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6. STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

The Company’s stock-based compensation plans include the NTN Buzztime, Inc. 2004 Performance Incentive Plan, the NTN Buzztime, Inc. 2010 Performance Incentive Plan and the NTN Buzztime, Inc. 2014 Inducement Plan. In September 2009, the NTN Buzztime, Inc. 2004 Performance Incentive Plan expired. From and after the date it expired, no awards could be granted under that plan and all awards that had been granted under that plan before it expired are governed by that plan until they are exercised or expire in accordance with that plan’s terms. The 2010 Performance Incentive Plan provides for the grant of up to 6,000,000 share-based awards and expires in February 2020. The 2014 Inducement Plan, which provides for the grant of up to 4,250,000 share-based awards to new employees as an inducement material to the new employee entering into employment with the Company, was approved by the Nominating and Corporate Governance/Compensation Committee of the Company’s Board of Directors (the “Committee”) in September 2014 in connection with the appointment of Ram Krishnan as the Company’s Chief Executive Officer. As of September 30, 2014, approximately 1,296,000 and 750,000 of share-based awards are available to be issued under the 2010 Performance Incentive Plan and the 2014 Inducement Plan, respectively. The Company’s stock-based compensation plans are administered by the Committee, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.

The Company records stock-based compensation in accordance with ASC No. 718, Compensation – Stock Compensation and ASC No. 505-50, Equity – Equity-Based Payments to Non-Employees. 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 to employees is recognized using the straight-line single-option method. Stock-based compensation expense for share-based payment awards to non-employees is recorded at its fair value on the grant date and is periodically re-measured as the underlying awards vest.

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 the three and nine months ended September 30, 2014 and 2013 under the ASC No. 718 requirements.

		Three months ended September 30,				Nine months ended September 30,
		2014		2013		2014		2013
Weighted-average risk-free rate		1.42%		1.00%		1.37%		0.60%
Weighted-average volatility		79.77%		77.61%		80.27%		79.58%
Dividend yield		0.00%		0.00%		0.00%		0.00%
Expected life		4.91 years		4.73 years		4.86 years		4.81 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 the three months ended September 30, 2014 and 2013 was $68,000 and $34,000, respectively, and $180,000 and $87,000 for the nine months ended September 30, 2014 and 2013, respectively, and is included in selling, general and administrative expenses and credited to additional paid-in-capital. The Company granted stock options to purchase 3,828,000 and 127,000 shares of common stock during the three months ended September 30, 2014 and 2013, respectively, and stock options to purchase 5,328,000 and 1,255,000 shares of common stock during the nine months ended September 30, 2014 and 2013, respectively.

The total intrinsic value of options exercised during the three and nine months ended September 30, 2014 was approximately $20,000 and $60,000, respectively. During the three and nine months ended September 30, 2014, the Company received approximately $22,000 and $44,000, respectively, in cash payments for the exercise of options to purchase approximately 87,000 and 185,000 shares, respectively. The total intrinsic value of options exercised was $2,000 and $4,000 for the three and nine months ended September 30, 2013. Pursuant to the Company’s 2004 and 2010 Performance Incentive Plans, stock option exercises may be made on a net-exercise arrangement, where shares of common stock are withheld in the amount of the exercise price as payment of the exercise price instead of cash. Under such net-exercise arrangements, for the three months ended September 30, 2013, options to purchase approximately 10,000 shares of common stock were exercised and approximately 6,000 shares of common stock were issued. For the nine months ended September 30, 2013, options to purchase approximately 25,000 shares of common stock were exercised and approximately 12,000 shares of common stock were issued under such net-exercise arrangements.