anik20210930_10q.htm
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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

 

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 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, there were 14,436,773 outstanding shares of Common Stock, par value $0.01 per share. 

 

 

 

 

 

 

ANIKA THERAPEUTICS, INC.

TABLE OF CONTENTS

 

   

Page

Part I

Financial Information

 
     

Item 1.

Financial Statements (unaudited):

3

     
 

Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

3

     
 

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

4

     
 

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

5

     
 

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

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

27

     

Item 4.

Controls and Procedures

27

     

Part II

Other Information

 
     

Item 1.

Legal Proceedings

28

     

Item 1A.

Risk Factors

28

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

     
    Item 5. Other 29
     

Item 6.

Exhibits

30

     

Signatures

31

 

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, Cingal, Hyaff, Monovisc, Orthovisc, Parcus Medical, Tactoset, Hyvisc and WristMotion 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. 

 

 

 

 

 

 

 

 

 

 

PART I:

FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

 

Anika Therapeutics, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

 

  

September 30,

  

December 31,

 

ASSETS

 

2021

  

2020

 

Current assets:

        

Cash and cash equivalents

 $90,976  $95,817 

Investments

     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 

Inventories, net

  35,019   46,209 

Prepaid expenses and other current assets

  7,433   8,754 

Total current assets

  165,780   177,383 

Property and equipment, net

  49,111   50,613 

Right-of-use assets

  21,397   22,619 

Other long-term assets

  23,671   15,420 

Intangible assets, net

  85,021   91,157 

Goodwill

  7,950   8,413 

Total assets

 $352,930  $365,605 

LIABILITIES AND STOCKHOLDERS EQUITY

        

Current liabilities:

        

Accounts payable

 $7,942  $8,984 

Accrued expenses and other current liabilities

  17,339   14,793 

Contingent consideration – current portion

  3,490   13,090 

Total current liabilities

  28,771   36,867 

Other long-term liabilities

  1,489   1,244 

Contingent consideration

  -   22,320 

Deferred tax liability

  12,972   11,895 

Lease liabilities

  19,638   20,879 

Commitments and contingencies (Note 9)

          

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

  -   - 

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 

Additional paid-in-capital

  63,864   55,355 

Accumulated other comprehensive loss

  (5,319)  (4,542

)

Retained earnings

  231,371   221,444 

Total stockholders’ equity

  290,060   272,400 

Total liabilities and stockholders’ equity

 $352,930  $365,605 

 

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

 

3

 

 

 

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,

 
   

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

    -       -       -       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

)

 

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

 

4

 

 

 

Anika Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

(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

  -   -   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 

 

  

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   -   -   -   -   - 

Forfeiture of restricted stock awards

  (9

)

  -   -   -   -   - 

Stock-based compensation expense

  -   -   (207

)

  -   -   (207

)

Retirement of common stock for minimum tax withholdings

  (4

)

  -   (141

)

  -   -   (141

)

Repurchase of common stock

  (139

)

  (1

)

  1   -   -   - 

Net income

  -   -   -   5,793   -   5,793 

Other comprehensive loss

  -   -   -   -   (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   -   68   -   -   68 

Vesting of restricted stock units

  7   -   -   -   -   - 

Stock-based compensation expense

  -   -   2,240   -   -   2,240 

Retirement of common stock for minimum tax withholdings

  (3

)

  -   (59

)

  -   -   (59

)

Net loss

  -   -   -   (7,708

)

  -   (7,708

)

Other comprehensive income

  -   -   -   -   209   209 

Balance, June 30, 2020

  14,204  $142  $50,609  $243,511  $(5,818

)

 $288,444 

Vesting of restricted stock units

  4   -   -   -   -   - 

Stock-based compensation expense

  -   -   1,920   -   -   1,920 

Retirement of common stock for minimum tax withholdings

  -   -   (24

)

  -   -   (24

)

Net loss

  -   -   -   (6,411

)

  -   (6,411

)

Other comprehensive income

  -   -   -   -   522   522 

Balance, September 30, 2020

  14,208  $142  $52,505  $237,100  $(5,296

)

 $284,451 

 

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

 

5

 

 

 

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

  -   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

  -   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)  - 

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

  -   (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

  -   (25,351

)

Proceeds from long term debt

  -   50,000 

Cash paid for contingent consideration

  (7,220)  - 

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  $- 

Consideration for acquisitions included in accounts payable and accrued expenses

 $-  $1,209 

Acquisition related contingent consideration

 $-  $69,076 

Non-cash Financing Activities:

        

Operating lease liabilities

 $220  $- 

 

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

 

6

 

 

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”) 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 joint preservation and restoration, added high-growth revenue streams, increased its commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.

