DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2013

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

Overview

ANI Pharmaceuticals, Inc. (the “Company” ) is a specialty pharmaceutical company, developing and marketing generic and branded prescription products. In two facilities located in Baudette, Minnesota, with combined manufacturing, packaging and laboratory capacity totaling 173,000 sq. ft., the Company manufactures oral solid dose products, as well as liquids and topicals, including those that must be manufactured in a fully contained environment due to their potency and/or toxicity. The Company also performs contract manufacturing for other pharmaceutical companies.

On June 19, 2013, BioSante Pharmaceuticals, Inc. (“BioSante”) acquired ANIP Acquisition Company (“ANIP”) in an all-stock, tax-free reorganization (Note 2), in which ANIP became a wholly-owned subsidiary of BioSante. BioSante was renamed ANI Pharmaceuticals, Inc. The Merger was accounted for as a reverse acquisition pursuant to which ANIP was considered the acquiring entity for accounting purposes. As such, ANIP's historical results of operations replace BioSante's historical results of operations for all periods prior to the Merger. The results of operations of both companies will be included in the Company’s financial statements for all periods after completion of the Merger.

The Company's operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on significant customers, lack of operating history and uncertainty of future profitability and possible fluctuations in financial results. The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations, and potential other funding sources, including cash on hand, to meet the Company’s obligations as they become due. Management believes the going-concern basis is appropriate for the accompanying unaudited condensed consolidated financial statements based on its current operating plan through June 30, 2014.

Basis of Presentation

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP ”). In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company ’s financial position, results of operations and cash flows. The condensed consolidated balance sheet at December 31, 2012, has been derived from audited financial statements of that date. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with US GAAP have been omitted pursuant to instructions, rules and regulations prescribed by the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission. Management believes that the disclosures provided herein are adequate to make the information presented not misleading when these condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in the Company’s annual report on Form 10-K for the year ended December 31, 2012 and proxy statement/prospectus filed on May 8, 2013. Certain prior period information has been reclassified to conform to the current period presentation.

Principles of consolidation

Principles of consolidation

The condensed consolidated financial statements include the accounts of ANI Pharmaceuticals, Inc. and its wholly-owned subsidiary, ANIP. All significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with 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 amount of revenues and expenses during the reporting period. In the accompanying unaudited condensed consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, allowance for doubtful accounts, accruals for chargebacks, returns and other allowances, allowance for inventory obsolescence, valuation of derivative liabilities, allowances for contingencies and litigation, deferred tax valuation allowance , and the depreciable lives of fixed assets. Actual results could differ from those estimates.

Credit Concentration

Credit Concentration

The Company ’s customers are primarily pharmaceutical companies, wholesale distributors, chain drug stores, and group purchasing organizations.

During the three months ended June 30, 2013, three customers represented 41%, 21%, and 7% of net revenues, respectively. During the six months ended June 30, 2013, the same three customers represented approximately 25%, 15%, and 14% of net revenues, respectively. As of June 30, 2013, accounts receivable from these customers totaled $5,007,910. During the three months ended June 30, 2012, three customers represented 35%, 29%, and 4% of net revenues, respectively. During the six months ended June 30, 2012, the same three customers represented approximately 24%, 19%, and 7% of net revenues, respectively.

Vendor Concentration

Vendor Concentration

During the three months ended June 30, 2013, the Company purchased approximately 28% of total costs of goods sold from three suppliers. During the six months ended June 30, 2013, the Company purchased approximately 35% of total costs of goods sold from three suppliers. As of June 30, 2013, amounts payable to these suppliers totaled $176,757. During the three months ended June 30, 2012, the Company purchased approximately 80% of total costs of goods sold from three suppliers. During the six months ended June 30, 2012, the Company purchased approximately 62% of total costs of goods sold from three suppliers.

Revenue Recognition

Revenue Recognition

Revenue is recognized for product sales upon passing of risk and title to the customer, when estimates of discounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments are reasonably determinable, collection is reasonably assured, and the Company has no further performance obligations. These estimates reduce gross revenues to net revenues in the accompanying unaudited condensed consolidated statements of operations, and are presented as current liabilities or reductions in accounts receivable in the accompanying unaudited condensed consolidated balance sheets.

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of the accompanying unaudited condensed consolidated Statements of Cash Flows, the Company considers all highly liquid instruments with maturities of three months or less from the date of purchase to be cash equivalents. All interest bearing and non-interest bearing accounts are guaranteed by the FDIC up to $250,000. The Company may maintain cash balances in excess of FDIC coverage. Management considers this to be a normal business risk.

In conjunction with the Merger, the Company acquired restricted cash, which will be paid out in satisfaction of certain severance liabilities assumed in the Merger (Note 2). 

Accounts Receivable

Accounts Receivable

The Company extends credit to customers on an unsecured basis. The Company uses the allowance method to provide for doubtful accounts based on management ’s evaluation of the collectability of accounts receivable , where by the Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. Management’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. The Company determines trade receivables to be delinquent when th ey are greater than 30 days past due. Receivables are written off when it is determined that amounts are uncollectible. Management determined that no allowance for doubtful accounts was necessary as of June 30, 2013 and December 31, 2012.

Accruals for Chargebacks, Returns and Other Allowances

        Accruals for Chargebacks, Returns and Other Allowances

The Company’s generic and branded product revenues are typically subject to agreements with customers allowing chargebacks, product returns, administrative fees, and other rebates and prompt payment discounts. The Company accrues for these items at the time of sale and continually monitors and re-evaluates the accruals as additional information becomes available. The Company makes adjustments to the accruals at the end of each reporting period, to reflect any such updates to the relevant facts and circumstances.

