Anika Therapeutics Inc

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

1. Nature of Business

Anika Therapeutics, Inc. (“the Company”) is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care, including in the areas of osteoarthritis (“OA”) pain management, regenerative solutions, sports medicine and Arthrosurface joint solutions.

In early2020, the Company expanded its overall technology platform through its strategic acquisitions of Parcus Medical, LLC (“Parcus Medical”), a sports medicine implant and instrumentation company, and Arthrosurface Inc. (“Arthrosurface”), a company specializing in less invasive, bone preserving partial and total joint replacement solutions. These acquisitions broadened the Company's product portfolio, developed over its30 years of expertise in hyaluronic acid technology, into joint preservation and restoration, added higher-growth revenue streams, increased its commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.

The Company is subject to risks common to companies in the life sciences industry including, butnot 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.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Anika Therapeutics, Inc. and its wholly owned subsidiaries, Anika Securities, Inc., Anika Therapeutics S.r.l. (“Anika S.r.l.”), Anika Therapeutics Limited, Parcus Medical and Arthrosurface. All intercompany balances and transactions have been eliminated in consolidation.

Foreign Currency Translation

The functional currency of Anika S.r.l. is the Euro and the functional currency of Anika Therapeutics Limited is the British Pound Sterling. Assets and liabilities of the foreign subsidiaries are translated using the exchange rate existing on each respective balance sheet date. Revenues and expenses are translated using the average exchange rates for the period. The translation adjustments resulting from this process are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) which resulted in a gain (loss) from foreign currency translation of $0.5 million, ($0.7) million, and ($1.2) million for the years ended* December 31, 2023,*2022, and2021, respectively.

Gains and losses resulting from foreign currency transactions are recognized in the consolidated statements of operations. Recorded balances that are denominated in a currency other than the functional currency are remeasured to the functional currency using the exchange rate at the balance sheet date and gains or losses are recorded in the statements of operations. The Company recognized a gain (loss) from foreign currency transactions of ($0.1) million, ($0.5) million, and ($0.4) million during the years ended* December 31, 2023,*2022, and2021, respectively.

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Accounts Receivable

The Company estimates an allowance for credit losses with its accounts receivable resulting from the inability of its customers to make required payments, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. In determining the adequacy of the allowance, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current and reasonable and supportable forecasts of future economic conditions, accounts receivable aging trends, and changes in the Company’s customer payment terms.

The components of the Company’s accounts receivables are as follows:

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

Revenue Recognition

Pursuant to Accounting Standard Codification606, Revenue from Contracts with Customers (“ASC606”), the Company recognizes revenue when a customer obtains control of promised goods or services. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the followingfive-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct or distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company generates sales principally throughthree types of customers: (i) commercial partnerships (ii) hospitals and ambulatory surgical centers (“ASCs”), and (iii) distributors, referred to as the distribution model.

For commercial partnership sales, the Company sells its products directly to these partners, who perform most of the downstream sales and marketing activities to customers and end-users. These arrangements* mayinclude the grant of certain licenses, performance of development services, and the supply of product. The Company’s largest such customer, DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopedics, Inc., part of the Johnson & Johnson Medical Companies (“Mitek”), represented 45%,43% and 45% of total revenues for the years-ended December 31, 2023,2022 and2021 respectively. The Company completed the performance obligations related to granted licenses and development services under the agreements with Mitek prior to2016 and hasno remaining material performance obligations. The Company recognizes revenue from product sales when the customer obtains control of the Company’s product, which typically occurs upon shipment to the customer. Commercial partnership agreements mayalso include sales-based royalties and milestones. As the Company considered the license to be the predominant item to which the royalties relate for these agreements, sales-based royalties and milestones are only recognized when the later of the underlying sale occurs or the performance obligation to which the sales-based royalty has been satisfied (or partially satisfied). This is generally in the same period that the Company’s licensees complete their product sales in their territory, for which the Company is contractually entitled to a percentage-based royalty. The Company records royalty revenues based on estimated net sales of licensed products as reported to the Company by its commercial partners. The differences between actual and estimated royalty revenues havenot* been material and are typically adjusted in the following quarter when the actual amounts are known. Revenue from sales-based royalties is included in revenue in the consolidated statement of operations. The Company’s certain supply agreements represent a promise to deliver products at the customer’s discretion that are considered distributor options. The Company assesses if these options provide a material right to the licensee, and if so, they are accounted for as separate performance obligations. Substantially all of the Company’s supply agreements donot provide options that are considered material rights.

