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Note 11 - Equity Incentive Plan

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Text Block]

11.

Equity Incentive Plan

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Fair value of total shareholder return options (“TSR”) is measured by using a Monte-Carlo simulation model. 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 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.

The expected volatility assumption is evaluated against the historical volatility of the Company’s common stock over a 4-year average, except for TSRs which is evaluated over 6.3 years, and it is adjusted if there are material changes in historical volatility. The risk-free interest rate assumption is based on U.S. Treasury interest rates at the time of grant.

The fair value of each stock option award during the three-month periods ended March 31, 2021 and 2020 was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended March 31,
	2021			2020
Risk free interest rate	0.3%	-	0.6%	0.4%	-	1.6%
Expected volatility	54.8%	-	55.4%	46.5%	-	49.4%
Expected life (years)		4.0			4.0
Expected dividend yield		0.0%			0.0%

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 March 31,
	2021		2020
Cost of revenue	$	129	$	146
Research and development		241		196
Selling, general and administrative		1,889		(549	)
Total stock-based compensation expense	$	2,259	$	(207	)

On January 29, 2020, the Company announced the unexpected death of its former President and Chief Executive Officer, Joseph Darling. 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 and administrative expenses.

The following table sets forth share information for stock-based compensation awards granted and exercised during the three-month periods ended March 31, 2021 and 2020:

	Three Months Ended March 31,
	2021		2020
Grants:
Stock options		421,463		210,775
RSUs		258,417		100,631
PSUs		-		57,400
Exercises:
Stock options		125		-
Forfeitures:
Stock options		73,156		33,478
RSAs		-		8,574
RSUs		4,092		63,683
PSUs		2,500		63,000
Expirations:
Stock options		2,667		363

During the three-month period ended March 31, 2021, the Company granted stock-based compensation awards in the form of stock options, and RSUs to employees and RSUs to non-employee directors, the majority of which become exercisable or vest ratably over a three-year period. Of the 421,463 stock options granted during the first quarter of 2021, 301,845 shares were premium-priced options which were granted with an exercise price at 110% of the market price of the Company’s stock on the date of grant.