UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-14027

Anika Therapeutics,Inc.

(Exact Name of Registrant as Specified in Its Charter)

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

32 Wiggins Avenue, Bedford, Massachusetts 01730

(Address of Principal Executive Offices) (Zip Code)

(781)457-9000

(Registrant’s Telephone Number, Including Area Code)

N/A

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

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

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

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

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

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

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

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting

Emerging growth

company ☐

~~Emerging growth~~

company ☐

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of ~~October 31, 2022,~~April 30, 2023, there were ~~14,609,669~~14,757,151 outstanding shares of Common Stock, par value $0.01 per share.

ANIKA THERAPEUTICS,INC.

TABLE OF CONTENTS

		Page
Part I	Financial Information	3
Item 1.	Condensed Consolidated Financial Statements (unaudited):	3
	Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	3
	Condensed Consolidated ~~Statements~~Statement of Operations and Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	5
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1916
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3025
Item 4.	Controls and Procedures	3025
Part II	Other Information	3125
Item 1.	Legal Proceedings	3125
Item 1A.	Risk Factors	3125
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3226
Item 6.	Exhibits	3227
Signatures		3328

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

~~Anika, Anika Therapeutics, Anikavisc, Arthrosurface, Cingal, Hyaff, Monovisc, Orthovisc, Parcus Medical, Tactoset~~ANIKA, ANIKA THERAPEUTICS, ANIKAVISC, ARTHROSURFACE, CINGAL, HYAFF, HYVISC, MONOVISC, ORTHOVISC, OVOMOTION, PARCUS MEDICAL, REVOMOTION, TACTOSET, WRISTMOTION and ~~Hyvisc~~XTWIST are our registered trademarks that appear in this Quarterly Report on Form 10-Q. For convenience, these trademarks appear in this Quarterly Report on Form 10-Q without ® and ™ symbols, but that practice does not mean that we will not assert, to the fullest extent under applicable law, our rights to the trademarks. This Quarterly Report on Form 10-Q also contains trademarks and trade names that are the property of other companies and licensed to us.

PARTI:

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

	September 30,			December 31,			March 31,			December 31,
ASSETS	2022			2021			2023			2022
Current assets:
Cash and cash equivalents	$	87,777		$	94,386		$	79,737		$	86,327
Accounts receivable, less allowance for credit losses of $1,566 and $1,442 at September 30, 2022 and December 31, 2021, respectively		34,168			29,843
Accounts receivable, net								30,629			34,627
Inventories, net		37,237			36,010			41,319			39,765
Prepaid expenses and other current assets		8,579			8,289			8,646			8,828
Total current assets		167,761			168,528			160,331			169,547
Property and equipment, net		47,390			47,602			48,803			48,279
Right-of-use assets		30,987			20,957			30,175			30,696
Other long-term assets		18,342			20,285			18,131			17,219
Deferred tax assets								1,519			1,449
Intangible assets, net		76,545			82,382			72,653			74,599
Goodwill		6,721			7,781			7,462			7,339
Total assets	$	347,746		$	347,535		$	339,074		$	349,128

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	8,353		$	7,633		$	8,948		$	9,074
Accrued expenses and other current liabilities		17,999			17,847			19,745			18,840
Contingent consideration		-			4,315
Total current liabilities		26,352			29,795			28,693			27,914
Other long-term liabilities		474			1,258			399			398
Deferred tax liability		6,800			10,157			4,114			6,436
Lease liabilities		29,183			19,240			28,280			28,817
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.01 par value; 1,250 shares authorized, no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		-			-
Common stock, $0.01 par value; 90,000 shares authorized, 14,607 and 14,441 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		146			144
Preferred stock, $0.01 par value; 1,250 shares authorized, no shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively								-			-
Common stock, $0.01 par value; 90,000 shares authorized, 14,741 and 14,625 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively								147			146
Additional paid-in-capital		76,661			67,081			83,243			81,141
Accumulated other comprehensive loss		(7,497	)		(5,718	)		(6,171	)		(6,443	)
Retained earnings		215,627			225,578			200,369			210,719
Total stockholders’ equity		284,937			287,085			277,588			285,563
Total liabilities and stockholders’ equity	$	347,746		$	347,535		$	339,074		$	349,128

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

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Revenue	$	40,264		$	39,536		$	116,614		$	111,973		$	37,924		$	36,693
Cost of revenue		17,485			16,513			47,169			47,164			15,081			14,889
Gross Profit		22,779			23,023			69,445			64,809			22,843			21,804

Operating expenses:
Research & development		7,301			7,673			20,433			21,327
Selling, general & administrative		21,276			17,500			61,745			53,664
Change in fair value of contingent consideration		-			(3,450	)		-			(21,920	)
Research and development														8,400			6,157
Selling, general and administrative														26,996			19,201
Total operating expenses		28,577			21,723			82,178			53,071			35,396			25,358
(Loss) income from operations		(5,798	)		1,300			(12,733	)		11,738
Loss from operations														(12,553	)		(3,554	)
Interest and other income (expense), net		436			(48	)		378			(141	)		539			(154	)
(Loss) income before income taxes		(5,362	)		1,252			(12,355	)		11,597
(Benefit from) provision for income taxes		(1,187	)		694			(2,404	)		1,670
Net (loss) income	$	(4,175	)	$	558		$	(9,951	)	$	9,927
Loss before income taxes														(12,014	)		(3,708	)
Benefit from income taxes														(1,664	)		(775	)
Net loss													$	(10,350	)	$	(2,933	)

Net (loss) income per share:
Net (loss) per share:
Basic	$	(0.29	)	$	0.04		$	(0.68	)	$	0.69		$	(0.71	)	$	(0.20	)
Diluted	$	(0.29	)	$	0.04		$	(0.68	)	$	0.68		$	(0.71	)	$	(0.20	)

Weighted average common shares outstanding:
Basic		14,603			14,429			14,542			14,389			14,653			14,466
Diluted		14,603			14,647			14,542			14,588			14,653			14,466

Net (loss) income	$	(4,175	)	$	558		$	(9,951	)	$	9,927
Net loss													$	(10,350	)	$	(2,933	)
Foreign currency translation adjustment		(851	)		199			(1,779	)		(777	)		272			(81	)
Comprehensive (loss) income	$	(5,026	)	$	757		$	(11,730	)	$	9,150
Comprehensive loss													$	(10,078	)	$	(3,014	)

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

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except per share data)

(unaudited)

Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
																			Three Months Ended March 31, 2023
	Nine Months Ended September 30, 2022																		Common Stock											Accumulated
												*Accumulated*												Additional						Other			Total
	*Common Stock*											*Other*			*Total*			*Number of*			*$.01 Par*			*Paid*			*Retained*			*Comprehensive*			*Stockholders'*
	*Number of*			*$.01 Par*		*Additional Paid*			*Retained*			*Comprehensive*			*Stockholders'*			*Shares*			*Value*			*in Capital*			*Earnings*			*Loss*			*Equity*
	*Shares*			*Value*		*in Capital*			*Earnings*			*Loss*			*Equity*
Balance, January 1, 2022		14,441		$	144	$	67,081		$	225,578		$	(5,718	)	$	287,085
Balance, January 1, 2023																			14,625		$	146		$	81,141		$	210,719		$	(6,443	)	$	285,563
Issuance of common stock for equity awards		1			-		15			-			-			15			1			-			7			-			-			7
Vesting of restricted stock units		106			1		(1	)		-			-			-			177			2			(2	)		-			-			-
Stock-based compensation expense		-			-		2,545			-			-			2,545			-			-			3,717			-			-			3,717
Retirement of common stock for minimum tax withholdings		(30	)		-		(844	)		-			-			(844	)		(62	)		(1	)		(1,620	)		-			-			(1,621	)
Net loss		-			-		-			(2,933	)		-			(2,933	)		-			-			-			(10,350	)		-			(10,350	)
Other comprehensive income		-			-		-			-			(81	)		(81	)
Balance, March 31, 2022		14,518		$	145	$	68,796		$	222,645		$	(5,799	)	$	285,787
Vesting of restricted stock units		61			1		(1	)		-			-			-
Issuance of ESPP shares		20			-		-			-			-			-
Stock-based compensation expense		-			-		4,081			-			-			4,081
Retirement of common stock for minimum tax withholdings		(1	)		-		(25	)		-			-			(25	)
Net loss		-			-		-			(2,843	)		-			(2,843	)
Other comprehensive income		-			-		-			-			(847	)		(847	)
Balance, June 30, 2022		14,598		$	146	$	72,851		$	219,802		$	(6,646	)	$	286,153
Vesting of restricted stock units		11			-		-			-			-			-
Issuance of ESPP shares		-			-		-			-			-			-
Stock-based compensation expense		-			-		3,876			-			-			3,876
Retirement of common stock for minimum tax withholdings		(2	)		-		(66	)		-			-			(66	)
Net loss		-			-		-			(4,175	)		-			(4,175	)
Other comprehensive income		-			-		-			-			(851	)		(851	)
Balance, September 30, 2022		14,607		$	146	$	76,661		$	215,627		$	(7,497	)	$	284,937
Other comprehensive loss																			-			-			-			-			272			272
Balance, March 31, 2023																			14,741		$	147		$	83,243		$	200,369		$	(6,171	)	$	277,588

