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Shareholders' Equity

9 Months Ended

Sep. 30, 2019

Shareholders' Equity

Shareholders' Equity

(5) SHAREHOLDERS’ EQUITY

Equity Incentive Plans

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 September 30, 2019, there were stock options to purchase approximately 2,000 shares of common stock and 30,000 restricted stock units outstanding 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 September 30, 2019, there were stock options to purchase approximately 59,000 shares of common stock and 67,000 restricted stock units outstanding under the 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 September 30, 2019, there were stock options to purchase approximately 85,000 shares of common stock and no restricted stock units outstanding under the 2014 Plan.

Stock-Based Compensation

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 stock option awards granted during the three and nine months ended September 30, 2019 and 2018:

		Three months ended September 30,								Nine months ended September 30,
		2019				2018				2019				2018
Weighted average risk-free rate			1.39	%			2.82	%			1.70	%			2.87	%
Weighted average volatility			95.11	%			113.90	%			108.83	%			113.20	%
Dividend yield			0.00	%			0.00	%			0.00	%			0.00	%
Expected term			5.61 years				5.92 years				5.73 years				7.06 years

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 September 30, 2019 and 2018 was approximately $63,000 and $118,000, respectively, and approximately $172,000 and $368,000 for the nine months ended September 30, 2019 and 2018, respectively, and is expensed in selling, general and administrative expenses and credited to additional paid-in-capital.

For the three and nine months ended September 30, 2019 and 2018, the Company granted the following awards:

		Three months ended September 30,								Nine months ended September 30,
		2019				2018				2019				2018
Stock option grants			1,000				250				2,000				2,000
Restricted stock units			30,000				-				77,000				53,000

No stock options were exercised during either of the three or nine months ended September 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 or service 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. The weighted average grant date fair value of the restricted stock units awarded during the three months ended September 30, 2019 was $2.76 per restricted stock unit. The weighted average grant date fair value of the restricted stock units awarded during the nine months ended September 30, 2019 and 2018 was $2.95 and $6.04 per restricted stock unit, respectively.

The 30,000 restricted stock units awarded during the three months ended September 30, 2019 is a performance-based award granted to the Company’s former chief executive officer in connection with his resignation. The award will vest in full upon the effective date of a change in control transaction in which an individual, entity or group acquires all of the Company’s then-outstanding equity interests on or before March 17, 2020, or in which an individual, entity or group acquires 51% of our then-outstanding equity interests on or before March 17, 2020, and then that same individual, entity or group acquires the remaining equity so that it holds all of the Company’s then-outstanding equity interests on or before June 17, 2020. Continuing service is not required for vesting to occur. Because a change in control is not considered probable until a change in control occurs, the Company will not recognize stock compensation expense on this award until such change in control occurs.

Also in connection with the former chief executive officer’s resignation, the Company agreed to accelerate 10,000 of his restricted stock units outstanding, 5,000 of which accelerated in September 2019 and the remaining 5,000 in October 2019. The modification of this award resulted in the Company recognizing stock compensation expense for the accelerated restricted stock units in the period in which the units accelerated.

With the exception of the performance-based award and the acceleration of certain restricted stock units discussed above, 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.

The following table shows the number of restricted stock units that vested and were settled during the three and nine months ended September 30, 2019 and 2018, as well as the number of shares of common stock issued upon settlement. 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.

		Three months ended September 30,								Nine months ended September 30,
		2019				2018				2019				2018
Restricted stock units vested and settled			18,000				9,000				29,000				9,000
Common stock issued, net of shares withheld			12,000				6,000				19,000				6,000