Equity Incentive Plan

The Company estimates the fair value of stock options and stock appreciation rights (“SARs”) using the Black-Scholes valuation model. Fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) are measured by the grant-date price of the Company’s shares. The fair value of each stock option award during the

six

-month periods ended

June 30, 2017

and

2016,

respectively, was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Six Months Ended June 30,
	2017			2016
Risk free interest rate	1.65%	-	1.78%	0.94%	-	1.40%
Expected volatility	42.54%	-	44.30%	49.47%	-	51.61%
Expected life (years)		4			4.5
Expected dividend yield		0.00%			0.00%

The Company recorded

$1.3

million and

$0.7

million of share-based compensation expense for the

three

-month period ended

June 30, 2017

and

2016,

respectively, for equity compensation awards. The Company recorded

$2.5

million and

$1.5

million of share-based compensation expense for the

six

-month periods ended

June 30, 2017

and

2016,

respectively, for equity compensation awards. The Company presents the expenses related to share-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of product revenue	$	102	$	12	$	199	$	25
Research and development		153		41		163		143
Selling, general and administrative		1,029		608		2,103		1,310
Total stock-based compensation expense	$	1,284	$	661	$	2,465	$	1,478

June 13, 2017,

the Company’s shareholders approved the Anika Therapeutics, Inc.

2017

Omnibus Incentive Plan (the

“2017

Plan”). The

2017

Plan replaced the Anika Therapeutics, Inc. Second Amended and Restated

2003

Stock Option and Incentive Plan, as amended, (the

“2003

Plan”), as the plan under which future grants to employees, directors, officers, and consultants will be made. The

2017

Plan was originally approved by the Company’s Board of Directors on

March 31, 2017.

The terms of the

2017

Plan provide for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and performance awards that

may

be settled in cash, stock, or other property. Subject to adjustment for specified types of changes in our capitalization,

more than

1.2

million shares of common stock

may

be issued under the

2017

Plan.

During the

three

-month period ended

June 30, 2017,

a total of

2,500

stock options were granted under the

2017

Plan and a total of

3,000

stock options were granted under the

2003

Plan. During the

six

-month period ended

June 30, 2017,

a total of

2,500

stock options were granted under the

2017

Plan and a total of

0.4

million stock options were granted under the

2003

Plan. The stock options granted to employees become exercisable or vest ratably over a

three

-year period. In addition, the Company executed its annual grant of RSUs to non-employee directors, and these RSUs vest over a

one

-year period.

A portion of the stock options granted under the

2003

Plan during the

six

-month period ended

June 30, 2017

contained certain performance criteria in addition to time-based vesting conditions. For performance-based awards with financial achievement targets, the Company recognizes expense using the graded vesting methodology based on the number of shares expected to vest. Compensation cost associated with performance grants is estimated using the Black-Scholes valuation method multiplied by the expected number of shares to be issued, which is adjusted based on the estimated probabilities of achieving the performance goals. Changes to the probability assessment and the estimated shares expected to vest will result in adjustments to the related share-based compensation expense that will be recorded in the period of the change. If the performance targets are

not

achieved,

compensation cost is recognized and any previously recognized compensation cost is reversed.

In connection with the adoption of ASU

2016

09,

as of

January 1, 2017,

the Company elected to recognize forfeitures as they occur rather than estimate forfeitures each period, which was applied on a modified retrospective basis. Accordingly, the Company recognized a cumulative adjustment to retained earnings at the beginning of period ended

June 30, 2017,

resulting in a reduction of

$0.5

million.