# Anika Therapeutics, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Anika Therapeutics, Inc.](/companies/anik.md) (CIK 898437)
- Form: 10-Q
- Filed: 2023-08-08
- Accepted by EDGAR: Aug 8, 2023, 17:15 ET
- Period: 2023-06-30
- Accession: 0001171843-23-005114
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/898437/000117184323005114/anik20230630_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/898437/000117184323005114/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $44.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $82.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $15.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $30.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $29.0m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $51.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $8.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $17.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $23.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $50.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$3.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$16.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | −$329.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | −$2.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$2.7m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$13.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.19 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.89 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.89 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 14,688,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 14,671,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$11.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $2.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-01-01 to 2023-06-30 | $5.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-06-30 | $65.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $152.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $328.9m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $23.5m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2023-06-30 | $274.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,175 characters.

*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, 2022, or our 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 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," 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 “Item 1A. Risk Factors” of our 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 and Arthrosurface joint solutions.

We have over thirty years of global expertise developing, manufacturing and commercializing products 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 and in multiple forms, 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 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, and Arthrosurface, Inc, or Arthrosurface, a company specializing in bone preserving partial and total joint replacement solutions. These acquisitions have ignited the transformation of our company by augmenting our HA-based OA pain management and regenerative products with a broad suite of products and capabilities focused on early intervention joint preservation primarily in upper and lower extremities such as shoulder, foot/ankle, knee and hand/wrist.

As we look forward, our business is positioned to capture value within our target 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;
- Introducing key HA-based products into the U.S. market upon FDA approval/clearance, such as Cingal, Hyalofast and our arthroscopic patch system for rotator cuff repair;
- 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 solutions;
- Global commercial expertise, which we will leverage to 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, by leveraging our strong financial foundation and operational capabilities; and
- Energized and experienced team focused on strong values, talent, and culture.

### Products

#### OA Pain Management

Our OA Pain Management product family consists of Monovisc and Orthovisc, our single- and multi-injection, HA-based, high molecular weight viscosupplement offerings that are indicated to provide pain relief from osteoarthritis conditions; and Cingal, our novel, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid. Cingal is our next generation fast-acting, long-lasting, non-opioid, clinically proven osteoarthritis pain product which is designed to provide both short- and long-term pain relief through at least six months. It is currently sold outside the United States in over 35 countries. In 2022, we completed a third Phase III clinical trial for Cingal, which achieved its primary endpoint. Cingal is not currently approved for commercial use in the United States.

#### Joint Preservation and Restoration

Our Joint Preservation and Restoration product family consists of: (a) our portfolio of orthopedic regenerative solutions products utilizing HA, including Hyalofast, currently available outside the United States in over 30 countries and Tactoset products and the planned upcoming release of our arthroscopic regenerative patch system for rotator cuff repair; (b) our line of sports medicine solutions used to repair and reconstruct damaged ligaments and tendons due to sports injuries, trauma and disease; and (c) our Arthrosurface portfolio of bone preserving joint technologies, including partial joint replacement, joint resurfacing, and minimally invasive and bone sparing implants, designed to treat upper and lower extremity orthopedic conditions caused by trauma, injury and arthritic disease.

#### Non-Orthopedic

Our Non-Orthopedic product family consists of legacy HA-based products that are marketed principally for non-orthopedic applications, including our anti-adhesion barrier 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 joint dysfunction in horses due to non-infectious synovitis associated with equine OA. Hyvisc was previously reported in the OA Pain Management product family but has been reclassified to the Non-Orthopedic product family.

