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

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

Consolidated Statements of ~~Stockholders' Equity~~Operations and Comprehensive Income

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

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

Anika Therapeutics, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net income (loss)	$	9,369		$	(1,915	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,011			6,459
Non-cash operating lease cost		912			725
Goodwill impairment		0			18,144
Change in fair value of contingent consideration		(18,470	)		(20,326	)
Loss on disposal of fixed assets		831			265
Loss on impairment of intangible asset		0			1,025
Stock-based compensation expense		5,056			2,033
Deferred income taxes		1,196			(907	)
Provision (recovery) for doubtful accounts		(26	)		(36	)
Provision for inventory		2,404			3,259
Amortization of acquisition related inventory step-up		4,786			4,123
Changes in operating assets and liabilities:
Accounts receivable		(5,347	)		6,208
Inventories		(6,796	)		(5,410	)
Prepaid expenses, other current and long-term assets		1,608			(373	)
Accounts payable		(642	)		(2,462	)
Operating lease liabilities		(849	)		(675	)
Accrued expenses, other current and long-term liabilities		2,307			(5,135	)
Income taxes		(1,487	)		(389	)
Net cash provided by operating activities		1,863			4,613

Cash flows from investing activities:
Acquisition of Parcus Medical and Arthrosurface, net of cash acquired		(352	)		(93,859	)
Proceeds from maturities of investments		2,501			20,000
Purchases of investments		0			(20,035	)
Purchases of property and equipment		(2,732	)		(908	)
Net cash used in investing activities		(583	)		(94,802	)

Cash flows from financing activities:
Payments made on finance leases		(147	)		0
Repayments of long term debt		0			(351	)
Proceeds from long term debt		0			50,000
Cash paid for tax withheld on vested restricted stock awards		(353	)		(200	)
Proceeds from exercises of equity awards		643			68
Net cash provided by financing activities		143			49,517

Exchange rate impact on cash and cash equivalents		(59	)		(45	)

Increase (decrease) in cash and cash equivalents		1,364			(40,717	)
Cash and cash equivalents at beginning of period		95,817			157,463
Cash and cash equivalents at end of period	$	97,181		$	116,746
Supplemental disclosure of cash flow information:
Non-cash Investing Activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	263		$	61
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 condensed 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”) 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 ~~Anika's~~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 biotechnology and medical device industries 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 Securities and Exchange Commission ~~(the “SEC”~~(“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 six-month ~~period~~periods ended ~~March 31,~~June 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 ~~March 31,~~June 30, 2021. 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 ~~FASB~~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. ~~Anika’s~~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 ~~totals~~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. ~~Deferred~~There was deferred consideration is 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. 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 ~~March 31,~~June 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.

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

Subsequent to the acquisition date, during the three-month period ended September 30, 2020, the Company completed the identification and confirmation of Parcus Medical inventory in the possession of its direct and distributor sales force, which resulted in an increase to the fair value of inventory of $1.9 million as of the January 24, 2020 acquisition date. As a result, the Company recorded this addition to inventory with a corresponding reduction to goodwill as a measurement period adjustment which was reflected to the ~~Goodwill~~goodwill amount included in the table above. The impact to the consolidated statement of operations related to this adjustment was not material.

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.

~~Revenue and Net Loss~~

~~The Company recorded revenue from Parcus Medical of $3.9 million and a net loss of ($1.4) million in the~~ ~~three~~~~-month period ended~~ ~~March 31, 2021.~~ ~~The Company recorded revenue from Parcus Medical of $2.6 million and a net loss of ($0.9) million in the period from~~ ~~January 24, 2020~~ ~~through~~ ~~March 31, 2020,~~ ~~excluding the goodwill impairment.~~

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. ~~Anika’s~~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 in 2020 through 2021. In ~~October 2020,~~ ~~based upon the achievement of a regulatory milestone, the Company paid $5.0 million.~~ 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 ~~March 31,~~June 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

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 ~~names~~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.

~~Revenue and Net Loss~~

~~The Company recorded revenue from Arthrosurface of $6.6 million and a net loss of ($2.8) million in the~~ ~~three~~~~-month period ending~~ ~~March 31, 2021.~~ ~~The Company recorded revenue from Arthrosurface of $4.2 million and a net loss of ($4.0) million in the period from~~ ~~February 3, 2020~~ ~~through~~ ~~March 31, 2020,~~ ~~excluding the goodwill impairment.~~

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 three ~~months~~- and six-month periods ended ~~March 31,~~June 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:

	For the Three Months Ended March 31,				Six Months ended June 30,
	2021		2020		2021		2020
Total revenue	$	34,292	$	39,350	$	72,437	$	70,028
Net income	$	2,838	$	6,790
Net income (loss)						9,369		(917	)

1211

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 asat December 31, 2020. There were 0 available-for-sale securities as of ~~March 31,~~June 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						Active Markets		Significant Other		Significant
	March 31, 2021		(Level 1)		(Level 2)		(Level 3)		Amortized Cost		June 30, 2021		for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Amortized Cost
Cash equivalents:
Money Market Funds	$	77,030	$	77,030	$	0	$	0	$	77,030	$	67,038	$	67,038	$	0	$	0	$	67,038

Other current and long-term liabilities:
Contingent Consideration - Short Term	$	24,830	$	0	$	0	$	24,830	$	0	$	16,870	$	0	$	0	$	16,870	$	0
Contingent Consideration - Long Term		5,760		0		0		5,760		0		70		0		0		70		0
Total other current and long-term liabilities	$	30,590	$	0	$	0	$	30,590	$	0	$	16,940	$	0	$	0	$	16,940	$	0

			Active Markets		Significant Other		Significant
	December 31, 2020		for Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (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

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

~~There were~~

no12 ~~transfers between fair value levels during the~~ ~~three~~~~-month period ended~~ ~~March 31, 2021~~ ~~or in~~ ~~2020.~~

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 March 31, 2021			Three Months Ended June 30, 2021			Six Months Ended June 30, 2021
Balance, beginning	$	35,410		$	30,590		$	35,410
Additions		0			0			0
Payments		0			0			0
Change in fair value		(4,820	)		(13,650	)		(18,470	)
Balance, ending	$	30,590		$	16,940		$	16,940

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 ~~2.6%~~2.2% - ~~2.8%~~2.3%, and for the regulatory earn-out milestones the discount rate was ~~3.6%~~2.7%. ~~As of~~ ~~March 31, 2021,~~ ~~the probability of successful achievement of the Arthrosurface regulatory earn-out milestones range from 0%-70%, as compared to a range of 60%-75% at the acquisition date.~~ The weighted average cost of capital for Arthrosurface and Parcus increased from ~~11.5% on the acquisition date to 12.1%~~11.4% as of ~~March~~December 31, ~~2021,~~2020 ~~and for Parcus Medical decreased from 14.5% at the acquisition date~~ to ~~12.1%~~11.8% as of ~~March 31,~~June 30, 2021. ~~Increases or decreases in any of the probabilities of success in which milestones are expected to be achieved would result in a higher or lower fair value measurement, respectively.~~ 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%. As of June 30, 2021, the probability of successful achievement of one of the regulatory earn-out milestones was determined to be 100% as the Company achieved a regulatory milestone prior to June 30, 2021. The probability of successful achievement of the remaining regulatory milestone was determined to be 0% as of June 30, 2021.