 

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

 

There continue to be uncertainties regarding the pandemic of the novel 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, and business partners. 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 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 balances reported herein are derived from the audited consolidated financial statements. In the opinion of management, these unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the consolidated financial statements.

 

The accompanying unaudited 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. The results of operations for the three- and nine-month periods ended September 30, 2021 are not indicative of the results to be expected for the year ending December 31, 2021.

 

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. Based on the criteria established by Accounting Standards Codification (“ASC”) 280, Segment Reporting, the Company has one operating and reportable segment.

 

 

7

 

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 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 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 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 of September 30, 2021 and December 31, 2020.

 

Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred. The Company incurred approximately $1.9 million in transaction costs related to the Parcus Medical acquisition during the three-month period ending March 31, 2020. The transaction costs 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.

 

8

 

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

 

Recognized identifiable assets acquired and liabilities assumed:

    

Cash and cash equivalents

 $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 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 of the business and the value of future technologies expected to arise after the acquisition. Goodwill will not be amortized and is expected to be deductible for income tax purposes as the acquisition of the limited liability company is an asset purchase for tax purposes. See Note 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.

 

9

 

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 up to $40.0 million depending on the achievement of regulatory milestones and the level of net sales of Arthrosurface products in 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. In October 2020 and 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 of September 30, 2021 and December 31, 2020.

 

Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred. The Company incurred approximately $2.2 million in transaction costs related to the Arthrosurface acquisition during the three-month period ending March 31, 2020. The transaction costs 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 

 

10

 

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 an estimated 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. 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 the asset might be impaired.

 

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 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 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. The pro forma financial information presents the combined results of operations of Anika, Parcus Medical and Arthrosurface as if the acquisitions had occurred on January 1, 2019 after giving effect to certain pro forma adjustments. The pro forma adjustments reflected herein include only those adjustments that are factually supportable and directly attributable to the acquisitions.

 

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

 

The following table presents unaudited supplemental pro forma information:

 

  

Nine Months Ended

September 30, 2020

 
     

Total revenue

 $101,722 

Net loss

  (7,328

)

 

 

11

 

 

4.

Fair Value Measurements

 

The Company held investments 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 are all classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets. For cash, current receivables, accounts payable, and interest accrual, the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore fair value information is not included in the table below. Contingent consideration related to the previously described business combinations are classified within Level 3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability.

 

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

 

      

Active Markets

  

Significant Other

  

Significant

     
      

for Identical Assets

  

Observable Inputs

  

Unobservable Inputs

     
  

September 30, 2021

  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Amortized Cost

 

Cash equivalents:

                    

Money Market Funds

 $67,042  $67,042  $-  $-  $67,042 
                     

Other current and long-term liabilities:

                    

Contingent Consideration - Short Term

 $3,490  $-  $-  $3,490  $- 

 

      

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  $-  $-  $74,522 
                     

Investments:

                    

U.S. Treasury Bills

 $2,501  $2,501  $-  $-  $2,524 
                     

Other current and long-term liabilities:

                    

Contingent Consideration - Short Term

 $13,090  $-  $-  $13,090  $- 

Contingent Consideration - Long Term

  22,320   -   -   22,320   - 

Total other current and long-term liabilities

 $35,410  $-  $-  $35,410  $- 

 

12

 

Contingent Consideration

 

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

 

  

Three Months Ended

September 30, 2021

  

Nine Months Ended

September 30, 2021

 

Balance, beginning

 $16,940  $35,410 

Additions

  -   - 

Payments

  (10,000

)

  (10,000

)

Change in fair value

  (3,450

)

  (21,920

)

Balance, ending

 $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 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,

 
  

2021

  

2020

 

Raw materials

 $16,084  $14,852 

Work-in-process

  12,795   12,811 

Finished goods

  28,935   33,347 

Total

 $57,814  $61,010 
         

Inventories

 $35,019  $46,209 

Other long-term assets

  22,795   14,801 

 

13

 
 

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

     
  

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 

IPR&D

  3,256   (969)  -   2,287   2,587  

Indefinite

 

Customer relationships

  9,000   -   (1,502)  7,498   8,173   10 

Distributor relationships

  4,700   (415)  (4,285)  -   -   5 

Patents

  1,000   (185)  (620)  195   259   16 

Tradenames

  5,200   -   (1,742)  3,458   4,239   5 

Total

 $112,736  $(3,131) $(24,584) $85,021  $91,157   13 

 

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

 

 

7.

