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Shareholders' Equity

6 Months Ended

Jun. 30, 2019

Shareholders' Equity

Shareholders' Equity

(5) SHAREHOLDERS’ EQUITY

Stock-based Compensation

The Company’s stock-based compensation plans include the NTN Buzztime, Inc. 2019 Performance Incentive Plan (the “2019 Plan”), the NTN Buzztime, Inc. Amended 2010 Performance Incentive Plan (the “2010 Plan”) and the NTN Buzztime, Inc. 2014 Inducement Plan (the “2014 Plan”). The Company’s board of directors designated its nominating and corporate governance/compensation committee as the administrator of the foregoing plans (the “Plan Administrator”). Among other things, the Plan Administrator 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.

At the Company’s 2019 Annual Meeting of Stockholders, the Company’s stockholders approved the 2019 Plan, which provides for the issuance of up to 240,000 shares of Company common stock. Awards the under the 2019 Plan may be granted to officers, directors, employees and consultants of the Company. Stock options granted under the 2019 Plan may either be incentive stock options or nonqualified stock options, 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 June 30, 2019, stock options to purchase approximately 2,000 shares of the Company’s common stock have been granted under the 2019 Plan.

As a result of stockholder approval of the 2019 Plan, no future grants will be made under the 2010 Plan. All awards that are outstanding under the 2010 Plan will continue to be governed by the 2010 Plan until they are exercised or expire in accordance with the terms of the applicable award or the 2010 Plan. As of June 30, 2019, there were approximately stock options to purchase 62,000 shares of common stock and 87,000 restricted stock units outstanding under the Amended 2010 Plan.

The 2014 Plan 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 and expires in September 2024. As of June 30, 2019, there were no share-based awards available for grant under the 2014 Plan.

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 share-based payment awards is recognized using the straight-line single-option method. On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2018-07, Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

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 awards granted during the three and six months ended June 30, 2019 and 2018:

		Three months ended June 30,								Six months ended June 30,
		2019				2018				2019				2018
Weighted average risk-free rate			1.82	%			2.88	%			1.82	%			2.88	%
Weighted average volatility			113.98	%			113.09	%			113.98	%			113.09	%
Dividend yield			0.00	%			0.00	%			0.00	%			0.00	%
Expected term			5.78 years				7.24 years				5.78 years				7.24 years

The Company granted stock options to purchase approximately 2,000 shares of common stock during each of the three and six months ended June 30, 2019 and 2018. No options were exercised during either of the three or six months ended June 30, 2019 or 2018.

Outstanding restricted stock units are settled in an equal number of shares of common stock on the vesting date of the award. A stock unit award is settled only to the extent vested. Vesting generally requires the continued employment by the award recipient through the respective vesting date. Because restricted stock units are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date. During the six months ended June 30, 2019, the Company granted approximately 47,000 restricted stock units with a weighted average grant date fair value of $3.72 per restricted stock unit. During the six months ended June 30, 2018, the Company granted approximately 53,000 restricted stock units with a weighted average grant date fair value of $6.04 per restricted stock unit. No restricted stock units were granted during either of the three months ended June 30, 2019 or 2018. All restricted stock units granted vest as to 16.67% of the total underlying shares on the six month anniversary of the grant date and as to the balance of the total underlying shares in 30 substantially equal monthly installments, beginning on the seven month anniversary of the grant date, subject to accelerated vesting in the event of a change in control.

In lieu of paying cash to satisfy withholding taxes due upon the settlement of vested restricted stock units, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which is equal to the amount of withholding taxes payable. During the three and six months ended June 30, 2019, approximately 7,000 and 11,000 restricted stock units vested and were settled, respectively, and as a result of employees electing to satisfy applicable withholding taxes by having the Company withhold shares, approximately 4,000 and 7,000 shares of common stock were issued, respectively. There were no restricted stock units that vested and settled during the three and six months ended June 30, 2018.

The Company estimates forfeitures, based on historical activity, at the time of grant and revises such estimates if necessary in subsequent periods if actual forfeiture rates differ from those estimates. Stock-based compensation expense for the three months ended June 30, 2019 and 2018 was $50,000 and $134,000, respectively, and $109,000 and $251,000 for the six months ended June 30, 2019 and 2018, respectively, and is expensed in selling, general and administrative expenses and credited to additional paid-in-capital.