation in the past, history may not always be an accurate indicator of future rebate experience, and trends in Medicaid and Medicare enrollment and which products are covered by Medicaid and Medicare could change.

If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to government rebate estimates could cause an increase or decrease in revenue recognized during the year and decrease or increase the government rebate reserve.

If actual results were not consistent with our estimates as related to government rebates, we could be exposed to losses or gains that could be material, as changes to government rebate estimates could cause an increase or decrease in revenue recognized during the year and decrease or increase the government rebate reserve.

If there were a 10% change in the government rebate estimates throughout the year, our net revenues would be affected by $2.4 million for the year ended December 31, 2023.

As discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K, our estimate for returns is based upon our historical experience with actual returns.

While such experience has allowed for reasonable estimation in the past, history may not always be an accurate indicator of future returns.

If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to returns estimates could cause an increase or decrease in revenue recognized during the year and decrease or increase the returned goods reserve.

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Administrative Fees and Other Rebates

As discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K, we accrue for fees and rebates by product by wholesaler, at the time of sale based on contracted rates, ASPs, and on-hand inventory counts obtained from wholesalers.

If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to these estimates could cause an increase or decrease in revenue recognized during the year and increase or decrease accounts receivable.

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Prompt Payment Discounts

As discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K, we reserve for sales discounts based on invoices outstanding, assuming, based on past experience, that 100% of available discounts will be taken.

If customers do not take 100% of available discounts as we estimate, we could need to re-adjust our methodology for calculating the prompt payment discount reserve.

If there were a 10% decrease in the prompt payment discounts estimates throughout the year, our net revenues would increase by $2.3 million for the year ended December 31, 2023.

Contract Manufacturing Product Sales Revenue

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

We estimate returns based on historical experience.

Historically, we have not had material returns for contract manufactured products.

We recognized $16.1 million and $10.0 million of revenue related to sales of contract manufactured products in 2022 and 2021, respectively.

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 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.

Under such license agreement, Kite licensed from Dr.

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 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, during the three month period ended March 31, 2021, we agreed to reimburse Cabaret $0.4 million, which has been recorded as other expense, net in the accompanying unaudited interim condensed 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, we do 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 was dismissed.

Product Development Services Revenue

We provide product development services to customers, which are performed over time.

These are services primarily performed at our facility in East Windsor, New Jersey.

As we intend to cease operations at the Oakville, Ontario facility by the first quarter of 2023, we have transitioned the product development services at the facility to one of our three U.S.-based manufacturing sites.

The duration of these technical transfer projects can be up to three years.

Deposits received from these customers are recorded as deferred revenue until revenue is recognized.

For contracts with no deposits and for the remainder of contracts with deposits, we invoice customers as our performance obligations are satisfied.

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

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

We recognized $2.9 million and $1.3 million of revenue related to product development services in 2022 and 2021, respectively.

Intangible Assets

As discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K, our definite-lived intangible assets have a carrying value of $225.1 million as of December 31, 2022.

These assets include ANDAs, NDAs and product rights, marketing and distribution rights, customer relationships, and a non-compete agreement.

These intangible assets were originally recorded at fair value for business combinations and at relative fair value based on the purchase price for asset acquisitions and are stated net of accumulated amortization.

During the third quarter of 2022, we added $7.2 million in ANDA intangible assets related to the July 21, 2022 transaction with Oakrum Pharma, LLC.

These assets will be amortized over a seven-year useful life.

The ANDAs, NDAs and product rights, marketing and distribution rights, customer relationships, 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 unless a pattern reflecting consumption of their economic benefits is readily available.

The estimated useful lives directly impact the amount of amortization expense recorded for these assets on a quarterly and annual basis.

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.

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.

If the fair value of an intangible asset is determined to be lower than its carrying value, we could be exposed to an impairment charge that could be material.

Our indefinite-lived intangible assets other than goodwill have a carrying value of $26.6 million as of December 31, 2022.

These assets include in-process research and development projects (“IPR&D”) acquired in the Novitium acquisition.

When an IPR&D project is completed (generally upon receipt of regulatory approval), the asset is then accounted for as a definite-lived intangible asset.

During the year ended December 31, 2022, $20.3 million was reclassified from IPR&D to ANDA intangible assets upon completion of projects and launch of related products.

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.

If the fair value of an intangible asset is determined to be lower than its carrying value, we could be exposed to an impairment charge that could be material.

During the year ended December 31, 2022, we recognized a full impairment of a definite-lived ANDA asset with a remaining carrying value of $0.1 million.

During the year ended December 31, 2021, we recognized a full impairment of a definite-lived ANDA asset with a remaining carrying value of $2.4 million.

As discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K, our goodwill balance relates to our 2013 merger with BioSante Pharmaceuticals, Inc., the acquisition of WellSpring, and the acquisition of 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.

