UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2021~~2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-14027

Anika Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3145961
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)

32 Wiggins Avenue, Bedford, Massachusetts 01730

(Address of Principal Executive Offices) (Zip Code)

(781) 457-9000

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share	ANIK	~~The Nasdaq Stock~~NASDAQ Global Select Market ~~LLC~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting

company ☐

Emerging growth

company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of October ~~25, 2021,~~31, 2022, there were ~~14,436,773~~14,609,669 outstanding shares of Common Stock, par value $0.01 per share.

ANIKA THERAPEUTICS, INC.

TABLE OF CONTENTS

		Page
Part I	Financial Information
		3
Item 1.	Condensed Consolidated Financial Statements (unaudited):	3

	Condensed Consolidated Balance Sheets as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021	3

	Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	4

	Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	5

	Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2730

Item 4.	Controls and Procedures	2730

Part II	Other Information
		31
Item 1.	Legal Proceedings	2831

Item 1A.	Risk Factors	2831

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2832

~~Item 5.~~	~~Other~~	29

Item 6.	Exhibits	3032

Signatures		3133

References in this Quarterly Report on Form 10-Q to “we,” “us,” “our” and “our company,” and other similar references refer to Anika Therapeutics, Inc. and its subsidiaries unless the context otherwise indicates.

Anika, ~~Arthrosurface,~~ Anika Therapeutics, Anikavisc, Arthrosurface, Cingal, Hyaff, Monovisc, Orthovisc, Parcus Medical, Tactoset ~~Hyvisc~~ and ~~WristMotion~~Hyvisc are our registered trademarks that appear in this Quarterly Report on Form 10-Q. For convenience, these trademarks appear in this Quarterly Report on Form 10-Q without ® and ™ symbols, but that practice does not mean that we will not assert, to the fullest extent under applicable law, our rights to the trademarks. This Quarterly Report on Form 10-Q also contains trademarks and trade names that are the property of other companies and licensed to us.

PARTI:

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

~~Anika Therapeutics, Inc. and Subsidiaries~~
Anika Therapeutics, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except per share data) (unaudited)
~~(in thousands, except per share data)~~
~~(unaudited)~~

	September 30,			December 31,			September 30,			December 31,
ASSETS	2021			2020			2022			2021
Current assets:
Cash and cash equivalents	$	90,976		$	95,817		$	87,777		$	94,386
Investments		0			2,501
Accounts receivable, net of reserves of $1,358 and $1,523 at September 30, 2021 and December 31, 2020, respectively		32,352			24,102
Accounts receivable, less allowance for credit losses of $1,566 and $1,442 at September 30, 2022 and December 31, 2021, respectively								34,168			29,843
Inventories, net		35,019			46,209			37,237			36,010
Prepaid expenses and other current assets		7,433			8,754			8,579			8,289
Total current assets		165,780			177,383			167,761			168,528
Property and equipment, net		49,111			50,613			47,390			47,602
Right-of-use assets		21,397			22,619			30,987			20,957
Other long-term assets		23,671			15,420			18,342			20,285
Intangible assets, net		85,021			91,157			76,545			82,382
Goodwill		7,950			8,413			6,721			7,781
Total assets	$	352,930		$	365,605		$	347,746		$	347,535

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,942		$	8,984		$	8,353		$	7,633
Accrued expenses and other current liabilities		17,339			14,793			17,999			17,847
Contingent consideration – current portion		3,490			13,090
Contingent consideration								-			4,315
Total current liabilities		28,771			36,867			26,352			29,795
Other long-term liabilities		1,489			1,244			474			1,258
Contingent consideration		0			22,320
Deferred tax liability		12,972			11,895			6,800			10,157
Lease liabilities		19,638			20,879			29,183			19,240
Commitments and contingencies (Note 9)
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value; 1,250 shares authorized, no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		0			0
Common stock, $0.01 par value; 90,000 shares authorized, 14,436 and 14,329 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		144			143
Preferred stock, $0.01 par value; 1,250 shares authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively								-			-
Common stock, $0.01 par value; 90,000 shares authorized, 14,607 and 14,441 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively								146			144
Additional paid-in-capital		63,864			55,355			76,661			67,081
Accumulated other comprehensive loss		(5,319	)		(4,542	)		(7,497	)		(5,718	)
Retained earnings		231,371			221,444			215,627			225,578
Total stockholders’ equity		290,060			272,400			284,937			287,085
Total liabilities and stockholders’ equity	$	352,930		$	365,605		$	347,746		$	347,535

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

Anika Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue	$	40,264		$	39,536		$	116,614		$	111,973
Cost of revenue		17,485			16,513			47,169			47,164
Gross Profit		22,779			23,023			69,445			64,809

Operating expenses:
Research & development		7,301			7,673			20,433			21,327
Selling, general & administrative		21,276			17,500			61,745			53,664
Change in fair value of contingent consideration		-			(3,450	)		-			(21,920	)
Total operating expenses		28,577			21,723			82,178			53,071
(Loss) income from operations		(5,798	)		1,300			(12,733	)		11,738
Interest and other income (expense), net		436			(48	)		378			(141	)
(Loss) income before income taxes		(5,362	)		1,252			(12,355	)		11,597
(Benefit from) provision for income taxes		(1,187	)		694			(2,404	)		1,670
Net (loss) income	$	(4,175	)	$	558		$	(9,951	)	$	9,927

Net (loss) income per share:
Basic	$	(0.29	)	$	0.04		$	(0.68	)	$	0.69
Diluted	$	(0.29	)	$	0.04		$	(0.68	)	$	0.68

Weighted average common shares outstanding:
Basic		14,603			14,429			14,542			14,389
Diluted		14,603			14,647			14,542			14,588

Net (loss) income	$	(4,175	)	$	558		$	(9,951	)	$	9,927
Foreign currency translation adjustment		(851	)		199			(1,779	)		(777	)
Comprehensive (loss) income	$	(5,026	)	$	757		$	(11,730	)	$	9,150

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

~~Anika Therapeutics, Inc. and Subsidiaries~~

~~Consolidated Statements of Operations and Comprehensive Income~~

~~(in thousands, except per share data)~~

~~(unaudited)~~

Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)

	Nine Months Ended September 30, 2022
												*Accumulated*
	*Common Stock*											*Other*			*Total*
	*Number of*			*$.01 Par*		*Additional Paid*			*Retained*			*Comprehensive*			*Stockholders'*
	*Shares*			*Value*		*in Capital*			*Earnings*			*Loss*			*Equity*
Balance, January 1, 2022		14,441		$	144	$	67,081		$	225,578		$	(5,718	)	$	287,085
Issuance of common stock for equity awards		1			-		15			-			-			15
Vesting of restricted stock units		106			1		(1	)		-			-			-
Stock-based compensation expense		-			-		2,545			-			-			2,545
Retirement of common stock for minimum tax withholdings		(30	)		-		(844	)		-			-			(844	)
Net loss		-			-		-			(2,933	)		-			(2,933	)
Other comprehensive income		-			-		-			-			(81	)		(81	)
Balance, March 31, 2022		14,518		$	145	$	68,796		$	222,645		$	(5,799	)	$	285,787
Vesting of restricted stock units		61			1		(1	)		-			-			-
Issuance of ESPP shares		20			-		-			-			-			-
Stock-based compensation expense		-			-		4,081			-			-			4,081
Retirement of common stock for minimum tax withholdings		(1	)		-		(25	)		-			-			(25	)
Net loss		-			-		-			(2,843	)		-			(2,843	)
Other comprehensive income		-			-		-			-			(847	)		(847	)
Balance, June 30, 2022		14,598		$	146	$	72,851		$	219,802		$	(6,646	)	$	286,153
Vesting of restricted stock units		11			-		-			-			-			-
Issuance of ESPP shares		-			-		-			-			-			-
Stock-based compensation expense		-			-		3,876			-			-			3,876
Retirement of common stock for minimum tax withholdings		(2	)		-		(66	)		-			-			(66	)
Net loss		-			-		-			(4,175	)		-			(4,175	)
Other comprehensive income		-			-		-			-			(851	)		(851	)
Balance, September 30, 2022		14,607		$	146	$	76,661		$	215,627		$	(7,497	)	$	284,937

Three Months Ended
September 30,

Nine Months Ended
September 30,

2021

2020

2021

2020

Revenue
$ 39,536 $ 31,694 $ 111,973 $ 97,769
Cost of revenue
16,513 14,351 47,164 45,487
Gross Profit
23,023 17,343 64,809 52,282

Operating expenses:

Research and development
7,673 5,217 21,327 15,799
Selling, general and administrative
17,500 15,903 53,664 44,884
Goodwill impairment
0 0 0 18,144
Change in fair value of contingent consideration
(3,450
)
4,150 (21,920
)
(16,176
)
Total operating expenses
21,723 25,270 53,071 62,651
Income (loss) from operations
1,300 (7,927
)
11,738 (10,369
)
Interest and other expense, net
(48
)
(228
)
(141
)
(118
)
Income (loss) before income taxes
1,252 (8,155
)
11,597 (10,487
)
Provision for (benefit from) income taxes
694 (1,744
)
1,670 (2,161
)
Net income (loss)
$ 558 $ (6,411
)
$ 9,927 $ (8,326
)

Net income (loss) per share:

Basic
$ 0.04 $ (0.45
)
$ 0.69 $ (0.59
)
Diluted
$ 0.04 $ (0.45
)
$ 0.68 $ (0.59
)
Weighted average common shares outstanding:

Basic
14,429 14,205 14,389 14,202
Diluted
14,647 14,205 14,588 14,202

Net income (loss)
$ 558 $ (6,411
)
$ 9,927 $ (8,326
)
Foreign currency translation adjustment
(467
)
522 (777
)
602
Comprehensive income (loss)
$ 91 $ (5,889
)
$ 9,150 $ (7,724
)

	Nine Months Ended September 30, 2021
											Accumulated
	Common Stock										Other			Total
	*Number of*			*$.01 Par*		*Additional Paid*			*Retained*		*Comprehensive*			*Stockholders'*
	*Shares*			*Value*		*in Capital*			*Earnings*		*Loss*			*Equity*
Balance, January 1, 2021		14,329		$	143	$	55,355		$	221,444	$	(4,542	)	$	272,400
Issuance of common stock for equity awards		-			-		1			-		-			1
Vesting of restricted stock units		46			1		(1	)		-		-			-
Stock-based compensation expense		-			-		2,259			-		-			2,259
Retirement of common stock for minimum tax withholdings		(9	)		-		(333	)		-		-			(333	)
Net income		-			-		-			2,838		-			2,838
Other comprehensive income		-			-		-			-		(509	)		(509	)
Balance, March 31, 2021		14,366		$	144	$	57,281		$	224,282	$	(5,051	)	$	276,656
Issuance of common stock for equity awards		18			-		640			-		-			640
Vesting of restricted stock units		35			-		-			-		-			-
Stock-based compensation expense		-			-		2,797			-		-			2,797
Retirement of common stock for minimum tax withholdings		(1	)		-		(19	)		-		-			(19	)
Net income		-			-		-			6,531		-			6,531
Other comprehensive income		-			-		-			-		199			199
Balance, June 30, 2021		14,418		$	144	$	60,699		$	230,813	$	(4,852	)	$	286,804
Issuance of common stock for equity awards		10			-		373			-		-			373
Vesting of restricted stock units		9			-		-			-		-			-
Stock-based compensation expense		-			-		2,863			-		-			2,863
Retirement of common stock for minimum tax withholdings		(1	)		-		(71	)		-		-			(71	)
Net income		-			-		-			558		-			558
Other comprehensive income		-			-		-			-		(467	)		(467	)
Balance, September 30, 2021		14,436		$	144	$	63,864		$	231,371	$	(5,319	)	$	290,060

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

Anika Therapeutics, Inc. and Subsidiaries

Consolidated Statements of ~~Stockholders' Equity~~Cash Flows

(in thousands)

(unaudited)

Nine Months Ended September 30, 2021

Accumulated

Common Stock

Other

Total

Number of

$.01 Par

Additional Paid

Retained

Comprehensive

Stockholders'

Shares

Value

in Capital

Earnings

Loss

Equity

Balance, January 1, 2021
14,329 $ 143 $ 55,355 $ 221,444 $ (4,542
)
$ 272,400
Issuance of common stock for equity awards
0 0 1 0 0 1
Vesting of restricted stock units
46 1 (1
)
- - -
Stock-based compensation expense
- 0 2,259 0 0 2,259
Retirement of common stock for minimum tax withholdings
(9
)
0 (333
)
0 0 (333
)
Net income
- 0 0 2,838 0 2,838
Other comprehensive income
- 0 0 0 (509
)
(509
)
Balance, March 31, 2021
14,366 $ 144 $ 57,281 $ 224,282 $ (5,051
)
$ 276,656
Issuance of common stock for equity awards
18 0 640 0 0 640
Vesting of restricted stock units
35 0 0 0 0 0
Stock-based compensation expense
- 0 2,797 0 0 2,797
Retirement of common stock for minimum tax withholdings
(1 ) 0 (19 ) 0 0 (19 )
Net income
- 0 0 6,531 0 6,531
Other comprehensive income
- 0 0 0 199 199
Balance, June 30, 2021
14,418 144 60,699 230,813 (4,852 ) 286,804
Issuance of common stock for equity awards
10 0 373 0 0 373
Vesting of restricted stock units
9 0 0 0 0 0
Stock-based compensation expense
- 0 2,863 0 0 2,863
Retirement of common stock for minimum tax withholdings
(1 ) 0 (71 ) 0 0 (71 )
Net income
- 0 0 558 0 558
Other comprehensive income
- 0 0 0 (467 ) (467 )
Balance, September 30, 2021
14,436 144 63,864 231,371 (5,319 ) 290,060

Nine Months Ended September 30, 2020

Accumulated

Common Stock

Other

Total

Number of

$.01 Par

Additional Paid

Retained

Comprehensive

Stockholders'

Shares

Value

in Capital

Earnings

Loss

Equity

Balance, January 1, 2020
14,308 $ 143 $ 48,707 $ 245,426 $ (5,898
)
$ 288,378
Vesting of restricted stock units
42 0 0 0 0 0
Forfeiture of restricted stock awards
(9
)
0 0 0 0 0
Stock-based compensation expense
- 0 (207
)
0 0 (207
)
Retirement of common stock for minimum tax withholdings
(4
)
0 (141
)
0 0 (141
)
Repurchase of common stock
(139
)
(1
)
1 0 0 0
Net income
- 0 0 5,793 0 5,793
Other comprehensive loss
- 0 0 0 (129
)
(129
)
Balance, March 31, 2020
14,198 $ 142 $ 48,360 $ 251,219 $ (6,027
)
$ 293,694
Issuance of common stock for equity awards
2 0 68 0 0 68
Vesting of restricted stock units
7 0 0 0 0 0
Stock-based compensation expense
- 0 2,240 0 0 2,240
Retirement of common stock for minimum tax withholdings
(3
)
0 (59
)
0 0 (59
)
Net loss
- 0 0 (7,708
)
0 (7,708
)
Other comprehensive income
- 0 0 0 209 209
Balance, June 30, 2020
14,204 $ 142 $ 50,609 $ 243,511 $ (5,818
)
$ 288,444
Vesting of restricted stock units
4 0 0 0 0 0
Stock-based compensation expense
- 0 1,920 0 0 1,920
Retirement of common stock for minimum tax withholdings
- 0 (24
)
0 0 (24
)
Net loss
- 0 0 (6,411
)
0 (6,411
)
Other comprehensive income
- 0 0 0 522 522
Balance, September 30, 2020
14,208 $ 142 $ 52,505 $ 237,100 $ (5,296
)
$ 284,451