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For sales to hospitals and ASCs, which generally pairs in-house sales representatives with local or regional distributors, the inventory is generally consigned so that products are available when needed for surgical procedures.No revenue is recognized upon the placement of inventory into consignment, as the Company retains the ability to control the inventory. Revenue is typically recognized as of the date of surgical implantation of the product.

For distributor sales, the Company sells its products principally to distributors, generally outside the United States, who subsequently resell the products to sub-distributors and health care providers, among others. The Company recognizes revenue from product sales when the distributor obtains control of the Company’s product, which typically occurs upon shipment to the distributor, in return for agreed-upon, fixed-price consideration. Performance obligations are generally settled quickly after purchase order acceptance; therefore, the value of unsatisfied performance obligations at the end of any reporting period is generally insignificant. The Company sells to a diversified base of international distributors and, therefore, believes there isno material concentration of credit risk.

The Company’s payment terms are consistent with prevailing practice in the respective markets in which the Company does business. Most of the Company’s customers make payments based on contract terms, which arenot affected by contingent events that could impact the transaction price. Payment terms fall within theone-year guidance for the practical expedient, which allows the Company to forgo adjustment of the contractual payment amount of consideration for the effects of a significant financing component.

Some of the Company’s distributor agreements have volume-based discounts with tiered pricing which are generally prospective in nature. These prospective discounts together with any free-of-charge sample units offered are evaluated as potential material rights. If the prospective discounts or free-of-charge sample units are considered material rights, these would be separate performance obligations and a portion of the sales transaction price is allocated to the material right. Revenue allocated to the material right is recognized when the additional goods are transferred to the customer or when the option expires. During2023, 2022 and2021, the consideration allocated to material rights wasnot significant.

The Company receives payments from its customers based on billing schedules established in each contract. Any up-front payments and fees are recorded as deferred revenue upon receipt or when due and* mayrequire deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when its right to consideration is unconditional. The Company hadno deferred revenue as of December 31, 2023and2022,* respectively.

Generally, customer contracts contain Free on Board (“FOB”) or Ex-Works shipping point terms where the customer pays the shipping company directly for all shipping and handling costs. In those contracts in which the Company pays for the shipping and handling, the associated costs are generally recorded along with the product sale at the time of shipment in cost of revenue when control over the products has transferred to the customer. Value-add and other taxes collected by the Company concurrently with revenue-producing activities are excluded from revenue. The Company’s general product warranty doesnot extend beyond an assurance that the product or services delivered will be consistent with stated contractual specifications, which doesnot create a separate performance obligation. The Company recognizes the incremental costs of obtaining contracts as an expense when incurred as the amortization period of the assets that the Company otherwise would have recognized isone year or less in accordance with the practical expedient in paragraph ASC340-40-25-4. These costs are included in selling, general and administrative expenses.

Licensing, Milestone and Contract Revenue

The agreements with Mitek include variable consideration such as contingent development and regulatory milestones. Since2016, there have beenno remaining regulatory milestones related to the Mitek agreements. In general, variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized isnot probable to occur.

Cash and Cash Equivalents

The Company considers only those investments which are highly liquid, readily convertible to cash, and that mature within90 days from the date of purchase to be cash equivalents. The Company’s cash equivalents consist of money market funds.

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Investments

The Company* mayinvest its excess cash in investments, which are classified as available-for-sale. Investments are recognized on a recurring basis at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss), net of related income taxes. For securities sold prior to maturity, the cost of securities sold is based on the specific identification method. Realized gains and losses on the sale of investments are recorded in interest and other income, net. Interest is recorded when earned. Investments with original maturities greater than approximatelythree* months and remaining maturities less thanone year are classified as short-term investments. Investments with remaining maturities greater thanone year are classified as long-term investments. The Company hadno investments as of* December 31, 2023or December 31, 2022.*

Investments are subject to a periodic impairment review. For available-for-sale debt securities in an unrealized loss position, the Companyfirst assesses whether (i) the Company intends to sell, or (ii) it is more likely thannot that the Company will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through earnings. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.

Any impairment that hasnot been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in the consolidated statement of operations as a component of credit loss expense. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through earnings when deemed uncollectible by management or when either of the criteria regarding intent or requirement to sell is met.