### Results of Operations

### Three and Six Months Ended June 30, 2023 Compared to Three and Six Months Ended June 30, 2022

*(in thousands, except percentages)*

*(in thousands, except percentages)*

|  | Three Months Ended June 30, 2023 | 2022 | $ Change | % Change | Six Months Ended June 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $44,302 | $39,657 | $4,645 | 12% | $82,226 | $76,350 | $5,876 | 8% |
| Cost of revenue | 15,330 | 14,795 | 535 | 4% | 30,411 | 29,684 | 727 | 2% |
| Gross Profit | 28,972 | 24,862 | 4,110 | 17% | 51,815 | 46,666 | 5,149 | 11% |
| Gross Margin | 65% | 63% |  |  | 63% | 61% |  |  |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Research & development | 8,914 | 6,975 | 1,939 | 28% | 17,314 | 13,132 | 4,182 | 32% |
| Selling, general & administrative | 23,689 | 21,268 | 2,421 | 11% | 50,685 | 40,469 | 10,216 | 25% |
| Total operating expenses | 32,603 | 28,243 | 4,360 | 15% | 67,999 | 53,601 | 14,398 | 27% |
| Loss from operations | (3,631) | (3,381) | (250) | 7% | (16,184) | (6,935) | (9,249) | 133% |
| Interest and other income (expense), net | 561 | 96 | 465 | 484% | 1,100 | (58) | 1,158 | (1,997)% |
| Loss before income taxes | (3,070) | (3,285) | 215 | (7)% | (15,084) | (6,993) | (8,091) | 116% |
| Benefit from income taxes | (329) | (442) | 113 | (26)% | (1,993) | (1,217) | (776) | 64% |
| Net loss | $(2,741) | $(2,843) | $102 | (4)% | $(13,091) | $(5,776) | $(7,315) | 127% |

#### Revenue

The following table presents revenue by product family for the three- and six-month periods ended June 30, 2023 and 2022, respectively, as follows:

*(in thousands, except percentages)*

|  | Three Months Ended June 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| OA Pain Management | $29,334 | $24,093 | $5,241 | 22% |
| Joint Preservation and Restoration | 12,660 | 12,095 | 565 | 5% |
| Non-Orthopedic | 2,308 | 3,469 | (1,161) | (33%) |
|  | $44,302 | $39,657 | $4,645 | 12% |

*(in thousands, except percentages)*

|  | Six Months Ended June 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| OA Pain Management | $51,967 | $45,058 | $6,909 | 15% |
| Joint Preservation and Restoration | 26,113 | 24,234 | 1,879 | 8% |
| Non-Orthopedic | 4,146 | 7,058 | (2,912) | (41%) |
|  | $82,226 | $76,350 | $5,876 | 8% |

Revenue from our OA Pain Management product family increased 22% and 15%, respectively, for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, due to growing customer demand and favorable strategic partner ordering patterns from U.S. and international customers.

Revenue from our Joint Preservation and Restoration product family increased 5% and 8%, respectively, for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, due primarily to improving elective procedure volumes and growing commercial adoption of our newest products.

Revenue from our Non-Orthopedic product family decreased 33% and 41%, respectively, for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, primarily due to unfavorable timing of distributor ordering patterns as well as due to end of life of certain legacy products.

#### Gross Profit and Margin

Gross profit for the three- and six-month periods ended June 30, 2023 increased $4.1 million and $5.1 million, to $29.0 million and $51.8 million, respectively. Gross profit for the three- and six-month periods ended June 30, 2022, was $24.9 million and $46.7 million, respectively. The increases in gross profit for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, primarily resulted from revenue growth and favorable product mix in the period.

Gross margin for the three- and six-month periods ended June 30, 2023 was 65% and 63%, respectively. Gross margin for the three- and six-month periods ended June 30, 2022 was 63% and 61%, respectively. The increases in gross margin compared to the same periods of the prior year were due primarily to higher revenue, particularly on Mitek sales and improved production volumes.

#### Research and Development

Research and development expenses for the three- and six-month periods ended June 30, 2023 were $8.9 million and $17.3 million, an increase of $1.9 million and $4.2 million respectively as compared to the same periods in 2022. The increase was primarily related to increased costs to comply with growing regulatory requirements globally as well as new product development associated with our research and development pipeline.

#### Selling, General and Administrative

Selling, general and administrative expenses for the three- and six-month periods ended June 30, 2023 were $23.7 million and $50.7 million representing an increase of $2.4 million and $10.2 million, respectively, as compared to the same periods in 2022. This increase for the three- and six-month periods ended June 30, 2023 was primarily due to $2.7 million and $8.5 million of non-recurring costs incurred during the three- and six-month periods ended June 30, 2023, respectively, related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs. The growth in SG&A expenses also was due to expansion of our commercial capabilities and marketing activities.

#### Income Taxes

The benefit from income taxes was $0.3 million and $2.0 million for the three- and six-month periods ended June 30, 2023, resulting in an effective tax rate of 10.7% and 13.2%, respectively. The benefit from income taxes was $0.4 million and $1.2 million for the three- and six-month periods ended June 30, 2022, resulting in effective tax rates of 13.5% and 17.4%, respectively. The change in the effective tax rate for the three-months ended June 30, 2023, as compared to the same period in 2022, is primarily due to a discrete charge of $0.4 million related to non-deductible stock compensation during the three-months ended June 30, 2022, partially offset by the valuation allowance recorded against domestic deferred tax assets of $0.3 million during the three-months ended June 30, 2023. The change in the effective tax rate for the six-months ended June 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $1.2 million for the six-months ended June 30, 2023, partially offset by a discrete charge of $0.6 million related to non-deductible stock compensation during the six-months ended June 30, 2022.