	Nine Months Ended September 30
	2022			2021
Cash flows from operating activities:
Net (loss) income	$	(9,951	)	$	9,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,984			4,702
Amortization of acquisition related intangible assets		5,837			5,885
Amortization of acquisition related inventory step-up		-			6,244
Non-cash operating lease cost		1,322			1,312
Change in fair value of contingent consideration		-			(21,920	)
Loss on disposal of fixed assets		-			831
Stock-based compensation expense		10,502			7,919
Deferred income taxes		(3,491	)		1,018
Provision (recovery) for doubtful accounts		379			(60	)
Provision for inventory		3,701			3,702
Other					(13	)
Changes in operating assets and liabilities:
Accounts receivable		(4,983	)		(8,321	)
Inventories		(3,933	)		(7,117	)
Prepaid expenses, other current and long-term assets		(456	)		1,864
Accounts payable		533			(702	)
Operating lease liabilities		(1,054	)		(1,247	)
Accrued expenses, other current and long-term liabilities		115			3,104
Contingent consideration		-			(2,780	)
Income taxes		423			(423	)
Net cash provided by operating activities		3,928			3,925

Cash flows from investing activities:
Acquisition of Parcus Medical and Arthrosurface, net of cash acquired		-			(363	)
Proceeds from maturities of investments		-			2,501
Purchases of property and equipment		(4,957	)		(4,016	)
Net cash used in investing activities		(4,957	)		(1,878	)

Cash flows from financing activities:
Payments made on finance leases		(284	)		(210	)
Cash paid for tax withheld on vested restricted stock awards		(935	)		(423	)
Proceeds from exercises of equity awards		15			1,014
Contingent consideration payout		(4,315	)		(7,220	)
Net cash used in financing activities		(5,519	)		(6,839	)

Exchange rate impact on cash		(61	)		(49	)

Decrease in cash and cash equivalents		(6,609	)		(4,841	)
Cash and cash equivalents at beginning of period		94,386			95,817
Cash and cash equivalents at end of period	$	87,777		$	90,976
Supplemental disclosure of cash flow information:
Non-cash investing activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	11,589		$	195
Purchases of property and equipment included in accounts payable and accrued expenses	$	108		$	220

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

~~Anika Therapeutics, Inc. and Subsidiaries~~

~~Consolidated Statements of Cash Flows~~

~~(in thousands)~~

~~(unaudited)~~

Nine Months Ended September 30,

2021

2020

Cash flows from operating activities:

Net income (loss)
$ 9,927 $ (8,326
)
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation
4,702 4,545
Amortization of acquisition related intangible assets 5,885 5,418
Amortization of acquisition related inventory step-up 6,244 7,396
Non-cash operating lease cost
1,312 1,136
Goodwill impairment
0 18,144
Change in fair value of contingent consideration
(21,920 ) (16,176
)
Loss on disposal of fixed assets
831 287
Loss on impairment of intangible asset
0 1,025
Stock-based compensation expense
7,919 3,953
Deferred income taxes
1,018 (3,302
)
Recovery for doubtful accounts
(60 ) (482
)
Provision for inventory
3,702 4,205
Other
(13 ) (19 )
Changes in operating assets and liabilities:

Accounts receivable
(8,321 ) 7,811
Inventories
(7,117 ) (8,840
)
Prepaid expenses, other current and long-term assets
1,864 (989
)
Accounts payable
(702 ) (1,904
)
Operating lease liabilities
(1,247 ) (1,286
)
Accrued expenses, other current and long-term liabilities
3,104 (2,340
)
Contingent consideration
(2,780 ) 0
Income taxes
(423 ) 222
Net cash provided by operating activities
3,925 10,478

Cash flows from investing activities:

Acquisition of Parcus Medical and Arthrosurface, net of cash acquired
(363 ) (93,859
)
Proceeds from maturities of investments
2,501 27,000
Purchases of investments
0 (20,035
)
Purchases of property and equipment
(4,016 ) (1,179
)
Net cash used in investing activities
(1,878 ) (88,073
)

Cash flows from financing activities:

Payments made on finance leases
(210 ) (155
)
Repayments of long term debt
0 (25,351
)
Proceeds from long term debt
0 50,000
Cash paid for contingent consideration
(7,220 ) 0
Cash paid for tax withheld on vested restricted stock awards
(423 ) (224
)
Proceeds from exercises of equity awards
1,014 68
Net cash (used in) provided by financing activities
(6,839 ) 24,338

Exchange rate impact on cash and cash equivalents
(49 ) 10

Decrease in cash and cash equivalents
(4,841 ) (53,247
)
Cash and cash equivalents at beginning of period
95,817 157,463
Cash and cash equivalents at end of period
$ 90,976 $ 104,216
Supplemental disclosure of cash flow information:

Non-cash Investing Activities:

Purchases of property and equipment included in accounts payable and accrued expenses
$ 195 $ 44
Right of use assets
$ 220 $ 0
Consideration for acquisitions included in accounts payable and accrued expenses
$ 0 $ 1,209
Acquisition related contingent consideration
$ 0 $ 69,076
Non-cash Financing Activities:

Operating lease liabilities
$ 220 $ 0

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

ANIKA THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

1.	Nature of Business

Anika Therapeutics, Inc. ((“the ~~“Company”~~Company”) is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care, including in the areas of osteoarthritis (“OA”) pain management, regenerative solutions, soft tissue repair and bone preserving joint technologies.

In early 2020, the Company expanded its overall technology platform through its strategic acquisitions of Parcus Medical, LLC (“Parcus Medical”), a sports medicine implant and instrumentation solutions provider focused on sports medicine and soft tissue repair, and Arthrosurface, Inc. (“Arthrosurface”), a company specializing in less invasive, bone preserving partial and total joint replacement solutions. These acquisitions broadened the Company’s product portfolio, developed over its ~~nearly~~ 30 years of expertise in hyaluronic acid technology, into the broader joint preservation and restoration market with greater market potential, added high-growth revenue streams, increased ~~its~~the Company’s commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.

The Company is subject to risks common to companies in the life sciences industry including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with U.S. Food and Drug Administration ~~(“FDA”)~~ and foreign regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.

There continue to be uncertainties regarding the pandemic of the ~~novel~~ongoing coronavirus (“COVID-19”), and the Company is closely monitoring the impact of COVID-19 on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and ~~business partners.~~a broader impact on elective surgeries. The Company is unable to predict the specific impact that COVID-19 may have on its financial position and operations moving forward due to the numerous uncertainties. Any estimates made herein may change as new events occur and additional information is obtained, and actual results could differ materially from any estimates made herein under different assumptions or conditions. The Company will continue to assess the evolving impact of COVID-19.

2.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the ~~United States~~ Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”). The financial statements include the accounts of Anika Therapeutics, Inc. and its subsidiaries. Inter-company transactions and balances have been eliminated. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been ~~condensed~~ or omitted ~~from this report~~ pursuant to SEC rules and regulations relating to interim financial statements. The December 31, ~~2020~~2021 balances reported herein ~~are~~were derived from the audited consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The results of operations for the three--month and nine-month periods ended September 30, ~~2021~~2022, are not indicative of the results to be expected for the year ending December 31, ~~2021.~~2022

Segment Information

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its President and Chief Executive Officer as of September 30, ~~2021.~~2022. Based on the criteria established by Accounting Standards Codification ~~(“ASC”)~~ 280, Segment Reporting, the Company has one operating and reportable segment.

~~Recent Accounting Adoptions~~

In ~~December 2019,~~ ~~the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)~~ ~~2019~~-~~12,~~~~Income Taxes (Topic~~ ~~740~~) – ~~Simplifying the Accounting for Income Taxes,~~ ~~to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic~~ ~~740.~~ ~~The amendments also improve consistent application of and simplify US GAAP for other areas of Topic~~ ~~740~~ ~~by clarifying and amending existing guidance. ASU~~ ~~2019~~-12~~is effective for fiscal years beginning after~~ ~~December 15, 2020~~ ~~and interim periods within those fiscal years. The Company adopted ASU~~ ~~2019~~-12 ~~as of~~ ~~January 1, 2021.~~ ~~The adoption of this standard did~~ ~~not~~ ~~have a significant impact on the Company’s consolidated financial statements and related disclosures.~~

3.	Business Combinations

Parcus Medical, LLC

On January 24, 2020, the Company completed the acquisition of Parcus Medical pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 (the “Parcus Medical Merger Agreement”), by and among the Company, Parcus Medical, the Unitholder Representative, and Sunshine Merger Sub LLC, a Wisconsin limited liability company and a wholly owned subsidiary of the Company. At the closing date, Parcus Medical became a wholly owned subsidiary of the Company.. Parcus Medical is a sports medicine implant and instrumentation solutions provider focused on surgical repair and reconstruction of soft tissue.

~~The acquisition of Parcus Medical has been accounted for as a business combination under ASC~~ ~~805.~~ ~~Under ASC~~ ~~805,~~ ~~Business Combinations,~~ the assets acquired and liabilities assumed in a business combination must be recorded at their fair value as of the acquisition date. The Company’s consolidated financial statements include results of operations for Parcus Medical from the ~~January 24, 2020~~ ~~acquisition date.~~

Consideration Transferred

Pursuant to the Parcus Medical Merger Agreement, the Company acquired all outstanding equity of Parcus Medical for estimated total purchase consideration of $75.1 million, as of January 24, 2020, which consisted of:

Cash consideration	$	32,794
Deferred consideration		1,642
Estimated fair value of contingent consideration		40,700
Estimated total purchase consideration	$	75,136

~~Contingent~~Pursuant to the Parcus Medical Merger Agreement, contingent consideration represents additional payments that the Company may be required to make in the future which could total up to $60.0 million depending on the level of net sales of Parcus Medical products generated in 2020 through 2022.

The fair value of contingent consideration related to net sales as of January 24, 2020, and at each reporting date, was determined based on a Monte Carlo simulation model in an option pricing framework, ~~at the acquisition date,~~ whereby a range of possible scenarios were simulated. ~~There also was deferred consideration related to certain purchase price holdbacks, which was resolved within~~ ~~one~~ ~~year of the acquisition date in accordance with the Parcus Merger Agreement and was recorded in accounts payable as of~~ ~~December 31, 2020.~~ ~~There was~~ no ~~deferred consideration as of~~ ~~September 30, 2021.~~ The liability for contingent ~~and deferred~~ consideration iswas included in current ~~and long-term~~ liabilities on the condensed consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved. ~~See Note~~During the 4,three ~~Fair Value Measurements~~~~, for additional discussion of~~months ended September 30, 2022, the Company paid the contingent consideration related to net sales in the amount of $4.3 million which was included in current liabilities as of ~~September 30, 2021~~ ~~and~~ December 31, ~~2020.~~2021. The Company does not expect any further milestones to be achieved.

Acquisition-related costs ~~are~~were not included as a component of consideration transferred but ~~are~~were expensed in the periods in which the costs are incurred. The Company incurred approximately $1.9 million in transaction costs related to the Parcus Medical acquisition during the three-month period ending March 31, 2020. The transaction costs subsequent to March 31, 2020 were immaterial. ~~The transaction costs have been included in selling, general and administrative expenses in the consolidated statements of operations.~~

Fair Value of Net Assets Acquired

The estimate of fair value as of the acquisition date required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable, however, actual results may differ from these estimates.

The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of January 24, 2020, and iswas as follows:

Recognized identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	196
Accounts receivable		2,029
Inventories		10,968
Prepaid expenses and other current assets		364
Property and equipment, net		1,099
Right-of-use assets		944
Intangible assets		44,000
Accounts payable, accrued expenses and other current liabilities		(2,763	)
Other long-term liabilities		(594	)
Lease liabilities		(735	)
Net assets acquired		55,508
Goodwill		19,628
Estimated total purchase consideration	$	75,136

The acquired intangible assets based on estimates of fair value as of January 24, 2020 ~~are~~were as follows:

Developed technology	$	41,100
Trade name		1,800
Customer relationships		1,100
Total acquired intangible assets	$	44,000

The fair value of the developed technology intangible assets has been estimated using the multi-period excess earnings method, which is based on the principle that the value of an intangible asset is equal to the present value of the incremental after-tax cash flow attributable to the asset, after charges for other assets employed by the business. The fair value of the customer relationships has been estimated using the avoided costs/lost profits method, which is based on the principle that the value of an intangible asset is based on consideration of the total costs that would be avoided by having this asset in place. The fair value of the trade name has been estimated using the relief from royalty method of the income approach, which is based on the principle that the value of an intangible asset is equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. Key estimates and assumptions used in these models are projected revenues and expenses related to the asset, estimated contributory asset charges, estimated costs to recreate the asset, and a risk-adjusted discount rate used to calculate the present value of the future expected cash inflows or cash outflows avoided from the asset.

The fair value of developed technology will be amortized over a useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of the trade name over 5 years.

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface. The goodwill ~~is attributable to the workforce~~was impaired in 2020 and there was no remaining goodwill as of ~~the business and the value of future technologies expected to arise after the acquisition. Goodwill will~~ ~~not~~December 31, 2020. ~~be amortized and is expected to be deductible for income tax purposes as the acquisition of the limited liability company is an asset purchase for tax purposes. See Note~~ 7,~~Goodwill~~~~, for further discussion.~~

Arthrosurface, Inc.

On February 3, 2020, the Company completed the acquisition of Arthrosurface pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 (the “Arthrosurface Merger Agreement”), by and among the Company, Arthrosurface, the Stockholder Representative, and Button Merger Sub, a Delaware corporation and a wholly owned subsidiary of the Company. At the closing date, Arthrosurface became a wholly owned subsidiary of the Company.. Arthrosurface is a joint preservation technology company specializing in less invasive, bone-preserving partial and total joint replacement solutions.