During the years ended* December**31,* 2023, 2022 and2021, the Company didnot record any impairment charges on its available-for-sale securities because it isnot more likely thannot that the Company will be required to sell these securities before the recovery of their cost basis.

Concentration of Credit Risk

The Company hasno significant off-balance sheet risks related to foreign exchange contracts, option contracts, or other foreign hedging arrangements. The Company’s cash equivalents and investments are held withthree major financial institutions.

The Company, by policy, routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited.

As of* December**31,* 2023 and2022, Mitek represented 46% and 47%, respectively, of the Company’s accounts receivable balance.No other single customer accounted for more than10% of accounts receivable in either period.

Inventories

Inventories are primarily stated at the lower of standard cost and net realizable value, with cost determined using thefirst-in,first-out method. Work-in-process and finished goods inventories include materials, labor, and certain manufacturing overhead. Manufacturing variances attributable to abnormally low production are expensed in the period incurred.

The Company’s policy is to write down inventory when conditions exist that suggest inventory* maybe in excess of anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products and market conditions. The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors including, butnot* limited to, historical usage rates, forecasted sales or usage, product end of life dates, and estimated current or future market values. Purchasing requirements and alternative usage avenues are explored within these processes to mitigate inventory exposure.

When recorded, inventory write-downs are intended to reduce the carrying value of inventory to its net realizable value. If actual demand for the Company’s products deteriorates, or if market conditions are less favorable than those projected, additional inventory write-downs* maybe required. Other long-term assets include inventory expected to remain on hand beyondone* year.

Leases

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present and evaluates whether the lease is an operating lease or a finance lease at the commencement date. Operating and finance leases with a term greater thanone year are recognized on the consolidated balance sheet as right-of-use assets, lease liabilities, and, if applicable, long-term lease liabilities. The Company includes renewal options to extend the lease in the lease term where it is reasonably certain that it will exercise these options. Operating and finance lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the lease terms. The Company elected an accounting policy to combine the non-lease components (which include common area maintenance, taxes and insurance) with the related lease component. The interest rate implicit in lease contracts is typicallynot readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that donot depend on a rate or index arenot included in the lease liability and are recognized as incurred. Lease contracts donot include residual value guarantees nor do they include restrictions or other covenants. Certain adjustments to the right-of-use assets* may*be required for items such as initial direct costs paid, incentives received or lease prepayments. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the finance and operating lease liabilities by using revised inputs as of the reassessment date, and adjust the right-of-use asset. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease expense is recognized based on the effective-interest method over the lease term.

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Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, which are typically:

Maintenance and repairs are charged to expense when incurred; additions and improvements are capitalized. Fully depreciated assets are retained in the accounts until they areno longer used andno further charge for depreciation is made in respect of these assets. When an item is sold, retired or removed from service, the cost and related accumulated depreciation is relieved, and the resulting gain or loss, if any, is recognized in income.

Construction-in-process assets are stated at cost, which includes the cost of construction and other direct costs attributable to the construction. Construction-in-process assets arenot depreciated until such time as the relevant assets are completed and put into use.

Goodwill and IPR&D Assets

Goodwill is the amount by which the purchase price of acquired net assets in a business combination exceeded the fair values of net identifiable assets on the date of acquisition. Acquired In-Process Research and Development (“IPR&D”) represents the fair value assigned to research and development assets that the Company acquires that havenot been completed at the date of acquisition or are pending regulatory approval in certain jurisdictions. The value assigned to the acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flows to present value.

Goodwill and IPR&D arenot amortized but are evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The goodwill impairment assessment is performed by reporting unit. A reporting unit is the operating segment, or a businessone level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. The Company hastwo reporting units: the legacy Anika reporting unit, which specializes in therapies based on its hyaluronic acid, or HA, technology platform, and a reporting unit established in2020 upon the acquisitions of Parcus Medical and Arthrosurface. Factors that the Company considers important, on an overall company basis, that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the Company’s use of the acquired assets or the strategy for its overall business, significant negative industry or economic trends, a significant decline in the Company’s stock price for a sustained period, or a reduction of its market capitalization relative to net book value.

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Under U.S. GAAP, the Company has the option to perform a qualitative assessment to determine if it is necessary to perform the impairment test. If the Company concludes, based on a qualitative assessment, it isnot more likely thannot that the Goodwill or the IPR&D asset is impaired, the Company isnot required to perform the quantitative test. The Company has an unconditional option to bypass the qualitative assessment in any period and proceed directly to the quantitative impairment test.