The following table summarizes activity in the balance sheet for accruals and allowances for the six months ended June 30, 2013 and 2012, respectively:

					Administrative		Prompt
					Fees and Other		Payment
	Chargebacks		Returns		Rebates		Discounts
Balance at January 1, 2013	$	5,661,974	$	410,992	$	230,575	$	241,840
Accruals/adjustments		12,182,822		853,307		850,616		430,549
Credits taken against reserve		(13,002,416)		(914,536)		(552,937)		(449,197)
Balance at June 30, 2013	$	4,842,380	$	349,763	$	528,254	$	223,192

					Administrative		Prompt
					Fees and Other		Payment
	Chargebacks		Returns		Rebates		Discounts
Balance at January 1, 2012	$	3,680,838	$	252,045	$	238,195	$	166,439
Accruals/adjustments		9,708,956		291,602		493,945		323,914
Credits taken against reserve		(8,767,115)		(245,057)		(473,674)		(247,665)
Balance at June 30, 2012	$	4,622,679	$	298,590	$	258,466	$	242,688

Inventories

Inventories

Inventories consist of raw materials, packaging materials, work-in-progress, and finished goods. Inventories are stated at the lower of cost or net realizable value. The Company values inventory at standard cost. The Company reviews and adjusts standard costs periodically and its inventory, as valued, approximates weighted average cost.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is recorded on a straight-line basis over estimated useful lives as follows:

Buildings and improvements	20-40 years
Machinery, furniture and equipment	3-10 years

Construction in progress includes the cost of construction and other direct costs attributable to the construction, along with capitalized interest, if any. Depreciation is not recorded on construction in progress until such time as the assets are placed in service. During the six months ended June 30, 2013 and the year ended December 31, 2012, there was no material interest capitalized into construction in progress.

Depreciation expense for the three-month periods ended June 30, 2013 and 2012 totaled $134,023 and $128,139, respectively. Depreciation expense for the six-month periods ended June 30, 2013 and 2012 totaled $266,129 and $256,279, respectively.

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets held for disposal are reportable at the lower of the carrying amount or fair value, less costs to sell. Management determined that no assets were impaired and no assets were held for disposal as of June 30, 2013 and December 31, 2012.

Income Taxes

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. For interim periods, the Company recognizes an income tax provision (benefit) based on its estimated annual effective tax rate expected for the entire year.

Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company has not identified any uncertain income tax positions that could have a material impact on the financial statements. The Company is subject to taxation in various jurisdictions and remains subject to examination by taxing jurisdictions for the years 1998 and all subsequent periods due to the availability of net operating loss carryforwards.

The Company recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense. The Company did not have any amounts accrued relating to interest and penalties as of June 30, 2013 and December 31, 2012.

The Company considers potential tax effects resulting from discontinued operations and records intra-period tax allocations, when those effects are deemed material.

Income (Loss) per Share

Income (Loss) per Share

Basic income (loss) per share is calculated by dividing net income (loss) less preferred stock dividends by the weighted-average number of shares of common stock outstanding during the period.

For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding plus the impact of all potential dilutive common shares, consisting primarily of stock purchase warrants and common stock options using the treasury stock method.

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive due to the net losses.

The number of anti-dilutive shares, consisting of Class C Special stock, common stock options, and warrants exercisable for common stock (and prior to the Merger, warrants exercisable for preferred stock, convertible debt, and convertible preferred stock,) which have been excluded from the computation of diluted loss per share for the three-month periods ended June 30, 2013 and 2012, were 253,420 and 80,224, respectively. The number of anti-dilutive shares, consisting of Class C Special stock, common stock options, and warrants exercisable for common stock, (and prior to the Merger, warrants exercisable for preferred stock, convertible debt, and convertible preferred stock), which have been excluded from the computation of diluted loss per share for the six-month periods ended June 30, 2013 and 2012, were 250,646 and 51,205 , respectively.

As of June 30, 2013, the Company had  38,270 common stock options and 125,624 warrants (exercisable for common stock) outstanding.

Stock Splits and Reclassifications

Stock Splits

In July 2013, the Company's Board of Directors and stockholders approved a resolution to effect a one-for-six reverse stock split of the Company's common stock and Class C Special stock with no corresponding change to the par value. The number of authorized shares of common stock, Class C Special stock and blank check preferred stock was reduced proportionally. Common stock and Class C Special share numbers for all periods presented have been adjusted retrospectively to reflect the one-for-six reverse stock split.

Redeemable Preferred Stock

Redeemable Convertible Preferred Stock

The carrying value of the Company’s redeemable convertible preferred stock was increased by the accretion of any related discounts and accrued but unpaid dividends so that the carrying amount would equal the redemption amount at the dates the stock became redeemable. The Company’s Series A, B, C and D preferred stock was redeemable at the option of the holders, subject to certain additional requirements. All of the Company’s Series D preferred stock was exchanged for shares of BioSante common stock and all of the Company’s Series A, B and C preferred stock were canceled in conjunction with the Merger (Note 2).

Segment Information

Segment Information

The Company currently operates in a single business segment.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

The Company has evaluated all issued and unadopted Accounting Standards Updates and believes the adoption of these standards will not have a material impact on its results of operations, financial position, or cash flows.