	Nine Months Ended September 30, 2021																	Three Months Ended March 31, 2022
											Accumulated							Common Stock										Accumulated
	Common Stock										Other			Total								Additional						Other			Total
	*Number of*			*$.01 Par*		*Additional Paid*			*Retained*		*Comprehensive*			*Stockholders'*			*Number of*			*$.01 Par*		*Paid*			*Retained*			*Comprehensive*			*Stockholders'*
	*Shares*			*Value*		*in Capital*			*Earnings*		*Loss*			*Equity*			*Shares*			*Value*		*in Capital*			*Earnings*			*Loss*			*Equity*
Balance, January 1, 2021		14,329		$	143	$	55,355		$	221,444	$	(4,542	)	$	272,400
Balance, January 1, 2022																		14,441		$	144	$	67,081		$	225,578		$	(5,718	)	$	287,085
Issuance of common stock for equity awards		-			-		1			-		-			1			1			-		15			-			-			15
Vesting of restricted stock units		46			1		(1	)		-		-			-			106			1		(1	)		-			-			-
Stock-based compensation expense		-			-		2,259			-		-			2,259			-			-		2,545			-			-			2,545
Retirement of common stock for minimum tax withholdings		(9	)		-		(333	)		-		-			(333	)		(30	)		-		(844	)		-			-			(844	)
Net income		-			-		-			2,838		-			2,838
Other comprehensive income		-			-		-			-		(509	)		(509	)
Balance, March 31, 2021		14,366		$	144	$	57,281		$	224,282	$	(5,051	)	$	276,656
Issuance of common stock for equity awards		18			-		640			-		-			640
Vesting of restricted stock units		35			-		-			-		-			-
Stock-based compensation expense		-			-		2,797			-		-			2,797
Retirement of common stock for minimum tax withholdings		(1	)		-		(19	)		-		-			(19	)
Net income		-			-		-			6,531		-			6,531
Other comprehensive income		-			-		-			-		199			199
Balance, June 30, 2021		14,418		$	144	$	60,699		$	230,813	$	(4,852	)	$	286,804
Issuance of common stock for equity awards		10			-		373			-		-			373
Vesting of restricted stock units		9			-		-			-		-			-
Stock-based compensation expense		-			-		2,863			-		-			2,863
Retirement of common stock for minimum tax withholdings		(1	)		-		(71	)		-		-			(71	)
Net income		-			-		-			558		-			558
Other comprehensive income		-			-		-			-		(467	)		(467	)
Balance, September 30, 2021		14,436		$	144	$	63,864		$	231,371	$	(5,319	)	$	290,060
Net loss																		-			-		-			(2,933	)		-			(2,933	)
Other comprehensive loss																		-			-		-			-			(81	)		(81	)
Balance, March 31, 2022																		14,518		$	145	$	68,796		$	222,645		$	(5,799	)	$	285,787

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

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30						Three Months Ended March 31,
	2022			2021			2023			2022
Cash flows from operating activities:
Net (loss) income	$	(9,951	)	$	9,927
Net loss							$	(10,350	)	$	(2,933	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,984			4,702			1,605			1,671
Amortization of acquisition related intangible assets		5,837			5,885			1,946			1,946
Amortization of acquisition related inventory step-up		-			6,244
Non-cash operating lease cost		1,322			1,312			542			403
Change in fair value of contingent consideration		-			(21,920	)
Loss on disposal of fixed assets		-			831
Stock-based compensation expense		10,502			7,919			3,717			2,545
Deferred income taxes		(3,491	)		1,018			(2,373	)		(273	)
Provision (recovery) for doubtful accounts		379			(60	)
Provision for credit losses								24			5
Provision for inventory		3,701			3,702			629			586
Other					(13	)
Changes in operating assets and liabilities:
Accounts receivable		(4,983	)		(8,321	)		4,057			383
Inventories		(3,933	)		(7,117	)		(3,063	)		(602	)
Prepaid expenses, other current and long-term assets		(456	)		1,864			(462	)		(1,189	)
Accounts payable		533			(702	)		(713	)		(473	)
Operating lease liabilities		(1,054	)		(1,247	)		(523	)		(387	)
Accrued expenses, other current and long-term liabilities		115			3,104			665			(2,929	)
Contingent consideration		-			(2,780	)
Income taxes		423			(423	)		681			(622	)
Net cash provided by operating activities		3,928			3,925
Net cash used in operating activities								(3,618	)		(1,869	)

Cash flows from investing activities:
Acquisition of Parcus Medical and Arthrosurface, net of cash acquired		-			(363	)
Proceeds from maturities of investments		-			2,501
Purchases of property and equipment		(4,957	)		(4,016	)		(1,389	)		(1,326	)
Net cash used in investing activities		(4,957	)		(1,878	)		(1,389	)		(1,326	)

Cash flows from financing activities:
Payments made on finance leases		(284	)		(210	)
Cash paid for tax withheld on vested restricted stock awards		(935	)		(423	)		(1,620	)		(846	)
Proceeds from exercises of equity awards		15			1,014			7			15
Contingent consideration payout		(4,315	)		(7,220	)
Payments made on finance leases								-			(31	)
Net cash used in financing activities		(5,519	)		(6,839	)		(1,613	)		(862	)

Exchange rate impact on cash		(61	)		(49	)		30			(4	)

Decrease in cash and cash equivalents		(6,609	)		(4,841	)		(6,590	)		(4,061	)
Cash and cash equivalents at beginning of period		94,386			95,817			86,327			94,386
Cash and cash equivalents at end of period	$	87,777		$	90,976		$	79,737		$	90,325
Supplemental disclosure of cash flow information:
Non-cash investing activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	11,589		$	195
Purchases of property and equipment included in accounts payable and accrued expenses	$	108		$	220		$	729		$	728

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

~~ANIKA THERAPEUTICS, INC.~~Anika Therapeutics, Inc. and Subsidiaries

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Condensed Consolidated Financial Statements

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

(~~unaudited~~)(unaudited)

1.	Nature of Business

Anika Therapeutics, Inc. ~~(“the Company”~~(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~~sports medicine and ~~bone preserving~~Arthrosurface joint ~~technologies.~~solutions.

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

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

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

2.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ~~(“SEC”~~(the “SEC”) and in accordance with accounting principles generally accepted in the United States (“USU.S. 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 USU.S. GAAP have been or omitted pursuant to SEC rules and regulations relating to interim financial statements. The December 31, ~~2021~~2022 balances reported herein were derived from the audited consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The results of operations for the three-month ~~and~~ ~~nine~~~~-month periods~~period ended ~~September 30, 2022,~~March 31, 2023 are not indicative of the results to be expected for the year ending December 31,~~2022~~ 2023.

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 isas of March 31, 2023 was its President and Chief Executive ~~Officer as of~~ ~~September 30, 2022.~~ Officer. Based on the criteria established by Accounting Standards Codification 280, Segment Reporting, the Company has one operating and reportable segment.

3.	~~Business Combinations~~Accounts Receivable

~~Parcus Medical, LLC~~

On ~~January 24, 2020,~~ The Company estimates an allowance for credit losses with its accounts receivable resulting from the ~~Company completed~~inability of its customers to make required payments, which is included in selling, general and administrative expenses in the ~~acquisition~~accompanying consolidated statements of ~~Parcus Medical pursuant to~~operations. In determining the ~~terms~~adequacy of the ~~Agreement~~allowance, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current and ~~Plan~~reasonable and supportable forecasts of ~~Merger, dated as of~~ ~~January 4, 2020 (~~~~the “Parcus Medical Merger Agreement”). Parcus Medical is a sports medicine implant~~future economic conditions, accounts receivable aging trends, and ~~instrumentation solutions provider focused on surgical repair and reconstruction of soft tissue.~~

~~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

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

The ~~fair value of contingent consideration related to net sales as of~~ ~~January 24, 2020,~~ and at each reporting date, was determined based on a Monte Carlo simulation model in an option pricing framework, whereby a range of possible scenarios were simulated. The liability for contingent consideration was included in current liabilities on the condensed consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved. During the ~~three~~ ~~months ended~~ ~~September 30, 2022,~~ ~~the Company paid the contingent consideration related to net sales in the amount of $4.3 million which was included in current liabilities as of~~ ~~December 31, 2021.~~ ~~The Company does~~ ~~not~~ ~~expect any further milestones to be achieved.~~

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

~~Fair Value of Net Assets Acquired~~

~~The estimate of fair value as~~components 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 was~~Company’s accounts receivable are 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

	As of		As of
	March 31,		December 31,
	2023		2022
Accounts Receivable	$	32,166	$	36,235
Allowance for credit losses		1,537		1,608
Net balance, end of period		30,629		34,627

A summary of activity in the allowance for credit losses is as follows:

	As of March 31,
	2023			2022
Balance, beginning of the period	$	1,608		$	1,442
Amounts provided		102			33
Amounts recovered		(78	)		(28	)
Amounts written off		(106	)		(79	)
Translation adjustments		11			(18	)
Balance, end of period	$	1,537		$	1,350

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

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

~~The fair value of 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 was impaired in ~~2020~~ ~~and there was~~ no ~~remaining goodwill as of~~ ~~December 31, 2020.~~

~~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”). Arthrosurface is a joint preservation technology company specializing in less invasive, bone-preserving partial and total joint replacement solutions.~~

