Note 11 - Share-based Compensation

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

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 September 30, 2021 there were 1,667,338 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 nine months ended September 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		982,500		$	5.57
Exercised		(915,404	)	$	1.83
Forfeited, cancelled, expired		(319,799	)	$	5.12
Outstanding September 30, 2021		3,678,883		$	5.30		5.47	$	4,335
Exercisable September 30, 2021		1,904,711		$	4.37		3.01	$	3,493

Options outstanding at December 31, 2020 included 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. These options were forfeited on September 30, 2021 and no share-based compensation expense was recorded related to these options during the period outstanding. All other options are service-based.

The Company recorded $836 and $2,065 of stock option compensation expense for employees, directors and consultants for the three and nine months ended  September 30, 2021, respectively. The Company recorded $319 and $599 of stock option compensation expense for employees, directors and consultants for the three and nine months ended  September 30, 2020, respectively.

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 Nine Months
	Ended September 30,
	2021			2020
Expected stock price volatility		50	%		46	%
Risk-free interest rate		0.90	%		0.38	%
Forfeiture rate		0	%		0	%
Expected dividend yield		0	%		0	%
Expected life of options - years		5.74			6.15
Weighted-average fair value of options granted	$	2.57		$	3.43

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 nine months ended September 30, 2021:

				Weighted Average		Weighted Average
	Service-Based			Grant Date		Vesting
	RSU's			Fair Value		Period (in Years)
Unvested at December 31, 2020		428,006		$	6.13
Granted - service based		352,890		$	5.72
Vested		(421,407	)	$	5.63
Forfeited and cancelled		(32,874	)	$	6.10
Unvested at September 30, 2021		326,615		$	6.34	2.1

Compensation expense for RSUs was $467 and $2,245 for the three and nine months ended September 30, 2021, respectively. Compensation expense for RSUs was $227 and $963 for the three and nine months ended  September 30, 2020, respectively.

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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Selling, general and administrative	$	1,093	$	468	$	3,722	$	1,393
Research and development		210		78		588		169
Total share-based expense	$	1,303	$	546	$	4,310	$	1,562

As of September 30, 2021, total estimated compensation expense of stock options granted and outstanding but not yet vested was $4,300 which is expected to be recognized over the weighted average period of 2.3 years. As of September 30, 2021, total estimated compensation cost of RSUs granted and outstanding but not yet vested was $1,718 which is expected to be recognized over the weighted average period of 2.1 years.