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10. Stockholders' Equity | 12 Months Ended
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Dec. 31, 2012
Stockholders Equity |
NOTE 10. Stockholders' Equity | Rights Offering In February 2012, the Company completed a rights offering to its stockholders of record as of February 2, 2012. The Company issued a total of 2,070,719 shares of its common stock at a subscription price of $0.25 per share. In connection with the rights offering, the Company entered into an investment agreement with Matador Capital Partners, LP, or Matador. Mr. Jeffrey A. Berg, one of the Company’s directors and its Interim Chief Executive Officer, is the managing member of the general partner of Matador. Under the terms of the investment agreement, upon expiration of the rights offering, Matador purchased for $0.25 per share 8,000,000 shares of our common stock not subscribed for and purchased by holders upon exercise of their subscription rights. The Company received gross proceeds of $2.5 million from the rights offering and under the investment agreement. Equity Incentive Plans 2004 Performance Incentive Plan In September 2004 at a Special Meeting of Stockholders, the Company’s stockholders approved the 2004 Performance Incentive Plan (the “2004 Plan”). The 2004 Plan provided for the issuance of up to 2,500,000 shares of NTN common stock. In addition, all shares that remained unissued under the 1995 Employee Stock Option Plan (the “1995 Plan”) on the effective date of the 2004 Plan, and all shares issuable upon exercise of options granted pursuant to the 1995 Plan that expire or become unexercisable for any reason without having been exercised in full, were available for issuance under the 2004 Plan. On the effective date, the 1995 Plan had approximately 77,000 options available for grant. Options under both the 1995 Plan and the 2004 Plan have a term of up to ten years, and are exercisable at a price per share not less than the fair market value on the date of grant. In September 2009, the 2004 Plan expired. All awards that were granted under the 2004 Plan will continue to be governed by the 2004 Plan until they are exercised or expire in accordance with that plan’s terms. As of December 31, 2012, there were approximately 850,000 options outstanding under the 2004 Plan. 2010 Performance Incentive Plan In June 2010, the Company’s shareholders approved the 2010 Performance Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the issuance of up to 6,000,000 shares of NTN common stock. Under the 2010 Plan, options for the purchase of NTN common stock or other instruments such as restricted stock units may be granted to officers, directors, employees and consultants. The Board of Directors designated its Nominating and Corporate Governance/Compensation Committee as the 2010 Plan Committee. Stock options granted under the 2010 Plan may either be incentive stock options or nonqualified stock options. A stock option granted under the 2010 Plan generally cannot be exercised until it becomes vested. The 2010 Plan Committee establishes the vesting schedule of each stock option at the time of grant. At its discretion, the 2010 Plan Committee can accelerate the vesting, extend the post-termination exercise term or waive restrictions of any stock options or other awards under the 2010 Plan. Options under the 2010 Plan have a term of up to ten years, and are exercisable at a price per share not less than the fair market value on the date of grant. As of December 31, 2012, there were approximately 964,000 options outstanding under the 2010 Plan. Stock-Based Compensation Valuation Assumptions The Company records stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period. Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method. The Company uses the historical stock price volatility as an input to value its stock options under ASC No. 718. The expected term of stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise patterns of the Company, which the Company believes are indicative of future exercise behavior. For the risk-free interest rate, the Company uses the observed interest rates appropriate for the term of time options are expected to be outstanding. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The following weighted-average assumptions were used for grants issued during 2012 and 2011 under the ASC No. 718 requirements:
|  |  |  |  |  | 2012 |  | 2011
Weighted average risk-free rate | 0.53% |  | 1.54%
Weighted average volatility | 95.21% |  | 97.70%
Dividend yield | 0.00% |  | 0.00%
Expected life | 5.71 years |  | 5.22 years
ASC No. 718 requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeiture rates differ from those estimates. Forfeitures were estimated based on historical activity for the Company. Stock-based compensation expense for employees in 2012 and 2011 was $185,000 and $332,000, respectively, and is expensed in selling, general and administrative expenses and credited to the additional paid-in-capital account. Stock Option Activity The following table summarizes stock option activity for the year ended December 31, 2012:
|  | Outstanding Options |  |  | Weighted Average Exercise Price per Share |  |  | Weighted Average Remaining Contractual Life (in years) |  |  | Aggregate Intrinsic Value |
Outstanding December 31, 2011 |  |  | 4,314,000 |  |  | $ | 0.59 |  |  |  | 7.74 |  |  | $ | 2,000 |
Granted |  |  | 452,000 |  |  |  | 0.15 |  |  |  | – |  |  |  | – |
Cancelled |  |  | (1,351,000 | ) |  |  | 0.51 |  |  |  | – |  |  |  | – |
Forfeited |  |  | (1,596,000 | ) |  |  | 0.45 |  |  |  |  |  |  |  |  |
Expired |  |  | (5,000 | ) |  |  | 0.98 |  |  |  | – |  |  |  | – |
Outstanding December 31, 2012 |  |  | 1,814,000 |  |  | $ | 0.66 |  |  |  | 6.37 |  |  | $ | 25,000 |
Options vested and exercisable at December 31, 2012 |  |  | 1,330,000 |  |  | $ | 0.82 |  |  |  | 5.39 |  |  | $ | 2,000 |
