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SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2021

11.

SHARE-BASED COMPENSATION

On March 31, 2017, the Company adopted, and the stockholders approved, the 2017 Stock Incentive Plan (the “Plan”) authorizing 2,000,000 shares of Company Common Stock for issuance as stock options and restricted stock units to employees, directors or consultants. In May 2019, the stockholders ratified an increase in the Plan authorizing an additional 2,100,000 shares of Common Stock and in June 2020 ratified a further authorization of 1,900,000 shares of Common Stock for a total of 6,000,000 shares subject to the Plan. In June 2021, the stockholders ratified an increase in the 2017 Stock Incentive Plan authorizing an additional 1,500,000 shares of Common Stock to a total of 7,500,000 shares. At June 30, 2021 there were 1,755,338 shares of Common Stock available for grant under the Plan.

The Company generally recognizes share-based compensation expense on the grant date and over the period of vesting or period that services will be provided.

Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2021:

				Weighted Average
	Options on					Remaining		Aggregate
	Common			Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding December 31, 2020		3,931,586		$	4.41		4.80
Granted		847,500		$	5.34
Exercised		(157,066	)	$	1.77
Forfeited, cancelled, expired		(209,799	)	$	4.95
Outstanding June 30, 2021		4,412,221		$	4.66		5.08	$	16,765
Exercisable June 30, 2021		2,316,429		$	3.13		2.27	$	11,780

Options outstanding at December 31, 2020 and June 30, 2021 include 100,000 of performance-based options exercisable at $5.46 per share with vesting based on achieving certain virtual reality revenue targets by December 1, 2024. The Company has not recorded share-based compensation expense related to these options. All other options are service-based.

The Company uses the Black-Scholes option pricing model to determine the fair value of the options granted. The following table summarizes the assumptions used to compute the fair value of options granted to employees and non-employees:

	For the Six Months
	Ended June 30,
	2021			2020
Expected stock price volatility		50	%		45	%
Risk-free interest rate		0.92	%		0.42	%
Forfeiture rate		0	%		0	%
Expected dividend yield		0	%		0	%
Expected life of options - years		5.70			6.03
Weighted-average fair value of options granted	$	2.46		$	1.86

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of awards. The Company’s estimated volatility was based on an average of the historical volatility of peer entities whose stock prices were publicly available. The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options. The Company accounts for actual forfeitures as they occur. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. The Company calculates the expected life of the options using the Simplified Method for the employee stock options as the Company does not have sufficient historical data.

Restricted Stock Units

The Plan provides for the grant of restricted stock units (“RSUs”). The following table summarizes RSU activity under the Plan for the six months ended June 30, 2021:

				Weighted Average		Weighted Average
	Service-Based			Grant Date		Vesting
	RSU's			Fair Value		Period
Unvested at December 31, 2020		428,006		$	6.13
Granted - service based		289,890		$	5.49
Vested		(342,274	)	$	5.42
Forfeited and cancelled		(32,874	)	$	6.10
Unvested at June 30, 2021		342,748		$	6.30	1.9 Years

Subsequent Stock Exercises

During July 2021 through the date of this report a total of 526,303 outstanding stock options were exercised for cash proceeds of $908.

Share-Based Compensation Expense

The Company recorded share-based compensation for options and RSUs in its statements of operations for the relevant periods as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Selling, general and administrative	$	2,027	$	496	$	2,629	$	925
Research and development		121		53		378		91
Total share-based expense	$	2,148	$	549	$	3,007	$	1,016

As of June 30, 2021, total estimated compensation expense of stock options granted and outstanding but not yet vested was $4,983 which is expected to be recognized over the weighted average period of 2.4 years. As of June 30, 2021, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $1,759 which is expected to be recognized over the weighted average period of 1.9 years.