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 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 

 

 

8.

Accrued Expenses and Other Liabilities

 

Accrued expenses and other liabilities consist of the following:

 

  

September 30,
2021

  

December 31,
2020

 
         

Compensation and related expenses

 $8,794  $7,345 

Professional fees

  2,046   3,438 

Operating lease liability - current

  1,542   1,437 

Clinical trial costs

  2,463   1,429 

Other

  2,494   1,144 

Total

 $17,339  $14,793 

 

14

 
 

9.

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 and December 31, 2020 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.

 

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 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.

Revenue

 

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 

 

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% and 48% for the three months ended September 30, 2021 and 2020, respectively, and 46% and 52% for the nine months ended September 30, 2021 and 2020, respectively.

 

We receive 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 million and $0.2 million as of September 30, 2021 and December 31, 2020, respectively.

 

Total revenue by geographic location was as follows:

 

  

Three Months Ended September 30,

 
  

2021

  

2020

 
  

Total

  

Percentage of

  

Total

  

Percentage of

 
  

Revenue

  

Revenue

  

Revenue

  

Revenue

 

Geographic Location:

                

United States

 $30,910   78% $26,409   84%

Europe

  4,238   11%  2,954   9%

Other

  4,388   11%  2,331   7%

Total

 $39,536   100% $31,694   100%

 

  

Nine Months Ended September 30,

 
  

2021

  

2020

 
  

Total

  

Percentage of

  

Total

  

Percentage of

 
  

Revenue

  

Revenue

  

Revenue

  

Revenue

 

Geographic Location:

                

United States

 $85,984   77

%

 $77,848   80%

Europe

  14,808   13

%

  11,140   11%

Other

  11,181   10

%

  8,781   9%

Total

 $111,973   100

%

 $97,769   100%

 

15

 
 

11.

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 amended on June 16, 2020 and June 16, 2021 and provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SAR’s will reduce the number of total shares available for grant by two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.6 million shares of common stock may be issued under the 2017 Plan. There are 1.9 million shares available for future grant at September 30, 2021.

 

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 the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over one to four years with a maximum contractual term of ten years.

 

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

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Cost of revenue

 $142  $202  $485  $564 

Research and development

  360   206   1,003   558 

Selling, general and administrative

  2,361   1,512   6,431   2,832 

Total stock-based compensation expense

 $2,863  $1,920  $7,919  $3,954 

 

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. 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 

 

Of the 493,628 stock options granted during the nine-month period ended September 30, 2021, 314,541 shares were premium-priced options which were granted with an exercise price at 110% of the market price of the Company’s common stock on the date of grant.

 

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. 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.

 

16

 

The assumptions used in the Black-Scholes pricing model for options granted during the nine months ended September 30, 2021 and 2020, 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)

  4.06.3   4.06.3 

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.

 

Restricted Stock Units

 

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

 

RSU activity is as follows:

 

  

Number of Shares

  

Weighted Average Fair Value

 

Outstanding as of December 31, 2020

  233,239  $37.50 

Granted

  308,243   35.42 

Vested

  (90,013)  37.63 

Forfeited and cancelled

  (48,624)  35.69 

Outstanding as of September 30, 2021

  402,845  $36.10 

 

As of September 30, 2021, there was $11.3 million of unrecognized compensation cost related to time-based RSUs, which is expected to be recognized over a weighted-average period of 2.1 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 is as follows:

 

  

Number of Shares

  

Weighted Average

Fair Value

 

Outstanding as of December 31, 2020

  178,297  $35.93 

Granted

  -   - 

Vested

  -   - 

Forfeited and cancelled

  (18,500)  37.02 

Outstanding as of September 30, 2021

  159,797  $35.80 

 

As of September 30, 2021, there was $0.1 million of unrecognized compensation cost related to PSUs, which is 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).

 

17

 
 

12.

Income Taxes

 

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 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 in the effective tax rate for the three-month period ended September 30, 2021, as compared to the same period in 2020, was primarily due to stock option activity and an adjustment to the Foreign Derived Intangible Income (“FDII”) deduction expected for 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 in the effective tax rate for the nine-month period ended September 30, 2021, as compared to the same period in 2020. 

 

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.

 

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 deferred income taxes to offset future taxable income. The Company has concluded that it is more likely than not that the majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence.

 

13.

Earnings Per Share (EPS)