As a result, the amount of goodwill is directly impacted by the estimates of the fair values of the assets acquired and liabilities assumed.

Goodwill is tested 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.

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

We perform our review of goodwill on our one reporting unit.

Impairment of Goodwill and Intangible Assets

We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination.

We evaluate our reporting units on an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach.

Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (October 31) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.

The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors.

Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit.

The carrying value of goodwill at December 31, 2023 was $28.2 million.

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However, if actual results are not consistent with our estimates or assumptions, we could be exposed to an impairment charge that could be material.

Impairments of Long-Lived Assets

We review our long-lived assets, including intangible assets with finite lives, for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.

We evaluate assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the asset.

If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value which is generally an expected present value cash flow technique.

Our policy in determining whether an impairment indicator exists comprises measurable operating performance criteria as well as other qualitative measures.

Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted.

Factors that we consider in deciding when to perform an impairment review include significant under-performance of a product in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets.

If our assumptions are not correct, there could be an impairment loss in subsequent periods or, in the case of a change in the estimated useful life of the asset, a change in amortization expense.

Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually.

However, an entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary.

Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount.

Otherwise, no further impairment testing is required.

The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount.

If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

We consider many factors in evaluating whether the value of its intangible assets with indefinite lives may not be recoverable, including, but not limited to the discount rate, terminal growth rates, general economic conditions, our outlook and market performance of our industry and recent and forecasted financial performance.

Contingent Consideration

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Stock-Based Compensation

Our Amended and Restated 2022 Stock Incentive Plan (the “2022 Plan”) includes stock options and restricted stock, which are awarded in exchange for employee and non-employee director services.

In July 2016, we commenced administration of our Employee Stock Purchase Plan (“ESPP”).

We recognize the estimated fair value of stock-based awards and classify the expense where the underlying salaries are classified.

From time to time, we may grant stock options to employees through an inducement grant outside of our 2022 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.

The following table summarizes stock-based compensation expense incurred under the Stock Incentive Plan, Inducement Grant, and 2016 Employee Stock Purchase Plan and included in our consolidated statements of operations:

Stock-based compensation c ost for stock options is determined at the grant date using an option pricing model and stock-based compensation cost for restricted stock is based on the closing market price of the stock at the grant date.

The value of the award is recognized as expense on a straight-line basis over the employee’s requisite service period.

Awards may also be issued in the form of Performance Stock Units (“PSUs”) to certain employees of the Company.

PSUs represent the right to receive an amount of cash, a number of shares of common stock or a combination of both, contingent upon the achievement of specified performance and market objectives during a specified performance period.

The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term.

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

These assumptions and judgments include estimating the future volatility of our stock price and dividend yields.

Changes in these assumptions can affect the fair value estimate.

The following table summarizes stock-based compensation and ESPP expense included in our consolidated statements of operations:

Years Ended December 31,

(in thousands) 2023 2022 2021

Cost of sales

Research and development

Selling, general, and administrative $ 19,036 $ 13,316 $ 9,905

Research and development 910 751 564

Cost of sales 706 532 20

$ 20,652 $ 14,599 $ 10,489

Stock-based compensation cost for stock options is determined at the grant date using an option pricing model and stock-based compensation cost for restricted stock is based on the closing market price of the stock at the grant date.

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Changes in estimates could affect compensation expense within individual periods.

If there were to be a 10% change in our stock-based compensation expense for the year, our Loss before Benefit for Income Taxes would be affected by $1.5 million for the year ended December 31, 2022.

If there were to be a 10% change in our stock-based compensation expense for the year, our Income (Loss) Before Expense (Benefit) for Income Taxes would be affected by $2.1 million for the year ended December 31, 2023.

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

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jurisdictions, Canada, and India and remain subject to examination by taxing jurisdictions for the years 1998 and all subsequent periods due to the availability of net operating loss carryforwards.

To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected.

To the extent we are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected.

An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution.

A favorable tax settlement may reduce our effective income tax rate and would be recognized in the period of resolution.

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

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

Our effective income tax rate is also affected by changes in tax law, our level of earnings, and the results of tax audits.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

In December 2022, the Financial Accounting Standards Board issued ASU 2022-06, which extended the sunset date of the reference rate reform in ASU 848 from December 31, 2022, to December 31, 2024.

We have not adopted the guidance and are currently evaluating the impact, if any, that the adoption of this guidance will have on our

consolidated financial statements.

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.

Legal and Other Contingencies

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty.

An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.

In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

Changes in these factors could materially impact our consolidated financial statements.

Recent Accounting Standards

For information on recent accounti ng standards, see Note 1, "Description of Business and Summary of Significant Accounting Policies" of the Notes to the consolidated financial statements in Part II, Item 8.

of this Form 10-K.

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 7. Management’s Discussion and Analysis