The overall fair value of the contingent consideration decreased by $13.7 million and $18.5 million during the 13three

- and six-month periods ended June 30, 2021, respectively, to $16.9 million, due primarily to the decrease in the likelihood that certain contingent milestones would be achieved and result in payment. 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$5.0 million pursuant to the terms of the Arthrosurface Merger Agreement as a result of regulatory clearance for the WristMotion Total Arthroplasty System. ~~The fair value~~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 ~~remaining~~the Arthrosurface Merger Agreement. This amount is included as contingent consideration ~~is assessed on a quarterly basis. The fair value of the contingent consideration decreased by $4.8 million during the~~ ~~three~~~~-month period ended~~ ~~March 31, 2021~~ ~~due primarily to the decrease~~in current liabilities in the ~~likelihood that certain contingent milestones would be achieved~~ Company’s consolidated balance sheet as of June 30, 2021 and ~~result~~was paid in ~~payment.~~July 2021.

5.	Inventories

Inventories consist of the following:

	March 31,		December 31,		June 30,		December 31,
	2021		2020		2021		2020
Raw materials	$	15,565	$	14,852	$	14,892	$	14,852
Work-in-process		11,262		12,811		11,818		12,811
Finished goods		35,336		33,347		33,876		33,347
Total	$	62,163	$	61,010	$	60,586	$	61,010

Inventories	$	42,718	$	46,209	$	42,857	$	46,209
Other long-term assets		19,445		14,801		17,729		14,801

The Company recorded an inventory reserve of $2.5 million during the three-month period ended June 30, 2021, of which $0.4 million was associated with the acquisition related inventory step-up, as a result of the Company's product rationalization efforts.

6.	Intangible Assets

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

Three Months Ended March 31, 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 $ (1,539 ) $ (13,510 ) $ 74,531 $ 75,899 15
IPR&D
3,256 (951 ) 0 2,305 2,587
Indefinite

Customer relationships
9,000 0 (1,052 ) 7,948 8,173 10
Distributor relationships
4,700 (415 ) (4,285 ) 0 0 5
Patents
1,000 (183 ) (594 ) 223 259 16
Tradenames
5,200 0 (1,221 ) 3,979 4,239 5
Total
$ 112,736 $ (3,088 ) $ (20,662 ) $ 88,986 $ 91,157 13

			Six Months Ended June 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	$	(1,506	)	$	(14,975	)	$	73,099	$	75,899		15
IPR&D		3,256		(926	)		0			2,330		2,587	Indefinite
Customer relationships		9,000		0			(1,277	)		7,723		8,173		10
Distributor relationships		4,700		(415	)		(4,285	)		0		0		5
Patents		1,000		(180	)		(607	)		213		259		16
Tradenames		5,200		0			(1,481	)		3,719		4,239		5
Total	$	112,736	$	(3,027	)	$	(22,625	)	$	87,084	$	91,157		13

The aggregate amortization expense related to intangible assets was ~~$1.9~~$2.0 million and ~~$1.3~~$2.2 million for the three-month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $3.9 million and $3.5 million for the six-month periods ended June 30, 2021 and 2020,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 on each reporting unit. The Company has 2 reporting units: the legacy Anika reporting unit, which specializes in therapies based on its hyaluronic acid, or HA, technology platform, and a joint preservation and restoration reporting unit established in ~~2020~~ ~~upon the acquisitions of Parcus Medical and Arthrosurface.~~impairment.

Changes in the carrying value of goodwill for the ~~three~~six months ended ~~March 31,~~June 30, 2021~~and year ended~~ ~~December 31, 2020~~ were as follows:

Three Months Ended
March 31, 2021

Balance, beginning
$ 8,413
Effect of foreign currency adjustments
(368 )
Acquisitions
0
Impairment loss
0
Balance, ending
$ 8,045

~~The increase in goodwill in~~ ~~2020~~ ~~is related to the acquisitions of Parcus Medical and Arthrosurface Inc. in~~ ~~January~~ ~~and~~ ~~February 2020,~~ ~~as further discussed in Note~~ 3, ~~Business Combinations~~~~. The Company performed an interim quantitative assessment of goodwill impairment as~~ ~~March 31, 2020,~~ ~~in addition to its annual impairment testing as of~~ ~~November 30, 2020,~~ with respect to the joint preservation and restoration reporting unit. The results of the impairment tests indicated that the estimated fair value of the reporting unit was less than its carrying value. This was primarily due to decreases in near term revenue and related cash flows as a result of the temporary suspension of domestic elective procedures which directly impact the reporting unit. Consequently, a non-cash goodwill impairment charge was recorded in the amount of $42.5 million during ~~2020.~~ ~~The Company did~~ ~~not~~ ~~record any goodwill impairment charge with respect to legacy Anika reporting unit in~~ ~~2020.~~

	Six Months Ended June 30, 2021
Balance, beginning January 1, 2021	$	8,413
Effect of foreign currency adjustments		(264	)
Balance, ending June 30, 2021	$	8,149

8.	Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

	March 31, 2021		December 31, 2020		June 30, 2021		December 31, 2020

Compensation and related expenses	$	5,726	$	7,345	$	7,754	$	7,345
Professional fees		2,904		3,438		2,542		3,438
Operating lease liability - current		1,517		1,437		1,524		1,437
Clinical trial costs		1,746		1,429		2,604		1,429
Financing lease liability - current		119		148
Other		1,448		996		1,972		1,144
Total	$	13,460	$	14,793	$	16,396	$	14,793

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 0 accrued warranties as of ~~March 31,~~June 30, 2021 orand 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 ~~flow.~~flows.

10.

Revenue

Revenue by product family was as follows:

	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2021		2020

Joint Pain Management	$	19,316	$	25,483	$	24,321	$	22,247	$	43,637	$	47,730
Joint Preservation and Restoration		12,219		7,896		11,884		6,622		24,103		14,518
Other		2,757		2,018		1,940		1,809		4,697		3,827
	$	34,292	$	35,397	$	38,145	$	30,678	$	72,437	$	66,075

Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine (“Mitek”), part of the Johnson & Johnson Medical Companies, ~~(Mitek),~~ as a percentage of the Company’s total revenue was ~~41%~~46% and 54% for the three months ended ~~March 31,~~June 30, 2021 and 2020, ~~respectively.~~respectively, and 44% and 54% for the six months ended June 30, 2021 and 2020, respectively

We receive payments from our customers based on billing schedules established in each contract. Up-front payments ~~and fees~~ are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until 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 ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

~~Revenue~~Total revenue by geographic location was as follows:

	Three Months Ended March 31,										Three Months Ended June 30,
	2021					2020					2021					2020
			Percentage of					Percentage of			Total		Percentage of			Total		Percentage of
	Revenue		Revenue			Revenue		Revenue			Revenue		Revenue			Revenue		Revenue
Geographic Location:
United States	$	25,005		73	%	$	26,306		74	%	$	30,069		79	%	$	25,133		82	%
Europe		5,480		16	%		5,276		15	%		5,089		13	%		2,910		9	%
Other		3,807		11	%		3,815		11	%		2,987		8	%		2,635		9	%
Total	$	34,292		100	%	$	35,397		100	%	$	38,145		100	%	$	30,678		100	%

	Six Months Ended June 30,
	2021					2020
	Total		Percentage of			Total		Percentage of
	Revenue		Revenue			Revenue		Revenue
Geographic Location:
United States	$	55,074		76	%	$	51,438		78	%
Europe		10,570		15	%		8,186		12	%
Other		6,793		9	%		6,451		10	%
Total	$	72,437		100	%	$	66,075		100	%

11.