To conduct quantitative impairment tests of goodwill, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of goodwill exceeds its implied fair value,not to exceed the recorded amount of goodwill.

The Company performed a quantitative annual assessment for impairment of the remaining goodwill with respect to legacy Anika reporting unit as of* November 30, 2023,including consideration of (i) general macroeconomic factors, (ii) industry and market conditions, and (iii) the extent of the excess of the fair value over the carrying value indicated in prior impairment testing. Accordingly, the Company determined it wasnot* more likely thannot that the fair value of the legacy Anika reporting unit is less than its carrying amount and thus goodwill wasnot impaired as of* November 30, 2023.*

To conduct impairment tests of IPR&D, the fair value of the IPR&D project is compared to its carrying value. If the carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of the IPR&D project exceeds its fair value. The Company estimates the fair value for IPR&D using the income approach, which is based on the Multi-Period Excess Earnings Method (“MPEEM”). MPEEM measures economic benefit indirectly by calculating the income attributable to an asset after appropriate returns are paid to complementary assets used in conjunction with the subject asset to produce the earnings associated with the subject asset, commonly referred to as contributory asset charges. This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, expected economic life of the asset, contributory asset charges and discount rates to estimate future cash flows.

Long-Lived Assets

Long-lived assets primarily include property and equipment and intangible assets with finite lives. The Company’s intangible assets are comprised of purchased developed technologies, patents, trade names, customer relationships and distributor relationships. These intangible assets are carried at cost, net of accumulated amortization. Amortization is recorded on a straight-line basis over the intangible assets' useful lives, which range from approximately five tosixteen years. The Company reviews long-lived assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets* may**not* be fully recoverable or that the useful lives of those assets areno longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. During the year ended* December 31, 2023,the Company determined that certain of its intangible assets related to its Arthrosurface and Parcus reporting unit were impaired. Please see Note6* – Acquired Intangible Assets, net for further details.

In determining the useful lives of intangible assets, the Company considers the expected use of the assets and the effects of obsolescence, demand, competition, anticipated technological advances, changes in surgical techniques, market influences and other economic factors. For technology-based intangible assets, the Company considers the expected life cycles of products, absent unforeseen technological advances, which incorporate the corresponding technology.

Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs that* may*be used to measure fair value are:

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The Company’s financial assets have been classified as Level1. The Company’s financial assets (which include cash equivalents and investments) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizingthird-party pricing services. The Company’s financial liabilities have been classified as Level3.

Non-Recurring Fair Value Measurement

In measuring the impairment of intangible assets, the fair value of the Company's developed technology, customer relationship and tradename definite lived intangible assets within the Parcus and Arthrosurface reporting unit are classified within Level3 of the fair value hierarchy because of the use of unobservable inputs in measuring the estimated fair value. When performing a quantitative assessment for impairment of these definite lived intangible assets, the Company measures the amount of impairment by calculating the amount by which the carrying value of the definite lived intangible assets exceeds its estimated fair value (as discussed in Note6 – Acquired Intangible Assets, Net).

Research and development costs consist primarily of salaries and related expenses for personnel, clinical trial expenses and fees paid to outside consultants and outside service providers. Research and development costs are expensed as incurred.

Stock-Based Compensation

The Company has stock-based compensation plans under which it grants various types of equity-based awards, the cost of which is based on the grant-date fair value of the underlying award and recognized over the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period.

For performance-equity awards with market-based conditions, compensation cost is measured at the date of the award and is recorded over the vesting period, regardless of the likelihood of achievement of the market-based performance criteria. For performance-based equity awards with financial and business milestone achievement targets, compensation cost is based on the probable outcome of the performance conditions. Changes to the probability assessment and the estimated shares expected to vest will result in adjustments to the related stock-based compensation expense that will be recorded in the period of the change. If the performance targets arenot achieved,no compensation cost is recognized, and any previously recognized compensation cost is reversed.

See Note13, Equity Incentive Plan, for a description of the types of stock-based awards granted, the compensation expense related to such awards, and detail of equity-based awards outstanding.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets, or DTAs, and deferred tax liabilities, or DTLs, for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs based on the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

We recognize DTAs to the extent that we believe that these assets are more likely thannot to be realized. In making such a determination, we consider 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.