~~The acquisition of Arthrosurface has been accounted for as a business combination under ASC~~ ~~805.~~ ~~Under ASC~~ ~~805,~~ assets acquired and liabilities assumed in a business combination must be recorded at their fair values as of the acquisition date. The Company’s consolidated financial statements include results of operations for Arthrosurface from the ~~February 3, 2020~~ ~~acquisition date.~~

Consideration Transferred

Pursuant to the Arthrosurface Merger Agreement, the Company acquired all outstanding equity of Arthrosurface for estimated total purchase consideration of $90.3 million, as of February 3, 2020 which consisted of:

Cash consideration	$	61,909
Estimated fair value of contingent consideration		28,376
Estimated total purchase consideration	$	90,285

Pursuant to the Arthrosurface Merger Agreement, the Company could be required to make future payments of up to $40.0 million depending on the achievement of regulatory milestones and the level of net sales of Arthrosurface products infrom 2020 through 2021. The fair value of contingent consideration related to regulatory milestones as of February 3, 2020 was determined through a scenario-based discounted cash flow analysis using scenario probabilities and regulatory milestone dates. The fair value of contingent consideration related to net sales achievement as of February 3, 2020 was determined based upon a Monte Carlo simulation approach at acquisition date, whereby a range of possible scenarios were simulated. InThe Company paid $5.0 million in October 2020 and $10.0 million in July 2021 based upon the achievement of two distinct regulatory milestones, the Company paid $5.0 million and $10.0 million, respectively. The liability for contingent consideration is included in current and long-term liabilities on the consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved. See Note 4,~~Fair Value Measurements~~~~, for additional discussion of contingent consideration as~~milestones. As of September 30, ~~2021~~2022, ~~and~~there were ~~December 31, 2020.~~no milestones remaining.

Acquisition-related costs ~~are~~were not included as a component of consideration transferred but ~~are~~were expensed in the periods in which the costs are incurred. The Company incurred approximately $2.2 million in transaction costs related to the Arthrosurface acquisition during the three-month period ending March 31, 2020. The transaction costs subsequent to March 31, 2020 were immaterial. ~~The transaction costs have been included in selling, general and administrative expenses in the consolidated statements of operations.~~

Fair Value of Net Assets Acquired

The estimate of fair value required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.

The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of February 3, 2020, as follows:

Recognized identifiable assets acquired and liabilities assumed:

Cash and cash equivalents
$ 1,072
Accounts receivable
5,368
Inventories
15,652
Prepaid expenses and other current assets
535
Property, plant and equipment
3,394
Other long-term assets
7,548
Intangible assets
48,900
Accounts payable, accrued expenses and other liabilities
(3,929
)
Deferred tax liabilities
(11,147
)
Net assets acquired
67,393
Goodwill
22,892
Estimated total purchase consideration
$ 90,285

Intangible assets acquired consist of:

Developed technology
$ 37,000
Trade name
3,400
Customer relationships
7,900
IPR&D
600
Total acquired intangible assets
$ 48,900

Recognized identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	1,072
Accounts receivable		5,368
Inventories		15,652
Prepaid expenses and other current assets		535
Property, plant and equipment		3,394
Other long-term assets		7,548
Intangible assets		48,900
Accounts payable, accrued expenses and other liabilities		(3,929	)
Deferred tax liabilities		(11,147	)
Net assets acquired		67,393
Goodwill		22,892
Estimated total purchase consideration	$	90,285
Intangible assets acquired consist of:
Developed technology	$	37,000
Trade name		3,400
Customer relationships		7,900
IPR&D		600
Total acquired intangible assets	$	48,900

The fair value of developed technology will be amortized over an estimated useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of ~~the~~ trade ~~name~~names over 5 years. A total of $0.6 million represents the fair value of IPR&D with an indefinite useful life ~~that will be evaluated for impairment annually, or more frequently if events or changes in circumstances indicate that~~which was impaired during the ~~asset might be impaired.~~quarter ended December 31, 2021.

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface. The goodwill ~~is attributable to the workforce of the business and the value of future technologies expected to arise after the acquisition. Goodwill will~~ ~~not~~ ~~be amortized and is~~ ~~not~~ ~~expected to be deductible for income tax purposes as the acquisition of the corporation is a stock purchase for tax purposes See Note~~ 7,~~Goodwill~~~~, for further discussion.~~

~~Pro~~ ~~Forma~~ ~~Information~~

~~The Parcus Medical and Arthrosurface acquisitions were both completed~~was impaired in ~~the~~ ~~first~~ ~~quarter of~~ ~~2020.~~ Both acquired companies have similar businesses with all of their products in the Joint Preservation and Restoration product family, serving orthopedic surgeons, ambulatory surgical centers and hospitals. The Company has combined legacy Anika, Parcus Medical and Arthrosurface pro forma supplemental information as follows.

~~The unaudited pro forma information for the~~ ~~nine~~~~-month periods ended~~ ~~September 30, 2021~~ ~~and~~ 2020 and there was ~~calculated after applying the Company’s accounting policies and the impact~~no remaining goodwill as of acquisition date fair value adjustments. The pro forma financial information presents the combined results of operations of Anika, Parcus Medical and Arthrosurface as if the acquisitions had occurred on ~~January 1, 2019~~ December 31, 2020.after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisitions.

These pro forma adjustments include: (i) a net increase in amortization expense to record amortization expense for the aforementioned acquired identifiable intangible assets, (ii) an adjustment to cost of revenue based on the preliminary inventory step-up and the anticipated inventory turnover, (iii) a net decrease in interest expense as a result of eliminating interest expense and interest income related to borrowings that were settled in accordance with the respective Parcus Medical Merger Agreement and Arthrosurface Merger Agreement, (iv) an adjustment to record the acquisition-related transaction costs in the period required, and (v) the tax effect of the pro forma adjustments using the anticipated effective tax rate. The effective tax rate of the combined company could be materially different from the effective rate presented in this unaudited pro forma combined financial information. As a result of the transaction, the combined company ~~may~~ be subject to annual limitations on its ability to utilize pre-acquisition net operating loss carryforwards to offset future taxable income. The amount of the annual limitation is determined based on the value of Anika immediately prior to the acquisition. As further information becomes available, any such adjustment described above could be material to the amounts presented in the unaudited pro forma combined financial statements. The pro forma information does ~~not~~ purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

~~The following table presents unaudited supplemental pro forma information:~~

Nine Months Ended
September 30, 2020

Total revenue
$ 101,722
Net loss
(7,328
)

4.	Fair Value Measurements

The Company ~~held investments~~has certain cash equivalents in ~~U.S. treasury bills of $2.5 million as available-for-sale securities at~~ ~~December 31, 2020.~~ ~~Unrealized losses and the associated tax impact on the Company’s available-for-sale securities were insignificant at~~ ~~December 31, 2020.~~ ~~There were~~ no ~~available-for-sale securities as of~~ ~~September 30, 2021.~~

~~The Company’s investments~~money market funds that are ~~all~~ classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets. For cash, ~~current~~accounts receivables, accounts payable, and accrued interest, ~~accrual,~~ the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore fair value information is not included in the table below. Contingent consideration related to the previously described business combinations are classified within Level 3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. There were no transfers between fair value levels during the nine-month periods ended September 30, 2022 or 2021. See Note 3,Business Combinations for additional discussion of contingent consideration as of September 30, 2022.

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

			Active Markets		Significant Other		Significant
			for Identical Assets		Observable Inputs		Unobservable Inputs
	September 30, 2022		(Level 1)		(Level 2)		(Level 3)		Amortized Cost
Cash equivalents:
Money Market Funds	$	67,348	$	67,348	$	-	$	-	$	67,348

Other current liabilities:
Contingent Consideration - Short Term	$	-	$	-	$	-	$	-	$	-

			Active Markets		Significant Other		Significant						Active Markets		Significant Other		Significant
			for Identical Assets		Observable Inputs		Unobservable Inputs						for Identical Assets		Observable Inputs		Unobservable Inputs
	September 30, 2021		(Level 1)		(Level 2)		(Level 3)		Amortized Cost		December 31, 2021		(Level 1)		(Level 2)		(Level 3)		Amortized Cost
Cash equivalents:
Money Market Funds	$	67,042	$	67,042	$	0	$	0	$	67,042	$	67,046	$	67,046	$	-	$	-	$	67,046

Other current and long-term liabilities:
Other current liabilities:
Contingent Consideration - Short Term	$	3,490	$	0	$	0	$	3,490	$	0	$	4,315	$	-	$	-	$	4,315	$	-

Active Markets

Significant Other

Significant

for Identical Assets

Observable Inputs

Unobservable Inputs

December 31, 2020

(Level 1)

(Level 2)

(Level 3)

Amortized Cost

Cash equivalents:

Money Market Funds
$ 74,522 $ 74,522 $ 0 $ 0 $ 74,522

Investments:

U.S. Treasury Bills
$ 2,501 $ 2,501 $ 0 $ 0 $ 2,524

Other current and long-term liabilities:

Contingent Consideration - Short Term
$ 13,090 $ 0 $ 0 $ 13,090 $ 0
Contingent Consideration - Long Term
22,320 0 0 22,320 0
Total other current and long-term liabilities
$ 35,410 $ 0 $ 0 $ 35,410 $ 0

Contingent Consideration

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

							Nine Months Ended			Nine Months Ended
	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021			September 30, 2022			September 30, 2021
Balance, beginning	$	16,940		$	35,410		$	4,315		$	35,410
Additions		0			0
Payments		(10,000	)		(10,000	)		(4,315	)		(10,000	)
Change in fair value		(3,450	)		(21,920	)		-			(21,920	)
Balance, ending	$	3,490		$	3,490		$	-		$	3,490

~~Under the Parcus Medical Merger Agreement and Arthrosurface Merger Agreement, there are earn-out milestones totaling $100 million payable from~~

~~2020~~11 to ~~2022.~~ ~~Parcus Medical has net sales earn-out milestones annually from~~ ~~2020~~ to ~~2022,~~ ~~while Arthrosurface has both regulatory and net sales earn-out milestones annually in~~ ~~2020~~ ~~and~~ ~~2021.~~ Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model or a Monte Carlo simulation approach. The unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the probabilities of successful achievement, the net sales estimates, the weighted average cost of capital used for the Monte Carlo simulation, discount rate and the periods in which the milestones are expected to be achieved. The discount rates used for the net sales milestones ranged from 3.2% - 3.3%. The weighted average cost of capital for Parcus increased from 11.4% as of ~~December 31, 2020~~ ~~to 11.6% as of~~ ~~September 30, 2021.~~ ~~Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively. As of~~ ~~December 31, 2020,~~ ~~the probability of successful achievement of the regulatory earn-out milestones was determined to be in a range of 60%-75%. The Company achieved a regulatory milestone in~~ ~~June 2021.~~ ~~The probability of successful achievement of the remaining regulatory milestone was determined to be 0% as of~~ ~~September 30, 2021.~~

~~The overall fair value of the contingent consideration decreased by $3.5 million and $21.9 million during the~~ ~~three~~~~- and~~ ~~nine~~~~-month periods ended~~ ~~September 30, 2021,~~ respectively, due primarily to the decrease in the likelihood that certain contingent milestones would be achieved. The fair value of remaining contingent consideration is assessed on a quarterly basis.

In ~~October 2020,~~ the Company made a regulatory-based milestone payment of $5.0 million pursuant to the terms of the Arthrosurface Merger Agreement as a result of regulatory clearance for the WristMotion Total Arthroplasty System. In ~~June 2021,~~ the Company received regulatory clearance for a reverse shoulder implant system, which triggered a $10.0 million regulatory milestone payment per the terms of the Arthrosurface Merger Agreement. This amount was paid in ~~July 2021.~~

5.	Inventories

Inventories consist of the following:

	September 30,		December 31,		September 30,		December 31,
	2021		2020		2022		2021
Raw materials	$	16,084	$	14,852	$	19,015	$	16,881
Work-in-process		12,795		12,811		11,650		11,442
Finished goods		28,935		33,347		24,277		26,731
Total	$	57,814	$	61,010	$	54,941	$	55,054

Inventories	$	35,019	$	46,209	$	37,237	$	36,010
Other long-term assets		22,795		14,801		17,704		19,044
Total					$	54,941	$	55,054

Inventories are stated net of inventory reserves of $10.0 million and $9.1 million as of 13September 30, 2022

and December 31, 2021, respectively.

6.	Intangible Assets

~~Intangible assets as of~~ ~~September 30, 2021~~ ~~and~~ ~~December 31, 2020~~ ~~consisted of the following:~~

			Nine Months Ended September 30, 2021								December 31, 2020						Nine Months Ended September 30, 2022								December 31, 2021
	Gross Value		Less: Accumulated Currency Translation Adjustment			Less: Accumulated Amortization			Net Book Value		Net Book Value		Weighted Average Useful Life		Gross Value		Less: Accumulated Currency Translation Adjustment			Less: Accumulated Amortization			Net Book Value		Net Book Value		Weighted Average Useful Life
Developed technology	$	89,580	$	(1,562	)	$	(16,435	)	$	71,583	$	75,899		15	$	89,580	$	(1,607	)	$	(22,238	)	$	65,735	$	70,081		15
IPR&D		3,256		(969	)		0			2,287		2,587	Indefinite			2,656		(1,006	)		-			1,650		1,650	Indefinite
Customer relationships		9,000		0			(1,502	)		7,498		8,173		10		9,000		-			(2,402	)		6,598		7,273		10
Distributor relationships		4,700		(415	)		(4,285	)		0		0		5		4,700		(415	)		(4,285	)		-		-		5
Patents		1,000		(185	)		(620	)		195		259		16		1,000		(189	)		(668	)		143		179		16
Tradenames		5,200		0			(1,742	)		3,458		4,239		5		5,200		-			(2,781	)		2,419		3,199		5
Total	$	112,736	$	(3,131	)	$	(24,584	)	$	85,021	$	91,157		13	$	112,136	$	(3,217	)	$	(32,374	)	$	76,545	$	82,382		13

The aggregate amortization expense related to intangible assets was ~~$2.0~~$1.9 million and ~~$1.9~~$2.0 million for the three-month periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and $5.8 million and $5.9 million ~~and $5.4 million~~ for each of the nine-month periods ended September 30, ~~2021~~2022 and ~~2020,~~2021. ~~respectively.~~

Goodwill

The Company assesses goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.

Changes in the carrying value of goodwill for the nine months ended September 30, ~~2021~~2022 were as follows:

Nine Months Ended
September 30, 2021

Balance, beginning January 1, 2021
$ 8,413
Effect of foreign currency adjustments
(463
)
Balance, ending September 30, 2021
$ 7,950

	Nine Months Ended September 30, 2022
Balance, beginning	$	7,781
Effect of foreign currency adjustments		(1,060	)
Balance, ending	$	6,721

Leases

The Company leases its buildings and manufacturing facilities under operating leases. As of September 30, 2022, the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida, Warsaw, Indiana and Padova, Italy.

In June 2022, the Company finalized renewal options to extend the current term of its leases for its building and manufacturing facility in Bedford as well as its two facilities in Sarasota. With the extension of these renewal options, the Bedford lease term extends to 2027 with several lease renewal options into 2038 and the two leases in Sarasota extend to 2027 but may be extended by mutual agreement. The Sarasota leases also include a right to terminate in 2025 at the Company’s option. The current term of the Franklin lease extends to 2023 and the current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option without penalty.