The aggregate intrinsic value of options at December 31, 2012 is based on the company’s closing stock price on that date of $0.21 per share as reported by the NYSE MKT. The total intrinsic value of options exercised during the year ended December 31, 2011 was $26,000, and the total cash received as a result of stock option exercises was approximately $36,000. There were no stock options exercised during the year ended December 31, 2012. The per share weighted average grant-date fair value of stock options granted during 2012 and 2011 was $0.15 and $0.32, respectively. As of December 31, 2012, the unamortized compensation expense related to outstanding unvested options was approximately $46,000 with a weighted average remaining requisite service period of 2.25 years. The Company expects to amortize this expense over the remaining requisite service period of these stock options. A deferred tax asset generally would be recorded related to the expected future tax benefit from the exercise of the non-qualified stock options. However, due to a history of net operating losses, a full valuation allowance has been recorded related to the tax benefit for non-qualified stock options. Restricted Stock Unit Activity Grants of restricted stock units are paid in an equal number of shares of common stock on the vesting date of the award, subject to any deferred payment date that the holder may elect. A stock unit award is paid only to the extent vested. Vesting generally requires the continued employment by the award recipient through the respective vesting date. Restricted stock units outstanding as of December 31, 2012 are not subject to accelerated vesting provisions. Since the restricted stock units are paid in an equal number of shares of common stock without any kind of offsetting payment by the employee, the measurement of cost is based on the quoted market price of the stock at the measurement date which is the date of grant. The following table summarizes restricted stock unit activity during 2012:
|  |  |  | Outstanding Restricted Stock Units |  |  | Weighted Average Fair Value per Share |
December 31, 2011 |  |  |  | 49,000 |  |  | $ | 0.31 |
| Granted |  |  |  | 620,000 |  |  |  | – |
| Released |  |  |  | (44,000 | ) |  |  | – |
| Cancelled |  |  |  | (65,000 | ) |  |  | – |
December 31, 2012 |  |  |  | 560,000 |  |  | $ | 0.14 |
Balance exercisable at December 31, 2012 |  |  |  | – |  |  |  |  |
Warrant Activity The following summarizes warrant activity during 2012:
|  |  | Outstanding Warrants |  |  | Weighted Average Exercise Price per Share |  |  | Weighted Average Remaining Contractual Life (in years) |
Outstanding December 31, 2011 |  |  |  | 4,500,000 |  |  | $ | 0.79 |  |  |  | 5.35 |
| Granted |  |  |  | – |  |  |  | – |  |  |  | – |
| Exercised |  |  |  | – |  |  |  | – |  |  |  | – |
| Forfeited |  |  |  | – |  |  |  | – |  |  |  | – |
Outstanding December 31, 2012 |  |  |  | 4,500,000 |  |  | $ | 0.79 |  |  |  | 4.35 |
Balance exercisable at December 31, 2012 |  |  |  | 4,500,000 |  |  | $ | 0.79 |  |  |  | 4.35 |
The 4,500,000 warrants outstanding were issued during 2009 in connection with asset acquisitions of iSports and i-am TV. The fair values of the warrants were approximately $908,000 in aggregate and were determined using the Black-Scholes model using the following weighted-average assumptions: risk-free interest rates of 2.79%; dividend yield of 0%; expected volatility of 78.1%; and a term of 8 years. Cumulative Convertible Preferred Stock The Company has authorized 10,000,000 shares of preferred stock. The preferred stock may be issued in one or more series. The only series currently designated is a series of 5,000,000 shares of Series A Cumulative Convertible Preferred Stock (Series A Preferred Stock). As of December 31, 2012 and 2011, there were 156,000 and 161,000 shares of Series A Preferred Stock issued and outstanding, respectively. The Series A Preferred Stock provides for a cumulative annual dividend of 10 cents per share, payable in semi-annual installments in June and December. Dividends may be paid in cash or with shares of common stock. During the years ended December 31, 2012 and 2011, the Company issued approximately 73,000 and 37,000 common shares, respectively, for payment of dividends. The Series A Preferred Stock has no voting rights and has a $1.00 per share liquidation preference over common stock. The registered holder has the right at any time to convert shares of Series A Preferred Stock into that number of shares of common stock that equals the number of shares of Series A Preferred Stock that are surrendered for conversion divided by the conversion rate. The conversion rate is subject to adjustment in certain events and is established at the time of each conversion. During the year ended December 31, 2012, 5,000 shares of cumulative convertible preferred stock were converted into approximately 15,000 shares of common stock at a conversion rate of 0.3276. There were no conversions for year ended December 31, 2011. There is no mandatory conversion term, date or any redemption features associated with the Series A Preferred Stock.

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- Definition The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Article 3 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21488-112644 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 29, 30, 31 -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 4 -Section E Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Preferred Stock -URI http://asc.fasb.org/extlink&oid=6521494 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21564-112644 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section S99 -Paragraph 4 -Subparagraph (SAB TOPIC 4.C) -URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187143-122770 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21484-112644 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21506-112644 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6405834&loc=d3e23285-112656 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Section B -Paragraph 7, 11A -Chapter 1 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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