We record uncertain tax positions in accordance with ASC740, Income Taxes, on the basis of atwo-step process in which (1) we determine whether it is more likely thannot that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than50 percent likely to be realized upon ultimate settlement with the related tax authority. Interest and penalties associated with income tax filings are recorded in income tax expense.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments. For the purposes of comprehensive income (loss) disclosures, the Company doesnot record tax provisions or benefits for the net changes in the foreign currency translation adjustment, as it intends to indefinitely reinvest undistributed earnings of its foreign subsidiary. Accumulated other comprehensive income (loss) is reported as a component of stockholders' equity.

Segment Information

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its President and Chief Executive Officer as of* December 31, 2023.Based on the criteria established by ASC280,* Segment Reporting, the Company hasone operating and reportable segment.

Contingencies

In the normal course of business, the Company is involved from time-to-time in various legal proceedings and other matters such as contractual disputes, which are complex in nature and have outcomes that are difficult to predict. The Company records accruals for loss contingencies to the extent that it concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company considers all relevant factors when making assessments regarding these contingencies. Although the outcomes of any potential legal proceedings are inherently difficult to predict, the Company doesnot expect the resolution of any potential legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flows.

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Recent Issued Accounting Pronouncements

No new accounting pronouncements issued or effective during the period had, or are expected to have, a material impact on the consolidated financial statements.

3. Fair Value Measurements

There wereno available-for-sale securities as of* December 31, 2023and2022.*

The Company’s investments, including cash equivalents, are all classified within Levels1 of the fair value hierarchy and are valued based on quoted prices in active markets. For cash, current 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 isnot included in the table below. Contingent consideration related to the previously described business combinations are classified within Level3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability.

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

There wereno transfers between fair value levels in2023 or2022.

4. Inventories

Total inventories included in the balance sheet consist of the following:

Inventories are stated net of inventory reserves of approximately $11.7 million and $9.9 million, as of* December 31, 2023and2022,* respectively.

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5. Property and Equipment

Property and equipment is stated at cost and consists of the following:

Depreciation expense was $6.4 million, $6.7 million, and $6.5 million for the years ended* December**31,* 2023, 2022, and2021, respectively.

6. Acquired Intangible Assets, Net

Intangible assets consist of the following:

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Total amortization expense with respect to the definite lived acquired intangible assets was $7.8 million for each of the years ended* December 31, 2023,*2022 and2021, respectively.

The Company performed an assessment of its definite lived acquired intangible assets during the quarter ended* December 31, 2023.The Company estimated the fair value of its definite lived acquired intangible assets using an income approach method of valuation, including a combination of the distributor method for the customer relationships intangible asset and the relief of royalty method for each of the developed technology and tradename intangible assets. These valuation approaches incorporate significant estimates and assumptions related to the forecasted results including revenues, expenses, expected economic life of the asset, royalty rates, after-tax royalty savings expected from ownership of the developed technology and tradename assets, contributory asset charges and discount rates to estimate future cash flows. While assumptions utilized are subject to a high degree of judgment and complexity, the Company made its best estimate of future cash flows under a high degree of economic uncertainty that existed as of December 31, 2023.In developing its assumptions, the Company also considered observed trends of its industry participants. The Company recorded a $62.2 million charge to intangible assets related to its Arthrosurface and Parcus asset groups during the year ended December 31, 2023*mainly due to slower than expected revenue growth from product sales that have impacted cash flows with these asset groups.

The Company performed its annual assessment of the IPR&D intangible asset as of* November 30, 2023.The Company estimated the fair value of the IPR&D intangible assets using the income approach which is based on the Multi-Period Excess Earnings Method (“MPEEM”). MPEEM measures economic benefit indirectly by calculating the income attributable to an asset after appropriate returns are paid to complementary assets used in conjunction with the subject asset to produce the earnings associated with the subject asset, commonly referred to as contributory asset charges. This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, expected economic life of the asset, contributory asset charges and discount rates to estimate future cash flows. While assumptions utilized are subject to a high degree of judgment and complexity, the Company made its best estimate of future cash flows under a high degree of economic uncertainty that existed as of November 30, 2023.*In developing its assumptions, the Company also considered observed trends of its industry participants.No impairment existed as the estimated fair value of the remaining IPR&D intangible asset was greater than its carrying value.

7. Goodwill

The following table provides a roll forward of goodwill for the years ended* December 31, 2023and2022:*

The goodwill balance at* December 31, 2023and2022* was related to the legacy Anika reporting unit.

