| Shareholders' Equity | 13. 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 December 31, 2020, there were stock options to purchase approximately 2,000 shares of common stock and 82,000 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 December 31, 2020, there were stock options to purchase approximately 24,000 shares of common stock
and 9,000 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 December 31, 2020, there were no stock options or restricted stock units
outstanding under the 2014 Plan. Stock-Based
Compensation Valuation Assumptions 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 2019 under the ASC No. 718 requirements:
2019
Weighted average risk-free rate 1.68 %
Weighted average volatility 105.53 %
Dividend yield 0.00 %
Expected term 5.37 years There were no stock option
grants issued during the year ended December 31, 2020. 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, 2020 and 2019 was $199,000
and $206,000, 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, 2020 and 2019:
Outstanding Weighted Weighted Aggregate Intrinsic
Outstanding January 1, 2019 147,000 $ 18.20 6.08 $ -
Granted 3,000 3.15 - -
Cancelled (6,000 ) 13.32 - -
Forfeited (2,000 ) 6.24 - -
Outstanding December 31, 2019 142,000 18.26 5.14 -
Cancelled (115,000 ) 17.55 - -
Forfeited (1,000 ) 8.09 - -
Outstanding December 31, 2020 26,000 $ 21.76 4.56 $ -
Options vested and exercisable at December 31, 2020 26,000 $ 21.76 4.56 $ - The per-share weighted average
grant-date fair value of stock options granted during the year ended December 31, 2019 and $2.49. There were no stock options granted
during the year ended December 31, 2020. As of December 31, 2020,
all stock options were fully vested and there was no unamortized stock based compensation expense remaining. 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 (“RSUs”) 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 RSUs 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 years ended December 31, 2020 and 2019, the Company granted approximately 172,000 and 77,000 RSUs,
respectively. The weighted average grant date fair value of the restricted stock units awarded during the years ended December
31, 2020 and 2019 was $2.51 and $3.35, respectively. During the year ended December
31, 2019, 30,000 of the 77,000 RSUs granted for the period were awarded as a performance-based award granted to the Company’s
former chief executive officer in connection with his resignation. The award would have vested in full upon the effective date
of a change in control transaction in which an individual, entity or group acquired all of the Company’s then-outstanding
equity interests on or before March 17, 2020, or in which an individual, entity or group acquired 51% of our then-outstanding equity
interests on or before March 17, 2020, and then that same individual, entity or group acquired the remaining equity so that it
held all of the Company’s then-outstanding equity interests on or before June 17, 2020. Continuing service was not required
for vesting to occur. Because a change in control is not considered probable until a change in control occurs, and because the
change in control did not occur as discussed above, the Company did not recognize stock compensation expense on this award and
this award expired unvested. In connection with the resignation
of the Company’s former chief executive officer, the vesting of 10,000 of his RSUs was accelerated, 5,000 in September 2019
and 5,000 in October 2019. The modification of this award resulted in the Company recognizing stock compensation expense for the
accelerated vesting of RSUs in the period in which the accelerated vesting occurred. With the exception of the
performance-based award and the acceleration of vesting of RSUs discussed above, RSUs typically vest over a period of two to three
years, generally in monthly or quarterly increments. Some awards may have an initial cliff period of six months before the monthly
vesting begins. All outstanding RSUs as of December 31, 2020 are subject to accelerated vesting in the event of a change in control. The following table summarizes
restricted stock unit activity for the years ended December 31, 2020 and 2019:
Outstanding Weighted
January 1, 2019 61,000 $ 4.94
Granted 77,000 3.35
Released (38,000 ) 4.09
Canceled (43,000 ) 4.17
December 31, 2019 57,000 $ 3.57
Granted 172,000 2.51
Released (58,000 ) 3.05
Cancelled (80,000 ) 2.65
December 31, 2020 91,000 $ 2.71
Balance expected to vest at December 31, 2020 78,000 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 years ended December 31, 2020 and 2019, approximately 58,000 and 38,000 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 42,000 and 26,000 shares of common stock were issued, respectively. 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, 2020 and 2019. 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, 2020 and 2019. 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, 2020, the conversion
rate was 1.8563 and, based on that conversion rate, one share of Series A Convertible Preferred Stock would have converted into
approximately 0.54 shares of common stock, and all the outstanding shares of the Series A Convertible Preferred Stock would have
converted into approximately 84,000 shares of common stock in the aggregate. There were no conversions during either of the years
ended December 31, 2020 and 2019. There is no mandatory conversion term, date or any redemption features associated with the Series
A Preferred Stock. The conversion rate will adjust under the following circumstances:
1. If the Company (a) pays a dividend or makes a distribution in shares of its common stock, (b) subdivides its outstanding shares of common stock into a greater number of shares, (c) combines its outstanding shares of common stock into a smaller number of shares, or (d) issues by reclassification of its shares of common stock any shares of its common stock (other than a change in par value, or from par value to no par value, or from no par value to par value), then the conversion rate in effect immediately prior to the applicable event will be adjusted so that the holders of the Series A Convertible Preferred Stock will be entitled to receive the number of shares of common stock which they would have owned or have been entitled to receive immediately following the happening of the event, had the Series A Convertible Preferred Stock been converted immediately prior to the record or effective date of the applicable event.
2. If the outstanding shares of the Company’s common stock are reclassified (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend), or if the Company consolidates with or merge into another corporation and the Company is not the surviving entity, or if the Company sells all or substantially all of its property, assets, business and goodwill, then the holders of the Series A Convertible Preferred Stock will thereafter be entitled upon conversion to the kind and amount of shares of stock or other equity securities, or other property or assets which would have been receivable by such holders upon such reclassification, consolidation, merger or sale, if the Series A Convertible Preferred Stock had been converted immediately prior thereto.
3. If the Company issues common stock without consideration or for a consideration per share less than the then applicable Equivalent Preference Amount (as defined below), then the Equivalent Preference Amount will immediately be reduced to the amount determined by dividing (A) an amount equal to the sum of (1) the number of shares of common stock outstanding immediately prior to such issuance multiplied by the Equivalent Preference Amount in effect immediately prior to such issuance and (2) the consideration, if any, received by the Company upon such issuance, by (B) the total number of shares of common stock outstanding immediately after such issuance. The “Equivalent Preference Amount” is the value that results when the liquidation preference of one share of Series A Convertible Preferred Stock (which is $1.00) is multiplied by the conversion rate in effect at that time; thus the conversion rate applicable after the adjustment in the Equivalent Preference Amount as described herein will be the figure that results when the adjusted Equivalent Preference Amount is divided by the liquidation preference of one share of Series A Convertible Preferred Stock. |
