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4. STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2015

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 “2004 Plan”), the NTN Buzztime, Inc. Amended 2010 Performance Incentive Plan (the “Amended 2010 Plan”) and the NTN Buzztime, Inc. 2014 Inducement Plan (the “2014 Plan”). The Company’s stock-based compensation plans are administered by the Nominating and Corporate Governance/Compensation Committee of the Company’s Board of Directors (the “Committee”), which 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.

The 2004 Plan expired in September 2009. 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.

At the Company’s 2015 Annual Meeting of Stockholders, the Company’s stockholders approved an increase in the authorized shares to be issued under the Amended 2010 Plan from 6,000,000 to 12,000,000. The Amended 2010 Plan expires in February 2020. As of September 30, 2015, approximately 7,634,000 share-based awards are available to be granted under the Amended 2010 Plan.

The 2014 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 Committee in September 2014 in connection with the appointment of Ram Krishnan as the Company’s Chief Executive Officer. As of September 30, 2015, there were no share-based awards available to be granted under the 2014 Plan. The 2014 Plan expires in September 2024.

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, 2015 and 2014 under the ASC No. 718 requirements.

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Weighted-average risk-free rate			1.27%				1.42%				1.18%				1.37%
Weighted-average volatility			105.50%				79.77%				82.51%				80.27%
Dividend yield			0.00%				0.00%				0.00%				0.00%
Expected life			5.15 years				4.91 years				4. 3 years				4.86 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, 2015 and 2014 was $123,000 and $68,000, respectively, and $341,000 and $180,000 for the nine months ended September 30, 2015 and 2014, respectively, and is expensed in selling, general and administrative expenses and credited to additional paid-in-capital. The Company granted stock options to purchase 10,000 and 3,828,000 shares of common stock during the three months ended September 30, 2015 and 2014, respectively, and stock options to purchase 2,115,000 and 5,328,000 shares of common stock during the nine months ended September 30, 2015 and 2014, respectively.

Stock options issued under all of the Company’s stock-based compensation plans may be exercised on a net-exercise arrangement, where shares of common stock equal to the value of the amount of the exercise price of the stock options being exercised are withheld as payment of the exercise price instead of cash. During the three months ended September 30, 2015, there were no stock options exercised under net-exercise arrangements or for cash. During the nine months ended September 30, 2015, 82,000 shares of common stock were exercised under net-exercise arrangements, and approximately 18,000 shares of common stock were issued. Also during the nine months ended September 30, 2015, the Company received approximately $1,000 in cash payments for the exercise of options to purchase approximately 2,000 shares. The total intrinsic value of all options exercised during the nine months ended September 30, 2015 was approximately $7,000. For 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. There were no net-exercise arrangements during the three and nine months ended September 30, 2014. 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.