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Stockholders' Equity
 12 Months Ended
Dec. 31, 2015
Shareholders' Equity:  
Stockholders' Equity

9. Stockholders’ Equity

 

Public Offering

 

In April 2014, the Company entered into an underwriting agreement with Roth Capital Partners, LLC, as representative of several underwriters, relating to the issuance and sale of 11,100,000 shares of the Company’s common stock at a public offering price of $0.55 per share.

 

The Company also granted the underwriters a 30-day over-allotment option to purchase up to an additional 1,665,000 shares of common stock at the public offering price, less underwriting discounts, to cover over-allotments, if any, made in connection with the offering.

 

The offering closed in April 2014 and the underwriters exercised their over-allotment option in full. In the aggregate, the Company issued 12,765,000 shares of common stock and received gross proceeds of $7,020,750. The net proceeds to the Company were approximately $6,369,000, after deducting underwriting discounts and offering expenses.

 

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, 2015, there were approximately 53,000 options outstanding under the 2004 Plan.

 

2010 Amended Performance Incentive Plan

 

In June 2010, the Company’s stockholders approved the 2010 Performance Incentive Plan (the “2010 Plan”). The 2010 Plan provided for the issuance of up to 6,000,000 shares of the Company’s common stock. At the Company’s 2015 Annual Meeting of Stockholders, the Company’s stockholders approved the Amended 2010 Performance Plan (the “Amended 2010 Plan”), which, among other things, amended the 2010 Plan to increase the authorized shares to be issued thereunder from 6,000,000 to 12,000,000. The Amended 2010 Plan expires in February 2020. Under the Amended 2010 Plan, options to the purchase the Company’s common stock or other instruments such as restricted stock units may be granted to officers, directors, employees and consultants. The Company’s Board of Directors designated its Nominating and Corporate Governance/Compensation Committee as the Amended 2010 Plan Committee. Stock options granted under the Amended 2010 Plan may either be incentive stock options or nonqualified stock options. A stock option granted under the Amended 2010 Plan generally cannot be exercised until it becomes vested. The Amended 2010 Plan Committee establishes the vesting schedule of each stock option at the time of grant. At its discretion, the Amended 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 Amended 2010 Plan. Options under the Amended 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, 2015, there were options to purchase approximately 2,511,000 shares of the Company’s common stock outstanding under the Amended 2010 Plan.

 

2014 Inducement Plan

 

In August 2014, the Nominating and Corporate Governance/Compensation Committee of the Company’s Board of Directors (the “Committee”) approved the 2014 Inducement Plan (the “2014 Plan”) in reliance on Section 771(a) of the NYSE MKT Company Guide as an inducement material to Ram Krishnan entering into employment with the Company as its Chief Executive Officer. The 2014 Plan provides for the issuance of up to 4,250,000 shares of the Company’s common stock, of which, an option to purchase 3,500,000 shares of common stock was issued to Mr. Krishnan in September 2014. In accordance with the terms of his employment agreement, in April 2015, Mr. Krishnan was granted another performance-based option to purchase 750,000 shares of common stock. Options under the 2014 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. Both of the option grants described above will, subject to Mr. Krishnan’s continued employment through the applicable vesting date and, with respect to the performance-based option granted in April 2015, subject to meeting performance goals, vest as to 25% of the total number of shares subject to the option on the first anniversary of the grant date and the remaining 75% of the total number of shares subject to the option will vest in 36 substantially equal monthly installments thereafter. As of December 31, 2015, there were no share-based awards available to be granted under the 2014 Plan. The 2014 Plan expires in September 2024.

 

Stock-Based Compensation Valuation Assumptions

 

The Company records stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation and ASC No. 505-50, Equity – Equity-Based Payments to Non-Employees. 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 share-based payment awards to employees is recognized using the straight-line single-option method. Stock-based compensation expense for share-based payment awards to non-employees is recorded at its fair value on the grant date and is periodically re-measured as the underlying awards vest.

 

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 2015 and 2014 under the ASC No. 718 requirements:

 

    2015     2014  
Weighted average risk-free rate     1.20 %     1.38 %
Weighted average volatility     82.80 %     80.37 %
Dividend yield     0.00 %     0.00 %
Expected life     4.31 years       4.87 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 2015 and 2014 was $456,000 and $282,000, 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, 2015 and 2014:

 

