5. Equity Incentive Plan

The Company estimates the fair value of stock options and stock appreciation rights using the Black-Scholes valuation model. Fair value of restricted stock is measured by the grant-date price of the Company’s shares. The fair value of each stock option award during the three and six months ended June 30, 2013 and the six months ended June 30, 2012 was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended
	June 30,
	2013	2012
Risk free interest rate	0.65%	-
Expected volatility	57.60%	-
Expected lives (years)	4	-
Expected dividend yield	0.00%	-

	Six Months Ended
	June 30,
	2013	2012
Risk free interest rate	0.61% - 0.70%	0.64%
Expected volatility	57.60%	57.60%
Expected lives (years)	4	4
Expected dividend yield	0.00%	0.00%

The Company recorded $365,367 and $788,326 of share-based compensation expense for the three and six months ended June 30, 2013, respectively, for equity compensation awards. The Company recorded $312,563 and $633,073 of share-based compensation expense for the three and six months ended June 30, 2012. The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to the respective employees.

At the 2013 Annual Meeting of Stockholders on June 18, 2013, the shareholders of the Company approved the amendment to the Anika Therapeutics, Inc. Second Amended and Restated 2003 Stock Option and Incentive Plan (the “2003 Plan”), which among other things, increased the number of shares reserved for issuance under the Company’s stock option and incentive plan by 650,000 to 3,800,000 shares.

There were 20,000 stock options granted under the 2003 Plan during the three months ended June 30, 2013. There were 374,500 stock options granted under the Plan during the six months ended June 30, 2013. There were no restricted stock units (“RSUs”) granted to members of the Company’s Board of Directors during the three months ended June 30, 2013. There were 13,800 RSUs granted to members of the Company’s Board of Directors under the Plan during the three months ended March 31, 2013. The stock options and RSUs granted to employees and directors become exercisable or vest ratably over four years from the date of grant.

As of June 30, 2013, there was approximately $3.0 million of total unrecognized compensation cost related to non-vested stock options, stock appreciation rights (“SARs”), and restricted stock awards (“RSAs”) granted under the Company’s incentive plans. This cost is expected to be recognized over a weighted-average period of 2.9 years.

The total intrinsic value of stock options and SARs exercised during the six-month periods ended June 30, 2013 and 2012 was $599,010 and $1,241,759, respectively. Cash received from the exercise of stock options during the three and six-month periods ended June 30, 2013 was $30,859 and $1,127,875, respectively. Cash received from the exercise of stock options during the three and six-month periods ended June 30, 2012 was $32,377 and $147,033, respectively.

There were approximately 1.9 million options and SARs outstanding under the Company’s incentive plans at June 30, 2013 with a weighted-average exercise price of $8.60 per share, an aggregate intrinsic value of approximately $16.2 million, and a weighted-average remaining contractual term of 6.27 years.

None of the options or SARs outstanding at June 30, 2013 or 2012, respectively, had cash-settlement features.

The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either authorized but unissued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Awards contain service or performance conditions and generally become exercisable ratably over one to four years and have a ten year contractual term.