The following table summarizes the Company’s significant commitments under lease agreements as of September 30, 2022:

	Operating Leases

2022 (Remainder of Year)	$	720
2023		3,081
2024		3,025
2025		3,066
2026		2,760
Thereafter		27,873
Present value adjustment		(9,421	)
Present value of lease payments		31,105
Less current portion included in accrued expenses and other current liabilities		(1,922	)
Total lease liabilities	$	29,183

During the three and nine months ended September 30, 2022, the Company incurred lease expense of $0.8 million and $2.1 million, respectively. During the three and nine months ended September 30, 2021, the Company incurred lease expense of $0.6 million and $1.9 million, respectively. As of September 30, 2022, the weighted average remaining operating lease term was 15.0 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 3.6%.

8.9.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

	September 30, 2021		December 31, 2020		September 30, 2022		December 31, 2021

Compensation and related expenses	$	8,794	$	7,345	$	11,166	$	9,523
Professional fees		2,046		3,438		3,063		3,590
Operating lease liability - current		1,542		1,437
Operating lease liability – current						1,922		1,526
Clinical trial costs		2,463		1,429		1,352		1,961
Financing lease liability – current						-		188
Other		2,494		1,144		496		1,059
Total	$	17,339	$	14,793	$	17,999	$	17,847

1413

9.10.

Commitments and Contingencies

In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company may also warrant that the products it manufactures do not infringe, violate, or breach any U.S. or international patent or intellectual property right, trade secret, or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligent acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The Company had no accrued warranties as of September 30, ~~2021~~2022 ~~and~~or December 31, ~~2020~~2021 and has no history of claims paid.

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

On October 21, 2021, the Company received notice that the former unitholders of Parcus Medical had filed a request for arbitration regarding the earnout provisions agreed to in the Parcus Medical Merger Agreement. The Company has engaged in the arbitration process and does not anticipate a resolution during 2022. The Company is unable to estimate the potential liability with respect to this matter at this time. There are numerous factors that make it difficult to estimate reasonably possible loss or range of loss at this stage of the matter, including the significant number of legal and factual issues still to be resolved in the arbitration process. The Company intends to vigorously defend against the claims and believes it has strong defenses to the claims asserted.

~~10.~~11.

Revenue and Geographic Information

Revenue by product family was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Joint Pain Management
$ 26,153 $ 18,439 $ 69,790 $ 66,168
Joint Preservation and Restoration
11,193 11,715 35,296 26,233
Other
2,190 1,540 6,887 5,368
$ 39,536 $ 31,694 $ 111,973 $ 97,769

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

OA Pain Management	$	25,665	$	26,153	$	74,139	$	69,790
Joint Preservation and Restoration		11,821		11,193		36,055		35,296
Non-Orthopedics		2,778		2,190		6,420		6,887
	$	40,264	$	39,536	$	116,614	$	111,973

Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine (“Mitek”), part of the Johnson & Johnson Medical Companies, as a percentage of the Company’s total revenue was ~~51%~~45% and ~~48%~~51% for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~46%~~43% and ~~52%~~46% for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, ~~respectively.~~respectively

~~We receive~~The Company receives payments from our customers based on billing schedules established in each contract. Up-front payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements. Amounts are recorded as accounts receivable when our right to consideration is unconditional. Deferred revenue was ~~$0.9~~$0.1 million and ~~$0.2~~$1.0 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Total revenue by geographic location was as follows:

	Three Months Ended September 30,										Three Months Ended September 30,
	2021					2020					2022					2021
	Total		Percentage of			Total		Percentage of			Total		Percentage of			Total		Percentage of
	Revenue		Revenue			Revenue		Revenue			Revenue		Revenue			Revenue		Revenue
Geographic Location:
United States	$	30,910		78	%	$	26,409		84	%	$	31,093		77	%	$	30,910		78	%
Europe		4,238		11	%		2,954		9	%		4,885		12	%		4,238		11	%
Other		4,388		11	%		2,331		7	%		4,286		11	%		4,388		11	%
Total	$	39,536		100	%	$	31,694		100	%	$	40,264		100	%	$	39,536		100	%

	Nine Months Ended September 30,										Nine Months Ended September 30,
	2021					2020					2022					2021
	Total		Percentage of			Total		Percentage of			Total		Percentage of			Total		Percentage of
	Revenue		Revenue			Revenue		Revenue			Revenue		Revenue			Revenue		Revenue
Geographic Location:
United States	$	85,984		77	%	$	77,848		80	%	$	87,552		75	%	$	85,984		77	%
Europe		14,808		13	%		11,140		11	%		15,973		14	%		14,808		13	%
Other		11,181		10	%		8,781		9	%		13,089		11	%		11,181		10	%
Total	$	111,973		100	%	$	97,769		100	%	$	116,614		100	%	$	111,973		100	%

~~11.~~12.

Equity Incentive Plan

Equity Incentive Plan

The Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020, ~~and~~ June 16, 2021 andJune 8, 2022. On June 8, 2022, the Company’s stockholders approved an amendment to the 2017 Plan increasing the number of shares by 250,000 shares from 4.6 million shares to 4.85 million shares. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards, ~~(“RSAs”),~~ performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or ~~SAR’s~~SARs will reduce the number of total shares available for grant by two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than ~~4.6~~4.85 million shares of common stock may be issued under the 2017 Plan. There ~~are 1.9~~were 1.2 million shares available for future grant at September 30, 2022 under the ~~30,~~2017 Plan.

The Anika Therapeutics, Inc. 2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on November 4, 2021.The Inducement Plan reserves 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards may be granted only to an individual who was not previously the Company’s employee or director with the Company. The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended). There were 4,883 shares available for future grant at September 30, 2022 under the Inducement Plan.

The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly issued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to or greater than the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over ~~one~~ to ~~four~~three years with a maximum contractual term of ten years.

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Cost of revenue	$	142	$	202	$	485	$	564	$	242	$	142	$	645	$	485
Research and development		360		206		1,003		558
Selling, general and administrative		2,361		1,512		6,431		2,832
Research & development										397		360		1,267		1,003
Selling, general & administrative										3,237		2,361		8,590		6,431
Total stock-based compensation expense	$	2,863	$	1,920	$	7,919	$	3,954	$	3,876	$	2,863	$	10,502	$	7,919

Stock Options

Stock options are granted to purchase common shares at prices that are equal to the fair market value of the shares on the date the options are ~~granted.~~granted or, in the case of premium options, are granted with an exercise price at 110% of the market price of the Company’s common stock on the date of grant. Options generally vest in equal annual installments over a period of three to ~~four~~years and expire 10 years after the date of grant. The grant-date fair value of options is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

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

Number of Options

Weighted Average Exercise Price

Weighted Average
Remaining
Contractual
Term (in years)

Aggregate Intrinsic
Value
(in thousands)

Outstanding as of December 31, 2020
896,819 $ 41.50
Granted
493,628 $ 37.67
Exercised
(27,851 ) $ 34.62 $ 234
Forfeited and canceled
(177,604 ) $ 44.32
Outstanding as of September 30, 2021
1,184,992 $ 39.65 8.5 $ 4,654
Vested, September 30, 2021
304,172 $ 44.01 7.3 $ 812
Vested and expected to vest, September 30, 2021
1,184,992 $ 39.65 8.5 $ 4,654

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2021		1,175,993		$	39.56
Granted		486,901		$	27.60
Exercised		(437	)	$	9.10			$	10
Forfeited and canceled		(156,672	)	$	44.08
Outstanding as of September 30, 2022		1,505,785		$	35.21		8.3	$	78
Vested, September 30, 2022		499,617		$	40.00		7.3	$	8
Vested or expected to vest, September 30, 2022		1,505,785		$	35.21		8.3	$	78

~~Of the 493,628 stock~~The aggregate intrinsic value of options ~~granted during~~exercised for the nine-month period ended September 30, ~~2021,~~2022 ~~314,541~~was immaterial.

The Company granted 486,901 stock options during the nine-month ended September 30, 2022, of which 398,314 shares were premium-priced ~~options which were granted with an exercise price at 110%~~options.

As of ~~the market price~~September 30, 2022, there was $8.7 million of ~~the Company’s common~~unrecognized compensation cost related to unvested stock ~~on the date~~options. This expense is expected to be recognized over a weighted average period of ~~grant.~~1.8 years.

The Company uses the Black-Scholes pricing model to determine the fair value of options granted. The calculation of the fair value of stock options is affected by the stock price on the grant date, the expected volatility of the Company’s common stock over the expected term of the award, the expected life of the award, the risk-free interest rate and the dividend yield. The Company estimates the fair value of TSRs using Monte-Carlo simulation ~~model.~~model where the expected volatility assumption is evaluated over 6.3 years. The actual number of TSR options that may be earned ranges from 0% to 150% of the target number, depending on the total shareholder return of the Company relative to the peer group over the vesting period of 2.7 years. There were 104,638 TSRs as of September 30, 2022.

The assumptions used in the Black-Scholes pricing model for options granted during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, along with the weighted-average grant-date fair values, were as follows:

Nine Months Ended September 30,

2021

2020

Risk-free interest rate
0.30% – 0.68% 0.21% – 1.59%
Expected life of options (in years)
4.0 – 6.3 4.0 – 6.3
Dividend yield
-% -%
Expected stock price volatility
54.80% –56.06% 46.48% –52.99%

~~As of~~ ~~September 30, 2021,~~ ~~there was $10.0 million of unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 1.9 years.~~

	Nine Months Ended September 30,
	2022				2021
Risk free interest rate		1.3%	-	3.4%		0.3%	-	0.7%
Expected volatility		53.8%	-	55.5%		54.8%	-	56.1%
Expected life (years)			4.5				4.0
Expected dividend yield			0.0%				0.0%
Fair value per option			$11.26				$14.55

Restricted Stock Units

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

RSU activity isfor the nine-month period ended September 30, 2022 was as follows:

	Number of Shares			Weighted Average Fair Value		Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2020		233,239		$	37.50
Outstanding as of December 31, 2021							412,658		$	36.33
Granted		308,243			35.42		507,524		$	25.14
Vested		(90,013	)		37.63		(159,871	)	$	36.48
Forfeited and cancelled		(48,624	)		35.69		(67,389	)	$	32.45
Outstanding as of September 30, 2021		402,845		$	36.10
Outstanding as of September 30, 2022							692,922		$	28.48

The weighted-average grant-date fair value per share of RSUs granted was $25.14 for the nine-month period ended September 30, 2022. The total fair value of RSUs vested was $5.8 million and $3.9 million for the nine-month periods ended September 30, 2022 and 2021, respectively.

As of September 30, ~~2021,~~2022, there was ~~$11.3~~$14.8 million of unrecognized compensation cost related to time-based RSUs, which iswas expected to be recognized over a weighted-average period of ~~2.1~~2.0 years.

Performance Stock Units

~~PSUs generally vest over a~~ ~~three~~ or ~~four~~ year periods from the grant date and include both a service and performance component. The PSUs granted to employees contained performance conditions with business and financial targets. The business target, amounting to 40% of the total performance conditions, will be measured based on achievement in the ~~2020~~-~~2022~~ ~~fiscal years, while the financial targets, amounting to 60% of the total performance conditions, will ultimately be measured with respect to the Company’s operating results in the~~ ~~2020~~-~~2022~~ ~~fiscal years.~~

PSU activity isfor the nine-month ended September 30, 2022 was as follows:

Number of Shares

Weighted Average
Fair Value

Outstanding as of December 31, 2020
178,297 $ 35.93
Granted
0 0
Vested
0 0
Forfeited and cancelled
(18,500 ) 37.02
Outstanding as of September 30, 2021
159,797 $ 35.80

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2021		158,297		$	37.44
Performance factor adjustment		2,125		$	32.53
Vested		(19,125	)	$	32.53
Forfeited and cancelled		(23,400	)	$	41.86
Outstanding as of September 30, 2022		117,897		$	34.98

The total fair value of PSUs vested was $0.6 million and $0 for the nine-month period ended September 30, 2022 and 2021, respectively. As of September 30, ~~2021,~~2022, ~~there was $0.1 million~~none of ~~unrecognized compensation cost~~the milestones related to the outstanding PSUs ~~which is~~were expected to be ~~recognized over a weighted-average period of 0.4 years.~~

On ~~November 4, 2021,~~ ~~the Anika Therapeutics, Inc.~~ ~~2021~~ Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors. The Inducement Plan reserves 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards ~~may~~ ~~be granted only to an individual who was~~ ~~not~~ previously the Company’s employee or director, or who is returning to employment following a bona fide period of non-employment with the Company, in each case as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule ~~5635~~~~(c)(~~4~~) of the Nasdaq Listing Rules. The Inducement Plan provides for the grant of awards under terms substantially similar to the~~ ~~2017~~ ~~Plan (as amended).~~achieved.

~~12.~~13.

Income Taxes

~~For~~The Company recorded an income tax benefit of $1.2 million and $2.4 million for the three- and nine-month periods ended September 30, 2022, resulting in effective tax rates of 22.1% and 19.5%, respectively. The Company recorded income tax expense of $0.7 million and $1.7 million for the three- and nine-month periods ended September 30, 2021, ~~the Company recorded an income tax provision of $0.7 million and $1.7 million, resulting in~~based on effective tax rates of 55.4% and 14.4%, respectively. ~~For the~~ ~~three~~~~- and~~ ~~nine~~~~-month periods ended~~ ~~September 30, 2020,~~ ~~due to losses in those periods, the Company incurred benefits from income taxes of $1.7 million and $2.2 million, resulting in effective tax rates of 21.4% and 20.6%, respectively.~~

The ~~net increase~~decrease in the effective tax rate for the three-month period ended September 30, ~~2021,~~2022, as compared to the same period in ~~2020,~~2021, was primarily due to ~~stock option~~non-deductible stock-option activity ~~and an adjustment to~~during the ~~Foreign Derived Intangible Income (“FDII”) deduction expected for~~ three-month period ended September 30, 2021.The ~~year-to-date net tax benefit on the change in the fair value of the contingent consideration, in the amount of $1.1 million in~~ ~~2021,~~ ~~resulted in a net decrease~~increase in the effective tax rate for the nine-month period ended September 30, ~~2021,~~2022, as compared to the same period in ~~2020.~~2021, was primarily due to the year-to-date net tax benefit in 2021 on the change in the fair value of contingent consideration, in the amount of $1.1 million, and a year-to-date discrete charge of $0.7 million in 2022 related to non-deductible stock compensation.

The Company files income tax returns in the United States on a federal basis, in certain U.S. states, and in certain foreign jurisdictions. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings ~~relate.~~relate, which varies by jurisdiction.