~~Equity Incentive Plan~~Stock-Based Compensation

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Fair value of total shareholder return options (“TSR”) is measured by using a Monte-Carlo simulation model. Fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) is measured by the grant-date price of On June 16, 2021, the Company’s shares. Fair value of performance restricted stock units (“PSUs”) is measured by the grant-date price of the Company’s shares with corresponding compensation cost recognized over the requisite service period. Compensation cost is recognized based on the estimated probabilities of achieving the performance goals. Changesstockholders approved an amendment to the ~~probability assessment and~~2017 Plan. The amendment increased the ~~estimated~~number of shares ~~expected to vest will result in adjustments to the related compensation cost that will be recorded in the period~~ of ~~the change. If the performance targets are~~ ~~not~~ ~~achieved,~~ no ~~compensation cost is recognized, and any previously recognized compensation cost is reversed.~~

~~The expected volatility assumption is evaluated against the historical volatility of the Company’s~~ common stock ~~over a~~ 4-year average, except for TSRs which is evaluated over 6.3 years, and it is adjusted if there are material changes in historical volatility. The risk-free interest rate assumption is based on U.S. Treasury interest rates atreserved under the ~~time of grant.~~

~~The fair value of each stock option award during the~~ ~~three~~~~-month periods ended~~ ~~March 31, 2021~~ ~~and~~ ~~2020~~2017 ~~was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:~~Plan by 1.1 million shares from 3.5 million shares to 4.6 million shares.

Three Months Ended
March 31,

2021

2020
Risk free interest rate

0.3%
-
0.6%

0.4%
-
1.6%
Expected volatility

54.8%
-
55.4%

46.5%
-
49.4%
Expected life (years)

4.0

4.0

Expected dividend yield

0.0%

0.0%

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:

	Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020			2021		2020		2021		2020
Cost of revenue	$	129	$	146		$	214	$	216	$	343	$	362
Research and development		241		196			402		156		643		352
Selling, general and administrative		1,889		(549	)		2,181		1,868		4,070		1,319
Total stock-based compensation expense	$	2,259	$	(207	)	$	2,797	$	2,240	$	5,056	$	2,033

On ~~January 29, 2020,~~ the Company announced the unexpected death of its former President and Chief Executive Officer, Joseph Darling. According to the terms of Mr. Darling’s equity award grants and the Anika Therapeutics, Inc. ~~2017~~ ~~Omnibus Incentive Plan (the~~ ~~“2017~~ ~~Plan”), the unvested portion of his stock-based compensation was forfeited upon his death, resulting in a~~ ~~one~~~~-time benefit of $1.8 million that was fully recognized during the~~ ~~three~~~~-month period ended~~ ~~March 31, 2020~~ ~~within selling, general and administrative expenses.~~

~~The following table sets forth share information for stock-based compensation awards granted and exercised during the~~ ~~three~~~~-month periods ended~~ ~~March 31, 2021~~ ~~and~~ ~~2020:~~

Three Months Ended
March 31,

2021

2020

Grants:

Stock options
421,463 210,775
RSUs
258,417 100,631
PSUs
0 57,400
Exercises:

Stock options
125 0
Forfeitures:

Stock options
73,156 33,478
RSAs
0 8,574
RSUs
4,092 63,683
PSUs
2,500 63,000
Expirations:

Stock options
2,667 363

~~During the~~ ~~three~~~~-month period ended~~ ~~March 31, 2021,~~ the Company granted stock-based compensation awards in the form of stock options, and RSUs to employees and RSUs to non-employee directors, the majority of which become exercisable or vest ratably over a ~~three-year period. Of the 421,463 stock options granted during the~~ ~~first~~ ~~quarter of~~ ~~2021,~~ ~~301,845 shares were premium-priced options which were granted with an exercise price at~~ ~~110%~~ ~~of the market price of the Company’s stock on the date of grant.~~

12.

Income Taxes

The Company recorded an income tax ~~benefit~~provision of ~~$1.6~~$2.6 million and $1.0 million for the three- and six-month ~~period~~periods ended ~~March 31,~~June 30, 2021, resulting in an effective tax ~~rate~~rates of ~~(133.6%).~~28.5% and 9.4%, respectively. The ~~provision for~~benefit from income taxes was ~~$1.6~~$2.0 million and $0.4 million for the three- and six-month ~~period~~periods ended ~~March 31,~~June 30, 2020, based on an effective tax ~~rate~~rates of ~~21.4%.~~20.6% and 17.9%, respectively. The net ~~decrease~~increase in the effective tax rate for the three-month period ended ~~March 31,~~June 30, 2021, as compared to the same period in 2020, was primarily due to $0.7 million recorded as tax expense for the ~~$1.7 million tax benefit on the decrease~~change in the fair value of the contingent consideration, recognized as a discrete ~~benefit~~charge in the ~~first~~second quarter of 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, resulted in a net decrease in the effective tax rate for the six-month period ended June 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. At ~~December 31, 2020,~~ the Company recorded a valuation allowance in the amount of $0.9 million related to net operating loss carryforwards at its Italian subsidiary due to the uncertainty regarding their realization. The Company did ~~not~~ ~~record an additional valuation allowance at~~ ~~March 31, 2021.~~

13.

Earnings Per Share (“EPS”)

Basic EPS is calculated by dividing net income 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 ~~earnings per share.~~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 ~~stock options (including TSRs), SARs, RSAs, RSUs, and PSUs~~share-based awards using the treasury stock method.

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

Three Months Ended March 31,

2021

2020

Shares used in the calculation of basic earnings per share
14,343 14,202
Effect of dilutive securities:

Stock options, RSAs, PSUs and RSUs
92 151
Diluted shares used in the calculation of earnings per share
14,435 14,353

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Shares used in the calculation of basic EPS		14,393		14,199		14,368		14,201
Effect of dilutive securities:
Share based awards		234		0		215		0
Diluted shares used in the calculation of EPS		14,627		14,199		14,583		14,201

Stock options of ~~1.2~~1.0 million shares were outstanding for each of the three-month periods ended June 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. Stock options of 1.1 million and ~~0.6~~0.9 million shares were outstanding for the ~~three~~six-month periods ended ~~March 31,~~June 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.

1816

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, or our 2020 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 Form 10-K ~~for the year ended December 31, 2020~~ and in Part II, Item 1A “Risk Factors” of this report 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, soft tissue repair and bone preserving joint technologies.

We have nearly thirty years of global expertise developing, manufacturing and commercializing products based on 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, which is the platform for our regenerative solutions portfolio.

In early 2020, we expanded our overall technology platform and significantly enhanced 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 ~~less invasive,~~ 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 joint preservation market (which includes the faster growing sports medicine and extremities segments), improved our commercial capabilities, 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 ~~common management~~seasoned leadership with a strong financial foundation for future investment in meaningful solutions for our customers;

●

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

●

Prioritized investment in differentiated ~~research~~pipeline of regenerative solutions, bone preserving implants and ~~development programs;~~soft tissue solutions;

●

~~Expansion of our~~Leveraging global commercial ~~capabilities globally within joint preservation;~~expertise to drive growth across the portfolio;

●

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

●

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

COVID-19 Pandemic

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, 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 ~~first and~~ 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 ~~which makes~~increasing as the result of emerging variants of COVID-19. These fluctuations make future results difficult to predict despite recent advances in ~~vaccinations for~~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 resurgence 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, or other restrictions that could impact our business and operations. We may also have to take further actions that we determine are 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. Our commercial day-to-day operations have been impacted due to the worldwide cancellation or delay of elective procedures, 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 in certain jurisdictions. The impact of these restrictions on our operations, if implemented, is currently unknown, but could be significant.

Products

Joint Pain Management

Our Joint Pain Management product family consists of:

●

Monovisc and Orthovisc, our single- and multi-injection, HA-based viscosupplement offerings indicated to provide pain relief from OA conditions. Our Joint 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, part of the Johnson & Johnson Medical Companies, or Mitek, and have been the market leaders, based on combined overall revenue in the viscosupplement market, since 2018. Internationally, we market our Joint Pain Management products through a ~~robust and growing~~ worldwide network of commercial distributors.

