Anika Therapeutics, Inc. Income Taxes Disclosure

17. 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:

 

		Years ended December 31,
		2025				2024				2023
(Loss) income before income taxes
Domestic		$	(10,247	)		$	(4,078	)		$	2,421
Foreign			940				1,314				735
		$	(9,307	)		$	(2,764	)		$	3,156

 

		Years ended December 31,
		2025				2024				2023
Provision for income taxes:
Current:
Federal		$	176			$	4,044			$	4,910
State			185				1,370				457
Foreign			250				421				312
Total current			611				5,835				5,679
Deferred:
Federal			-				-				1,579
State			-				-				(692	)
Foreign			61				229				29
Total deferred			61				229				916
Total provision for income taxes		$	672			$	6,064			$	6,595

 

Deferred Tax Assets and Liabilities

 

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

 

		December 31,
		2025				2024
Deferred tax assets:
Capital loss carryforward		$	19,991			$	20,714
Net operating loss carryforwards			13,294				650
Capitalized research expenditures			10,760				12,241
Lease liability			6,400				6,555
Stock-based compensation expense			3,629				3,908
Inventory reserves			1,558				2,316
Compensation accrual			1,182				1,202
Accrued expenses and other			819				1,403
Acquisition-related intangible asset			776				5,959
Tax credits			612				-
Impairment of assets			-				4,215
Foreign currency exchange			-				48
Gross deferred tax assets			59,021				59,211
Less: Valuation allowance			(45,581	)			(45,148	)
Deferred tax assets		$	13,440			$	14,063

 

		December 31,
		2025				2024
Deferred tax liabilities:
Depreciation		$	(6,033	)		$	(6,552	)
Right of use asset			(6,132	)			(6,292	)
Acquisition-related intangible asset			-				(42	)
Deferred tax liabilities		$	(12,165	)		$	(12,886	)
Net deferred tax assets		$	1,275			$	1,177

 

The One Big Beautiful Bill Act (the “OBBBA”), was enacted on July 4, 2025, among other things, repealed the mandatory capitalization of Internal Revenue Code Section 174 research and development expenditures allowing taxpayers to fully expense qualifying costs in the year incurred. The Company does not expect to accelerate the write-off of previously capitalized research and development costs. This approach results in a more consistent pattern of deductions and moderates the creation of additional tax attributes. The OBBBA did not otherwise have a material impact on the Company’s consolidated financial statements.

 

As of December 31, 2025, the Company had $53.7 million and $34.5 million of Federal and State net operating loss (“NOL”) carryforwards, of which $53.7 million and $11.6million, respectively, do not expire and $22.9 million of State net operating losses that will begin expiring in 2036. The Company also had NOL carryforwards in Italy of $1.6 million that do not expire. As of December 31, 2025, the Company had $0.4 million of Federal research and development credits and $0.2 million of State credits that begin expiring in 2028. 

 

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. Based upon future reversals of existing taxable temporary differences and projected future taxable income, the Company believes it is more likely than not it will realize its foreign deferred tax assets.

 

The Company recorded a full valuation allowance on all deferred tax assets in the U.S. as it was determined that it is more likely than not that these deferred tax assets were not realizable as of December 31, 2025 and 2024. The Company intends to maintain a full valuation allowance until there is sufficient evidence to support release of all or a portion of the allowance. As of December 31, 2025, 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 $0.7 million at December 31, 2025. The Company expects to be able to take a 100% 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 is not practicable due to the complexities associated with its hypothetical calculation.

 

Effective Tax Rate

 

During the year ended December 31, 2025, the Company adopted Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures, (“ASU 2023-09”). ASU 2023-09 requires additional disclosures for income tax reporting, primarily related to a requirement for companies to disaggregate their income tax rate reconciliation. The Company adopted ASU 2023-09 on a prospective basis and a tabular income tax rate reconciliation pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

 

		Year ended December 31, 2025
		Amount				Percent
Statutory federal income tax rate		$	(1,954	)			21.0	%
State tax expense, net of federal provision**			207				(2.2	%)
Foreign tax effects:
Italy			196				(2.1	%)
Other foreign jurisdictions			63				(0.7	%)
Effect of cross-border tax laws:
Global intangible low-taxed income, net			371				(4.0	%)
Tax credits:
Research and development tax credits			(416	)			4.5	%
Change in valuation allowance			(13	)			0.1	%
Nontaxable or nondeductible items:
Stock-based compensation			1,092				(11.7	%)
Section 162(m) limitation			616				(6.5	%)
Other			43				(0.5	%)
Other reconciling items:
Return to provision adjustments			591				(6.4	%)
Other			(124	)			1.4	%
Effective income tax rate		$	672				(7.1	%)

**State taxes in Indiana, Massachusetts and Kentucky made up the majority (greater than 50 percent) of the tax effect in this category.

 

The reconciliation between the U.S. federal statutory rate and the Company’s effective rate for the years ended December 31, 2024 and 2023 is summarized as follows:

 

		Years ended December 31,
		2024				2023
Statutory federal income tax rate			21.0	%			21.0	%
State tax expense, net of federal benefit			(52.2	%)			9.5	%
Stock-based compensation			(17.2	%)			11.8	%
Section 162(m) limitation			(30.1	%)			28.3	%
Change in tax rates and state apportionment			10.4	%			-	%
Federal, state and foreign tax credits			22.5	%			(23.1	%)
Change in valuation allowance			(157.3	%)			173.0	%
Return to provision adjustments			5.5	%			(3.6	%)
Tax reserves			(20.9	%)			-	%
Other permanent items			(1.1	%)			(7.9	%)
Effective income tax rate			(219.4	%)			209.0	%

 

Income Tax Payments

 

A summary of income taxes paid, net of refunds, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

 

		Year ended December 31,
		2025
United States - Federal		$	250
United States – State and local			69
Canada			76
Italy			481
United Kingdom			154
Other			46
		$	1,076

 

Accounting for Uncertainty in Income Taxes

 

The Company has $0.3 million and $0.6 million of unrecognized tax benefits for the years ended December 31, 2025 and 2024, respectively.

 

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 is no longer subject to income tax examinations for years prior to 2021. In September 2024, the Company was notified by the Italian tax authorities that it had selected the Company’s tax returns for its Italian subsidiary for 2021 for examination. The examination was completed in the quarter ended December 31, 2025 and the Company paid $0.4 million in income taxes which reduced the unrecognized tax benefit by $0.2 million during the year ended December 31, 2025.