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The Company estimated the fair value of the reporting units using a discounted cash flow method, which is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting units beyond the cash flows from the discrete projection period. The Company determined that a discounted cash flow model provided the best approximation of fair value of the reporting units for the purpose of performing the impairment test. This approach incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, the achievement of certain cost synergies, terminal growth rates and discount rates to estimate future cash flows. While assumptions utilized are subject to a high degree of judgment and complexity, the Company made its best estimate of future cash flows under a high degree of economic uncertainty that existed as of* November 30, 2023.*In developing its assumptions, the Company also considered observed trends of its industry participants.

For the legacy Anika reporting unit, the Company performed a quantitative assessment as of* November 30, 2023.The results of the impairment test indicated that the estimated fair value of the legacy Anika reporting unit was greater than its carrying value, therefore the Company determined that was more likely thannot* that the fair value of the legacy Anika reporting unit wasnot impaired as of* November 30, 2023.There wasno* remaining goodwill with respect to the reporting unit for Parcus Medical and Arthrosurface as of* December 31, 2023.*

8. Leases

The Company leases its buildings and manufacturing facilities under operating leases. As of* December 31, 2023,*the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida, Warsaw, Indiana and Padova, Italy.

In* June 2022,the Company finalized a renewal option to extend the current term for its operating headquarters and manufacturing facility in Bedford through2027.* There are also lease renewal options into2038.

The Company leases office space in Padova, Italy. The current term of the Padova lease extends to2032, with a right to terminate at the Company’s option in2026 without penalty.

the Company also has operating leases for corporate offices, manufacturing and warehouse facilities. The operating leases consist ofone real estate lease in Franklin, Massachusetts (Franklin lease) andtwo real estate leases in Sarasota, Florida (Sarasota lease). In* October 2022,the Company entered into an option to extend the current term of the Franklin lease through2024.* In* June 2022,the Company finalized an option to extend the current term of thetwo* Sarasota leases through2027.

The significant assumptions in recognizing the right-of-use asset and lease liability are as follows:

Incremental borrowing rate. The Company derives its incremental borrowing rate from information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate represents a collateralized rate of interest the Company would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s lease agreements donot provide implicit rates. As the Company didnot have any external borrowings at either the transition or subsequent renewal dates with comparable terms to its lease agreements, the Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of the lease. The weighted average discount rate at* December 31, 2023*was 3.6% for operating leases.

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Lease term. The lease term begins at the lease commencement date and is determined on that date based on the non-cancelable term of the lease together with periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, or periods covered by an option to terminate the lease if the Company is reasonably certainnot to exercise that option.

The components of lease expense and other information are as follows:

Future commitments due under these lease agreements as of* December 31, 2023*are as follows:

9. Accrued Expenses

Accrued expenses consist of the following:

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10. Revolving Credit Agreement

On* November 12, 2021,the Company, entered into a “Third Amendment to Credit Agreement” amending the existing revolving line of credit agreement dated October 24, 2017with Bank of America, N.A., as administrative agent, swingline lender and issuer of letters of credit, for a $75.0 million senior revolving line of credit (the “Credit Agreement”). Subject to certain conditions, the Company mayrequest up to an additional $75.0 million in commitments for a maximum aggregate commitment of $150.0 million, which requests must be approved by the Revolving Lenders (as defined in the Credit Agreement). Loans under the Credit Agreement generally bear interest at a rate equal to (a) the Bloomberg Short-Term Bank Yield Index, (“BSBY”), rate plus (b) an additional percentage that will range from 0.25% to 1.00%, based on the Company’s consolidated leverage ratio at the time of the borrowings. The Company is required to pay a commitment fee in an amount that is equal to 0.20% to 0.30% per annum, based on the Company’s consolidated leverage ratio, on the actual daily unused amount of the credit facility and that is due and payable quarterly in arrears. Loan origination costs are included as assets on the balance sheet and are being amortized over thefive-year term of the Credit Agreement. As of December 31, 2023and2022,* there wereno outstanding borrowings under the Credit Agreement and the Company is in compliance with the terms of the Credit Agreement.

The Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including financial covenants, events of default, and indemnification provisions in favor of the Lenders. These include restrictive covenants that require the Companynot to exceed certain maximum leverage and interest coverage ratios, limit its incurrence of liens and indebtedness, and its entry into certain merger and acquisition transactions or dispositions and place additional restrictions on other matters, all subject to certain exceptions. The Revolving Lenders has been granted afirst priority lien and security interest in substantially all of the Company’s assets, except for certain intangible assets.