●

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

●

Hyvisc, our high molecular weight injectable HA veterinary product 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., ~~or Boehringer,~~ in the United States.

Joint Preservation and Restoration

Our Joint Preservation and Restoration product family consists of:

●

Bone Preserving Joint 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 caused by trauma, injury and arthritic disease. These products span multiple joints including the shoulder, foot/ankle, wrist, knee and hip and are generally intended to mimic a patient’s natural anatomy to the extent feasible. These products are often used to treat patients with OA progression beyond where our Joint Pain Management products can allow ~~them~~the patients to retain an active lifestyle, ~~and~~when early surgical intervention becomes preferable. We commercialize these products in the United States by directly selling to hospitals and surgery centers and utilize our distributor network for sales in certain international markets.

●

Soft Tissue Repair. Our line of soft tissue repair solutions is used by surgeons to repair and reconstruct damaged ligaments and tendons resulting from sports injuries, trauma and disease. These more traditional sports medicine solutions include screws, sutures, suture anchors, 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 and utilize our distributor network for sales in over 60 international markets.

●

Regenerative Solutions. Our portfolio of orthopedic regenerative solutions based on our proprietary technologies based on HA and Hyaff, ~~technologies,~~ which is a solid form of HA. These products include Tactoset, an HA-enhanced injectable bone repair therapy designed to treat insufficiency fractures that we commercialize only in the United States, and Hyalofast, a biodegradable support for human bone marrow mesenchymal stem cells used for cartilage regeneration and as an adjunct for microfracture surgery. Hyalofast is CE Mark approved and currently available in Europe, South America, Asia, and certain other international markets. In the United States, Hyalofast is a pipeline product under clinical ~~development.~~development and is not available for commercial sale.

Other

Our Other product family consists of legacy HA-based products that do not fit into one of our other primary product categories. 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, products used in connection with the treatment of ears, nose and throat disorders, and ophthalmic products, including injectable, high molecular weight HA products used as viscoelastic agents in ophthalmic surgical procedures such as cataract extraction and intraocular lens implantation.

2118

Results of Operations

Three and Six Months Ended ~~March 31,~~June 30, 2021 Compared to Three and Six Months Ended ~~March 31,~~June 30, 2020

	Three Months Ended March 31,												Three Months Ended June 30,												Six Months Ended June 30,
	2021			2020			$ change			% change			2021			2020			$ Change			% Change			2021			2020			$ Change			% Change
	(in thousands, except percentages)												(in thousands, except percentages)												(in thousands, except percentages)
Revenue	$	34,292		$	35,397		$	(1,105	)		(3	%)	$	38,145		$	30,678		$	7,467			24	%	$	72,437		$	66,075		$	6,362			10	%
Cost of revenue		13,318			14,200			(882	)		(6	%)		17,333			16,936			397			2	%		30,651			31,136			(485	)		(2	)%
Gross profit		20,974			21,197			(223	)		(1	%)		20,812			13,742			7,070			51	%		41,786			34,939			6,847			20	%
Gross margin		61	%		60	%								55	%		45	%								58	%		53	%
Operating expenses:
Research and development		6,361			6,050			311			5	%		7,293			4,532			2,761			61	%		13,654			10,582			3,072			29	%
Selling, general and administrative		18,175			14,431			3,744			26	%		17,989			14,550			3,439			24	%		36,164			28,981			7,183			25	%
Goodwill impairment		-			18,144			(18,144	)		(100	%)		-			-			-			-			-			18,144			(18,144	)		(100	%)
Change in fair value of contingent consideration		(4,820	)		(24,522	)		19,702			(80	%)		(13,650	)		4,196			(17,846	)		(425	%)		(18,470	)		(20,326	)		1,856			(9	%)
Total operating expenses		19,716			14,103			5,613			40	%		11,632			23,278			(11,646	)		(50	%)		31,348			37,381			(6,033	)		(16	%)
Income from operations		1,258			7,094			(5,836	)		(82	%)
Interest and other (expense) / income, net		(43	)		279			(322	)		(115	%)
Income (before income taxes		1,215			7,373			(6,158	)		(84	%)
(Benefit from) provision for income taxes		(1,623	)		1,580			(3,203	)		(203	%)
Net income	$	2,838		$	5,793		$	(2,955	)		(51	%)
Income (loss) from operations														9,180			(9,536	)		18,716			196	%		10,438			(2,442	)		12,880			527	%
Interest and other income (expense), net														(50	)		(169	)		119			(70	%)		(93	)		110			(203	)		(185	%)
Income (loss) before income taxes														9,130			(9,705	)		18,835			194	%		10,345			(2,332	)		12,677			544	%
Provision for (benefit from) income taxes														2,599			(1,997	)		4,596			230	%		976			(417	)		1,393			334	%
Net income (loss)													$	6,531		$	(7,708	)	$	14,239			185	%	$	9,369		$	(1,915	)	$	11,284			589	%

Revenue

Revenue for the three-month period ended ~~March 31,~~June 30, 2021 was ~~$34.3~~$38.2 million, ~~a decrease~~an increase of ~~$1.1~~$7.5 million as compared to ~~$35.4~~$30.7 million for the three-month period ended ~~March 31, 2020,~~June 30, 2020. Revenue for the six-month period ended June 30, 2021 was $72.4 million, an increase of $6.4 million as compared to $66.1 million for the six-month period ended June 30, 2020. For the three- and six-month periods ended June 30, 2021, the increases in revenue were primarily ~~as a result of~~driven by recovery from the initial impact of ~~COVID-19~~COVID on ~~procedure volumes and Mitek’s related ordering patterns, offset by~~prior year sales volumes. The increase for the six-month period ended June 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. ~~Our consolidated financial statements include the results of operations for these acquired businesses from their respective acquisition dates.~~

Three Months Ended March 31,

2021

2020

$ change

% change

(in thousands, except percentages)

Joint Pain Management
$ 19,316 $ 25,483 $ (6,167 ) (24
%)
Joint Preservation and Restoration
12,219 7,896 4,323 55
%
Other
2,757 2,018 739 37
%
$ 34,292 $ 35,397 $ (1,105 ) (3
%)

The following tables present product revenue by product family:

	Three Months Ended June 30,
	2021		2020		$ change		% change
	(in thousands, except percentages)
Joint Pain Management	$	24,321	$	22,247	$	2,074		9	%
Joint Preservation and Restoration		11,884		6,622		5,262		79	%
Other	��	1,940		1,809		131		7	%
	$	38,145	$	30,678	$	7,467		24	%

	Six Months Ended June 30,
	2021		2020		$ change			% change
	(in thousands, except percentages)
Joint Pain Management	$	43,637	$	47,730	$	(4,093	)		(9%	)
Joint Preservation and Restoration		24,103		14,518		9,585			66	%
Other		4,697		3,827		870			23	%
	$	72,437	$	66,075	$	6,362			10	%

Revenue from our Joint Pain Management product family ~~decreased, primarily due~~increased 9% for the three-month period ended June 30, 2021 as compared to the ~~worldwide~~same period in 2020 due primarily to recovery from the initial impact of the COVID-19 pandemic on ~~elective procedure volumes and associated ordering patterns from Mitek.~~ sales volumes. For the six-month period ended June 30, 2021, revenue decreased 9% as compared to the same period in 2020 primarily due to the overall unfavorable impact of the COVID-19 pandemic in the same period of 2020.