#### Net Loss

For the three- and six-month periods ended June 30, 2023, net loss was $2.7 million and $13.1 million, or $0.19 per diluted share and $0.89 per diluted share, respectfully, compared to net loss of $2.8 million and $5.8 million, or $0.20 per diluted share and $0.44 per diluted share, for the same periods in prior year. The increase in net loss and diluted loss per share for the six-months ended June 30, 2023 was primarily due to the non-recurring expenses related to the 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 (loss), 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 U.S. GAAP, and is not necessarily comparable to similarly titled measures presented by other companies.

We have presented adjusted gross profit and adjusted gross margin, adjusted EBITDA, adjusted net income (loss), 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 GAAP gross profit to Non-GAAP adjusted gross profit for the three- and six-month periods ended June 30, 2023 and 2022, respectively:

|  | For the Three Months Ended June 30, 2023 | 2022 | For the Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Gross profit | $28,972 | $24,862 | $51,815 | $46,666 |
| Acquisition related intangible asset amortization | 1,561 | 1,562 | 3,123 | 3,124 |
| Adjusted gross profit | $30,533 | $26,424 | $54,938 | $49,790 |
| Adjusted gross margin | 69% | 67% | 67% | 65% |

Adjusted gross profit for the three- and six-month periods ended June 30, 2023 increased $4.1 million and $5.1 million to $30.5 million and $54.9 million, respectively, representing adjusted gross margin of 69% and 67%, respectively. Adjusted gross profit for the three- and six-month periods ended June 30, 2022 was $26.4 million and $49.8 million, respectively, or adjusted gross margin of 67% and 65%, respectively. The increases in adjusted gross margin for the three- and six-month periods ended June 30, 2023 as compared to 2022, was largely due to revenue growth, favorable product mix and the impact of improved production volumes in 2023.

#### Adjusted EBITDA

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

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

- adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;
- we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our 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 would be higher, which would affect our cash position;
- we exclude acquisition related expenses, including, 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 other non-recurring expenses, such as Parcus arbitration settlement and costs associated with shareholder activism;
- 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;

The following is a reconciliation of GAAP Net loss to Non-GAAP Adjusted EBITDA for the three- and six-month periods ended June 30, 2023 and 2022, respectively:

|  | For the Three Months Ended June 30, 2023 | 2022 | For the Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(2,741) | $(2,843) | $(13,091) | $(5,776) |
| Interest and other expense, net | (561) | (96) | (1,100) | 58 |
| Benefit from income taxes | (329) | (442) | (1,993) | (1,217) |
| Depreciation and amortization | 1,764 | 1,933 | 3,528 | 3,753 |
| Share-based compensation | 4,150 | 4,081 | 7,867 | 6,626 |
| Arbitration settlement | - | - | 3,250 | - |
| Acquisition related intangible asset amortization | 1,787 | 1,787 | 3,574 | 3,574 |
| Costs of shareholder activism | 2,202 | - | 3,033 | - |
| Adjusted EBITDA | $6,272 | $4,420 | $5,068 | $7,018 |

Adjusted EBITDA in the three-month period ended June 30, 2023 increased $1.9 million as compared with the same period in 2022. The increase in adjusted EBITDA for the period was primarily due to an increase in revenues partially offset by $0.5 million of certain non-recurring corporate costs.

Adjusted EBITDA for the six-month period ended June 30, 2023, decreased $1.9 million as compared with the same period in 2022. The decrease in adjusted EBITDA for the period was due to $2.2 million of certain non-recurring corporate costs.