11. 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* mayalso warrant that the products it manufactures donot* infringe, violate or breach any U.S. or international patent or intellectual property rights, trade secret, or other proprietary information of anythird 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 hadno accrued warranties at* December 31, 2023or2022,* respectively, and hasno 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 doesnot expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flows.

12. Revenue and Geographic Information

The Company categorizes its product portfolio intothree product families: OA Pain Management, Joint Preservation and Restoration, and Non-Orthopedic.

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Product revenue by product family is as follows:

Effective* January 1, 2023,the Company reported revenue from product sales to veterinary customers within the Non-Orthopedic product family whereas such revenue had historically been reported within the OA Pain Management revenue product family for the prior period years ended December 31, 2022and2021.* Revenue from product sales to veterinary customers amounted to $4.2 million, $5.9 million and $4.4 million for2023, 2022 and2021, respectively, with the2022 and2021 revenue reclassified to Non-Orthopedic to conform to current presentation.

Product revenue from the Company’s sole significant customer, Mitek, as a percentage of the Company’s total product revenue was 45%,43%, and 45% for the years ended* December 31, 2023,*2022, and2021, respectively.

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

Net long-lived assets, consisting primarily of net property and equipment, are subject to geographic risks because they are generally difficult to move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid. Net tangible long-lived assets by principal geographic areas are as follows:

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13. 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, 2017and subsequently amended on June 18, 2019,** June 16, 2020and June 16, 2021and June 14, 2023.The2017* Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that* maybe settled in cash, stock, or other property. In accordance with the2017* Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SAR’s will reduce the number of total shares available for grant bytwo shares. Subject to adjustment for specified types of changes in the Company’s capitalization,no more than 4.6 million shares of common stock* maybe issued under the2017* Plan. There are 1.0 million shares available for future grant at* December 31, 2023under the2017* Plan.

The Anika Therapeutics, Inc.2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on* November 4,2021in which the Company reserved 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards maybe granted only to an individual who wasnot* previously the Company’s employee or director with the Company. The Inducement Plan provides for the grant of awards under terms substantially similar to the2017 Plan (as amended). The Inducement Plan was amended in* December 2023to add 125,000 shares. There are 0.1 million shares available for future grant at December 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 overone tofour years with a maximum contractual term often years.

For the years ended* December 31, 2023,and2022,* the tax benefit associated with stock-based compensation was $2.6 million and $1.1 million, respectively. A summary of the stock-based compensation in the Company’s statements of operations is as follows (in thousands):

For the years ended* December 31, 2023,*2022 and2021, windfall tax benefits (expense) of ($0.1) million, ($0.5) million and $0.1 million, respectively, are associated with the stock-based compensation expense above.

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 ofthree tofour 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.

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

The aggregate intrinsic value of options exercised was immaterial for the years ended* December 31, 2023and2022,* respectively and was $0.3 million for the year ended* December 31, 2021.*

The Company granted 404,903 stock options during the year ended* December 31, 2023,*of which 323,993 shares were premium-priced options.

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 assumptions used in the Black-Scholes pricing model for options granted during the years ended* December 31, 2023,*2022 and2021, along with the weighted-average grant-date fair values, were as follows:

As of* December 31, 2023,*there was $5.9 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 1.7 years.

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Restricted Stock Units

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

RSU activity for the year ended* December 31, 2023*is as follows:

The weighted-average grant-date fair value per share of RSUs granted was $26.66, $25.14 and $35.88 for the years ended* December 31, 2023,2022 and2021, respectively. The total fair value of RSUs vested was $6.9 million, $6.0 million and $3.7 million for the years ended December 31, 2023,*2022 and2021, respectively.

As of* December 31, 2023,*there was $11.9 million of unrecognized compensation cost related to time-based RSUs, which is expected to be recognized over a weighted-average period of 1.7 years.