Revenue from our Joint Preservation and Restoration product family increased 79% and 66% for the three- and six-month periods ended June 30, 2021, respectively, as compared to the same periods in 2020 primarily due to organic growth as the impact of the COVID-19 pandemic on elective procedures begins to lift in various worldwide jurisdictions, especially in the United States, and for the six-month period, due also to the inclusion of full quarter results from Parcus Medical and Arthrosurface ~~as well as organic growth.~~ in the first quarter.

Revenue from our Other product family increased 7% for the three-month period ended June 30, 2021, as compared to the same period in 2020 primarily due to timing of distributor sales. For the six-month period ended June 30, 2021 revenue increased 23% as compared to the same period in 2020 primarily due to the sell through of legacy wound care products.

Gross Profit and Margin

Gross profit for the ~~three-month period~~three- and six-month periods ended ~~March 31,~~June 30, 2021 ~~decreased $0.2~~increased $7.1 million and $6.9 million to ~~$21.0~~$20.8 million and $41.8 million, respectively, representing ~~a 61% gross margin,~~55% and 58% of revenue. Gross profit for the ~~period. The decrease~~three- and six-month periods ended June 30, 2020 was $13.7 million and $34.9 million, respectively, or 45% and 53% of revenue for the periods, respectively. These increases in gross profit for the three- and six-month periods ended June 30, 2021, primarily resulted from increased revenue, partially offset by product rationalization charges in the second quarter of 2021. We recorded an inventory reserve of $2.5 million during the three-month period ended ~~March 31,~~June 30, 2021, ~~as compared to~~of which $0.4 million was associated with the ~~same period in 2020, was primarily~~acquisition related inventory step-up, as a result of ~~the impact of COVID-19 on volumes offset by full quarter results of acquired businesses. The gross margin included~~our product rationalization efforts. 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 ~~which~~ together increased cost of revenue by ~~$4.1~~$3.8 million, or 1210 points of gross margin and $8.0 million, or 11 points of gross margin, for the ~~three-month period~~three- and six-month periods ended ~~March 31,~~June 30, 2021, respectively, as compared to increased cost of revenue of ~~$3.0~~$3.8 million, or 913 points of gross margin, and $6.8 million, or 10 points of gross margin, respectively, for the same ~~period~~periods in 2020.

Research and Development

Research and development expenses for the ~~three-month period~~three- and six-month periods ended ~~March 31,~~June 30, 2021 were ~~$6.4~~$7.3 million and $13.7 million, representing an increase of ~~$0.3~~$2.8 million and $3.1 million, respectively, as compared to the same ~~period~~periods in 2020. ~~This~~The increase in research and development expense for the three- and six-month periods ended June 30, 2021 was primarily due to ~~full quarter results from Parcus Medical~~product development activities associated with the development of new product candidates in our research and ~~Arthrosurface.~~development pipeline, preparation activities for the CINGAL Pilot study and certain European post-market clinical studies. Research and development activities were curtailed in the three- and six-months ended June 30, 2020 due to cost optimization in the light of the early stages of the COVID-19 pandemic.

Selling, General and Administrative

Selling, general and administrative, or SG&A expenses for the three- and six-month periods ended June 30, 2021 were $18.0 and $36.2 million, an increase of $3.4 million and $7.2 million, respectively, as compared to the same periods in 2020. The increase in SG&A expenses for the three-month period ended ~~March 31,~~June 30, 2021 ~~were $18.2 million, an increase~~was primarily related to increased spending to support our commercial capability through the expansion of ~~$3.7 million, as compared~~our commercial team in the United States, partially offset by the absence of transaction costs incurred in 2020 related to the ~~same period~~acquisitions of Parcus Medical and Arthrosurface.

The increase in ~~2020. This increase~~SG&A expenses for the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021 was ~~due~~primarily related to full ~~quarter results~~period expenses from Parcus Medical and Arthrosurface, increased spending to support our commercial capability in the United States ~~an increase in incentive-based compensation, an increase in share based compensation expense due to the forfeiture of unvested shares during the comparable period,~~ and a non-cash impairment charge related to fixed assets, partially offset by the absence of transaction costs incurred in 2020 related to ~~acquisition~~acquisitions of Parcus and Arthrosurface. Certain activities were curtailed in the three- and six-months ended June 30, 2020 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 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 unit 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,~~June 30, 2020. The decline in fair value was primarily due to ~~decreases~~a decrease in immediate term revenue and related cash flows as a result of the temporary suspension of domestic elective procedures, which directly ~~impact~~impacted the Parcus and Arthrosurface reporting ~~unit.~~units. There were ~~no indicators of goodwill impairment and therefore~~ no goodwill impairment charges ~~were recorded~~ during the ~~three-month~~three- and six-month period ended ~~March 31,~~June 30, 2021.

Contingent Consideration Fair Value Change

~~In the quarter ended March 31, 2021, we~~We recorded a $13.7 million and $18.5 million net benefit ~~of $4.8 million~~ related to changes in the ~~change in~~ fair value of ~~our~~ contingent consideration ~~liabilities incurred as~~for the three- and six-month periods ended June 30, 2021, respectively. We recorded a ~~result~~$4.2 million net expense and $20.3 million net benefit related to changes in the fair value of contingent consideration for the ~~acquisition of Parcus Medical~~three- and ~~Arthrosurface in January and February of~~six-month periods ended June 30, 2020, respectively. The ~~liability for contingent consideration is remeasured at each reporting~~increase in net benefit in the three-month period ~~until~~ended June 30, 2021 compared to the ~~contingency is resolved. The net decrease~~same period in ~~fair value of the contingent consideration as of March 31, 2021~~2020 is due primarily to the decrease in the likelihood that certain contingent milestones would be achieved and result in payment. The decrease in net benefit in the six-month period ended June 30, 2021 compared to the same period in 2020, is due primarily to the achievement of a regulatory milestone in June 2021, which partially offset the decrease in the likelihood that certain other contingent milestones would be achieved and result in payment.

Income Taxes

The provision for income taxes was $2.6 million and $1.0 million for the three- and six-month periods ended June 30, 2021, based on effective tax rates of 28.5% and 9.4%, respectively. The benefit from income taxes was ~~$1.6~~$2.0 million and $0.4 million for the ~~three-month period~~three- and six-month periods ended ~~March 31, 2021, resulting in an effective tax rate of (133.6%). The provision for income taxes was $1.6 million for the three-month period ended March 31,~~June 30, 2020, based on effective tax rates of ~~21.4%.~~20.6% and 17.9%, respectively. The net ~~decrease~~increase in the effective tax rate for the three-month period ended ~~March 31,~~June 30, 2021, as compared to the same period in 2020, was primarily due to the ~~$1.7~~$0.7 million tax ~~benefit~~expense on the ~~decrease~~change in the fair value of the contingent consideration, recognized as a discrete ~~benefit~~charge in the ~~first~~second quarter of 2021. The net tax benefit for the six-month period ended June 30, 2021 on the decrease in the fair value of the contingent consideration, in the amount of $1.1 million, resulted in a net decrease in the effective tax rate for the six-month period ended June 30, 2021, as compared to the same period in 2020.