~~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 from ~~2020~~ ~~through~~ ~~2021.~~ ~~The fair value of contingent consideration related to regulatory milestones as of~~ ~~February 3, 2020~~ was determined through a scenario-based discounted cash flow analysis using scenario probabilities and regulatory milestone dates. The fair value of contingent consideration related to net sales achievement as of ~~February 3, 2020~~ ~~was determined based upon a Monte Carlo simulation approach at acquisition date, whereby a range of possible scenarios were simulated. The Company paid $5.0 million in~~ ~~October 2020~~ ~~and $10.0 million in~~ ~~July 2021~~ ~~based upon the achievement of~~ ~~two~~ ~~distinct regulatory milestones. As of~~ ~~September 30, 2022,~~ ~~there were~~ no ~~milestones remaining.~~

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

~~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 trade names over 5 years. A total of $0.6 million represents the fair value of IPR&D with an indefinite useful life which was impaired during the quarter ended ~~December 31, 2021.~~

4.	Fair Value Measurements

The Company has certain cash equivalents in money market funds that are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets. For cash, accounts receivables, accounts payable, and accrued interest, the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore fair value information is not included in the table below. ~~Contingent consideration related to the previously described business combinations are classified within Level~~ 3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. There were no transfers between fair value levels during the ~~nine~~three-month periods ended ~~September 30, 2022~~March 31, 2023 or ~~2021.~~ ~~See Note~~ 3,~~Business Combinations~~ ~~for additional discussion of contingent consideration as of~~ ~~September 30,~~ 2022.

Active Markets

Significant Other

Significant

for Identical
Assets

Observable
Inputs

Unobservable
Inputs

September 30, 2022

(Level 1)

(Level 2)

(Level 3)

Amortized Cost

Cash equivalents:

Money Market Funds
$ 67,348 $ 67,348 $ - $ - $ 67,348

Other current liabilities:

Contingent Consideration - Short Term
$ - $ - $ - $ - $ -

Active Markets

Significant Other

Significant

for Identical
Assets

Observable
Inputs

Unobservable
Inputs

December 31, 2021

(Level 1)

(Level 2)

(Level 3)

Amortized Cost

Cash equivalents:

Money Market Funds
$ 67,046 $ 67,046 $ - $ - $ 67,046

Other current liabilities:

Contingent Consideration - Short Term
$ 4,315 $ - $ - $ 4,315 $ -

~~Contingent Consideration~~

The ~~following table provides a rollforward~~classification of the ~~contingent consideration related to business acquisitions discussed in Note~~ 3,~~Business Combinations~~Company’s cash equivalents within the fair value hierarchy was as follows:

Nine Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

Balance, beginning
$ 4,315 $ 35,410
Payments
(4,315 ) (10,000 )
Change in fair value
- (21,920 )
Balance, ending
$ - $ 3,490

	March 31,		Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Amortized
	2023		(Level 1)		(Level 2)		(Level 3)		Cost
Cash equivalents:
Money Market Funds	$	63,450	$	63,450	$	-	$	-	$	63,450

	December 31,		Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs			Amortized
	2022		(Level 1)		(Level 2)		(Level 3)		Cost
Cash equivalents:
Money Market Funds	$	67,801	$	67,801	$	-	$	-	$	67,801

5.	Inventories

Inventories consist of the following:

	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Raw materials	$	19,015	$	16,881	$	19,027	$	20,535
Work-in-process		11,650		11,442		14,974		10,648
Finished goods		24,277		26,731		24,946		25,306
Total	$	54,941	$	55,054	$	58,947	$	56,489


Inventories	$	37,237	$	36,010	$	41,319	$	39,765
Other long-term assets		17,704		19,044		17,628		16,724
Total	$	54,941	$	55,054	$	58,947	$	56,489

Inventories are stated net of inventory reserves of ~~$10.0~~approximately $11.3 million and ~~$9.1~~$9.9 million, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

6.	Intangible Assets

Nine Months Ended
September 30, 2022

December 31,
2021

Gross
Value

Less: Accumulated
Currency Translation
Adjustment

Less:
Accumulated
Amortization

Net Book
Value

Net Book
Value

Weighted
Average Useful
Life

Developed technology
$ 89,580 $ (1,607
)
$ (22,238
)
$ 65,735 $ 70,081 15
IPR&D
2,656 (1,006
)
- 1,650 1,650
Indefinite

Customer relationships
9,000 - (2,402
)
6,598 7,273 10
Distributor relationships
4,700 (415
)
(4,285
)
- - 5
Patents
1,000 (189
)
(668
)
143 179 16
Tradenames
5,200 - (2,781
)
2,419 3,199 5
Total
$ 112,136 $ (3,217
)
$ (32,374
)
$ 76,545 $ 82,382 13

Intangible assets as of March 31, 2023 and December 31, 2022 consisted of the following:

											December 31,
			Three Months Ended March 31, 2023								2022
			*Less:*
			*Accumulated*										*Weighted*
			*Currency*			*Less:*							*Average*
	*Gross*		*Translation*			*Accumulated*			*Net Book*		*Net Book*		*Useful*
	*Value*		*Adjustment*			*Amortization*			*Value*		*Value*		*Life*
Developed technology	$	89,580	$	(1,608	)	$	(25,135	)	$	62,837	$	64,286		15
IPR&D		2,656		(1,006	)		-			1,650		1,650	Indefinite
Customer relationships		9,000		-			(2,852	)		6,148		6,373		10
Distributor relationships		4,700		(415	)		(4,285	)		-		-		5
Patents		1,000		(189	)		(692	)		119		131		16
Tradenames		5,200		-			(3,301	)		1,899		2,159		5
Total	$	112,136	$	(3,218	)	$	(36,265	)	$	72,653	$	74,599		13

The aggregate amortization expense related to intangible assets was ~~$1.9 million and $2.0~~$1.9 million for the three-month periods ended ~~September 30, 2022~~March 31, 2023 and ~~2021,~~2022. ~~respectively, and $5.8 million and $5.9 million for each of the~~ ~~nine~~~~-month periods ended~~ ~~September 30, 2022~~ ~~and~~ ~~2021.~~

Goodwill

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

Changes in the carrying value of goodwill for the ~~nine~~three ~~months~~-month ended ~~September 30, 2022~~March 31, 2023 were as follows:

Nine Months Ended September 30, 2022

Balance, beginning
$ 7,781
Effect of foreign currency adjustments
(1,060
)
Balance, ending
$ 6,721

	Three Months Ended March 31,
	2023
Balance, beginning of period	$	7,339
Effect of foreign currency adjustments		123
Balance, ending of period	$	7,462

8.	~~Leases~~

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

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

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

Operating Leases

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

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

9.	Accrued Expenses ~~and Other Liabilities~~

Accrued expenses ~~and other liabilities~~ consist of the following:

September 30, 2022

December 31, 2021

Compensation and related expenses
$ 11,166 $ 9,523
Professional fees
3,063 3,590
Operating lease liability – current
1,922 1,526
Clinical trial costs
1,352 1,961
Financing lease liability – current
- 188
Other
496 1,059
Total
$ 17,999 $ 17,847

	March 31,		December 31,
	2023		2022
Compensation and related expenses	$	7,715	$	11,303
Professional fees		4,152		3,145
Parcus arbitration settlement		3,250		-
Operating lease liability - current		2,105		2,073
Clinical trial costs		1,059		999
Income taxes payable		889		810
Other		575		510
Total	$	19,745	$	18,840

~~10.~~9.

Commitments and Contingencies

In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company may also warrant that the products it manufactures do not infringe, violate, or breach any U.S. or international patent or intellectual property right, trade secret, or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligent acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The Company had no accrued warranties as of ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021~~2022 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.

On October 21, 2021, the Company received notice that the former unitholders of Parcus Medical had filed aan arbitration request ~~for arbitration~~ regarding the earnout provisions of up to $60 million, of which the Company paid $4.3 million, agreed to in the Parcus Medical Merger Agreement. On April 20, 2023, the Company and the former unitholders of Parcus Medical entered into a settlement agreement to end the arbitration case. The Company ~~has engaged in the arbitration process and does~~recorded a liability of $3.25 million at ~~not~~March 31, 2023 ~~anticipate a resolution during~~ ~~2022.~~ The Company is unable to estimate the potential liability with respect to this matter at this time. There are numerous factors that make it difficult to estimate reasonably possible loss or range of loss at this stage of the matter, including the significant number of legal and factual issues still to be resolved in the arbitration process. The Company intends to vigorously defend against the claims and believes it has strong defenseswhich was paid to the ~~claims asserted.~~

former unitholders of Parcus Medical in April 2023.

~~11.~~10.

Revenue and Geographic Information

Revenue by product family ~~was~~is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		Three Months Ended March 31,
									2023		2022
OA Pain Management	$	25,665	$	26,153	$	74,139	$	69,790	$	22,633	$	20,964
Joint Preservation and Restoration		11,821		11,193		36,055		35,296		13,453		12,139
Non-Orthopedics		2,778		2,190		6,420		6,887
	$	40,264	$	39,536	$	116,614	$	111,973
Non-Orthopedic										1,838		3,590
Total									$	37,924	$	36,693

Effective January 1, 2023, the Company beganto report revenue from product sales to veterinary customers within the Non-Orthopedic product family whereas such revenue had been previously reported within the OA Pain Management product family. Revenue from product sales to veterinary customers amounted to $0.5 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively, and are included within the Non-Orthopedic product family for all periods presented. Accordingly, revenue from product sales to veterinary customers in the prior period have been reclassified to conform to the current period presentation.

Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine, ~~(“Mitek”),~~ part of the Johnson & Johnson Medical Companies, as a percentage of the Company’s total revenue was ~~45%~~43% and ~~51%~~39% for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021,~~2022, ~~respectively, and 43% and 46% for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2022~~ ~~and~~ ~~2021,~~ ~~respectively~~

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

Total revenue by geographic location ~~was~~based on the location of the customer in total and as a percentage of total revenue were as follows:

	Three Months Ended September 30,											Three Months Ended March 31,
	2022					2021					2023					2022
	Total		Percentage of			Total		Percentage of					*Percentage of*					*Percentage of*
	Revenue		Revenue			Revenue		Revenue			*Revenue*		*Revenue*			*Revenue*		*Revenue*
Geographic Location:
United States	$	31,093		77	%	$	30,910		78	%	$	27,288		72	%	$	26,773		73	%
Europe		4,885		12	%		4,238		11	%		5,662		15	%		5,796		16	%
Other		4,286		11	%		4,388		11	%		4,974		13	%		4,124		11	%
Total	$	40,264		100	%	$	39,536		100	%	$	37,924		100	%	$	36,693		100	%

Nine Months Ended September 30,

2022

2021

Total

Percentage of

Total

Percentage of

Revenue

Revenue

Revenue

Revenue

Geographic Location:

United States
$ 87,552 75
%
$ 85,984 77
%
Europe
15,973 14
%
14,808 13
%
Other
13,089 11
%
11,181 10
%
Total
$ 116,614 100
%
$ 111,973 100
%

~~12.~~11.

Equity Incentive Plan

Equity Incentive Plan

The Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020, June 16, 2021 and June 8, 2022. On June 8, 2022, the Company’s stockholders approved an amendment to the 2017 Plan increasing the number of shares by 250,000 shares from 4.6 million shares to 4.85 million shares. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards, performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SARs will reduce the number of total shares available for grant by two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.85 million shares of common stock may be issued under the 2017 Plan. There were ~~1.2~~0.4 million shares available for future grant at ~~September 30, 2022~~March 31, 2023 under the 2017 Plan.

The Anika Therapeutics, Inc. 2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on November 4, 2021. The Inducement Plan reserves 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards may be granted only to an individual who was not previously the Company’s employee or director with the Company. The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended). There were 4,883 shares available for future grant at ~~September 30, 2022~~March 31, 2023 under the Inducement Plan.

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

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

									Three Months Ended March 31,
	Three Months Ended September 30,				Nine Months Ended September 30,				2023		2022
	2022		2021		2022		2021
Cost of revenue	$	242	$	142	$	645	$	485	$	184	$	176
Research & development		397		360		1,267		1,003
Selling, general & administrative		3,237		2,361		8,590		6,431
Research and development										517		367
Selling, general and administrative										3,016		2,002
Total stock-based compensation expense	$	3,876	$	2,863	$	10,502	$	7,919	$	3,717	$	2,545

Stock Options

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

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

Number of Options

Weighted Average Exercise Price

Weighted Average
Remaining
Contractual
Term (in years)

Aggregate Intrinsic
Value
(in thousands)

Outstanding as of December 31, 2021
1,175,993 $ 39.56
Granted
486,901 $ 27.60
Exercised
(437
)
$ 9.10 $ 10
Forfeited and canceled
(156,672
)
$ 44.08
Outstanding as of September 30, 2022
1,505,785 $ 35.21 8.3 $ 78
Vested, September 30, 2022
499,617 $ 40.00 7.3 $ 8
Vested or expected to vest, September 30, 2022
1,505,785 $ 35.21 8.3 $ 78

						Weighted
						Average
				*Weighted*		*Remaining*		*Aggregate*
				*Average*		*Contractual*		*Intrinsic*
	*Number of*			*Exercise*		*Term*		*Value*
	*Options*			*Price*		*(in years)*		*(in thousands)*
Outstanding as of December 31, 2022		1,530,703		$	34.93
Granted		339,145		$	29.68
Exercised		(637	)	$	10.87			$	13
Forfeited and canceled		(11,212	)	$	39.77
Outstanding as of March 31, 2023		1,857,999		$	33.95		8.2	$	632
Vested, March 31, 2023		915,798		$	37.08		7.4	$	82
Vested or expected to vest, March 31, 2023		1,857,999		$	33.95		8.2	$	632

The aggregate intrinsic value of options exercised for the ~~nine~~three-month period ended ~~September 30, 2022~~March 31, 2023 was immaterial.

The Company granted ~~486,901~~339,145 stock options during the ~~nine~~three-month ended ~~September 30, 2022,~~ March 31, 2023.~~of which 398,314 shares were premium-priced options.~~

~~As of~~ ~~September 30, 2022,~~ ~~there was $8.7 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 1.8 years.~~

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

The assumptions used in the Black-Scholes pricing model for options granted during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021,~~2022, along with the weighted-average grant-date fair values, were as follows:

										Three Months Ended
	Nine Months Ended September 30,									March 31,
	2022				2021				2023									2022
Risk free interest rate		1.3%	-	3.4%		0.3%	-	0.7%		3.5	%		-			4.3	%		1.3	%		-		1.9	%
Expected volatility		53.8%	-	55.5%		54.8%	-	56.1%		48.7	%		-			49.4	%		53.8	%		-		54.6	%
Expected life (years)			4.5				4.0						4.5									4.5
Expected dividend yield			0.0%				0.0%						0.0	%								0.0	%
Fair value per option			$11.26				$14.55					$	11.71		$						$	11.37

As of March 31, 2023, there was $9.9 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 2.1 years.

Restricted Stock Units

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

RSU activity for the ~~nine~~three-month period ended ~~September 30, 2022~~March 31, 2023 was as follows:

	Number of Shares			Weighted Average Fair Value					Weighted
Outstanding as of December 31, 2021		412,658		$	36.33
						*Number of*			*Average*
						*Shares*			Fair Value
Outstanding as of December 31, 2022							675,405		$	28.40
Granted		507,524		$	25.14		368,169		$	26.91
Vested		(159,871	)	$	36.48		(177,611	)	$	28.98
Forfeited and cancelled		(67,389	)	$	32.45		(15,010	)	$	27.34
Outstanding as of September 30, 2022		692,922		$	28.48
Outstanding as of March 31, 2023							850,953		$	27.65

The weighted-average grant-date fair value per share of RSUs granted was ~~$25.14~~$26.91 and $25.75 for the ~~nine~~three-month ~~period~~periods ended ~~September 30, 2022.~~March 31, 2023 and 2022, respectively. The total fair value of RSUs vested was ~~$5.8~~$5.7 million and ~~$3.9~~$3.3 million for the ~~nine~~three-month periods ended ~~September 30, 2022~~March 31, 2023 and ~~2021,~~2022, respectively.

As of ~~September 30, 2022,~~March 31, 2023, there was ~~$14.8~~$19.4 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of ~~2.0~~2.3 years.

Performance Stock Units

PSU activity for the ~~nine~~three-month ended ~~September 30, 2022~~March 31, 2023 was as follows:

Number of Shares

Weighted Average Fair Value

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

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2022		117,897		$	34.98
Forfeited and cancelled		(117,897	)	$	34.98
Outstanding as of March 31, 2023		-		$	-

The total fair value of PSUs vested was $0 and $0.6 million ~~and $0~~ for the ~~nine~~three-month period ended ~~September 30, 2022~~March 31, 2023 and ~~2021,~~2022. ~~respectively.~~ As of ~~September 30, 2022,~~March 31, 2023, there are ~~none~~no ~~of the milestones related to the~~ outstanding ~~PSUs were expected to be achieved.~~PSUs.

1714

~~13.~~12.

Income Taxes

The Company recorded an income tax benefit of ~~$1.2 million and $2.4 million for the~~ ~~three~~~~- and~~ ~~nine~~~~-month periods ended~~ ~~September 30, 2022~~, ~~resulting in effective tax rates of 22.1% and 19.5%, respectively. The Company recorded income tax expense of $0.7 million and~~ $1.7 million for the three~~- and~~ ~~nine~~-month ~~periods~~period ended ~~September 30, 2021,~~March 31, 2023, ~~based on~~resulting in an effective tax ~~rates~~rate of ~~55.4% and 14.4%, respectively.~~

13.9%. The ~~decrease~~income tax benefit was $0.8 million for the three-month period ended March 31, 2022, resulting in an effective tax rate of 20.9%. The net change in the effective tax rate for the three-month period ended ~~September 30, 2022,~~March 31, 2023, as compared to the same period in ~~2021,~~2022, was primarily due to ~~non-deductible stock-option activity~~a valuation allowance being recorded against domestic deferred tax assets.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. At December 31, 2022, the Company determined that its domestic deferred tax assets were realizable based upon future reversals of existing taxable temporary differences. The Company expects to incur an operating loss for 2023. As a result, the Company anticipates that deferred tax assets originating during the year ended December 31, 2023 will exceed the availability of reversing taxable temporary differences. Due to significant negative evidence, including the Company’s current and prior year operating losses, the Company concluded its anticipated net deferred tax assets in the U.S. are not more likely than not to be realizable. Accordingly, the estimated annual effective tax rate used to compute the income tax provision for the three-month period ended ~~September 30, 2021.~~March 31, 2023 ~~The increase in the effective tax rate~~includes an adjustment for the valuation allowance required against the U.S deferred tax assets. As of ~~nine~~March 31, 2023, ~~-month period ended~~ ~~September 30, 2022,~~ ~~as compared~~the Company continues to ~~the same period in~~ ~~2021,~~ ~~was primarily due to the year-to-date net~~believe its foreign deferred tax ~~benefit in~~ ~~2021~~ ~~on the change in the fair value~~assets are realizable based upon future reversals of ~~contingent consideration, in the amount of $1.1 million,~~existing taxable temporary differences and ~~a year-to-date discrete charge of $0.7 million in~~ ~~2022~~ ~~related to non-deductible stock compensation.~~projected future taxable income.