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

We present information below with respect to adjusted net (loss) income and adjusted EPS. We define adjusted net (loss) income as our net (loss) income excluding amortization and depreciation of acquired assets, the impact of inventory fair-value step up on cost of revenue and changes in the fair value of contingent consideration, on a tax effected basis. 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 U.S. GAAP diluted earnings 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 GAAP Net Loss to Non-GAAP Adjusted net (loss) income to net (loss) income for the three- and six-month periods ended June 30, 2023 and 2022, respectively:

|  | For the Three Months Ended June 30, 2023 | 2022 | For the Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(2,741) | $(2,843) | $(13,091) | $(5,776) |
| Arbitration settlement, tax effected | - | - | 2,800 | - |
| Acquisition related intangible asset amortization; tax effected | 1,598 | 1,219 | 3,080 | 2,565 |
| Costs of shareholder activism, tax effected | 1,970 | - | 2,613 | - |
| Adjusted net income (loss) | $827 | $(1,624) | $(4,598) | $(3,211) |

22

The following is a reconciliation of GAAP Diluted loss per share (EPS) to Non-GAAP Adjusted diluted earnings (loss) per share EPS for the three- and six-month periods ended June 30, 2023 and 2022, respectively:

|  | For the Three Months Ended June 30, 2023 | 2022 | For the Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Diluted (loss) earnings per share (EPS) | $(0.19) | $(0.20) | $(0.89) | $(0.40) |
| Arbitration settlement, tax effected | - | - | 0.19 | - |
| Acquisition related intangible asset amortization; tax effected | 0.11 | 0.08 | 0.21 | 0.18 |
| Cost of shareholder activism, tax effected | 0.14 | - | 0.18 | - |
| Adjusted diluted (loss) earnings per share (EPS) | $0.06 | $(0.12) | $(0.31) | $(0.22) |

Adjusted net income (loss) and adjusted diluted income (loss) per share in the three-month period ended June 30, 2023 increased $2.5 million and $0.18, respectively, as compared with the same period in 2022. The increase in adjusted net income for the period was primarily due to higher revenue offset in part by certain non-recurring corporate costs.

Adjusted net loss and adjusted diluted loss per share in the six-month period ended June 30, 2023, increased $1.4 million or $0.09, as compared with the same period in 2022. The increase in adjusted net loss for the period was due to certain 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 $65.1 million and $86.3 million, and working capital totaled $128.7 million and $141.6 million, at June 30, 2023 and December 31, 2022, respectively.

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 June 30, 2023, and December 31, 2022, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

#### Summary of Cash Flows (in thousands):

| Cash provided by (used in) | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $(11,911) | $1,219 |
| Investing activities | (2,846) | (3,266) |
| Financing activities | (6,556) | (908) |
| Effect of exchange rate changes on cash | 57 | (39) |
| Net decrease in cash and cash equivalents | $(21,256) | $(2,994) |

The following changes contributed to the net change in cash and cash equivalents in the six-month period ended June 30, 2023 as compared to the same period in 2022.

#### Operating Activities

Cash used in operating activities was $11.9 million for the six-month period ended June 30, 2023, as compared to cash provided by operating activities of $1.2 million for the same period in 2022. The increase in cash used in operating activities in 2023 was primarily due payment of $8.5 million in non-recurring costs incurred during the six-month period ended June 30, 2023 related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs, as well as an increase in working capital associated with the growth of the business.

For the foreseeable future, we expect to continue to invest in research and development as well as 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 $2.8 million for the six-month period ended June 30, 2023, as compared to cash used in investing activities of $3.3 million for the same period in 2022. The change was primarily due to a decrease in capital expenditures related to software development that occurred in 2022.

#### Financing Activities

Cash used in financing activities was $6.6 million for the six-month period ended June 30, 2023, as compared to cash used in financing activities of $0.9 million for the same period in 2022. The increase in cash used in financing activities was primarily attributable to the repurchase of common stock for $5.0 million during the three-months ended June 30, 2023.

### Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S. 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 2022 Form 10-K for the year ended December 31, 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 2022 Form 10-K for the fiscal year ended December 31, 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 2022 Form 10-K for the year ended December 31, 2022. There were no material changes to our contractual obligations reported in our 2022 Form 10-K during the six months ended June 30, 2023. For additional discussion, see Note 9 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.

## Market risk

As filed, 359 characters.

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, 2022. There have been no material changes in the first six months of 2023 to our market risks or to our management of such risks.

## Controls and procedures

As filed, 2,094 characters.

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we 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 June 30, 2023 that our disclosure controls and procedures were not effective because of the material weaknesses in our internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

(b) Changes in internal controls over financial reporting.

There were no material changes in our internal control over financial reporting during the quarter ended June 30, 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.

## Risk factors

As filed, 1,164 characters.

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, 2022, 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, 2023. 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, 2022 and in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, 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.

Filed Aug 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001171843-23-005114. Last ingested by Listed: Nov 6, 2026, 15:05 ET. No prices; not investment advice.