Non-GAAP Financial Measures

We present certain information with respect to adjusted ~~EBITDA,~~gross profit and adjusted gross margin, adjusted Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”), adjusted net income, ~~and~~ 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, ~~(loss), and~~ adjusted ~~earnings per share~~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 ~~the expenses eliminated~~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 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 assets, the impact of inventory fair-value step up associated with our recent acquisitions and product rationalization charges. 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 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 six-month periods ended June 30, 2021 and 2020, respectively:

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Gross profit	$	20,812		$	13,742		$	41,786		$	34,939
Product rationalization charges		2,063			1,920			2,063			1,920
Acquisition related intangible asset amortization		1,562			1,758			3,124			2,721
Acquisition related inventory step up		2,208			2,032			4,786			4,123
Adjusted gross profit	$	26,645		$	19,452		$	51,759		$	43,703

Adjusted gross margin		70	%		64	%		71	%		66	%

2321

Adjusted gross profit for the three- and six-month periods ended June 30, 2021 increased $7.2 million and $8.1 million to $26.7 million and $51.8 million, respectively, representing 70% and 71% of revenue. Adjusted gross profit for the three- and six-month periods ended June 30, 2020 was $19.5 million and $43.7 million, respectively, or 64% and 66% of revenue for the periods, respectively. This increase in gross profit for the three- and six-month periods ended June 30, 2021, primarily resulted from higher revenue due to the inclusion of full period results from Parcus Medical and Arthrosurface in 2021 as we acquired these businesses in early 2020 and organic growth in existing legacy business as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States.

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 ~~related to non-core legacy assets~~ 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 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.

2422

The following is a reconciliation of net income (loss) to adjusted EBITDA for the ~~three-month~~three- and six-month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively:

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020			2021			2020
	(in thousands)						(in thousands)
Net income	$	2,838		$	5,793
Interest and other income, net		43			(279	)
(Benefit from) provision for income taxes		(1,623	)		1,580
Net income (loss)							$	6,531		$	(7,708	)	$	9,369		$	(1,915	)
Interest and other (income) expense, net								50			169			93			(110	)
Provision for (benefit) from income taxes								2,599			(1,997	)		976			(417	)
Depreciation and amortization		1,721			1,673			1,716			1,739			3,437			3,412
Share-based compensation		2,259			(207	)
Stock-based compensation								2,797			2,240			5,056			2,033
Product rationalization charges								2,063			2,892			2,063			2,892
Acquisition related expenses		-			4,155			-			-			-			4,184
Acquisition related intangible asset amortization		1,787			1,088			1,787			1,996			3,574			3,047
Acquisition related inventory step up		2,578			2,083			2,208			2,032			4,786			4,123
Goodwill impairment		-			18,144			-			-			-			18,144
Change in fair value of contingent consideration		(4,820	)		(24,522	)		(13,650	)		4,196			(18,470	)		(20,326	)
Adjusted EBITDA	$	4,783		$	9,508		$	6,101		$	5,559		$	10,884		$	15,067

Adjusted EBITDA infor the three-month period ended ~~March 31,~~June 30, 2021, increased $0.5 million as compared with the same periods in 2020. The increase in adjusted EBITDA for the period was primarily due to higher revenues as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States, partially offset by an increase in operating expenses primarily attributable to the expansion of our commercial capability in the United States and increase in clinical trial activity.

Adjusted EBITDA for the six-month period ended June 30, 2021, decreased ~~$4.7~~$4.2 million as compared with the same period in 2020. The decrease in adjusted EBITDA for the period was primarily due to ~~lower revenues as a result of the impact of the COVID-19 pandemic,~~ an increase in ~~selling and marketing~~operating expenses primarily attributable to ~~increased cost to support~~expansion of our ~~direct sales force for~~commercial capability in the ~~Joint Preservation and Restoration product family,~~United States, increase in clinical trial activity, as well as a non-cash impairment charge related to fixed ~~assets.~~assets, partially offset by increase in revenue.

Adjusted Net Income and Adjusted EPS

We present information below with respect to adjusted net income and ~~adjusted diluted earnings per share, which we refer to as~~ adjusted EPS. We define adjusted net income as our net income 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 ~~non-cash~~ product rationalization charges, ~~associated with certain non-core legacy products,~~ on a tax effected basis. Acquisition related expenses are those that ~~the~~ 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 to net income for the ~~three-month~~three- and six-month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively:

Three Months Ended March 31,

2021

2020

(in thousands)

Net income
$ 2,838 $ 5,793
Acquisition related expenses, tax effected
- 3,172
Acquisition related intangible asset amortization, tax effected
1,396 831
Acquisition related inventory step up, tax effected
2,016 1,590
Goodwill impairment, tax effected
- 15,773
Change in fair value contingent consideration, tax effected
(5,498
)
(20,682
)
Adjusted net income
$ 752 $ 6,477

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
	(in thousands)
Net income (loss)	$	6,531		$	(7,708	)	$	9,369		$	(1,915	)
Product rationalization charges, tax effected		1,590			2,377			1,590			2,377
Acquisition related expenses, tax effected		-			-			-			3,198
Acquisition related intangible asset amortization, tax effected		1,356			1,529			2,754			2,329
Acquisition related inventory step up, tax effected		1,675			1,556			3,688			3,151
Goodwill impairment, tax effected		-			-			-			15,773
Change in fair value of contingent consideration, tax effected		(9,789	)		3,474			(15,287	)		(17,208	)
Adjusted net income	$	1,363		$	1,228		$	2,114		$	7,705

2523

The following is a reconciliation of adjusted ~~diluted~~ EPS to diluted ~~EPS~~earnings (loss) per share for the ~~three-month~~three- and six-month periods ended ~~March 31,~~June 30, 2021 and ~~2020, respectively:~~2020:

Three Months Ended March 31,

2021

2020

Diluted earnings per share (EPS)
$ 0.20 $ 0.40
Acquisition related expenses per share, tax effected
- 0.22
Acquisition related intangible asset amortization, tax effected
0.10 0.06
Acquisition related inventory step up
0.14 0.11
Goodwill impairment per share, tax effected
- 1.10
Change in fair value contingent consideration per share, tax effected
(0.38
)
(1.44
)
Adjusted diluted EPS
$ 0.06 $ 0.45

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Diluted earnings (loss) per share	$	0.45		$	(0.54	)	$	0.64		$	(0.13	)
Product rationalization charges, tax effected		0.11			0.17			0.11			0.17
Acquisition related expenses per share, tax effected		-			-			-			0.23
Acquisition related intangible asset amortization, tax effected		0.09			0.11			0.19			0.16
Acquisition related inventory step up, tax effected		0.11			0.11			0.25			0.22
Goodwill impairment, tax effected		-			-			-			1.10
Change in fair of value contingent consideration, tax effected		(0.67	)		0.24			(1.05	)		(1.19	)
Adjusted EPS	$	0.09		$	0.09		$	0.14		$	0.56

Adjusted net income ~~and adjusted diluted EPS~~ in the ~~three-month~~three- month period ended ~~March 31,~~June 30, 2021, ~~decreased $5.7~~increased $0.1 million ~~and $0.39, respectively,~~ as compared with the same period in 2020. The ~~decrease~~increase in adjusted net income for the period was primarily due to ~~lower~~higher revenues as ~~a result of~~COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the ~~impact of the COVID-19 pandemic,~~United States partially offset by an increase in selling and marketing expenses primarily attributable to increased ~~costs~~cost to support our ~~direct sales force~~commercial capability in the United States, an increase in research and development expenses and an increase in tax expenses.

Adjusted net income in the six-month period ended June 30, 2021, decreased $5.6 million as compared with the same period in 2020. The decrease in adjusted net income for the ~~Joint Preservation and Restoration product family,~~period was primarily due to an increase in ~~share based~~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 the forfeiture of unvested shares during the comparable period, ~~and~~ a non-cash impairment charge related to fixed ~~assets.~~assets and an increase in tax expenses.

Liquidity and Capital Resources

We require cash to fund our operating expenses and to make capital ~~expenditures.~~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 cash flow from operations, which, together with our available cash, cash equivalents, investments, and debt, have met our cash requirements. Cash, cash equivalents, and investments aggregated ~~$94.6~~$97.2 million and $98.3 million, and working capital totaled ~~$126.5~~$136.4 million and $140.5 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. We are closely monitoring our liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on our operations.