Performance Stock Units

The Company granted performance stock units (“PSUs”) to employees in2019 and2020 which contained performance conditions with business and financial targets. The business target, amounting to 30% of the total performance condition awards, was measured and achieved in the2019 fiscal year. One of the financial targets, amounting to 55% of the total performance condition awards, was measured and achieved in the2022 fiscal year, while the remaining financial target, amounting to 15% of the total performance condition awards, wasnot achieved. The PSUs granted to employees in2020 contained performance conditions with business and financial targets. One of the business targets, amounting to 20% of the total performance condition awards, wasnot achieved in the2021 fiscal year, while the remaining business target related to a certain timely regulatory approval, amounting to 20% of the total performance condition awards, wasnot achieved in the2022 fiscal year. The financial targets, amounting to 60% of the total performance condition awards, werenot achieved in the2022 fiscal year. The Company hasno PSUs outstanding at* December 31, 2023.*

PSU activity for the year ended* December 31, 2023*is as follows:

The weighted-average grant-date fair value per share of PSUs granted was $32.53 for the year ended* December 31, 2022.The total fair value of PSUs vested was $0.6 million for the year ended December 31, 2022.There wereno* PSUs granted or vested during the years ended* December 31, 2023and2021,* respectively. There areno PSUs outstanding as of* December 31, 2023.*

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14. Employee Benefit Plan

The Company’s U.S. employees are eligible to participate in the Company’s401(k) savings plan. Employees* mayelect to contribute a percentage of their compensation to the plan, and the Company will make 140% matching contributions up to a limit of 5% of an employee’s eligible compensation. In addition, the Company maymake annual discretionary contributions. The Company made matching contributions of$2.7* million, $2.3 million, and $2.0 million for the years ended* December**31,* 2023, 2022, and2021, respectively.

15. Income Taxes

Income Tax Expense

The components of the Company’s income (loss) before income taxes and its provision for (benefit from) income taxes consist of the following:

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Deferred Tax Assets and Liabilities

Significant components of the Company’s deferred tax assets and liabilities consist of the following:

As of* December 31, 2023,the Company hadno Federal net operating loss (“NOL”) carryforwards and state net NOL carryforwards of $1.0 million that will begin to expire in2027.* The Company also had NOL carryforwards in Italy of $4.7 million that donot expire but are limited to80% of taxable income. As of* December 31, 2023,the Company hadno federal research and development tax credit carryforwards and state research and development tax credit carryforwards of $0.7 million that will begin expiring in2024.*

The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and experimental (“R&D”) expenditures for tax years beginning after* December 31, 2021.This rule became effective for the Company during the year ended December 31, 2022and resulted in the capitalization of R&D costs of $22.9 million and $23.4 million as of December 31, 2023and2022,* respectively. The Company will amortize these costs for tax purposes over 5 years if the R&D was performed in the U.S. and over 15 years if the R&D was performed outside the U.S.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely thannot 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. Based upon future reversals of existing taxable temporary differences and projected future taxable income, the Company believes it is more likely thannot it will realize its foreign deferred tax assets.

During the year ended* December 31, 2023,the Company determined that its domestic deferred tax assets originating during the year ended December 31, 2023would 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 net deferred tax assets in the U.S. arenot* more likely thannot to be realizable. As a result, the Company recorded a valuation allowance of $18.1 million against its U.S deferred tax assets at* December 31, 2023.As of December 31, 2023,*the Company continues to believe its foreign deferred tax assets are realizable based upon future reversals of existing taxable temporary differences and projected future taxable income in the Company’s foreign jurisdictions.

Undistributed earnings of certain of the Company’s foreign subsidiaries amounted to approximately $0.6 million at* December 31, 2023.The Company expects to be able to take a100%* dividend received deduction to offset any U.S. federal income tax liability on the undistributed earnings. Determination of the amount of unrecognized state and local deferred income tax liability isnot practicable due to the complexities associated with its hypothetical calculation.

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Effective Tax Rate

The reconciliation between the U.S. federal statutory rate and the Company’s effective rate is summarized as follows:

Accounting for Uncertainty in Income Taxes

The Company hadno unrecognized tax benefits for the years ended* December 31, 2023and2022,* respectively. The Company doesnot anticipate experiencing any significant increase or decrease in its unrecognized tax benefits within thetwelve months following* December 31, 2023.*

In the normal course of business, Anika and its subsidiaries* maybe periodically examined by various taxing authorities. 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. With a few exceptions, the Company isno* longer subject to income tax examinations for years prior to 2019.

16. 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, arenot 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.

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

Stock options of 1.1 million shares were outstanding for the year ended* December 31, 2021and werenot* included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive. The Company was in a loss position during the years ended* December 31, 2023and2022,* therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

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**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE