Note 12 - Equity Incentive Plan

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

12. Equity Incentive Plan

The Company estimates the fair value of stock options and stock appreciation rights (“SARs”) using the Black-Scholes valuation model, and estimates the fair value of the total shareholder return (“TSRs”) options using a Monte-Carlo simulation model as of the grant date. Fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) is measured by the grant-date price of the Company’s shares. Fair value of performance restricted stock units (“PSUs”) is measured by the grant-date price of the Company’s shares with corresponding compensation cost recognized over the requisite service period. Compensation cost of PSUs is recognized 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 compensation cost that will be recorded in the period of the change. If the performance targets are not achieved, no compensation cost is recognized, and any previously recognized compensation cost is reversed. Compensation cost of the TSRs is recognized on a straight-line basis over the vesting period, regardless of whether the market condition for vesting is ultimately achieved.

The fair value of each stock option award, including TSRs, during the six-month periods ended June 30, 2020 and 2019 was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Six months ended June 30,
	2020				2019
Risk free interest rate		0.31%	-	1.59%		2.18%	-	2.54%
Expected volatility		46.48%	-	51.87%		44.05%	-	44.72%
Expected life (years)		4.0	-	6.3			3.5
Expected dividend yield			0.00%				0.00%

The Company presents the expenses related to stock-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,
	2020		2019		2020		2019
Cost of product revenue	$	216	$	82	$	362	$	174
Research & development		156		91		352		268
Selling, general & administrative		1,868		1,270		1,319		2,387
Total stock-based compensation expense	$	2,240	$	1,443	$	2,033	$	2,829

 The Company’s former President and Chief Executive Officer, Joseph Darling passed unexpectedly in January 2020. According to the terms of Mr. Darling’s equity award grants and the Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”), the unvested portion of his stock-based compensation was forfeited upon his death, resulting in a one-time benefit of $1.8 million that was fully recognized during the three-month period ended March 31, 2020 within selling, general & administrative expenses.

The following table sets forth share information for stock-based compensation awards granted and exercised during the three- and six-month periods ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Grants:
Stock options		106,438		27,325		317,213		131,617
RSUs		83,476		8,000		184,107		173,507
PSUs		88,820		-		146,220		114,500
TSRs		104,638		-		104,638		-
Exercises:
Stock options		2,146		22,400		2,146		22,900
Forfeitures:
Stock options		20,625		38,163		54,103		39,072
RSAs		-		14,450		8,574		21,116
RSUs		8,483		22,000		72,166		22,500
PSUs		8,000		-		71,000		18,000
Expirations:
Stock options		200		2,855		563		18,862

During the three- and six-month periods ended June 30, 2020, the Company granted stock-based compensation awards in the form of stock options, PSUs, TSRs, and RSUs to employees and RSUs to non-employee directors, the majority of which become exercisable or vest ratably over a three-year period. The PSUs granted to employees contained performance conditions with business and financial targets. The business target, amounting to 40% of the total performance conditions, will be measured based on achievement in the 2020-2022 fiscal years, while the financial targets, amounting to 60% of the total performance conditions, will ultimately be measured with respect to the Company’s operating results in the 2020-2022 fiscal years. The Company recorded $0.3 and ($0.2) million of stock-based compensation expense associated with PSUs for the three- and six-month periods ended June 30, 2020.

During the second quarter of 2020, the initial equity grants to the Company’s current President and Chief Executive Officer contained a TSR option award at 104,638 targeted options, with market and service conditions. The actual number of options that may be earned ranges from 0% to 150% of the target number, depending on the total shareholder return of the Company relative to the peer group over the vesting period of 2.7 years. The grant-date fair value of the TSRs is recorded as stock-based compensation expense on a straight-line basis over the period from the date of grant to the settlement date. The Company recorded $0.2 million of stock-based compensation expense associated with TSRs for the three and six-month periods ended June 30, 2020.