In connection with the preparation of the financial statements, the Company assessed whether it is more likely than not that it will be able to utilize, in future periods, the Company’s deferred income ~~taxes~~tax assets to offset future taxable ~~income.~~income and tax liabilities. The Company ~~has~~ concluded that it is more likely than not that ~~the majority of~~ its deferred tax assets will be realized, ~~through~~after evaluation and consideration of both the positive and negative evidence. On December 31, 2021, the Company released a valuation allowance that had been previously recorded related to its net deferred tax assets in Italy in the amount of $0.9 million. The Company did not record a valuation allowance on its deferred tax balances as of September 30, 2022.

~~13.~~14.

Earnings Per Share (“EPS”)

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Shares used in the calculation of basic EPS
14,429 14,205 14,389 14,202
Effect of dilutive securities:

Share based awards
218 0 199 0
Diluted shares used in the calculation of EPS
14,647 14,205 14,588 14,202

	Three Month Period Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Shares used in the calculation of basic earnings per share		14,603		14,429		14,542		14,389
Effect of dilutive securities:
Share-based payment awards		-		218		-		199
Diluted shares used in the calculation of earnings per share		14,603		14,647		14,542		14,588

The Company had a net loss during the three and nine-months ended September 30, 2022, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS. Stock options of ~~1.0~~1.1 million shares were outstanding for ~~each of~~ the ~~three~~nine-month ~~periods~~period ended September 30, 2021, ~~and~~ ~~2020~~respectively, and were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive. ~~Stock options of 1.1 million and 0.8 million shares were outstanding for the~~ ~~nine~~~~-month periods ended~~ ~~September 30, 2021~~ ~~and~~ ~~2020~~ ~~and were~~ ~~not~~ ~~included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive.~~

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our financial statements and related notes appearing elsewhere in this report and our audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, or our ~~2020~~2021 Form 10-K. In addition to historical information, this report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning our business, consolidated financial condition, and results of operations. The Securities and Exchange Commission, or the SEC, encourages companies to disclose forward-looking statements so that investors can better understand a company’s prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as "will," "likely," "may," "believe," "expect," "anticipate," "intend," "seek," "designed," "develop," "would," "future," "can," "could," “estimate,” “potential,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans, and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements regarding the effect of COVID-19 and related impacts on our business, operations, and financial results, expected future operating results, expectations regarding the timing and receipt of regulatory results, anticipated levels of capital expenditures, and expectations of the effect on our financial condition of claims, litigation, and governmental and regulatory proceedings.

Please also refer to those factors described in “Part I, Item 1A. Risk Factors” of our ~~2020~~2021 Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Management Overview

We are a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care. Based on our collaborations with clinicians to understand what they need most to treat their patients, we develop minimally invasive products that restore active living for people around the world. We are committed to leading in high opportunity spaces within orthopedics, including osteoarthritis, or OA, pain management, regenerative solutions, sports medicine soft tissue repair and bone preserving joint technologies.

We have ~~over~~ thirty years of global expertise developing, manufacturing and commercializing products based on and/or enhanced with our hyaluronic acid, or HA, technology platform. HA is a naturally occurring polymer found throughout the body that is vital for proper joint health and tissue function. Our proprietary technologies for modifying the HA molecule allow product properties to be tailored specifically to multiple uses, including enabling longer residence time to support OA pain management and creating a solid form of HA called ~~HYAFF,~~Hyaff, which is ~~the~~a platform ~~for~~utilized in our regenerative solutions portfolio.

In early 2020, we expanded our overall technology platform, product portfolio, and significantly enhanced and accelerated our commercial infrastructure, especially in the United States, through our strategic acquisitions of Parcus Medical, ~~LLC, or Parcus Medical,~~ a sports medicine ~~implant~~ and instrumentation solutions provider focused on ~~sports medicine and~~ soft tissue repair, and ~~Arthrosurface, Inc., or~~ Arthrosurface, a company specializing in bone preserving partial and total joint replacement solutions. Through these acquisitions, we have transformed our company. We expanded our addressable market from the over $1 billion global OA pain management market to the over $8 billion global joint preservation market (which includes the faster growing sports medicine soft tissue repair and extremities segments), ~~improved~~advanced our commercial capabilities, instituted systems and processes to support our transformation, and expanded our product pipeline and research and development expertise in our target markets.

As we look towards the future, our business is positioned to capture value within our target market of joint preservation. We believe our success will be driven by our:

	●	Decades of experience in HA-based regenerative solutions and early intervention orthopedics combined under new seasoned leadership with a strong financial foundation for future investment in meaningful solutions for our ~~customers;~~customers and their patients;

	●	Robust network of stakeholders in our target markets to identify evolving unmet patient treatment needs;

	●	Prioritized investment in differentiated pipeline of regenerative solutions, bone preserving implants and sports medicine soft tissue ~~solutions;~~repair products;

	●	Leveraging our global commercial expertise and building out our capabilities to drive growth across the ~~portfolio;~~portfolio, with an intentional and increased focus on the ambulatory surgery centers site of care in the United States;

	●	Opportunity to pursue strategic inorganic growth opportunities, including potential partnerships and ~~tuck-in~~smaller acquisitions, technology licensing, and leveraging our strong financial foundation and operational capabilities; and

●

Energized and experienced team focused on strong values, talent, and culture.

~~Key Developments during the Three Months Ended September 30, 2021~~

	●	We completed the launch activities for WristMotion Total Wrist Arthroplasty System. The product is a modular joint preservation system that replaces both the radial and carpal sides of the wrist joint for patients suffering from rheumatoid arthritis, osteoarthritis, or post-traumatic arthritis.

	●	We received 510(k) clearance for Tactoset Injectable Bone Substitute for hardware augmentation. This product is indicated for filling bone voids or defects of the skeletal system (i.e. extremities and pelvis) that are not intrinsic to the stability of bony structure.

COVID-19 Pandemic and Resulting Supply Chain and Staffing Challenges

In March 2020, the World Health Organization declared the spread of the COVID-19 virus a ~~global~~ pandemic. This pandemic has caused an economic downturn on a global scale, as well as significant volatility in the financial markets. There has been significant volatility in our results on a quarterly basis due to the worldwide cancellation or delay of elective procedures, staffing shortages and supply chain disruptions, as well as the impact on timelines associated with certain clinical studies. While elective procedure volume had a limited recovery after the initial pandemic impacts seen in the early parts of second quarter of 2020 due to the easing of COVID-19 related restrictions in certain jurisdictions, areas of the United States and other countries have recently seen, and continue to see, fluctuating infection rates increasing as the result of emerging variants of COVID-19.Continuing fluctuations in infection rates in the United States and other countries make future results difficult to predict despite recent advances in the vaccination rates of certain parts of the population. In this time of uncertainty as a result of the COVID-19 pandemic, we have taken many precautions to provide a safe work environment for our employees and customers, including the establishment and implementation of a work from home policy, where possible. While increasing vaccination rates and the loosening of restrictions, especially in the United States, have resulted in a return to a more normalized business environment, the pandemic continues to have an impact on our business in certain jurisdictions and a resurgenceResurgence of COVID-19 as a result of emerging variants or other factors ~~as is currently occurring in certain jurisdictions,~~ could result in additional ~~government lockdowns, quarantine requirements,~~staffing shortages or ~~other restrictions~~supply chain disruptions that could impact our business and operations. We ~~may also~~ have ~~to take further actions that we determine are~~had some disruption in ~~the best interests of our employees or as required by federal, state, or local authorities. To date, we do not anticipate disruption to~~ our ability to supply products to our customers due to supply chain disruptions and staffing shortages which has caused back orders or delays in certain shipments to our customers. The companies that produce our products, product components or otherwise support our manufacturing processes, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize and store our products, are or could be disrupted, temporarily close or experience worker shortages for a sustained period of time. To date, we believe we have taken adequate precaution to mitigate the impact of the current disruption of key materials, components and parts to the extent possible and reasonable. We expect, however, the current supply chain disruption with certain key suppliers to continue, which could have a material adverse effect on our operations. For additional information on the impact of supply chain disruption related to the COVID-19 pandemic on our manufacturing operations, please refer to the section captioned “Part II, Item 1A. Risk Factors.

Our commercial day-to-day operations have been impacted due to the worldwide cancellations and/or delays of elective procedures and restrictions on travel for both our employees and our clinician customers, and timelines associated with certain clinical studies and research and development programs have been delayed. While the impact has been limited to these items to date, we caution that there continues to be a possibility for potential future implementation of certain additional restrictions or other challenges associated with infections, staffing shortages, volatility in elective surgical procedures or supply chain disruptions due to COVID-19 and its current or new variants in certain jurisdictions. In particular, supply constraints that have continued into 2022 that we have partially been able to mitigate to date have impacted and could be expected to impact our ability to produce and supply our products. The impact of these ~~restrictions on our operations, if implemented,~~challenges is currently unknown but could be significant.

Products

~~Joint~~OA Pain Management

Our ~~Joint~~OA Pain Management product family consists of:

●

Monovisc and Orthovisc, our single- and multi-injection, HA-based viscosupplement product offerings indicated to provide pain relief from OA ~~conditions.~~conditions solely for use in the knee. Our ~~Joint~~OA Pain Management products are generally administered to patients in an office setting. In the United States, Monovisc and Orthovisc are marketed exclusively by DePuy Synthes Mitek Sports Medicine, or “Mitek”, part of the Johnson & Johnson Medical ~~Companies, or~~Companies. In December 2011, we entered into a fifteen-year licensing agreement with Mitek to exclusively market Monovisc in the United States through December 2026. In December 2003, we entered into a ten-year licensing agreement with Mitek to exclusively market Orthovisc in the United States. Mitek extended this agreement for additional five-year terms in 2007, 2012, 2017 and most recently in August 2022. The current agreement expires on December 20, 2028 unless extended at the option of Mitek. The Monovisc and Orthovisc products have been the market leaders, based on combined overall revenue in the viscosupplement market, since 2018. Internationally, we market our ~~Joint~~OA Pain Management products directly through a worldwide network of commercial distributors.

●

Cingal, our novel, third-generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a ~~steroid,~~fast-acting steroid. Cingal is designed to provide both short- and long-term pain relief. Cingal is CE Mark approved and for several years has been sold outside the United States directly in over 35 countries through our network of ~~distributors for several years.~~distributors. In the United States, Cingal is a pipeline product ~~undergoing~~currently in clinical ~~trial~~development and is not available for commercial sale.

●

Hyvisc, our high molecular weight injectable HA veterinary product approved for the treatment of joint dysfunction in horses due to non-infectious synovitis associated with equine OA. ~~Hyvisc is distributed by Boehringer Ingelheim Vetmedica, Inc., in the United States.~~

Joint Preservation and Restoration

Our Joint Preservation and Restoration product family consists of:

●

Bone Preserving Joint ~~Technologies.~~Technologies. Our portfolio of more than 150 bone preserving joint technologies, including partial joint replacement, joint resurfacing, and minimally invasive and bone sparing implants, is designed to treat upper and lower extremity orthopedic conditions as well as knee and hip conditions caused by arthritic disease, acute trauma ~~injury~~ and ~~arthritic disease.~~injury. These products span multiple joints including the shoulder, foot/ankle, wrist, knee and hip and are generally intended to ~~mimic~~restore a patient’s natural anatomy ~~to the extent feasible.~~and movement. These products are often used to treat patients with OA progression beyond where our ~~Joint~~OA Pain Management products can allow the patients to retain an active lifestyle when early surgical intervention becomes preferable. We commercialize these products in the United States by selling to hospitals and surgery centers through an independent network of sales representatives and distributors, and utilize our distributor network for sales in certain international markets.

●

Soft Tissue ~~Repair.~~Repair. Our line of soft tissue repair solutions is used by surgeons to repair and reconstruct damaged ligaments and tendons resulting from sports injuries, acute trauma and disease. These more traditional sports medicine solutions include screws, sutures, suture anchors, grafts and other surgical systems that facilitate surgical procedures on the shoulder, knee, hip, upper and lower extremities, and other soft tissues. We commercialize these products in the United States by selling to hospitals and surgery centers through an independent network of sales representatives and distributors, and utilize our distributor network for sales in over 60 international markets.

●

Regenerative ~~Solutions.~~Solutions. Our portfolio of orthopedic regenerative solutions ~~based on~~leveraging our proprietary technologies based on HA and Hyaff, which is a solid form of HA. These products include Tactoset Injectable Bone Substitute, an HA-enhanced injectable bone repair therapy designed to treat insufficiency fractures and for augmenting hardware fixation, such as suture ~~anchor fixation that we commercialize only in the United States,~~anchors and Hyalofast, a biodegradable support for human bone marrow mesenchymal stem cells used for cartilage regeneration and as an adjunct for microfracture surgery. Tactoset cleared and commercialized principally in the United States, whereas Hyalofast is CE Mark approved and currently available outside the United States in over 35 countries within Europe, South America, Asia, and certain other international markets. In the United States, Hyalofast is a ~~pipeline~~ product under clinical trial studies and is not available for commercial sale.

We currently commercialize Bone Preserving Joint Technologies, Soft Tissue Repair products, and Tactoset (from our Regenerative Solutions portfolio) in the United States by selling to hospitals and ambulatory surgery centers, through an independent network of sales representatives and distributors, and utilize our distributor network for sales in certain international markets.

~~Other~~Non-Orthopedic

Our ~~Other~~Non-Orthopedic product family consists of legacy HA-based products that ~~do not fit into one of our other primary product categories.~~are marketed principally for non-orthopedic applications. These products include Hyalobarrier, an anti-adhesion barrier indicated for use after abdomino-pelvic surgeries, ~~and~~ Hyalomatrix, ~~which is~~ used for the treatment of complex wounds such as burns and ulcers, as well as products used in connection with the treatment of ears, nose and throat disorders, and ophthalmic products, including injectable, high molecular weight HA products such as Anikavisc and Nuvisc, used as viscoelastic agents in ophthalmic surgical procedures such as cataract extraction and intraocular lens implantation.

These Non-Orthopedic products are sold through commercial sales and marketing partners around the world.