Cash ~~used in~~provided by operating activities was ~~$2.4~~$1.9 million for the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021, as compared to cash provided by operating activities of ~~$1.0~~$4.6 million for the same period in 2020. The change was primarily attributable ~~to lower sales due to the COVID-19 pandemic, an increase in accounts receivable due~~ to timing of collections, increase in inventories and timing of certain state tax payments, partially off-set by a decrease in cash outflows related to acquisition related expenses for the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021.

Cash ~~provided by~~used in investing activities was ~~$1.7~~$0.6 million for the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021, as compared to cash used in investing activities of ~~$92.5~~$94.8 million for the same period in 2020. The change was primarily due to the consideration paid for the acquisitions of Parcus Medical and Arthrosurface in the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2020.

Cash ~~used in~~provided by financing activities was ~~$0.5~~$0.1 million for the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021, as compared to cash ~~used in~~provided by financing activities of ~~$0.1~~$49.5 million for the same period in 2020. ~~In both periods, the cash used in financing activities~~The change was primarily ~~attributable~~due to ~~utilization~~a drawdown of ~~cash for employee tax withholding~~$50.0 million from our existing credit facility in ~~exchange for shares surrendered by equity award holders.~~the six-month period ended June 30, 2020.

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 Form 10-K for the year ended December 31, ~~2020, except for adoption of Accounting Standards Update, or ASU, 2019-12,~~ ~~Income Taxes (Topic 740)~~ – ~~Simplifying the Accounting for Income Taxes,~~ ~~as described in Note 2 to the consolidated financial statements in this report.~~2020. 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.

2624

Recent Accounting Pronouncements

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

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 Form ~~10-K for the year ended December 31, 2020.~~10-K. There were no material changes to our contractual obligations reported in our 2020 Form 10-K during the ~~three~~six months ended ~~March 31,~~June 30, 2021. For additional discussion, see Note 9 to the 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~~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 for the year ended December 31, 2020.~~10-K. There have been no material changes in the first ~~three~~six months of 2021 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.

~~During the quarter ended March 31, 2021, we completed the integration of the internal controls of the acquired Parcus Medical and Arthrosurface businesses into our existing operations.~~ There were no ~~other~~ material changes in our internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 2021, 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.~~flow, as described in Note 9 to the consolidated financial statements in this report. There have been no material changes to the information provided in the section captioned “Part I, Item 3. Legal Proceedings” in our ~~Annual Report on~~2020 Form ~~10-K for the year ended December 31, 2020.~~10-K.

ITEM 1A.

RISK FACTORS

~~Except as set forth below, there~~There have been no material changes to the risk factors described in the section captioned “Part I, Item 1A. Risk Factors” in our ~~Annual~~2020 Form 10-K and updated in our Quarterly Report on Form ~~10-K~~10-Q for the ~~year~~quarterly period ended ~~December~~March 31, ~~2020.~~2021. 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 ~~Annual~~2020 Form 10-K and Quarterly Report on Form ~~10-K~~10-Q for the ~~year~~quarterly period ended ~~December~~March 31, ~~2020,~~2021, which could materially affect our business, financial condition, or future results. The risks described in our ~~Annual Report on~~2020 Form 10-K and our Quarterly ~~Reports~~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.

Our operations and products are subject to extensive regulation, compliance with which is costly and time consuming, and our failure to comply may result in substantial penalties, including recalls of our products.

The FDA and foreign regulatory bodies impose extensive regulations applicable to our operations and products, including regulations governing product standards, packing requirements, labeling requirements, quality system and manufacturing requirements, import restrictions, tariff regulations, duties, and tax requirements. We cannot assure you that we will be able to achieve and maintain compliance required for FDA, CE marking, or other foreign regulatory approvals for any or all of our operations and products or that we will be able to produce our products in a timely and profitable manner while complying with applicable requirements.

Failure to comply with applicable regulatory requirements could result in substantial penalties, including warning letters, fines, injunctions, civil penalties, seizure of products, total or partial suspension of production, refusal to grant pre-market clearance or pre-market approval for devices or drugs, withdrawal of approvals, and criminal prosecution. Additionally, regulatory authorities have the power to require the recall of our products. It also might be necessary for us, in applicable circumstances, to initiate a voluntary recall per regulatory requirements of one or several of our products. The imposition of any of the foregoing penalties, whether voluntarily or involuntary, could have a material negative impact on our business, financial condition, and results of operations.

On March 10, 2021, we learned that certain lots of cannulas that we source from a supplier and that are packaged with specific presentations of our Hyalobarrier and Hyaloglide products sold in various countries outside the United States could not be guaranteed to be sterile due to the provision of inaccurate sterility records related to those lots by that supplier’s third-party sterilizer. Due to the resulting inability of our supplier to ensure sterility, we are in the process of implementing an appropriate voluntary field action as part of a corrective action plan, managed in conjunction with our distributors, related to the products in the affected jurisdictions. Based on the information available to us, we do not believe that this will materially impact our business, financial condition, or results of operations. We will continue to review the overall situation, and further information that might be uncovered or decisions that may be made by regulatory authorities with jurisdiction over these products could lead to business or operating results that are different than what we currently expect. This matter is illustrative of the risks we face in the highly-regulated life sciences industry and the efforts that are necessary to ensure patient safety and compliance with applicable regulations in the global marketplace.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Under our equity compensation plans, and subject to the ~~specific~~ approval of the Compensation Committee of our Board of Directors, employee grantees have the option of electing to satisfy tax withholding obligations at the time of vesting or exercise by allowing us to withhold shares of stock otherwise issuable to the grantee. During the three-month period ended ~~March 31,~~June 30, 2021, we withheld ~~8,972~~1,093 shares to satisfy grantee tax withholding obligations on restricted stock award and restricted stock unit vesting events.

Following is a summary of stock repurchases for the three-month period ended ~~March 31,~~June 30, 2021 (in thousands, except share data):

Period

Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs (2)

Average
Price per Share

Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(1)

January 1 to 31, 2021
- $ 20,000
February 1 to 28, 2021
8,972 $ 37.11 $ 20,000
March 1 to 31, 2021
- $ - $ 20,000
Total
8,972

Period	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Average Price per Share		Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(2)
April 1 to 30, 2021		-	$	-	$	20,000
May 1 to 31, 2021		637	$	43.72	$	20,000
June 1 to 30, 2021		456	$	43.50	$	20,000
Total		1,093

(1)	1,093 shares were withheld by us to satisfy grantee tax withholding obligations on restricted stock award and restricted stock unit vesting events in May 2021.
(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. ~~Through March 31, 2021, we had made no~~No open market ~~repurchases. On May 7, 2019, we entered into a previously-announced accelerated share repurchase agreement, or~~repurchases were made during the ASR Agreement, to repurchase an aggregate of $30.0 million of common stock. During the second quarter of 2019, 451,694 shares were delivered to us, constituting the initial delivery of shares and representing 60% of the then estimated total number of shares expected to be repurchased under the ASR Agreement. On January 14, 2020, pursuant to the terms of the ASR Agreement, Morgan Stanley accelerated the final settlement date from February 2020, and the final number of shares and the average purchase price was determined. Based on the volume-weighted average price from the effective date of the ASR Agreement through January 14, 2020, less the applicable contractual discount, Morgan Stanley delivered 139,057 additional shares to us on January 17,three-month period ended June 30, 2020. ~~In total, 590,751 shares were repurchased under the ASR Agreement at an average repurchase price of approximately $50.78. All shares were repurchased in accordance with the publicly announced program.~~
~~(2)~~	~~8,972 shares were withheld by us to satisfy grantee tax withholding obligations on restricted stock unit vesting events in February 2021.~~

ITEM 6.

EXHIBITS

ExhibitNo.	~~Description~~

†10.1	~~Form of Notice of Grant of Incentive Stock Option, including Terms and Conditions of Stock Option, granted under~~ Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (as amended effective June 16, 2021) (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed on June 22, 2021)

†10.2	~~Form of Notice of Grant of Nonqualified Stock Option, including Terms and Conditions of Stock Option, granted under~~ Anika Therapeutics, Inc. ~~2017 Omnibus Incentive~~2021 Employee Stock Purchase Plan (adopted June 16, 2021) (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed on June 22, 2021)

~~†10.3~~	~~Form of Notice of Grant of Restricted Stock Units, including Terms and Conditions of Restricted Stock Units, granted under Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan~~

~~†10.4~~	~~Form of Notice of Grant of Deferred Stock Awards Units, including Terms and Conditions of Deferred Stock Units, granted under Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan~~

(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 ~~March 31,~~June 30, 2021 as filed with the SEC on ~~May 6,~~August 5, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language), as follows:

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

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


+ *	Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(2). The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed. Filed herewith.
* *	~~Filed~~Furnished 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.

~~(Registrant)~~

Date: ~~May 6,~~August 5, 2021	By:	/s/ MICHAEL LEVITZ
		Michael Levitz
		Executive Vice President, Chief Financial Officer and Treasurer
		(Authorized Officer and Principal Financial Officer)

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

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

Common Stock, par value $0.01 per share	ANIK	NASDAQ Global Select Market

		Page
Part I	Financial Information
Item 1.	~~Consolidated~~ Financial Statements (unaudited):	3
	Consolidated Balance Sheets as of ~~March 31,~~June 30, 2021 and December 31, 2020	3
	Consolidated Statements of Operations and Comprehensive Income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020	4
	Consolidated Statements of ~~Stockholders~~’Stockholders’ Equity for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020	5
	Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020	6
	Notes to Consolidated Financial Statements	7
Item 2.	~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2725
Item 4.	Controls and Procedures	2725
Part II	Other Information
Item 1.	Legal Proceedings	2826
Item 1A.	Risk Factors	2826
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2926
Item 6.	Exhibits	3027
Signatures		3128

	March 31,			December 31,
ASSETS	2021			2020
Current assets:
Cash and cash equivalents	$	94,599		$	95,817
Investments		0			2,501
Accounts receivable, net of reserves of $1,411 and $1,523 at March 31, 2021 and December 31, 2020, respectively		26,509			24,102
Inventories, net		42,718			46,209
Prepaid expenses and other current assets		9,648			8,754
Total current assets		173,474			177,383
Property and equipment, net		49,131			50,613
Right-of-use assets		22,325			22,619
Other long-term assets		20,292			15,420
Intangible assets, net		88,986			91,157
Goodwill		8,045			8,413
Total assets	$	362,253		$	365,605

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,683		$	8,984
Accrued expenses and other current liabilities		13,460			14,793
Contingent consideration – current portion		24,830			13,090
Total current liabilities		46,973			36,867
Other long-term liabilities		1,583			1,244
Contingent consideration		5,760			22,320
Deferred tax liability		10,738			11,895
Lease liabilities		20,543			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 March 31, 2021 and December 31, 2020, respectively		0			0
Common stock, $0.01 par value; 90,000 shares authorized, 14,366 and 14,329 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		144			143
Additional paid-in-capital		57,281			55,355
Accumulated other comprehensive loss		(5,051	)		(4,542	)
Retained earnings		224,282			221,444
Total stockholders’ equity		276,656			272,400
Total liabilities and stockholders’ equity	$	362,253		$	365,605

	June 30,			December 31,
ASSETS	2021			2020
Current assets:
Cash and cash equivalents	$	97,181		$	95,817
Investments		0			2,501
Accounts receivable, net of reserves of $1,413 and $1,523 at June 30, 2021 and December 31, 2020, respectively		29,426			24,102
Inventories, net		42,857			46,209
Prepaid expenses and other current assets		8,297			8,754
Total current assets		177,761			177,383
Property and equipment, net		49,540			50,613
Right-of-use assets		21,849			22,619
Other long-term assets		18,748			15,420
Intangible assets, net		87,084			91,157
Goodwill		8,149			8,413
Total assets	$	363,131		$	365,605

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,101		$	8,984
Accrued expenses and other current liabilities		16,396			14,793
Contingent consideration – current portion		16,870			13,090
Total current liabilities		41,367			36,867
Other long-term liabilities		1,710			1,244
Contingent consideration		70			22,320
Deferred tax liability		13,100			11,895
Lease liabilities		20,080			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 June 30, 2021 and December 31, 2020, respectively		0			0
Common stock, $0.01 par value; 90,000 shares authorized, 14,418 and 14,329 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		144			143
Additional paid-in-capital		60,699			55,355
Accumulated other comprehensive loss		(4,852	)		(4,542	)
Retained earnings		230,813			221,444
Total stockholders’ equity		286,804			272,400
Total liabilities and stockholders’ equity	$	363,131		$	365,605

	Three Months Ended March 31, 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

	Three Months Ended March 31, 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
Issuance of common stock for equity awards		0			0			0			0		0			0
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 income		-			0			0			0		(129	)		(129	)
Balance, March 31, 2020		14,198		$	142		$	48,360		$	251,219	$	(6,027	)	$	293,694

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenue	$	38,145		$	30,678		$	72,437		$	66,075
Cost of revenue		17,333			16,936			30,651			31,136
Gross Profit		20,812			13,742			41,786			34,939

Operating expenses:
Research and development		7,293			4,532			13,654			10,582
Selling, general and administrative		17,989			14,550			36,164			28,981
Goodwill impairment		0			0			0			18,144
Change in fair value of contingent consideration		(13,650	)		4,196			(18,470	)		(20,326	)
Total operating expenses		11,632			23,278			31,348			37,381
Income (loss) from operations		9,180			(9,536	)		10,438			(2,442	)
Interest and other income (expense), net		(50	)		(169	)		(93	)		110
Income (loss) before income taxes		9,130			(9,705	)		10,345			(2,332	)
Provision for (benefit from) income taxes		2,599			(1,997	)		976			(417	)
Net income (loss)	$	6,531		$	(7,708	)	$	9,369		$	(1,915	)

Net income (loss) per share:
Basic	$	0.45		$	(0.54	)	$	0.65		$	(0.13	)
Diluted	$	0.45		$	(0.54	)	$	0.64		$	(0.13	)
Weighted average common shares outstanding:
Basic		14,393			14,199			14,368			14,201
Diluted		14,627			14,199			14,583			14,201

Net income (loss)	$	6,531		$	(7,708	)	$	9,369		$	(1,915	)
Foreign currency translation adjustment		199			209			(310	)		80
Comprehensive income (loss)	$	6,730		$	(7,499	)	$	9,059	��	$	(1,835	)

	Six Months Ended June 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

	Three Months Ended March 31,
	2021			2020
Risk free interest rate	0.3%	-	0.6%	0.4%	-	1.6%
Expected volatility	54.8%	-	55.4%	46.5%	-	49.4%
Expected life (years)		4.0			4.0
Expected dividend yield		0.0%			0.0%

Period	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Average Price per Share		Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(1)
January 1 to 31, 2021		-			$	20,000
February 1 to 28, 2021		8,972	$	37.11	$	20,000
March 1 to 31, 2021		-	$	-	$	20,000
Total		8,972