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, which varies by jurisdiction.

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

~~14.~~13.

Earnings Per Share (“EPS”)

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

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

Three Month Period Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Shares used in the calculation of basic earnings per share
14,603 14,429 14,542 14,389
Effect of dilutive securities:

Share-based payment awards
- 218 - 199
Diluted shares used in the calculation of earnings per share
14,603 14,647 14,542 14,588

	Three Months Ended March 31,
	2023		2022
Shares used in the calculation of basic EPS		14,653		14,466
Effect of dilutive securities:
Share based awards		-		-
Diluted shares used in the calculation of EPS		14,653		14,466

The Company had a net loss during the three-month ended March 31, 2023 and ~~nine~~2022,~~-months ended~~ ~~September 30, 2022,~~ respectively, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS. Stock options of ~~1.1~~1.9 million shares and 1.5 million shares were outstanding for the ~~nine~~three-month ~~period~~periods ended ~~September 30, 2021,~~March 31, 2023 ~~respectively,~~ and2022, respectively. Restricted stock units and performance stock units totaling 0.9 million and 0.8 million were outstanding for the three-month periods ended March 31, 2023 and 2022, respectively. These securities were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive.

14.

Subsequent Event

On April 13, 2023, the Company entered into a Cooperation Agreement (the “Cooperation Agreement”) with Caligan Partners LP (collectively with each of their respective affiliates and associates, the “Investor Group”). Pursuant to the Cooperation Agreement, the Company has agreed to increase the size of the board of directors to eight directors and appointed an additional independent director.

The Company also agreed to commit to a return of capital program, subject to market conditions, applicable legal requirements and other relevant factors, by establishing a share repurchase program for an aggregate purchase price equal to $20,000,000 to occur within twelve months from the date of the Cooperation Agreement as follows: (i) the first $5,000,000 of which will be effected through an accelerated stock repurchase program with an investment bank commencing with the Company’s next open trading window, which will open on or before May 12, 2023, (ii) the second $5,000,000 of which to be purchased in the open market, and (iii) the remaining $10,000,000 of which to be purchased in the open market subject to positive cash flow.

1815

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, ~~2021,~~2022, or our ~~2021~~2022 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~~company’s future 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~~“Item 1A. Risk Factors” of our ~~2021~~2022 Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Management Overview

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

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

In early 2020, we expanded our overall technology platform, product portfolio, and significantly ~~enhanced and accelerated~~expanded our commercial infrastructure, especially in the United States, through our strategic acquisitions of Parcus Medical, LLC, or Parcus Medical, a sports medicine and instrumentation solutions provider, ~~focused on soft tissue repair,~~ and Arthrosurface, Inc, or Arthrosurface, a company specializing in bone preserving partial and total joint replacement solutions. ~~Through these~~These acquisitions we have ~~transformed~~ignited the transformation of our ~~company. We expanded~~company by augmenting our ~~addressable market from the over $1 billion global~~HA-based OA pain management ~~market to the over $8 billion global~~and regenerative products with a broad suite of products and capabilities focused on early intervention joint preservation ~~market (which includes the faster growing sports medicine soft tissue repair~~primarily in upper and lower extremities ~~segments), advanced our commercial capabilities, instituted systems~~such as shoulder, foot/ankle, knee and ~~processes to support our transformation, and expanded our product pipeline and research and development expertise in our target markets.~~hand/wrist.

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

●

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

●

Utilizing HA-based technology and manufacturing expertise to provide new and differentiated solutions for the faster growing joint preservation and regenerative medicine markets;

●

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

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

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

●

~~Opportunity~~Global commercial expertise, which we will leverage to ~~pursue~~drive growth across our product portfolio, including an intentional site of care focus in ambulatory surgery centers in the United States and continued international expansion;

●

Pursuit of strategic inorganic growth opportunities, including potential partnerships and smaller acquisitions and technology licensing, ~~and~~by leveraging our strong financial foundation and operational capabilities; and

●

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

COVID-19 Pandemic ~~and Resulting Supply Chain and Staffing Challenges~~

In March 2020, the World Health Organization declared the spread of the COVID-19 virus a 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~~globally, which created volatility in our results ~~on a quarterly basis~~ due to the worldwide cancellation or delay of elective procedures, staffing shortages and supply chain disruptions, as well as the impact on timelines associated with certain clinical studies. Resurgence of COVID-19 as a result of emerging variants or other factors could result in additional staffing shortages or supply chain disruptions that could impact our business and operations. We have had some disruption in our ability to supply products to our customers due to supply chain disruptions and staffing shortages which has caused back orders or delays in certain shipments to our customers. The companies that produce our products, product components or otherwise support our manufacturing processes, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize and store our products, are or could be disrupted, temporarily close or experience worker shortages for a sustained period of time. To date, we believe we have taken adequate precaution to mitigate the impact of the current disruption of key materials, components and parts to the extent possible and reasonable. We expect, however, the current supply chain disruption with certain key suppliers to continue, which could have a material adverse effect on our operations. For additional information on the impact of supply chain disruption related to the COVID-19 pandemic on our manufacturing operations, please refer toPlease see the section captioned “Part ~~II,~~I. Item 1A. Risk ~~Factors.~~

~~Our commercial day-to-day operations have been impacted due~~Factors” of our Annual Report on Form 10-K for additional information with respect to the ~~worldwide cancellations and/or delays~~risks faced by our business in light of elective procedures and restrictions on travel for both our employees and our clinician customers, and timelines associated with certain clinical studies and research and development programs have been delayed.the COVID-19 pandemic. While the impact has been limited to these items to date, we caution that there continues to be a possibility for potential future implementation of certain additional restrictions or other challenges associated with infections, staffing shortages ~~volatility in elective surgical procedures~~ or supply chain disruptions due to COVID-19 and ~~its~~ current or new variants in certain jurisdictions. In particular, supply constraints that have continued into 2022 that we have partially been able to mitigate to date have impacted and could be expected to impact our ability to produce and supply our products. The impact of these challenges is currently unknown but could be ~~significant.~~significant and we continue to take precautions so as not to disrupt our business.

Products

OA Pain Management

Our OA Pain Management product family consists ~~of:~~of Monovisc and Orthovisc, our single- and multi-injection, HA-based viscosupplement offerings that are indicated to provide pain relief from osteoarthritis conditions; and Cingal, our novel, next-generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid, designed to provide both short- and long-term pain relief, which is currently sold outside the United States in over 35 countries.

●

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

●

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

●

~~Hyvisc, our high molecular weight injectable HA veterinary product approved for the treatment of joint dysfunction in horses due to non-infectious synovitis associated with equine OA.~~

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~~(a) Our portfolio of orthopedic regenerative solutions products, including Hyalofast and Tactoset; (b) our line of sports medicine solutions used to repair and reconstruct damaged ligaments and tendons due to treat upper and lower extremity orthopedic conditions as well as knee and hip conditions caused by arthritic disease, acute trauma and injury. These products span multiple joints including the shoulder, foot/ankle, wrist, knee and hip and are generally intended to restore a patient’s natural anatomy and movement. These products are often used to treat patients with OA progression beyond where our OA Pain Management products can allow the patients to retain an active lifestyle when early surgical intervention becomes preferable.

●

~~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, ~~acute~~ trauma and disease; and (c) our portfolio of over 150 bone preserving joint technologies, including partial joint replacement, jointresurfacing, and minimally invasive and bone sparing implants, designed to treat upper and lower extremity orthopedic conditions caused by trauma, injury and arthritic disease. These more traditional sports medicine solutions include screws, sutures, suture anchors, grafts and other surgical systems that facilitate surgical procedures on the shoulder, knee, hip, upper and lower extremities, and other soft tissues.

●

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

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

Non-Orthopedic

Our Non-Orthopedic product family consists of legacy HA-based products that are marketed principally for non-orthopedic ~~applications. These products include Hyalobarrier, an~~applications, including our anti-adhesion barrier ~~indicated for use after abdomino-pelvic surgeries, Hyalomatrix, used~~product, advanced wound care products, our ear, nose and throat products, and our ophthalmic products. We have also reclassified Hyvisc, our high molecular weight injectable HA veterinary product approved for the treatment of ~~complex wounds such as burns and ulcers, as well as products used~~joint dysfunction in ~~connection~~horses due to non-infectious synovitis associated with equine OA. Hyvisc was previously reported in the treatment of ears, nose and throat disorders, and ophthalmic products, including injectable, high molecular weight HA products such as Anikavisc and Nuvisc, used as viscoelastic agents in ophthalmic surgical procedures such as cataract extraction and intraocular lens implantation. TheseOA Pain Management product family but has been reclassified to the Non-Orthopedic ~~products are sold through commercial sales and marketing partners around the world.~~

~~Results of Operations~~

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

$ Inc/(Dec)

% Inc/(Dec)

2022

2021

$ Inc/(Dec)

% Inc/(Dec)

(in thousands, except percentages)

(in thousands, except percentages)

Revenue
$ 40,264 $ 39,536 $ 728 2 % $ 116,614 $ 111,973 $ 4,641 4 %
Cost of revenue
17,485 16,513 972 6 % 47,169 47,164 5 0 %
Gross Profit
22,779 23,023 (244 ) (1% ) 69,445 64,809 4,636 7 %
Gross Margin
57 % 58 % 60 % 58 %
Operating expenses:

Research & development
7,301 7,673 (372 ) (5% ) 20,433 21,327 (894 ) (4% )
Selling, general & administrative
21,276 17,500 3,776 22 % 61,745 53,664 8,081 15 %

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

product family.

2218

Results of Operations

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

		Three Months Ended March 31,
	2023			2022			$ Change			% Change
		(in thousands, except percentages)
Revenue	$	37,924		$	36,693		$	1,231			3	%
Cost of revenue		15,081			14,889			192			1	%
Gross profit		22,843			21,804			1,039			5	%
Gross margin		60	%		59	%
Operating expenses:
Research and development		8,400			6,157			2,243			36	%
Selling, general and administrative		26,996			19,201			7,795			41	%
Total operating expenses		35,396			25,358			10,038			40	%
Loss from operations		(12,553	)		(3,554	)		(8,999	)		253	%
Interest and other income (expense), net		539			(154	)		693			(450	%)
Loss before income taxes		(12,014	)		(3,708	)		(8,306	)		224	%
Benefit from for income taxes		(1,664	)		(775	)		(889	)		115	%
Net loss	$	(10,350	)	$	(2,933	)	$	(7,417	)		253	%

Revenue

~~Revenue~~The following table presents revenue by product family for the three-month period ended ~~September 30,~~March 31, 2023 and 2022 ~~was $40.3 million, an increase of $0.8 million~~ as ~~compared to $39.5 million~~follows:

		Three Months Ended March 31,
	2023		2022		$ Change			% Change
		(in thousands, except percentages)
OA Pain Management	$	22,633	$	20,964	$	1,669			8	%
Joint Preservation and Restoration		13,453		12,139		1,314			11	%
Non-Orthopedic		1,838		3,590		(1,752	)		(49	%)
	$	37,924	$	36,693	$	1,231			3	%

Revenue from our OA Pain Management product family increased 8% for the three-month period ended ~~September 30, 2021. Revenue for the nine-month period ended September 30, 2022 was $116.6 million, an increase of $4.6 million~~March 31, 2023, as compared to ~~$112.0 million for~~ the ~~nine-month~~same period ~~ended September 30, 2021.~~in 2022, due primarily to favorable strategic partner ordering patterns and sales growth on increasing customer demand, offset in part by unfavorable international distributor ordering patterns as strategic partner and distributor ordering patterns can vary significantly on a quarterly basis.

~~The following tables present~~Revenue from our Joint Preservation and Restoration product ~~revenue by product family:~~

Three Months Ended September 30,

2022

2021

$ Inc/(Dec)

% Inc/(Dec)

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

Nine Months Ended September 30,

2022

2021

$ Inc/(Dec)

% Inc/(Dec)

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

~~For~~family increased 11% for the three-month period ended ~~September 30,~~March 31, 2023, as compared to the same period in 2022, ~~the increase in revenue was mainly~~due primarily due to ~~growth~~improving elective procedure volumes and rapidly growing commercial adoption of our newest products.

Revenue from our Non-Orthopedic product family decreased 49% for the three-month ended March 31, 2023, as compared to the same period in ~~Joint Preservation and Restoration revenues~~2022, primarily due to unfavorable timing of distributor ordering patterns as ~~hospitals and ASCs recover from the COVID 19 pandemic and higher Non-Orthopedic revenues from the sales~~well as due to end of life of certain legacy ~~products related to end-of-life purchases. This revenue increase was offset by lower US OA Pain Management revenue primarily related to ordering patterns from Mitek in the prior year.~~

For the nine-month period ended September 30, 2022, the increase in revenue was mainly due an increase in OA Pain Management revenues from international viscosupplement distributors and Hyvisc equine product sales due to recovery from the COVID 19 pandemic as well as favorable ordering patterns, offset by lower US OA Pain Management sales to Mitek as a result of ordering patterns in the prior year. The increase in total revenue was also due to an increase in Joint Preservation and Restoration revenues as hospitals and ASCs performing more procedures as they recover from COVID 19 pandemic, which however remained limited due in part to constraints on staffing, offset by lower Non-Orthopedic revenue in part related to the timing of orders on legacy products.

Gross Profit and Margin

Gross profit for the ~~three -and nine -month periods~~three-month period ended ~~September 30, 2022 decreased by $0.2 million and~~March 31, 2023 increased ~~by $4.6~~$1.0 million to $22.8 million, ~~and $69.4 million, respectively.~~representing a 60% gross margin for the period as compared to 59% in the prior year. The ~~decrease~~increase in gross profit for the three-month period ended September 30 2022 was related to a reserve of $2.6 million primarily associated with inventory for certain legacy Non-Orthopedic products that the Company no longer expects to sell. The increase in gross profit for the nine-month period ended September 30, 2022,March 31, 2023, as compared to the same period in ~~2021~~2022, was primarily ~~due to~~resulted from increased ~~revenue as well as the impact of inventory step-up charges associated with the acquisitions of Arthrosurface and Parcus Medical in 2021.~~

revenue. Gross margin for the three- and nine-month periods ended September 30, 2022 was 57% and 60%, respectively. Gross margin for the three- and nine-month periods ended September 30, 2021 was 58% for each period. The decrease in gross margin for the three-month period ended ~~September 30, 2022 was~~March 31, 2023, increased compared to the same period of prior year due primarily to product rationalization charges in the third quarter of 2022. The increase in gross margin for the nine-month period ended September 30, 2022 was due primarily to the unfavorable impact of inventory step-up charges associated with the Arthrosurface and Parcus Medical in 2021.improved production volumes.

Research and Development

Research and development expenses for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 were ~~$7.3~~$8.4 million, ~~and $20.4~~an increase of $2.2 million ~~a decrease of $0.4 million and $0.9 million, respectively~~ as compared to the same period in ~~2021.~~2022. The ~~decreases for the three-month and nine-month periods ended September 30, 2022 were~~increase was primarily ~~due~~related to ~~lower clinical trial spending,~~increased costs to comply with growing regulatory requirements globally as well as new product development associated with ~~the conclusion of~~ our ~~Cingal Phase III trial in 2022.~~research and development pipeline and scale-up manufacturing activities.

Selling, General and Administrative

Selling, general and administrative ~~or SG&A~~ expenses for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 were ~~$21.3~~$27.0 million, ~~and $61.7 million representing~~ an increase of ~~$3.8~~$7.8 million, ~~and $8.0 million, respectively~~ as compared to the same period in ~~2021.~~2022. This increase ~~in SG&A expense~~ for the three-month ~~and nine-month periods~~period ended ~~September 30, 2022,~~March 31, 2023 was primarily due to $5.8 million of non-recurring costs incurred during the quarter related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs. The growth in SG&A expenses also reflects expansion of our commercial capabilities ~~in the United States~~ and ~~expanded~~ marketing activities, and other operational capabilities to support the growing business needs. Certain marketing and medical education activities also were more limited in 2021 due to the COVID-19 pandemic. The increase in SG&A expense was also due toas well as higher stock-based compensation expense in ~~2022~~part driven by ~~a change in headcount associated with the Company’s strategic transformation that accelerated in 2020 and 2021.~~

~~Contingent Consideration Fair Value Change~~

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

Income Taxes

The benefit from income taxes was $1.2 million and $2.4 million for the three- and six-month periods ended September 30, 2022, resulting in effective tax rates of 22.1% and 19.5%, respectively. The provision for income taxes was $0.7 million and $1.7 million for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2021, based on~~March 31, 2023, resulting in an effective tax ~~rates~~rate of ~~55.4% and 14.4%, respectively.~~

13.9%. The ~~decrease~~benefit from income taxes was $0.8 million for the three-month period ended March 31, 2022, resulting in an effective tax rate of 20.9%. The net change in the effective tax rate for the three-month period ended ~~September 30, 2022,~~March 31, 2023, as compared to the same period in ~~2021,~~2022, was primarily due to ~~non-deductible stock-option activity during the three-month period ended September 30, 2021. The increase~~a valuation allowance in ~~the effective~~2023 being recorded against domestic deferred tax rate for the nine-month period ended September 30, 2022, as compared to the same period in 2021, was primarily due to the net tax benefit in 2021 on the change in the fair value of contingent consideration and non-deductible stock compensation in 2022.assets.

Net ~~(Loss) Income~~Loss

For the ~~three and nine-month periods~~three-month period ended ~~September, 2022,~~March 31, 2023, net loss was ~~$4.2 million and $10.0~~$10.4 million, or ~~$0.29~~$0.71 per diluted share, ~~and $0.68 per diluted share, respectively,~~ compared to net income of ~~$0.6 million and $9.9~~$2.9 million, or ~~$0.04 per diluted share and $0.68~~$0.20 per diluted share, for the same ~~periods~~period in prior year. The decrease in net income and diluted earnings per share was primarily due to the ~~change in fair value of contingent consideration of $21.9 million for~~non-recurring expenses related to the ~~nine-months ended September 30, 2021, as well as increased spending to expand our commercial capability in the United States, partially offset by increased revenue.~~Parcus Medical arbitration settlement, shareholder activism and other non-recurring corporate costs.

Non-GAAP Financial Measures

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

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

Adjusted Gross Profit and Adjusted Gross Margin

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

The following is a reconciliation of adjusted gross profit to gross profit for the ~~three- and nine-month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively:

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2022

2021

2022

2021

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

Adjusted Gross Margin
67
%
66
%
66
%
69
%

	Three-Month Periods Ended March 31,
	2023			2022
Gross profit	$	22,843		$	21,804
Acquisition related intangible asset amortization		1,562			1,562
Adjusted gross profit	$	24,405		$	23,366
Adjusted gross margin		64	%		64	%

Adjusted gross profit for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 increased ~~by $1.0 million and decreased~~ $1.0 million to ~~$27.0~~$24.4 million ~~and $76.8 million, respectively,~~ representing adjusted gross margin of ~~67% and 66%~~64%. Adjusted gross profit for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2021~~March 31, 2022 was ~~$26.0~~$23.4 million, ~~and $77.8 million, respectively, representing~~or adjusted gross margin of ~~66% and 69%, respectively. The decrease~~64%. There was no change in adjusted gross margin for the ~~nine-month~~three-month period ended ~~September 30,~~March 31, 2023 as compared to 2022, as the impact of improved production volumes was ~~primarily due to higher manufacturing costs and production inefficiencies caused~~offset by unfavorable product mix in ~~part by supply chain and staffing challenges.~~2023.

Adjusted EBITDA

We present information below with respect to adjusted EBITDA, which we define as our net income (loss) excluding interest and other ~~income,~~expense, net, income tax benefit, ~~(expense),~~ depreciation and amortization, stock-based compensation, ~~product rationalization,~~ and ~~acquisition related~~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 (loss) 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;~~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;~~position;

●

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

●

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

●

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

●

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;~~results;

●

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

●

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

●

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

The following is a reconciliation of ~~net income (loss) to~~ adjusted EBITDA to net loss for the ~~three- and nine-month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively:

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2022

2021

2022

2021

Net (loss) income
$ (4,175
)
$ 558 $ (9,951
)
$ 9,927
Interest and other expense, net
(436
)
48 (378 ) 141
(Benefit from) provision for income taxes
(1,187
)
694 (2,404
)
1,670
Depreciation and amortization
1,549 1,789 4,980 5,226
Share-based compensation
3,876 2,863 10,502 7,919
Product rationalization
2,636 - 2,636 2,063
Acquisition related intangible asset amortization
1,787 1,787 5,361 5,361
Acquisition related inventory step up
- 1,458 - 6,244
Change in fair value of contingent consideration
- (3,450
)
- (21,920
)
Adjusted EBITDA
$ 4,050 $ 5,747 $ 10,746 $ 16,631

	Three Months Ended March 31,
	2023			2022
	(in thousands)
Net loss	$	(10,350	)	$	(2,933	)
Interest and other (income) expense, net		(539	)		154
Benefit from income taxes		(1,664	)		(775	)
Depreciation and amortization		1,764			1,830
Share-based compensation		3,717			2,545
Arbitration settlement		3,250			-
Acquisition related intangible asset amortization		1,787			1,787
Costs of shareholder activism		831			-
Adjusted EBITDA	$	(1,204	)	$	2,608

Adjusted EBITDA ~~for~~in the three-month period ended ~~September 30, 2022,~~March 31, 2023 decreased ~~by $1.6~~$3.8 million as compared with the same period in ~~2021.~~2022. The decrease in adjusted EBITDA for the period was primarily due to ~~increased commercial spending to support future growth as certain marketing and medical education activities were more limited in 2021.~~

Adjusted EBITDA for the nine-month period ended September 30, 2022, decreased $5.9 million as compared with the same period in 2021. The decrease in adjusted EBITDA for the period was primarily due to lower adjusted gross profit, from higher manufacturing costs and production inefficiencies caused in part by supply chain and staffing challenges, as well as an increase in operating expenses ~~primarily~~largely attributable to costs to comply with growing regulatory requirements globally, expansion of our ~~commercial capability in the United States.~~operational capabilities to support our continued growth as well as certain non-recurring corporate costs.

Adjusted Net (Loss) Income ~~(Loss)~~ and Adjusted EPS

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

The following is a reconciliation of adjusted net (loss) income to net (loss) income for the three-month periods ended March 31, 2023 and 2022, respectively:

	Three Months Ended March 31,
	2023			2022
	(in thousands)
Net loss	$	(10,350	)	$	(2,933	)
Arbitration settlement, tax effected		2,776			-
Acquisition related intangible asset amortization, tax effected		1,526			1,345
Costs of shareholder activism, tax effected		710			-
Adjusted net loss	$	(5,338	)	$	(1,588	)

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

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2022

2021

2022

2021

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

~~The following is a reconciliation of adjusted~~diluted EPS to diluted ~~earnings (loss) per share~~EPS for the ~~three- and nine-month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021:~~respectively:

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2022

2021

2022

2021

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

	Three Months Ended March 31,
	2023			2022
Diluted loss per share	$	(0.71	)	$	(0.20	)
Arbitration settlement, tax effected		0.19			-
Acquisition related intangible asset amortization, tax effected		0.11			0.09
Costs of shareholder activism, tax effected		0.05			-
Adjusted diluted loss per share	$	(0.36	)	$	(0.11	)

Adjusted net ~~(loss) income~~loss and adjusted diluted ~~(loss) income~~loss per share in the three-month period ended ~~September 30, 2022 decreased by $1.5~~March 31, 2023 increased $3.8 million ~~or $0.10,~~and $0.25, respectively, as compared with the same period in ~~2021.~~2022. The ~~decrease~~increase for the period was primarily due to ~~increased commercial spending~~an increase in operating expenses largely attributable to expansion of our operational capabilities to support ~~future growth as certain marketing and medical education activities were more limited in 2021.~~

Adjusted net (loss) income in and adjusted diluted (loss) income per share the nine-month period ended September 30, 2022, decreased $6.9 million or $0.48, as compared with the same period in 2021. The decrease in adjusted net income for the period was primarily due to lower adjusted gross profit, from higher manufacturing costs and production inefficiencies caused in part by supply chain and staffing challenges due largely to the impact of the COVID-19 pandemic,our growing business needs as well as ~~an increase in selling~~non-recurring expenses related to the Parcus Medical arbitration settlement, shareholder activism and marketing expenses primarily attributable to increased cost to support our commercial capability in the United States and an increase in stock-based compensation expense driven by incremental headcount associated with the Company’s strategic transformation that accelerated in 2020 and 2021.other non-recurring corporate costs.

Liquidity and Capital Resources

We require cash to fund our operating activities and to make capital expenditures and other investments in the business. We expect that our requirements for cash to fund these uses will increase as our operations expand. We continue to generate cash from operating activities and believe that our operating cash flows, cash currently on our condensed consolidated balance sheet and availability under our credit facility will be sufficient to allow us to continue to invest in our existing business, to manage our capital structure on a short and long-term basis, and to meet our anticipated operating cash needs. Cash, cash equivalents, and investments aggregated ~~$87.8~~$79.7 million and ~~$94.4~~$86.3 million, and working capital totaled ~~$141.4~~$131.6 million and ~~$138.7~~$141.6 million, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. We are closely monitoring our liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on our operations.

On November 12, 2021, we entered into a Third Amendment to Credit Agreement with Bank of America N.A. as administrative agent, which amended our existing revolving line of credit agreement dated October 24, 2017 which provides up to $75.0 million in the form of a senior revolving line of credit. Subject to certain conditions, we may request up to an additional $75.0 million for a maximum aggregate commitment of $150.0 million. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

Nine Months Ended
September 30,

2022

2021

Cash provided by (used in)

Operating activities
$ 3,928 $ 3,925
Investing activities
(4,957
)
(1,878
)
Financing activities
(5,519
)
(6,839 )
Effect of exchange rate changes on cash
(61
)
(49
)
Net decrease in cash and cash equivalents
$ (6,609
)
$ (4,841 )

Summary of Cash Flows (in thousands):

	Three Months Ended March 31,
	2023			2022
Cash provided by (used in)
Operating activities	$	(3,618	)	$	(1,869	)
Investing activities		(1,389	)		(1,326	)
Financing activities		(1,613	)		(862	)
Effect of exchange rate changes on cash		30			(4	)
Net decrease in cash and cash equivalents	$	(6,590	)	$	(4,061	)

The following changes contributed to the net change in cash and cash equivalents in the ~~nine-month~~three-month period ended ~~September 30, 2022~~March 31, 2023 as compared to the same period in ~~2021.~~2022.

Operating Activities

Cash ~~provided by~~used in operating activities was ~~$3.9~~$3.6 million for ~~nine-month~~the three-month period ended ~~September 30, 2022 was consistent with~~March 31, 2023, as compared to cash used in operating activities of $1.9 million for the same period in ~~2021, as the~~2022. The increase in cash used in operating activities in 2023 was primarily due to a higher net loss ~~was~~and an increase in ~~part a result of higher non-cash stock compensation expense, and was offset by an improvement in working capital attributable to timing of collections and inventory purchases.~~inventories.

For the foreseeable future, we expect to continue to invest substantial resources in research and development ~~for new products and clinical studies~~ as well as continued investment in our commercial and operational infrastructure to support our growth strategy. These costs will be funded with a combination of cash on hand and cash expected to be generated from future operations.

Investing Activities

Cash used in investing activities was ~~$5.0~~$1.4 million for the ~~nine-month~~three-month period ended ~~September 30, 2022,~~March 31, 2023, as compared to cash used in investing activities of ~~$1.9~~$1.3 million for the same period in ~~2021.~~2022. The change was primarily due to an increase in capital expenditures to support commercial growth of the business in the ~~nine-month~~three-month period ended ~~September 30, 2022 and proceeds from maturities of investments that occurred in 2021.~~March 31, 2023.

Financing Activities

Cash used in financing activities was ~~$5.5~~$1.6 million for the ~~nine-month~~three-month period ended ~~September 30, 2022,~~March 31, 2023, as compared to cash used in financing activities of ~~$6.8~~$0.9 million for the same period in ~~2021. The change~~2022. In both periods, the cash used in financing activities was primarily attributable to ~~lower contingent consideration payments~~utilization of cash for employee tax withholding in ~~2022 and lower stock option exercises in 2022.~~exchange for shares surrendered by equity award holders.

Critical Accounting Policies and Estimates

The preparation of our condensed 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 ~~2021~~2022 Form 10-K for the year ended December 31, ~~2021~~2022. We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

Recent Accounting Pronouncements

A discussion of Recent Accounting Pronouncements is included in our ~~2021~~2022 Form 10-K for the fiscal year ended December 31, ~~2021.~~2022 and is updated in the Notes to the condensed 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 ~~2021~~2022 Form 10-K for the year ended December 31, ~~2021.~~2022. There were no material changes to our contractual obligations reported in our ~~2021~~2022 Form 10-K during the ~~nine~~three months ended ~~September 30, 2022 other than changes in operating leases reported in Note 8.~~March 31, 2023. For additional discussion, see Note 109 to the condensed consolidated financial statements included in this report.

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

~~Off-Balance Sheet Arrangements~~

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks and the ways we manage them are summarized in the section captioned “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no material changes in the first ~~nine~~three months of ~~2022~~2023 to our market risks or to our management of such risks.

ITEM 4.

CONTROLS AND PROCEDURES

~~(a)~~

(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~~Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, ofwe have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, 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 as of March 31, 2023 that our disclosure controls and procedures ~~are~~were not effective ~~to ensure that information required to be disclosed by us~~because of the material weaknesses 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 were disclosed in our ~~systems evolve with our business.~~Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

~~(b)~~

(b) Changes in internal controls over financial reporting.

~~There~~Except for the material weaknesses discussed in Part II, Item 9A of the 2022 Form 10-K, there were no material changes in our internal control over financial reporting during the quarter ended ~~September 30, 2022,~~March 31, 2023, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

We are in the process of remediating the material weaknesses in our internal control over financial reporting as noted in Part II, Item 9A of the 2022 Form 10-K. We have undertaken a number of measures designed to directly address, or contribute to, the remediation of our material weaknesses and the enhancement of our internal control over financial reporting including establishment of additional review procedures and monitoring activities at a centralized level in order to verify that process level controls are present and functioning as designed. In addition, we have begun training finance personnel on internal control over financial reporting, the importance of monitoring control activities, and fraud risk assessment. The material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

PART II:

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. 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 Form 10-K for the year ended December 31, ~~2021.~~2022.

ITEM 1A.

RISK FACTORS

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

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

~~Inflation~~has the potential to adversely affect our business, financial condition and results of operations by increasing our overall costs and increasing the risk that patients will curtail normal levels of elective orthopedic procedures due to pressure on the overall global economy. The existence of inflation in the economy has resulted in,We have been, and may continue to ~~result in, higher shipping~~be, subject to the actions of activist stockholders, which could cause us to incur substantial costs, ~~supply shortages, increased costs of labor~~divert management’s and ~~other similar effects. As a result of inflation~~the board’, wes attention and resources, and have ~~experienced~~an adverse effect on our business and ~~may continue~~stock price.

From time to ~~experience, cost increases. Although~~time, we may be subject to proposals by activist stockholders urging us to take ~~measures~~certain corporate actions or to ~~mitigate~~nominate certain individuals to our board of directors. For example, we received a notice from Caligan Partners LP, or Caligan, of its intent to nominate two directors for election to the ~~impact~~board of ~~inflation~~, ~~if these measures are not effective~~directors at our 2023 annual meeting of stockholders. We subsequently entered into a cooperation agreement with Caligan on April 13, 2023 and pursuant to the cooperation agreement, Caligan withdrew its director nominations. If activist stockholder activities, such as those by Caligan or other stockholders, ensue, our business ~~financial condition and results of operations~~ could be adversely ~~affected.~~

~~We rely~~affected, as responding to proxy contests and reacting to other actions by activist stockholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our board of directors. For example, we retained, and may be required to retain in the future, the services of various professionals to advise us on ~~a small number~~activist stockholder matters, including legal, financial, and communications advisors, the costs of ~~suppliers for certain key raw materials and a small number of suppliers for a number of other materials required for the manufacturing and delivery of~~which negatively impact our ~~products, and disruption could materially adversely affect our business,~~ financial ~~condition, and results of operations.~~

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

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

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

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On May 2, 2019, we announced that our ~~Board~~board of ~~Directors~~directors approved a $50.0 million share repurchase program with $30.0 million ~~to be~~tobe utilized for an accelerated share repurchase program, which was completed in January 2020, and $20.0 million reserved for open market repurchases which represents the maximum value of shares that may yet be purchased. No open market repurchases were made during the ~~nine-month~~three-month period ended ~~September 30, 2022.~~March 31, 2023, and this repurchase program was canceled in April 2023.

On April 13, 2023, we announced the establishment of a share repurchase program for an aggregate purchase price equal to $20,000,000 to occur within twelve months from the date of the share repurchase program as follows: (i) the first $5,000,000 of which will be effected through an accelerated stock repurchase program with an investment bank commencing with the Company’s next open trading window, which will open on or before May 12, 2023, (ii) the second $5,000,000 of which to be purchased in the open market, and (iii) the remaining $10,000,000 of which to be purchased in the open market subject to positive cash flow. This share repurchase program replaces the program that was announced in May 2019.

ITEM 6.

EXHIBITS

ExhibitNo.		Description

3.1	Certificate of Incorporation of Anika Therapeutics, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form ~~10-K~~8-K (File No. 001-14027) filed by the Registrant on ~~March 11, 2022)~~June 6, 2018)

3.2	Bylaws of Anika Therapeutics, Inc., effective as of June 6, 2018 (incorporated by reference to Exhibit 3.2 to the Current Report on Form ~~10-K~~8-K (File No. 001-14027) filed by the Registrant on ~~March 11, 2022)~~June 6, 2018)

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

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

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

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

(32)	Section 1350 Certifications

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

(101)	XBRL

*101	The following materials from Anika Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022~~March 31, 2023 as filed with the SEC on ~~November~~May 9, ~~2022,~~2023, formatted in Inline XBRL (eXtensible Business Reporting Language), as follows:

Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022 (unaudited)

ii.

Condensed Consolidated Statements of Operations and Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 2021~~ (unaudited)

iii.

Condensed Consolidated Statements of Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 20201(unaudited)~~(unaudited)

iv.

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 2021~~ (unaudited)

Notes to Condensed Consolidated Financial Statements (unaudited)


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

*	Filed herewith.

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

SIGNATURES

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

		ANIKA THERAPEUTICS, INC.
		(Registrant)

Date: ~~November~~May 9, ~~2022~~2023	By:	/s/ MICHAEL LEVITZ
		Michael Levitz
		Executive Vice President, Chief Financial Officer and Treasurer
		(Authorized Officer and Principal Financial Officer)

3328

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

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

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

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

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

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

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

			Nine Months Ended September 30, 2022								December 31, 2021
	Gross Value		Less: Accumulated Currency Translation Adjustment			Less: Accumulated Amortization			Net Book Value		Net Book Value		Weighted Average Useful Life
Developed technology	$	89,580	$	(1,607	)	$	(22,238	)	$	65,735	$	70,081		15
IPR&D		2,656		(1,006	)		-			1,650		1,650	Indefinite
Customer relationships		9,000		-			(2,402	)		6,598		7,273		10
Distributor relationships		4,700		(415	)		(4,285	)		-		-		5
Patents		1,000		(189	)		(668	)		143		179		16
Tradenames		5,200		-			(2,781	)		2,419		3,199		5
Total	$	112,136	$	(3,217	)	$	(32,374	)	$	76,545	$	82,382		13

	Operating Leases

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

	September 30, 2022		December 31, 2021

Compensation and related expenses	$	11,166	$	9,523
Professional fees		3,063		3,590
Operating lease liability – current		1,922		1,526
Clinical trial costs		1,352		1,961
Financing lease liability – current		-		188
Other		496		1,059
Total	$	17,999	$	17,847

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

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

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

Adjusted Gross Margin		67	%		66	%		66	%		69	%