Results of Operations

Three and Nine Months Ended September 30, ~~2021~~2022 Compared to Three and Nine Months Ended September 30, ~~2020.~~2021

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

$ Change

% Change

2021

2020

$ Change

% Change

(in thousands, except percentages)

(in thousands, except percentages)

Revenue
$ 39,536 $ 31,694 $ 7,842 25
%
$ 111,973 $ 97,769 $ 14,204 15 %
Cost of revenue
16,513 14,351 2,162 15
%
47,164 45,487 1,677 4 %
Gross profit
23,023 17,343 5,680 33
%
64,809 52,282 12,527 24 %
Gross margin
58
%
55
%
58
%
53
%

Operating expenses:

Research and development
7,673 5,217 2,456 47
%
21,327 15,799 5,528 35 %
Selling, general and administrative
17,500 15,903 1,597 10
%
53,664 44,884 8,780 20 %
Goodwill impairment
- - - 18,144 (18,144
)
(100% )
Change in fair value of contingent consideration
(3,450
)
4,150 (7,600
)
(183
%)
(21,920
)
(16,176
)
(5,744
)
36 %
Total operating expenses
21,723 25,270 (3,547
)
(14
%)
53,071 62,651 (9,580
)
(15% )
Income (loss) from operations
1,300 (7,927
)
9,227 116
%
11,738 (10,369
)
22,107 213 %
Interest and other expense, net
(48
)
(228
)
(180
)
(79
%)
(141
)
(118
)
23 19 %
Income (loss) before income taxes
1,252 (8,155
)
9,407 115
%
11,597 (10,487
)
22,084 211 %
Provision for (benefit from) income taxes
694 (1,744
)
2,438 140
%
1,670 (2,161
)
3,831 177 %
Net income (loss)
$ 558 $ (6,411
)
$ 6,969 109
%
$ 9,927 $ (8,326
)
$ 18,253 219 %

	Three Months Ended September 30,												Nine Months Ended September 30,
	2022			2021			$ Inc/(Dec)			% Inc/(Dec)			2022			2021			$ Inc/(Dec)			% Inc/(Dec)
	(in thousands, except percentages)												(in thousands, except percentages)
Revenue	$	40,264		$	39,536		$	728			2	%	$	116,614		$	111,973		$	4,641			4	%
Cost of revenue		17,485			16,513			972			6	%		47,169			47,164			5			0	%
Gross Profit		22,779			23,023			(244	)		(1%	)		69,445			64,809			4,636			7	%
Gross Margin		57	%		58	%								60	%		58	%
Operating expenses:
Research & development		7,301			7,673			(372	)		(5%	)		20,433			21,327			(894	)		(4%	)
Selling, general & administrative		21,276			17,500			3,776			22	%		61,745			53,664			8,081			15	%

Change in fair value of contingent consideration		-			(3,450	)		3,450			(100%	)		-			(21,920	)		21,920			(100%	)
Total operating expenses		28,577			21,723			6,854			32	%		82,178			53,071			29,107			55	%
(Loss) income from operations		(5,797	)		1,300			(7,097	)		(546%	)		(12,733	)		11,738			(24,471	)		(208%	)
Interest and other income (expense), net		436			(48	)		484			(1,008%	)		378			(141	)		519			(368%	)
(Loss) income before income taxes		(5,361	)		1,252			(6,613	)		(528%	)		(12,355	)		11,597			(23,952	)		(207%	)
(Benefit from) provision for income taxes		(1,187	)		694			(1,881	)		(271%	)		(2,404	)		1,670			(4,074	)		(244%	)
Net (loss) income	$	(4,175	)	$	558		$	(4,733	)		(848%	)	$	(9,951	)	$	9,927		$	(19,878	)		(200%	)

Revenue

Revenue for the three-month period ended September 30, ~~2021~~2022 was ~~$39.5~~$40.3 million, an increase of ~~$7.9~~$0.8 million as compared to ~~$31.7~~$39.5 million for the three-month period ended September 30, ~~2020.~~2021. Revenue for the nine-month period ended September 30, ~~2021~~2022 was ~~$112.0~~$116.6 million, an increase of ~~$14.2~~$4.6 million as compared to ~~$97.8~~$112.0 million for the nine-month period ended September 30, 2020. For the three- and nine-month periods ended September 30, 2021, the increases in revenue were primarily driven by partial recovery from the initial impact of the COVID-19 pandemic on sales volumes and related strategic partner ordering patterns. The increase for the nine-month period ended September 30, 2021, was also in part due to inclusion of full first quarter results of Parcus Medical and Arthrosurface, which we acquired on January 24, 2020 and February 3, 2020, respectively. 2021.

The following tables present product revenue by product family:

Three Months Ended September 30,

2021

2020

$ change

% change

(in thousands, except percentages)

Joint Pain Management
$ 26,153 $ 18,439 $ 7,714 42 %
Joint Preservation and Restoration
11,193 11,715 (522
)
(4% )
Other
2,190 1,540 650 42 %
$ 39,536 $ 31,694 $ 7,842 25 %

Nine Months Ended September 30,

2021

2020

$ change

% change

(in thousands, except percentages)

Joint Pain Management
$ 69,790 $ 66,168 $ 3,622 6 %
Joint Preservation and Restoration
35,296 26,233 9,063 35 %
Other
6,887 5,368 1,519 28 %
$ 111,973 $ 97,769 $ 14,204 15 %

	Three Months Ended September 30,
	2022		2021		$ Inc/(Dec)			% Inc/(Dec)

OA Pain Management	$	25,665	$	26,153	$	(488	)		(2	%)
Joint Preservation and Restoration		11,821		11,193		628			6	%
Non-Orthopedic		2,778		2,190		588			27	%
	$	40,264	$	39,536	$	728			2	%

Revenue from our Joint Pain Management product family increased 42% and 6% for the three- and nine-month periods ended September 30, 2021, respectively, as compared to the same periods in 2020 due primarily to partial recovery from the initial impact of the COVID-19 pandemic on sales volumes and related strategic partner ordering patterns. In 2020, customer ordering patterns delayed a portion of the initial impact of the COVID-19 pandemic on this product family from the second quarter into the second half of 2020.

	Nine Months Ended September 30,
	2022		2021		$ Inc/(Dec)			% Inc/(Dec)

OA Pain Management	$	74,139	$	69,790	$	4,349			6	%
Joint Preservation and Restoration		36,055		35,296		759			2	%
Non-Orthopedic		6,420		6,887		(467	)		(7	)%
	$	116,614	$	111,973	$	4,641			4	%

~~Revenue from our Joint Preservation and Restoration product family decreased 4% for~~

For the three-month period ended September 30, ~~2021~~2022, the increase in revenue was mainly due to growth in Joint Preservation and Restoration revenues as ~~compared~~hospitals and ASCs recover from the COVID 19 pandemic and higher Non-Orthopedic revenues from the sales of certain legacy products related to end-of-life purchases. This revenue increase was offset by lower US OA Pain Management revenue primarily related to ordering patterns from Mitek in the same period in 2020, due primarily to the impact of the COVID-19 pandemic, including rolling suspensions of elective procedures by hospitals in certain regions as well as the limitations on access to customers during the period. prior year.

For the nine-month period ended September 30, ~~2021,~~2022, the increase in revenue was mainly due an increase in OA Pain Management revenues from ~~our~~international viscosupplement distributors and Hyvisc equine product sales due to recovery from the COVID 19 pandemic as well as favorable ordering patterns, offset by lower US OA Pain Management sales to Mitek as a result of ordering patterns in the prior year. The increase in total revenue was also due to an increase in Joint Preservation and Restoration ~~product family increased 35%~~revenues as ~~compared~~hospitals and ASCs performing more procedures as they recover from COVID 19 pandemic, which however remained limited due in part to constraints on staffing, offset by lower Non-Orthopedic revenue in part related to the ~~same period in 2020 due primarily to organic growth as the initial impact~~timing of ~~the COVID-19 pandemic~~orders on elective procedures begins to lift in various worldwide jurisdictions, especially in the United States during the first half of 2021, as well as due to the inclusion of full quarter results from Parcus Medical and Arthrosurface in the first quarter.legacy products.

Revenue from our Other product family increased 42% for the three-month period ended September 30, 2021, as compared to the same period in 2020 primarily due to timing of distributor sales. For the nine-month period ended September 30, 2021 revenue increased 28% as compared to the same period in 2020 primarily due to timing of distributor sales as well as due to the sell through of legacy wound care products during the first quarter.

Gross Profit and Margin

Gross profit for the ~~three- and nine-month~~three -and nine -month periods ended September 30, ~~2021 increased $5.7~~2022 decreased by $0.2 million and ~~$12.5~~increased by $4.6 million, to ~~$23.0~~$22.8 million and ~~$64.8~~$69.4 million, ~~respectively, representing 58%~~respectively. The decrease in gross profit for the three-month period ended September 30 2022 was related to a reserve of $2.6 million primarily associated with inventory for certain legacy Non-Orthopedic products that the Company no longer expects to sell. The increase in gross profit for the nine-month period ended September 30, 2022, as compared to the same period in 2021 was primarily due to increased revenue ~~for each~~as well as the impact of inventory step-up charges associated with the ~~periods.~~ acquisitions of Arthrosurface and Parcus Medical in 2021.

Gross ~~profit~~margin for the three- and nine-month periods ended September 30, ~~2020~~2022 was ~~$17.3 million~~57% and ~~$52.3 million, respectively, or 55% and 53% of revenue for the periods,~~60%, respectively. The increase in gross profit for the three- and nine-month periods ended September 30, 2021, primarily resulted from increased revenue. The increase for the nine-month period ended September 30, 2021 was partially offset by product rationalization charges in the second quarter of 2021. Gross margins include the impact of inventory step-up associated with the Arthrosurface and Parcus Medical acquisitions, as well as acquisition-related amortization expenses. These expenses together increased cost of revenue by $3.0 million, or 8 points of gross margin, and $10.9 million, or 10 points of gross margin for the three- and nine-month periods ended September 30, 2021 ~~respectively, as compared to increased cost of revenue of $4.8 million, or 15 points of~~was 58% for each period. The decrease in gross margin ~~and $11.7 million, or 12 points~~for the three-month period ended September 30, 2022 was due primarily to product rationalization charges in the third quarter of 2022. The increase in gross margin ~~respectively,~~ for the ~~same periods~~nine-month period ended September 30, 2022 was due primarily to the unfavorable impact of inventory step-up charges associated with the Arthrosurface and Parcus Medical in ~~2020.~~2021.

Research and Development

Research and development expenses for the three- and nine-month periods ended September 30, ~~2021~~2022 were ~~$7.7~~$7.3 million and ~~$21.3~~$20.4 million, ~~representing an increase~~a decrease of ~~$2.5~~$0.4 million and ~~$5.5~~$0.9 million, respectively as compared to the same ~~periods~~period in ~~2020.~~2021. The ~~increase in research and development expense~~decreases for the ~~three-~~three-month and nine-month periods ended September 30, ~~2021 was~~2022 were primarily due to ~~product development activities~~lower clinical trial spending, associated with the ~~development~~conclusion of ~~new product candidates~~our Cingal Phase III trial in our research and development pipeline, execution of the CINGAL Pilot study and certain European post-market clinical studies. Research and development activities were curtailed in the three- and nine-months ended September 30, 2020 due to cost optimization in the light of the early stages of the COVID-19 pandemic.2022.

Selling, General and Administrative

Selling, general and administrative, or SG&A expenses for the three- and nine-month periods ended September 30, ~~2021~~2022 were ~~$17.5~~$21.3 million and ~~$53.7~~$61.7 million representing an increase of ~~$1.6~~$3.8 million and ~~$8.8~~$8.0 million, respectively as compared to the same ~~periods~~period in ~~2020. The~~2021. This increase in SG&A ~~expenses~~expense for the three-month ~~period~~and nine-month periods ended September 30, ~~2021~~2022, was primarily related to an increase in share-based compensation expense due largely to forfeitures of unvested shares during the comparable period and higher sales and marketing activities and events during 2021 which had been suspended in 2020 due to ~~the impact~~expansion of ~~the COVID-19 pandemic.~~

~~The increase in SG&A expenses for the nine-month period ended September 30, 2021 was primarily related to full period expenses from Parcus Medical and Arthrosurface, increased spending to support~~ our commercial ~~capability~~capabilities in the United States and expanded marketing activities and ~~a non-cash loss on disposal of fixed assets, partially offset by~~other operational capabilities to support the ~~absence of transaction costs incurred~~growing business needs. Certain marketing and medical education activities also were more limited in ~~2020 related to acquisitions of Parcus and Arthrosurface. Certain activities were curtailed in the three- and nine-months ended September 30, 2020~~2021 due ~~to cost optimization in light of the early stages of the COVID-19 pandemic.~~

~~Goodwill Impairment Charge~~

We assess goodwill for impairment annually, as of end of November, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. U.S. and other country government policy responses to the COVID-19 ~~pandemic and the resulting changes~~pandemic. The increase in healthcare guidelines caused a temporary suspension of domestic elective surgical procedures. As a result of these events, during the three-month period ended March 31, 2020, we performed a quantitative assessment of goodwill impairment related to the Parcus and Arthrosurface reporting unit as of March 31, 2020. The results of these interim impairment tests indicated that the estimated fair value of this reporting unitSG&A expense was ~~less than its carrying value. Consequently, a non-cash goodwill impairment charge of $18.1 million was recorded in the three-month period ended March 31, 2020. The decline in fair value was primarily~~also due to higher stock-based compensation expense in 2022 driven by a ~~decrease~~change in ~~immediate term revenue~~headcount associated with the Company’s strategic transformation that accelerated in 2020 and related cash flows as a result of the temporary suspension of domestic elective procedures, which directly impacted the Parcus and Arthrosurface reporting units. There were no goodwill impairment charges during the three- and nine-month period ended September 30, 2021.

Contingent Consideration Fair Value Change

~~We recorded a $3.5 million~~The fair value of contingent consideration as of September 30, 2022 did not change compared to December 31, 2021. During the three-month and ~~$21.9 million net benefit related to changes~~six-month periods ended September 30, 2021, the change in the fair value of contingent consideration liabilities was $3.5 million and $21.9 million, respectively, resulting in a non-cash benefit to net income in those periods.

Income Taxes

The benefit from income taxes was $1.2 million and $2.4 million for the three- and six-month periods ended September 30, 2022, resulting in effective tax rates of 22.1% and 19.5%, respectively. The provision for income taxes was $0.7 million and $1.7 million for the three- and nine-month periods ended September 30, 2021, respectively. We recorded a $4.2 million net expense and $16.2 million net benefit related to changes in the fair value of contingent consideration for the three- and nine-month periods ended September 30, 2020, respectively. The increase in net benefit in the three- and nine-month periods ended September 30, 2021 compared to the same period in 2020 is due primarily to the decrease in the likelihood that certain contingent milestones would be achieved.

~~Income Taxes~~

~~For the three- and nine-month periods ended September 30, 2021, the provision for income taxes was $0.7 million and $1.7 million, resulting in~~based on effective tax rates of ~~55.1%~~55.4% and ~~14.3%~~14.4%, respectively. For the three- and nine-month periods ended September 30, 2020, due to losses in those periods, we incurred benefits from income taxes of $1.7 million and $2.2 million, resulting in effective tax rates of 21.4% and 20.6%, respectively.

The ~~net increase~~decrease in the effective tax rate for the three-month period ended September 30, ~~2021,~~2022, as compared to the same period in ~~2020,~~2021, was primarily due to ~~stock option~~non-deductible stock-option activity ~~and an adjustment to~~during the ~~Foreign Derived Intangible Income (FDII) deduction expected for~~three-month period ended September 30, 2021. The ~~year-to-date net tax benefit on the change in the fair value of the contingent consideration, in the amount of $1.1 million in 2021, resulted in a net decrease~~increase in the effective tax rate for the nine-month period ended September 30, ~~2021,~~2022, as compared to the same period in ~~2020.~~2021, was primarily due to the net tax benefit in 2021 on the change in the fair value of contingent consideration and non-deductible stock compensation in 2022.

