16. Acquisitions

On December 30, 2009, we completed our acquisition of Fidia Advanced Biopolymers S.r.l., a privately held Italian corporation (“FAB”) for a purchase price consisting of $17.0 million in cash and 1,981,192 shares of the Company’s common stock (the “Acquisition”). In 2010 FAB’s name was changed to Anika Therapeutics S.r.l.

The 1,981,192 shares of the Company’s stock issued include 500,000 shares held in escrow to satisfy outstanding indemnification claims under the Purchase Agreement. The issued shares are also subject to a one year holding period. The Purchase Agreement was based on an estimated closing balance sheet with a minimum working capital amount to be delivered.

Effective January 1, 2009, the Company implemented the newly-issued accounting standard for business combinations. The transaction was accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under ASC 805, all of the assets acquired and liabilities assumed in the transaction are recognized at their acquisition-date fair values, while transaction costs and restructuring costs associated with the transaction are expensed as incurred.

Anika S.r.l.’s results of operations have been included in our consolidated financial statements beginning January 1, 2010. Our results of operations prior to this acquisition, presented on a pro forma basis, are found further below.

Purchase Price

The $33.9 million purchase price for Anika S.r.l. is based on the acquisition-date fair value of the consideration transferred, which included cash and the issuance of shares of Anika stock, which was calculated based on the closing price of the Company's common stock of $8.49 per share on December 30, 2009.

The acquisition-date fair value of the consideration consisted of the following:

	Fair Value of Consideration
Cash	$	17,055,000
Common stock		16,820,320
Total	$	33,875,320

During the second quarter of 2010, Anika and Fidia Farmaceutici S.p.A. (“Fidia”) agreed to a final working capital settlement whereby Fidia paid us $105,300. This settlement is not reflected in the above table.

Allocations of Assets and Liabilities

The Company allocated the purchase price for Anika S.r.l., based on the acquired fair value of the net tangible assets and intangible assets, goodwill and a deferred tax liability. The difference between the aggregate purchase price and the fair value of assets acquired and liabilities assumed, after consideration of deferred taxes, was allocated to goodwill.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date based upon the completed valuation and resulting measurement period adjustments:

Inventory	$	1,506,260
Other assets and liabilities, net		(244,346	)
Property and equipment		1,691,000
Acquired intangible assets		29,098,000
Goodwill		9,959,008
Deferred tax liability		(8,134,602	)
Total purchase price	$	33,875,320

Changes to the carrying amount of goodwill for the fiscal years ended 2011 and 2010, respectively, were as follows:

Balance at December 31, 2009	$	9,959,008
Reduction in purchase price of subsidiary		(105,297	)
Effect of foreign currency adjustments		(761,751	)
Balance at December 31, 2010		9,091,960
Effect of foreign currency adjustments		(208,553	)
Balance at December 31, 2011	$	8,883,407

The intangible assets identified in the purchase price allocation represent primarily developed technology, acquired in-process research and development, patents, and distributor relationship assets. Under the acquisition method of ASC 805, $21.4 million of these assets are recorded at their fair value and amortized over their estimated lives. The remaining amount represents IPR&D, which is accounted for as an indefinite-lived intangible asset. The goodwill recognized is largely attributable to establishing a deferred tax liability for the acquired intangible assets, which are not deductible for income tax purposes.

All intangible assets are tested for impairment on an annual basis, or earlier if impairment indicators are present. See Note 2 for additional disclosure regarding our accounting policies relative to this and other subjects.

IPR&D primarily revolves around obtaining U.S. approval for several of Anika S.r.l.’s orthopedic products to gain access to this important market. Costs to complete the projects are estimated at $7 million to $13 million spread over the next six years, and involve primarily clinical studies and regulatory costs, which are deemed to be of moderate difficulty. IPR&D value was estimated using a multi-period excess earnings approach. The primary risks associated with the projects include generating sufficient data to support efficacy, and thereby gaining regulatory approval. There can be no assurance that the Company will be successful in completing development or obtaining regulatory approval; and if successful, that meaningful sales will occur.

Acquisition-related Expenses

In connection with the acquisition of Anika S.r.l., the Company incurred approximately $2.2 million in expenses, which are reflected as acquisition-related expenses on the consolidated statements of operations in 2009. These costs include costs to investigate, document, close, and complete regulatory compliance requirements.

The unaudited financial information in the table below summarizes the combined results of operations of Anika and Anika S.r.l., on a pro forma basis, as though the companies had been combined as of the beginning of 2009. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place at the beginning of the respective periods. The pro forma financial information is based on Anika's results of operations for each period presented, combined with Anika S.r.l.’s results of operations for 2009.

The pro forma financial information includes the amortization charges from acquired intangible assets, acquisition-related expenses, and the related tax effects.

The Pro Forma (unaudited) combined Statement of Operations for the year ended December 31, 2009, had Anika S.r.l. been included, is as follows:

	Year ended December 31, 2009
	(unaudited)
Total revenue	$	52,570,000
Net income	$	(1,350,081	)
Diluted net income per share:
Net income		(0.10	)
Diluted weighted average common shares outstanding		13,532,640