| Shareholders' Equity | 9. Shareholders’ Equity Registered
Direct Offerings In March 2017, the Company
sold approximately 200,000 shares of its common stock at a purchase price of $7.85 per share and received net proceeds of approximately
$1,554,000, after deducting estimated offering expenses. In April 2017, the Company
sold approximately 30,000 shares of its common stock at a purchase price of $7.78 per share and received net proceeds of approximately
$219,000, after deducting estimated offering expenses. In June 2018, the Company
sold approximately 346,000 shares of its common stock at a purchase price of $4.50 per share and received net proceeds of approximately
$1,375,000, after deducting estimated offering expenses. The Company used the net
proceeds from the offerings for general corporate purposes, which included working capital, general and administrative expenses,
capital expenditures and implementation of its strategic priorities. 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 50,000 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. 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 and all unexercised awards granted under that plan expired as of
December 31, 2018, in accordance with that plan’s terms. 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 120,000 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 120,000 to 240,000. 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, 2018, there were options to purchase approximately 62,000 shares of
the Company’s common stock outstanding under the Amended 2010 Plan. As of December 31, 2018, there were approximately 47,000
share-based awards available to be granted 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 American 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 85,000 shares of the Company’s common stock, of which, an option to purchase 70,000 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 15,000 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. There are 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 Equity –
Equity-Based Payments to Non-Employees. 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 2018 and 2017 under the ASC No. 718 requirements:
2018 2017
Weighted average risk-free rate 2.87 % 1.97 %
Weighted average volatility 113.20 % 113.57 %
Dividend yield 0.00 % 0.00 %
Expected term 7.06 years 7.19 years The Company estimates forfeitures,
based on historical activity, at the time of grant and revised if necessary in subsequent periods if actual forfeiture rates differ
from those estimates. Stock-based compensation expense for employees during the years ended December 31, 2018 and 2017 was $443,000
and $457,000, 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 activities for the years ended December 31, 2018 and 2017:
Outstanding Options Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value
Outstanding January 1, 2017 165,000 $ 17.78 8.67 $ 36,000
Granted 8,000 6.66 - -
Exercised - - - -
Cancelled (8,000 ) 16.76 - -
Forfeited (9,000 ) 9.87 - -
Expired - - - -
Outstanding December 31, 2017 156,000 17.74 7.12 -
Granted 2,000 4.44 - -
Exercised - - - -
Cancelled (6,000 ) 10.42 - -
Forfeited (4,000 ) 6.38 - -
Expired (1,000 ) 16.00 - -
Outstanding December 31, 2018 147,000 $ 18.20 6.08 $ -
Options vested and exercisable at December 31, 2018 137,000 $ 18.81 5.99 $ - No options were exercised
during the years ended December 31, 2018 or 2017. The per share weighted average grant-date fair value of stock options granted
during the years ended December 31, 2018 and 2017 was $3.90 and $5.87, respectively. As of December 31, 2018,
the unamortized stock based compensation expense related to outstanding unvested options was approximately $61,000 with a weighted
average remaining requisite service period of 1.02 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 (“NOLs”), a
full valuation allowance has been recorded related to the tax benefit for non-qualified stock options. Restricted
Stock Unit Activity 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 year ended December 31, 2018, the Company granted approximately 74,000 restricted stock units with a weighted
average grant date fair value of $5.13 per restricted stock unit, all of which 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. Of the 74,000 restricted stock units, 25,000 and 15,000 were granted to the Company’s Chief Executive Officer
and Chief Financial Officer, respectively. The Company did not grant restricted stock units during the year ended December 31,
2017. The following table summarizes
restricted stock unit activity for the year ended December 31, 2018:
Outstanding Restricted Stock Units Weighted Average Fair Value per Share
January 1, 2018 - $ -
Granted 74,000 5.13
Released (13,000 ) 6.04
Cancelled - -
December 31, 2018 61,000 $ 4.94
Balance exercisable at December 31, 2018 51,000 Under the 2010 Plan,
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 year ended December 31, 2018, approximately 13,000 restricted stock units vested and were
settled, and as a result of employees electing to satisfy applicable withholding taxes by having the Company withhold shares, approximately
9,000 shares of common stock were issued. Warrant Activity The following summarizes warrant activities
for the years ended December 31, 2018 and 2017:
Outstanding Warrants Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life (in years)
Outstanding January 1, 2017 132,000 $ 33.64 2.18
Granted - - -
Exercised - - -
Forfeited (60,000 ) - -
Outstanding December 31, 2017 72,000 $ 20.00 0.87
Granted - - -
Exercised - - -
Forfeited (72,000 ) - -
Outstanding December 31, 2018 - $ - -
Balance exercisable at December 31, 2018 - $ - - During 2013, the Company
issued warrants to purchase an aggregate of 72,000 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 concluded that these warrants qualify as equity instruments and not liabilities. None of these warrants
were exercised, and as of December 31, 2018, all outstanding warrants expired. Cumulative
Convertible Preferred Stock The Company has authorized
156,000 shares of preferred stock, all of which is designated as Series A Cumulative Convertible Preferred Stock (the “Series
A Preferred Stock”), and all of which were issued and outstanding as of December 31, 2018 and 2017. 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. The Company paid approximately $16,000 in cash for payment of dividends in
each of the years ended December 31, 2018 and 2017. 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. At December 31, 2018, the
conversion rate was 13.439 and, based on that conversion rate, all outstanding shares of Series A Preferred Stock would have converted
into approximately 12,000 shares of common stock. The conversion rate is subject to adjustment in certain events and is established
at the time of conversion. There were no conversions during either of the years ended December 31, 2018 and 2017. There is no
mandatory conversion term, date or any redemption features associated with the Series A Preferred Stock. |