Net (Loss) Income

For the three and nine-month periods ended September, 2022, net loss was $4.2 million and $10.0 million, or $0.29 per diluted share and $0.68 per diluted share, respectively, compared to net income of $0.6 million and $9.9 million, or $0.04 per diluted share and $0.68 per diluted share, for the same periods in prior year. The decrease in net income and diluted earnings per share was primarily due to the change in fair value of contingent consideration of $21.9 million for the nine-months ended September 30, 2021, as well as increased spending to expand our commercial capability in the United States, partially offset by increased revenue.

Non-GAAP Financial Measures

We present certain information with respect to adjusted gross profit and adjusted gross margin, adjusted Earnings Before Interest, Tax, Depreciation and Amortization, or ~~(EBITDA),~~EBITDA, adjusted net income, adjusted diluted earnings per share or adjusted EPS, which are financial measures not based on any standardized methodology prescribed by accounting principles generally accepted in the United States, or GAAP, and is not necessarily comparable to similarly titled measures presented by other companies.

We have presented adjusted gross profit and adjusted gross margin, adjusted EBITDA, adjusted net income, adjusted EPS, because they are key measures used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business. We believe these financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. In particular, we believe that the exclusion of these items in calculating these measures can provide a useful tool for period-to-period comparisons of our core operating performance. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects and allowing for greater transparency with respect to key financial metrics used by our management in ~~its~~their financial and operational decision-making.

Adjusted Gross Profit and Adjusted Gross Margin

We define adjusted gross profit as our gross profit excluding amortization of certain acquired intangible assets, the impact of inventory fair-value step up associated with our recent acquisitions and certain product rationalization charges. The amortized assets contribute to revenue generation, and the amortization of such assets will ~~recur~~likely continue in future periods until such assets are fully amortized. These assets include the fair value of certain identified assets acquired in acquisitions, including developed technology and acquired tradenames. We define adjusted gross margin as adjusted gross profit divided by total revenue.

The following is a reconciliation of adjusted gross profit to gross profit for the three- and nine-month periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively:

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Gross profit
$ 23,023 $ 17,343 $ 64,809 $ 52,282
Product rationalization charges
- - 2,063 1,920
Acquisition related intangible asset amortization
1,562 1,562 4,686 4,283
Acquisition related inventory step up
1,458 3,273 6,244 7,396
Adjusted gross profit
$ 26,043 $ 22,178 $ 77,802 $ 65,881

Adjusted gross margin
66 % 70
%
69 % 67 %

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Gross Profit	$	22,779		$	23,023		$	69,445		$	64,809
Product rationalization related charges		2,636			-			2,636			2,063
Acquisition related intangible asset amortization		1,562			1,562			4,686			4,686
Acquisition related inventory step up		-			1,458			-			6,244
Adjusted Gross Profit	$	26,977		$	26,043		$	76,767		$	77,802

Adjusted Gross Margin		67	%		66	%		66	%		69	%

Adjusted gross profit for the three- and nine-month periods ended September 30, ~~2021~~2022 increased ~~$3.9~~by $1.0 million and ~~$11.9~~decreased $1.0 million to ~~$26.0~~$27.0 million and ~~$77.8~~$76.8 million, respectively, representing ~~66%~~adjusted gross margin of 67% and ~~69% of revenue.~~66%. Adjusted gross profit for the three- and nine-month periods ended September 30, ~~2020~~2021 was ~~$22.2~~$26.0 million and ~~$65.9~~$77.8 million, respectively, ~~or 70%~~representing gross margin of 66% and ~~67% of revenue for the periods,~~69%, respectively. This increase in adjusted gross profit for the three-month period ended September 30, 2021 as compared with the same period in 2020, primarily resulted from organic growth of Joint Pain Management revenue as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States. The decrease in adjusted gross margin for the three-month period ended September 30, 2021 as compared with the same period in 2020, is due primarily to unfavorable revenue mix and lower production volumes based on timing related to the COVID-19 pandemic.

~~This increase in adjusted gross profit and~~ adjusted gross margin for the nine-month period ended September 30, ~~2021 as compared with the same period in 2020,~~2022, was primarily ~~resulted from higher revenue~~ due to ~~the inclusion of full period results from Parcus Medical~~higher manufacturing costs and ~~Arthrosurface~~production inefficiencies caused in ~~2021 as we acquired these businesses in early 2020~~part by supply chain and ~~organic growth of Joint Pain Management revenue as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States.~~ staffing challenges.

Adjusted EBITDA

We present information below with respect to adjusted EBITDA, which we define as our net income (loss) excluding interest and other income, net, income tax benefit (expense), depreciation and amortization, stock-based compensation, product rationalization, and acquisition related expenses. In light of the COVID-19 pandemic, we have also excluded the impacts of goodwill impairment charges and changes in the fair value of contingent consideration associated with our acquisition transactions in early 2020.

Adjusted EBITDA is not prepared in accordance with US GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with US GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest US GAAP equivalent. Some of these limitations are:

●

adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;

●

we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our employee compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses likely would be higher, which would affect our cash position;

●

we exclude acquisition related expenses, including transaction costs and other related expenses, amortization and depreciation of acquired assets in recent acquisitions, and the impact of inventory fair-value step up on cost of revenue;

●

we exclude certain impairment charges, including certain product rationalization charges as a result of managing our financial position in light of our recent acquisitions, the impact of COVID-19 and changing regulatory requirements;

●

we exclude goodwill impairment charges and changes in the fair value of contingent consideration;

●

the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

●

adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

●

adjusted EBITDA does not reflect (benefit from) provision for ~~(benefit from)~~ income taxes or the cash requirements to pay taxes; and

●

adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments.

The following is a reconciliation of ~~adjusted EBITDA to~~ net income (loss) to adjusted EBITDA for the three- and nine-month periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively:

	Three Months Ended September 30,						Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020			2022			2021			2022			2021
	(in thousands)
Net income (loss)	$	558		$	(6,411	)	$	9,927		$	(8,326	)
Net (loss) income													$	(4,175	)	$	558		$	(9,951	)	$	9,927
Interest and other expense, net		48			228			141			118			(436	)		48			(378	)		141
Provision for (benefit) from income taxes		694			(1,744	)		1,670			(2,161	)
(Benefit from) provision for income taxes														(1,187	)		694			(2,404	)		1,670
Depreciation and amortization		1,789			1,718			5,226			5,132			1,549			1,789			4,980			5,226
Stock-based compensation		2,863			1,920			7,919			3,953
Product rationalization charges		-			-			2,063			2,892
Acquisition related expenses		-			-			-			4,157
Share-based compensation														3,876			2,863			10,502			7,919
Product rationalization														2,636			-			2,636			2,063
Acquisition related intangible asset amortization		1,787			1,760			5,361			4,831			1,787			1,787			5,361			5,361
Acquisition related inventory step up		1,458			3,273			6,244			7,396			-			1,458			-			6,244
Goodwill impairment		-			-			-			18,144
Change in fair value of contingent consideration		(3,450	)		4,150			(21,920	)		(16,176	)		-			(3,450	)		-			(21,920	)
Adjusted EBITDA	$	5,747		$	4,894		$	16,631		$	19,960		$	4,050		$	5,747		$	10,746		$	16,631

Adjusted EBITDA for the three-month period ended September 30, ~~2021, increased $0.9~~2022, decreased by $1.6 million as compared with the same ~~periods~~period in ~~2020.~~2021. The ~~increase~~decrease in adjusted EBITDA for the period was primarily due to ~~higher revenues~~increased commercial spending to support future growth as ~~COVID-19 pandemic related restrictions started lifting~~certain marketing and medical education activities were more limited in various worldwide jurisdictions, especially in the United States, partially offset by an increase in operating expenses primarily attributable to the increase in clinical trial activity. In 2020, customer ordering patterns delayed a portion of the initial impact of the COVID-19 pandemic on this product family from the second quarter into the second half of 2020.2021.

Adjusted EBITDA for the nine-month period ended September 30, ~~2021,~~2022, decreased ~~$3.3~~$5.9 million as compared with the same period in ~~2020.~~2021. The decrease in adjusted EBITDA for the period was primarily due to lower adjusted gross profit, from higher manufacturing costs and production inefficiencies caused in part by supply chain and staffing challenges, as well as an increase in operating expenses primarily attributable to expansion of our commercial capability in the United ~~States, increase in clinical trial activity, as well as a non-cash impairment charge related to fixed assets during the first quarter of 2021, partially offset by an increase in revenue.~~States.

Adjusted Net Income (Loss) and Adjusted EPS

We present information below with respect to adjusted net income (loss) and adjusted EPS. We define adjusted net income (loss) as our net income (loss) excluding acquisition-related expenses, amortization and depreciation of acquired assets, the impact of inventory fair-value step up on cost of revenue and the impacts of goodwill impairment charges and changes in the fair value of contingent consideration, as well as certain impairment charges, including product rationalization charges, on a tax effected basis. Acquisition related expenses are those that we would not have incurred except as a direct result of acquisition transactions. Acquisition related expenses consist of investment banking, legal, accounting, and other professional and related expenses. The amortized assets contribute to revenue generation, and the amortization of such assets will recur in future periods until such assets are fully amortized. These assets include the estimated fair value of certain identified assets acquired in acquisitions, including in-process research and development, developed technology, customer relationships and acquired tradenames. We define adjusted EPS as US GAAP diluted earnings (loss) per share excluding the above adjustments to net income used in calculating adjusted net income, each on a per share and tax effected basis.

The following is a reconciliation of adjusted net income (loss) to net income (loss) for the three- and nine-month periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively:

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

(in thousands)

Net income (loss)
$ 558 $ (6,411
)
$ 9,927 $ (8,326
)
Product rationalization charges, tax effected
- - 1,590 2,377
Acquisition related expenses, tax effected
- - - 3,174
Acquisition related intangible asset amortization, tax effected
1,146 1,340 3,898 3,688
Acquisition related inventory step up, tax effected
935 2,492 4,626 5,646
Goodwill impairment, tax effected
- - - 15,773
Change in fair value of contingent consideration, tax effected
(1,865
)
3,336 (17,152
)
(13,873
)
Adjusted net income
$ 774 $ 757 $ 2,889 $ 8,459

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Net (loss) income	$	(4,175	)	$	558		$	(9,951	)	$	9,927
Product rationalization, tax effected		2,056			-			1,947			1,590
Impairment on property and equipment; tax effected		-			-			-			-
Acquisition related intangible asset amortization; tax effected		1,394			1,146			3,960			3,898
Acquisition related inventory step up, tax effected		-			935			-			4,626
Change in fair value of contingent consideration, tax effected		-			(1,865	)		-			(17,152	)
Adjusted net (loss) income	$	(725	)	$	774		$	(4,044	)	$	2,889

The following is a reconciliation of adjusted EPS to diluted earnings (loss) per share for the three- and nine-month periods ended September 30, ~~2021~~2022 and ~~2020:~~2021:

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Diluted earnings (loss) per share
$ 0.04 $ (0.45
)
$ 0.68 $ (0.59
)
Product rationalization charges, tax effected
- - 0.11 0.17
Acquisition related expenses per share, tax effected
- - - 0.22
Acquisition related intangible asset amortization, tax effected
0.08 0.09 0.27 0.26
Acquisition related inventory step up, tax effected
0.06 0.18 0.32 0.40
Goodwill impairment, tax effected
- - - 1.11
Change in fair of value contingent consideration, tax effected
(0.13
)
0.23 (1.18
)
(0.98
)
Adjusted EPS
$ 0.05 $ 0.05 $ 0.20 $ 0.59

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Diluted (loss) earnings per share (EPS)	$	(0.29	)	$	0.04		$	(0.68	)	$	0.68
Product rationalization, tax effected		0.14			-			0.13			0.11
Impairment on Property and Equipment		-			-			-
Acquisition related intangible asset amortization; tax effected		0.10			0.08			0.27			0.27
Acquisition related inventory step up, tax effected		-			0.06			-			0.32
Change in fair value of contingent consideration, tax effected		-			(0.13	)		-			(1.18	)
Adjusted diluted (loss) earnings per share (EPS)	$	(0.05	)	$	0.05		$	(0.28	)	$	0.20

Adjusted net (loss) income and adjusted diluted (loss) income per share in the ~~three- month~~three-month period ended September 30, ~~2021 was unchanged from the same period in 2020 as the increase in gross profit was offset~~2022 decreased by an increase in operating expenses due to higher research and development expenses and increased marketing efforts. Adjusted net income for the period increased in 2021 due to higher revenues as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States. This was offset by an increase in operating expenses primarily attributable to an increase in research and development expenses, sales and marketing expenses and share based compensation expenses.

~~Adjusted net income in the nine-month period ended September 30, 2021, decreased $5.6~~$1.5 million or $0.10, respectively, as compared with the same period in ~~2020.~~2021. The decrease for the period was primarily due to increased commercial spending to support future growth as certain marketing and medical education activities were more limited in 2021.

Adjusted net (loss) income in and adjusted diluted (loss) income per share the nine-month period ended September 30, 2022, decreased $6.9 million or $0.48, as compared with the same period in 2021. The decrease in adjusted net income for the period was primarily due to lower adjusted gross profit, from higher manufacturing costs and production inefficiencies caused in part by supply chain and staffing challenges due largely to the impact of the COVID-19 pandemic, as well as an increase in selling and marketing expenses primarily attributable to increased cost to support our commercial capability in the United States an increase in research and development expenses, an increase in share-based compensation expense due to forfeitures of unvested shares during the comparable period, a non-cash impairment charge related to fixed assets in the first quarter of 2021 and an increase in ~~tax expenses.~~stock-based compensation expense driven by incremental headcount associated with the Company’s strategic transformation that accelerated in 2020 and 2021.

Liquidity and Capital Resources

We require cash to fund our operating ~~expenses~~activities and to make capital expenditures and other investments in the business. We expect that our requirements for cash to fund these uses will increase as our operations expand. ~~Historically we have generated positive~~We continue to generate cash ~~flow~~ from ~~operations, which, together with~~operating activities and believe that our ~~available~~operating cash flows, cash ~~equivalents, investments,~~currently on our condensed consolidated balance sheet and ~~debt, have met~~availability under our credit facility will be sufficient to allow us to continue to invest in our existing business, to manage our capital structure on a short and long-term basis, and to meet our anticipated operating cash ~~requirements.~~needs. Cash, cash equivalents, and investments aggregated ~~$91.0~~$87.8 million and ~~$98.3~~$94.4 million, and working capital totaled ~~$137.0~~$141.4 million and ~~$140.5~~$138.7 million, ~~as of~~at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. We are closely monitoring our liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on our operations.

