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10.Stockholders' Equity
 12 Months Ended
Dec. 31, 2011
Stockholders' Equity Note Disclosure [Text Block]
10.
Stockholders’ Equity

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 2,500,000 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. On the effective date, the 1995 Plan had approximately 77,000 options available for grant.  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.  All awards that were granted under the 2004 Plan will continue to be governed by the 2004 Plan until they are exercised or expire in accordance with that plan’s terms. As of December 31, 2011, there were approximately 1,120,000 options outstanding under the 2004 Plan.

2010 Performance Incentive Plan

In June 2010, the Company’s shareholders approved the 2010 Performance Incentive Plan (the “2010 Plan”).  The 2010 Plan provides for the issuance of up to 6,000,000 shares of NTN common stock.  Under the 2010 Plan, options for the purchase of NTN common stock or other instruments such as deferred stock units may be granted to officers, directors, employees and consultants.  The Board of Directors designated its Nominating and Corporate Governance/Compensation Committee as the 2010 Plan Committee.  Stock options granted under the 2010 Plan may either be incentive stock options or nonqualified stock options.  A stock option granted under the 2010 Plan generally cannot be exercised until it becomes vested.  The 2010 Plan Committee establishes the vesting schedule of each stock option at the time of grant.  At its discretion, the 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 2010 Plan.  Options under the 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, 2011, there were approximately 3,194,000 options outstanding under the 2010 Plan.

Buzztime Distribution Stock Incentive Plan

On May 31, 2001, Buzztime Distribution adopted an incentive stock option plan. Pursuant to the plan, Buzztime Distribution may grant options to purchase Buzztime Distribution common stock, subject to applicable share limits, upon terms and conditions specified in the plan. There were 300,000 shares authorized under this plan, and the plan expired on May 31, 2011. No options were granted under the plan.

Stock-Based Compensation Valuation Assumptions

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 all share-based payment awards is recognized using the straight-line single-option method.

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 2011 and 2010 under the ASC No. 718 requirements:

   
2011
   
2010
 
Weighted average risk-free rate
    1.54 %     1.68 %
Weighted average volatility
    97.70 %     93.72 %
Dividend yield
    0.00 %     0.00 %
Expected life
 
5.22 years
   
6.50 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 employees in 2011 and 2010 was $332,000 and $299,000, 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 activity for the year ended December 31, 2011:

   
Outstanding
Options
   
Weighted
Average Exercise
Price per Share
   
Weighted
Average
Remaining
Contractual
Life (in years)
   
Aggregate Intrinsic
Value
 
Outstanding December 31, 2010
    4,496,000     $ 0.77       7.34     $ 42,000  
Granted
    993,000       0.44       -       -  
Exercised
    (139,000 )     0.26       -       -  
Forfeited
    (158,000 )     0.40                  
Cancelled
    (878,000 )     1.41       -       -  
Outstanding December 31, 2011
    4,314,000     $ 0.59       7.74     $ 2,000  
                                 
Options vested and exercisable at December 31, 2011
    2,040,000     $ 0.74       6.72     $ 1,000  

The aggregate intrinsic value of options at December 31, 2011 is based on the company’s closing stock price on that date of $0.25 per share as reported by the NYSE Amex.  The total intrinsic value of options exercised during the years ended December 31, 2011 and 2010 was $26,000 and $113,000, respectively. The total cash received as a result of stock option exercises during the twelve months ended December 31, 2011 and 2010 was approximately $36,000 and $61,000, respectively.

The per share weighted average grant-date fair value of stock options granted during 2011 and 2010 was $0.32 and $0.41, respectively.

As of December 31, 2011, the unamortized compensation expense related to outstanding unvested options was approximately $489,000 with a weighted average remaining requisite service period of 2.41 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, a full valuation allowance has been recorded related to the tax benefit for non-qualified stock options.

Deferred Stock Unit Activity

In prior years, the Company granted deferred stock units to employees. Grants of deferred stock units are paid in an equal number of shares of common stock on the vesting date of the award, subject to any deferred payment date that the holder may elect. A stock unit award is paid only to the extent vested. Vesting generally requires the continued employment by the award recipient through the respective vesting date, subject to accelerated vesting in certain circumstances. Since the deferred stock units are paid in an equal number of shares of common stock without any kind of offsetting payment by the employee, the measurement of cost is based on the quoted market price of the stock at the measurement date which is the date of grant.

The following table summarizes deferred stock unit activity during 2011:

   
Outstanding
Deferred Stock
 
December 31, 2010
    87,000  
Granted
    -  
Cancelled
    (38,000 )
December 31, 2011
    49,000  
         
Balance exercisable at December 31, 2011
    -  

The Company did not grant any deferred stock units during the twelve months ended December 31, 2011 or 2010.  The deferred stock units outstanding have performance-based accelerated vesting provisions that are tied to certain revenue targets for the Company which could result in accelerated vesting of up to 50% of the total award.  The Company has evaluated the likelihood of attaining the performance based targets and they are not considered probable, therefore, accelerated expense was not recorded.  The Company will continue to monitor its revenue results and should any estimates made regarding the satisfaction of those performances based conditions change at any time during the estimated requisite period, an adjustment will be calculated and recorded in accordance with ASC No. 718.

Warrant Activity

The following summarizes warrant activity during 2011:

   
Outstanding
Warrants
   
Weighted
Average Exercise
Price per Share
   
Weighted
Average
Remaining
Contractual
Life (in years)
 
Outstanding December 31, 2010
    4,500,000     $ 0.79       6.35  
Granted
    -       -       -  
Exercised
    -       -       -  
Forfeited
    -       -       -  
Outstanding December 31, 2011
    4,500,000     $ 0.79       5.35  
                         
Balance exercisable at December 31, 2011
    4,500,000     $ 0.79       6.35  

The 4,500,000 warrants outstanding were issued during 2009 in connection with asset acquisitions of iSports and i-am TV.  The fair values of the warrants were approximately $908,000 in aggregate and were determined using the Black-Scholes model using the following weighted-average assumptions: risk-free interest rates of 2.79%; dividend yield of 0%; expected volatility of 78.1%; and a term of 8 years.

Cumulative Convertible Preferred Stock

The Company has authorized 10,000,000 shares of preferred stock. The preferred stock may be issued in one or more series. The only series currently designated is a series of 5,000,000 shares of Series A Cumulative Convertible Preferred Stock (Series A Preferred Stock).

As of December 31, 2011 and 2010, there were 161,000 shares of Series A Preferred Stock issued and outstanding. The Series A Preferred Stock provides for a cumulative annual dividend of 10 cents per share, payable in semi-annual installments in June and December. Dividends may be paid in cash or with shares of common stock. For the twelve months ended December 31, 2011 and 2010, the Company issued approximately 37,000 and 34,000 common shares, respectively, for payment of dividends.

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. The conversion rate is subject to adjustment in certain events and is established at the time of each conversion, such that the number of shares of common stock issuable upon conversion of the preferred stock is convertible into is higher than the original conversion rate. During 2011 and 2010, there were no conversions. There is no mandatory conversion term, date or any redemption features associated with the Series A Preferred Stock.