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Stockholders' Equity

6 Months Ended

Jun. 30, 2017

Shareholders' Equity:

Stockholders' Equity

(3) STOCKHOLDERS’ EQUITY

Reduction in Designated Shares of Series A Preferred Stock

The Company has only shares of one series of preferred stock issued and outstanding—the Series A Convertible Preferred Stock. As of April 10, 2017 and as of June 30, 2017, there were 156,112 shares of Series A Convertible Preferred Stock issued and outstanding. As previously reported, on April 10, 2017, the Company filed a certificate of decrease with the Secretary of State of the State of Delaware with respect to the Series A Convertible Preferred Stock for the purpose of decreasing the number of shares of such stock authorized for issuance from 5,000,000 to 156,112. The effective date of the filing was April 10, 2017.

Reduction in Authorized Shares

At the Company’s annual meeting of stockholders held on June 8, 2017, the Company’s stockholders approved an amendment to its restated certificate of incorporation to reduce the number of the Company’s authorized shares from 178,000,000, consisting of 168,000,000 shares of common stock and 10,000,000 shares of preferred stock, to 16,000,000, consisting of 15,000,000 shares of common stock and 1,000,000 shares of preferred stock.

Registered Direct Offerings

On April 25, 2017, the Company entered into a subscription agreement with certain investors relating to the issuance and sale of shares of the Company’s common stock at a purchase price of $7.78 per share, which was the closing price of its common stock on April 25, 2017. The offering closed on April 28, 2017. The Company sold 29,566 shares of its common stock and received net proceeds of approximately $0.2 million, after deducting offering expenses.

On March 27, 2017, the Company entered into a subscription agreement with certain investors relating to the issuance and sale of shares of the Company’s common stock at a purchase price of $7.85 per share, which was the closing price of its common stock on March 24, 2017. The offering closed on March 31, 2017. The Company sold 200,000 shares of its common stock and received net proceeds of approximately $1,554,000, after deducting offering expenses.

The Company intends to use the net proceeds of the offerings for general corporate purposes, which may include working capital, general and administrative expenses, capital expenditures and implementation of its strategic priorities.

The shares in both offerings were offered and sold pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration Statement No. 333-215271) filed with the Securities and Exchange Commission on December 22, 2016 and declared effective by the SEC on February 2, 2017, and the base prospectus included therein, as supplemented by a prospectus supplement filed with the SEC in connection with the takedown relating to the offerings.

Stock-based Compensation

The Company’s stock-based compensation plans include the NTN Buzztime, Inc. 2004 Performance Incentive Plan (the “2004 Plan”), the NTN Buzztime, Inc. Amended 2010 Performance Incentive Plan (the “Amended 2010 Plan”) and the NTN Buzztime, Inc. 2014 Inducement Plan (the “2014 Plan”). The 2004 Plan expired in September 2009. From and after the date it expired, no awards could be granted under that plan and all awards that had been granted under that plan before it expired are governed by that plan until they are exercised or expire in accordance with that plan’s terms. The Amended 2010 Plan provides for the grant of up to 240,000 share-based awards and expires in February 2020. As of June 30, 2017, approximately 105,000 share-based awards were available to be issued under the Amended 2010 Plan. The 2014 Plan, which provides for the grant of up to 85,000 share-based awards to a new employee as an inducement material to the new employee entering into employment with the Company, was approved by the nominating and corporate governance/compensation committee of the Company’s board of directors (the “Committee”) in September 2014 in connection with the appointment of Ram Krishnan as the Company’s Chief Executive Officer. As of June 30, 2017, there were no share-based awards available to be granted under the 2014 Plan. The Company’s stock-based compensation plans are administered by the Committee, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures, if any, and other provisions of the award.

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 the three and six months ended June 30, 2017 and 2016 under the ASC No. 718 requirements.

		Three months ended June 30,								Six months ended June 30,
		2017				2016				2017				2016
Weighted average risk-free rate			1.61	%			1.16	%			1.62	%			1.20	%
Weighted average volatility			114.33	%			111.27	%			114.70	%			111.02	%
Dividend yield			0.00	%			0.00	%			0.00	%			0.00	%
Expected life			7.38 years				6.29 years				7.25 years				6.17 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 the three months ended June 30, 2017 and 2016 was $117,000 and $110,000, respectively, and $234,000 and $223,000 for the six months ended June 30, 2017 and 2016, respectively, and is expensed in selling, general and administrative expenses and credited to additional paid-in-capital. The Company granted stock options to purchase approximately 2,000 and 20,000 shares of common stock during the three months ended June 30, 2017 and 2016, respectively, and stock options to purchase approximately 4,000 and 35,000 shares of common stock during the six months ended June 30, 2017 and 2016, respectively. No options were exercised during either of the three and six months ended June 30, 2017 or 2016.