     Outstanding Options     Weighted Average Exercise Price per Share      Weighted Average Remaining Contractual Life (in years)     Aggregate Intrinsic Value  
Outstanding January 1, 2014     2,664,000     $ 0.50       7.14     $ 706,000  
Granted     5,581,000       0.47       -       -  
Exercised     (291,000 )     0.25       -       -  
Cancelled     (89,000 )     1.11       -       -  
Forfeited     (642,000 )     0.27       -       -  
Expired     (1,000 )     3.15       -       -  
Outstanding December 31, 2014     7,222,000       0.50       8.60       285,000  
Granted     2,140,000       0.41       -       -  
Exercised     (84,000 )     0.29       -       -  
Cancelled     (1,301,000 )     0.75       -       -  
Forfeited     (1,140,000 )     0.58       -       -  
Expired     (23,000 )     2.03       -       -  
Outstanding December 31, 2015     6,814,000     $ 0.41       8.67     $ 2,000  
                                 
Options vested and exercisable at December 31, 2015     1,900,000     $ 0.40       7.94     $ 2,000  

 

The aggregate intrinsic value of options at December 31, 2015 is based on the Company’s closing stock price on that date of $0.16 per share as reported by the NYSE MKT. The total intrinsic value of options exercised during the year ended December 31, 2015 was approximately $7,000. Pursuant to the 2004 Plan and the Amended 2010 Plan, stock option exercises could be made on a net-exercise arrangement, where shares of common stock are withheld in the amount of the exercise price as payment of the exercise price instead of cash. Under such net-exercise arrangements, options to purchase approximately 82,000 and 106,000 shares of common stock were exercised and approximately 18,000 and 43,000 shares of common stock were issued during the years ended December 31, 2015 and 2014, respectively. The Company received approximately $1,000 and $44,000 in cash payments for the exercise of options to purchase approximately 2,000 and 185,000 shares during the years ended December 31, 2015 and 2014, respectively.

 

The per share weighted average grant-date fair value of stock options granted during 2015 and 2014 was $0.25 and $0.30, respectively.

 

As of December 31, 2015, the unamortized compensation expense related to outstanding unvested options was approximately $692,000 with a weighted average remaining requisite service period of 2.84 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 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 for the year ended December 31, 2015 and 2014:

 

      Outstanding
Restricted Stock Units		     Weighted
Average Fair Value per Share		  
Outstanding January 1, 2014       187,000     $ 0.14  
Granted       -       -  
Released       (173,000 )     -  
Canceled       (14,000 )     -  
Outstanding December 31, 2014       -     $ -  
Granted       -       -  
Released       -       -  
Cancelled       -       -  
Outstanding December 31, 2015       -     $ -  
                   
Balance exercisable at December 31, 2015       -          

 

Under the Amended 2010 Plan, employees may elect to have shares of common stock withheld on the vesting date in lieu of the employees paying cash for withholding taxes. During the year ended December 31, 2014, approximately 173,000 restricted stock units vested and, as a result of employees making the election described in the preceding sentence, approximately 119,000 shares of common stock were issued.

 

Warrant Activity

 

The following summarizes warrant activity for the year ended December 31, 2015 and 2014:

 

      Outstanding
Warrants		     Weighted
Average Exercise
Price per Share		     Weighted
Average
Remaining
Contractual
Life (in years)		  
Outstanding January 1, 2014       6,600,000     $ 0.67       4.18  
Granted       -       -       -  
Exercised       -       -       -  
Forfeited       -       -       -  
Outstanding December 31, 2014       6,600,000     $ 0.67       3.18  
Granted       -       -       -  
Exercised       -       -       -  
Forfeited       -       -       -  
Outstanding December 31, 2015       6,600,000     $ 0.67       2.18  
                           
Balance exercisable at December 31, 2015       6,600,000     $ 0.67       2.18  

 

During 2009, the Company issued warrants to purchase an aggregate of 3,000,000 shares of common stock in connection with asset acquisitions of i-am TV. The fair value of the warrants was approximately $537,000 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. None of these warrants were exercised as of December 31, 2015.

 

During 2013, the Company issued warrants to purchase an aggregate of 3,600,000 shares of common stock in connection with a private placement. The fair value of the warrants was approximately $1,379,000 in aggregate and was determined using the Black-Scholes model using the following weighted-average assumptions: risk-free interest rates of 1.06%; dividend yield of 0%; expected volatility of 80.25%; and a term of 5 years. The Company has concluded that these warrants qualify as equity instruments and not liabilities. None of these warrants were exercised as of December 31, 2015.

 

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, 2015 and 2014, there were 156,000 shares of Series A Preferred Stock issued and outstanding. The Series A Preferred Stock provides for a cumulative annual dividend of $0.10 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, 2015 and 2014, the Company issued approximately 46,000 and 35,000 shares of common stock, 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. There were no conversions during either of the years ended December 31, 2015 and 2014. There is no mandatory conversion term, date or any redemption features associated with the Series A Preferred Stock.