On November 12, 2021, we entered into a Third Amendment to Credit Agreement with Bank of America N.A. as administrative agent, which amended our existing revolving line of credit agreement dated October 24, 2017 which provides up to $75.0 million in the form of a senior revolving line of credit. Subject to certain conditions, we may request up to an additional $75.0 million for a maximum aggregate commitment of $150.0 million. As of September 30, 2022, and December 31, 2021, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

	Nine Months Ended September 30,
	2022			2021
Cash provided by (used in)
Operating activities	$	3,928		$	3,925
Investing activities		(4,957	)		(1,878	)
Financing activities		(5,519	)		(6,839	)
Effect of exchange rate changes on cash		(61	)		(49	)
Net decrease in cash and cash equivalents	$	(6,609	)	$	(4,841	)

The following changes contributed to the net change in cash and cash equivalents in the nine-month period ended September 30, 2022 as compared to the same period in 2021.

Operating Activities

Cash provided by operating activities was $3.9 million for ~~the~~ nine-month period ended September 30, ~~2021, as compared to cash provided by operating activities of $10.5 million for~~2022 was consistent with the same period in ~~2020. The change~~2021, as the higher net loss was ~~primarily~~in part a result of higher non-cash stock compensation expense, and was offset by an improvement in working capital attributable to timing of collections ~~timing~~and inventory purchases.

For the foreseeable future, we expect to continue to invest in research and development for new products and clinical studies as well as continued investment in our commercial infrastructure to support our growth strategy. These costs will be funded with a combination of ~~certain state tax payments~~cash on hand and ~~change in contingent consideration and a decrease in~~ cash ~~outflows related~~expected to acquisition related expenses for the nine-month period ended September 30, 2021. In July 2021, the Company paid contingent consideration in the amount of $10.0 million, $2.8 million of which was classified within operating activities and the remaining $7.2 million was classified within financing activities.be generated from future operations.

Investing Activities

Cash used in investing activities was ~~$1.9~~$5.0 million for the nine-month period ended September 30, ~~2021,~~2022, as compared to cash used in investing activities of ~~$88.1~~$1.9 million for the same period in ~~2020.~~2021. The change was primarily due to an increase in capital expenditures to support commercial growth of the ~~consideration paid for the acquisitions of Parcus Medical and Arthrosurface~~business in the nine-month period ended September 30, ~~2020.~~2022 and proceeds from maturities of investments that occurred in 2021.

Financing Activities

Cash used in financing activities was ~~$6.8~~$5.5 million for the nine-month period ended September 30, ~~2021,~~2022, as compared to cash ~~provided by~~used in financing activities of ~~$24.3~~$6.8 million for the same period in ~~2020.~~2021. The change was primarily ~~due~~attributable to ~~a drawdown of $50.0 million from our existing credit facility in the nine-month period ended September 30, 2020 and the portion of the~~lower contingent consideration ~~payment related to financing activities, as described above,~~payments in ~~the nine-month period ended September 30, 2021.~~2022 and lower stock option exercises in 2022.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with US GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We believe that our accounting policies for revenue recognition, accounts receivable and allowance for credit losses, goodwill, acquired in-process research and development, inventory and contingencies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. There have been no significant changes to the above critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our ~~2020~~2021 Form 10-K for the year ended December 31, ~~2020.~~2021 We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates, if past experience or other assumptions do not turn out to be substantially accurate.

Recent Accounting Pronouncements

A discussion of Recent Accounting Pronouncements is included in our ~~2020~~2021 Form 10-K ~~and is updated in~~for the ~~Notes to the consolidated financial statements included in this report.~~fiscal year ended December 31, 2021.

Contractual Obligations and Other Commercial Commitments

Our contractual obligations and other commercial commitments are summarized in the section captioned “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Other Commercial Commitments” in our ~~2020~~2021 Form ~~10-K.~~10-K for the year ended December 31, 2021. There were no material changes to our contractual obligations reported in our ~~2020~~2021 Form 10-K during the nine months ended September 30, ~~2021.~~2022 other than changes in operating leases reported in Note 8. For additional discussion, see Note 910 to the condensed consolidated financial statements included in this report.

To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and others, or through other sources. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.

Off-Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing techniques that we believe have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks and the ways we manage them are summarized in the section captioned “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2021. There have been no material changes in the first nine months of ~~2021~~2022 to our market risks or to our management of such risks.

ITEM 4.

CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. On an on-going basis, we review and document our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b)

Changes in internal controls over financial reporting.

There were no material changes in our internal control over financial reporting during the quarter ended September 30, ~~2021,~~2022, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PARTII:

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these occasional legal proceedings to have a material adverse effect on our financial position, results of operations, or cash ~~flow, as described in Note 9 to the consolidated financial statements in this report.~~flow. There have been no material changes to the information provided in the section captioned “Part I, Item 3. Legal Proceedings” in our ~~2020~~Annual Report on Form 10-K ~~other than~~for the ~~matter described below.~~year ended December 31, 2021.

On October 21, 2021, we received notice that the former unitholders of Parcus Medical had filed a request for arbitration regarding the earnout provisions agreed to in the Parcus Medical Merger Agreement. We are unable to estimate the potential liability with respect to this matter at this time. There are numerous factors that make it difficult to estimate reasonably possible loss or range of loss at this stage of the matter, including the significant number of legal and factual issues still to be resolved in the arbitration process. We intend to vigorously defend against the claims, and we believe that we have strong defenses to the claims asserted.

ITEM 1A.

RISK FACTORS

~~There~~Except as set forth below, there have been no material changes to the risk factors described in the section captioned “Part I, Item 1A. Risk Factors” in our ~~2020~~Annual Report on Form 10-K for the year ended December 31, 2021, as amended and ~~updated~~supplemented by the information in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, ~~2021.~~2022 and June 30, 2022. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section captioned “Part I, Item 1A. Risk Factors” in our ~~2020~~Annual Report on Form 10-K for the year ended December 31, 2021 and in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, ~~2021,~~2022, which could materially affect our business, financial condition, or future results. The risks described in our ~~2020~~Annual Report on Form 10-K and ~~our~~such subsequently filed Quarterly Report on Form 10-Q, ~~for the quarterly period ended March 31, 2021~~ are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition, and/or operating results.

Inflation could adversely affect our business, financial condition or results of operations.

Inflationhas the potential to adversely affect our business, financial condition and results of operations by increasing our overall costs and increasing the risk that patients will curtail normal levels of elective orthopedic procedures due to pressure on the overall global economy. The existence of inflation in the economy has resulted in, and may continue to result in, higher shipping costs, supply shortages, increased costs of labor and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of inflation, if these measures are not effective our business, financial condition and results of operations could be adversely affected.

We rely on a small number of suppliers for certain key raw materials and a small number of suppliers for a number of other materials required for the manufacturing and delivery of our products, and disruption could materially adversely affect our business, financial condition, and results of operations.

Although we believe that alternative sources for many of these and other components and raw materials that we use in our manufacturing processes are available, we cannot be certain that the supply of key raw and other materials will continue to be available at current levels or will be sufficient to meet our future needs. The COVID-19 pandemic has impacted, and is expected to continue to impact, our supply chain as the companies that produce our products, product components or otherwise support our manufacturing processes, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize and store our products, are, or may be, disrupted, temporarily closed or experience worker shortages for a sustained period of time. For example, for the manufacture of bone preserving joint technologies, we engage a single third-party organization as a contract manufacturer. Any supply interruption could harm our ability to manufacture our products until a new source of supply is identified and qualified. We may not be able to find sufficient alternative suppliers in a reasonable time-period, or on commercially reasonable terms, if at all, and our ability to produce and supply our products and our ability to generate revenue could be impaired.

Our global supply chain has been and is expected to continue to be materially adversely impacted due to the COVID-19 pandemic and faces new and ongoing challenges related to supply constraints.

We rely upon the facilities of our global suppliers to support our business. As a result of COVID-19 and the measures designed to contain its spread, certain of our suppliers have not had the materials, capacity, or capability to supply our needed materials and other supplies that we require to manufacture our products according to our schedule and specifications. It is uncertain to what extent these supply chain challenges will continue as the COVID-19 pandemic continues to evolve. In the past several months, variants of COVID-19 surged across the globe, causing further delays in the supply chain. Despite our attempts to mitigate the impact on our business, constrained supply conditions are expected to adversely impact the amount of revenue we realize. During the first nine months of 2022, we experienced disruptions in our supply chain and manufacturing capability that impacted our revenue for the period. If we are not able to mitigate the impact of these supply shortages, our ability to generate revenue will be significantly impacted. Further, logistics issues, including our ability and our supply chain’s ability to quickly ramp up production, and transportation demands may continue to cause delays. If our suppliers’ operations are curtailed, or if our suppliers are not able to deliver materials and supplies to us as scheduled, we may need to seek alternate sources of supply, which may be more expensive or require approval from regulatory agencies which could cause further delays. Alternative sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect our results of operations. Even if alternative sources are identified, we may not be able to quickly establish additional or replacement sources for certain components or materials due, in part, to the FDA’s manufacturing requirements. If the duration of the production and supply chain disruptions continue for an extended period of time, the impact on our supply chain could have a material adverse effect on our results of operations and cash flows.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases ~~and Withholding~~ of Equity Securities

~~Under our equity compensation plans, and subject to the approval of the Compensation Committee of~~On May 2, 2019, we announced that our Board of Directors ~~employee grantees have~~approved a $50.0 million share repurchase program with $30.0 million to be utilized for an accelerated share repurchase program, which was completed in January 2020, and $20.0 million reserved for open market repurchases which represents the ~~option~~maximum value of ~~electing to satisfy tax withholding obligations at~~shares that may yet be purchased. No open market repurchases were made during the ~~time of vesting or exercise by allowing us to withhold shares of stock otherwise issuable to the grantee. During the three-month~~nine-month period ended September 30, ~~2021, we withheld 1,461 shares to satisfy grantee tax withholding obligations on restricted stock award and restricted stock unit vesting events.~~2022.

~~Following is a summary of stock repurchases for the three-month period ended September 30, 2021 (in thousands, except share data):~~

Period

Total Number of
Shares Withheld (1)

Average
Price per Share

Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (2)

July 1 to 30, 2021
731 $ 43.24 $ 20,000
August 1 to 31, 2021
436 $ 41.76 $ 20,000
September 1 to 30, 2021
294 $ 39.41 $ 20,000
Total
1,461

~~(1)~~	1,461 shares were withheld by us to satisfy grantee tax withholding obligations on restricted stock unit vesting events in the third quarter of 2021. These shares were not acquired pursuant to a publicly announced share repurchase program.
~~(2)~~	On May 2, 2019, we announced that our Board of Directors approved a $50.0 million share repurchase program with $30.0 million to be utilized for an accelerated share repurchase program, which was completed in January 2020, and $20.0 million reserved for open market repurchases. No open market repurchases were made during the three-month period ended September 30, 2021.

~~ITEM 5:~~

~~OTHER~~

~~(a)~~

On November 4, 2021, our Board of Directors adopted the Anika Therapeutics, Inc. 2021 Inducement Plan, or the Inducement Plan, to be effective immediately, and, subject to the adjustment provisions of the Inducement Plan, reserved 125,000 shares of common stock for issuance pursuant to equity awards granted under the Inducement Plan. Awards under the Inducement Plan may be granted only to an individual who was not previously our employee or director, or who is returning to employment following a bona fide period of non-employment with us, in each case as an inducement material to the individual’s entry into employment with us within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with Rule 5635(c)(4), we did not seek approval of the Inducement Plan by our stockholders.

The Inducement Plan provides for the grant of equity-based awards, including non-qualified stock options, stock appreciation rights, restricted stock awards, performance restricted stock units, restricted stock units, total shareholder return options and performance options, and its terms are substantially similar to the Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (as amended), including with respect to treatment of equity awards in the event of a “Change in Control” as defined under both the 2017 Omnibus Incentive Plan and the Inducement Plan.

The foregoing description of the Inducement Plan is qualified in its entirety by reference to the full text of the Inducement Plan, which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1 and which is incorporated herein by reference.

ITEM 6.

EXHIBITS

Exhibit No.	~~Description~~

~~†10.1~~3.1	Certificate of Incorporation of Anika Therapeutics, Inc. ~~2021 Inducement Plan~~ (incorporated by reference to Exhibit 3.1 to the Current Report on Form 10-K (File No. 001-14027) filed by the Registrant on March 11, 2022)

~~†10.2~~3.2	~~Description~~Bylaws of ~~Securities Registered Pursuant~~Anika Therapeutics, Inc., effective as of June 6, 2018 (incorporated by reference to ~~Section 12 of~~Exhibit 3.2 to the ~~Securities Exchange Act of 1934~~Current Report on Form 10-K (File No. 001-14027) filed by the Registrant on March 11, 2022)

†10.1	Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (as amended effective June 8, 2022) (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed (File No. 000-21326) by the Registrant on June 10, 2022)

(31)	Rule 13a-14(a)/15d-14(a) Certifications

*31.1	Certification of Dr. Cheryl R. Blanchard, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2	Certification of Michael Levitz, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)	Section 1350 Certifications

**32.1	Certification of Dr. Cheryl R. Blanchard, and Michael Levitz, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(101)	XBRL

*101	The following materials from Anika Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021~~2022 as filed with the SEC on November ~~4, 2021,~~9, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language), as follows:


	i.	Consolidated Balance Sheets as of September 30, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021 (unaudited)
	ii.	Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021 (unaudited)
	iii.	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, ~~2021~~2022 and September 30, ~~2020 (unaudited)~~20201(unaudited)
	iv.	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2021~~2022 and September 30, ~~2020~~2021 (unaudited)
	v.	Notes to Consolidated Financial Statements (unaudited)


104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith.
**	Furnished herewith.
†	Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ANIKA THERAPEUTICS, INC.

Date: November ~~4, 2021~~9, 2022	By:	/s/ MICHAEL LEVITZ
		Michael Levitz
		Executive Vice President, Chief Financial Officer and Treasurer
		(Authorized Officer and Principal Financial Officer)

3133

	Nine Months Ended September 30, 2020

Total revenue	$	101,722
Net loss		(7,328	)

	Nine Months Ended September 30, 2021
Balance, beginning January 1, 2021	$	8,413
Effect of foreign currency adjustments		(463	)
Balance, ending September 30, 2021	$	7,950

	Nine Months Ended September 30,
	2021		2020
Risk-free interest rate		0.30% – 0.68%		0.21% – 1.59%
Expected life of options (in years)		4.0 – 6.3		4.0 – 6.3
Dividend yield		-%		-%
Expected stock price volatility		54.80% –56.06%		46.48% –52.99%

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2020		178,297		$	35.93
Granted		0			0
Vested		0			0
Forfeited and cancelled		(18,500	)		37.02
Outstanding as of September 30, 2021		159,797		$	35.80

Period	Total Number of Shares Withheld (1)		Average Price per Share		Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (2)
July 1 to 30, 2021		731	$	43.24	$	20,000
August 1 to 31, 2021		436	$	41.76	$	20,000
September 1 to 30, 2021		294	$	39.41	$	20,000
Total		1,461