This Annual Report on Form 10-K (including, but not limited to, the following discussion of our financial condition and results of operations) and the documents incorporated herein by reference contain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Words such as "believes," "anticipates," "estimates," "expects," "projections," "may," "potential," "plan," "continue" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including but not limited to statements regarding our future financial performance or position, our business strategy, plans or expectations, and our objectives for future operations, including relating to our products and services. Forward-looking statements contained herein are inherently subject to risks and uncertainties and our actual results and outcomes may be materially different from those expressed or implied by the forward-looking statements. Our actual results and outcomes may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in our operations, development efforts and business environment, including those set forth under the Section entitled "Risk Factors" in Item 1A, and other documents we file with the Securities and Exchange Commission. We cannot guarantee future results, levels of activity, performance or achievements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to revise or update any such forward-looking statement to reflect future events or circumstances.

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this Form 10-K.

Overview

We historically have operated principally through two operating divisions:
Entertainment and Hospitality. The Entertainment division generates revenue primarily from the Buzztime iTV Network which distributes an interactive television promotional game network to restaurants, sports bars, taverns and pubs, primarily in North America. Additionally, we generate royalty revenue by distributing our game content and technology to other third-party consumer platforms, including cable and satellite television, online, retail games and toys, airlines and books. We also generate revenue by selling advertising for distribution via our interactive television network.

The Hospitality division has been discontinued. It was comprised of NTN Wireless Communications, Inc. ("NTN Wireless") and NTN Software Solutions, Inc. ("Software Solutions"). In 2006, we determined that the operation of the Hospitality division was not a strategic fit with our core business and committed to a divestiture plan. These operations have been reclassified as discontinued operations for all periods presented. NTN Wireless provided revenues from producing and distributing guest and server paging systems to restaurants and other markets. Software Solutions developed and distributed customer management software to manage reservations and table service in restaurants. Software Solutions also provided professional help desk services and outsourced software development and support and maintenance services.

On March 30, 2007, we completed the sale of substantially all of the assets of NTN Wireless. On October 25, 2007, we sold certain intellectual property assets of Software Solutions pursuant to an Asset Purchase Agreement, and in a separate agreement with a customer, we discontinued the outsourced software development. Additionally, we completed the wind down of our professional help desk and support and maintenance services during the third quarter of 2008. We do not expect to incur any additional expenses related to the help desk and support and maintenance function in subsequent periods.

Restructuring of Operations

In January 2007 we restructured our Canadian operations to reduce our costs and streamline operations. The restructuring involved a reduction of ten employees, moving the operation to a smaller facility and subleasing the previously occupied facility until the end of the original lease. Along with the restructuring, we sold certain assets and granted a license for the related licensed materials of our Interactive Events business to a former employee.

During the third quarter of 2008, we ceased our operations in the United Kingdom. The closure of operations involved the termination of six employees, relocation of nearly all assets to the United States and disposal of certain other assets. As of the date we ceased operations, UK operations accounted for less than 1% of the total subscriber sites.

The Entertainment Division

The out-of-home Buzztime iTV Network has engaged in business in the hospitality industry for 25 years as a promotional platform providing interactive entertainment to patrons in restaurants and sports bars. The iTV Network distributes a wide variety of engaging interactive multi-player games, including trivia quiz shows, play-along sports programming, casino-style and casual games to our Network. Patrons use our wireless game controllers, or Playmakers, to play along with the Buzztime games which are displayed on television screens. Buzztime players can compete with other players within their hospitality venue and also against players in other Network venues.

We target national and regional hospitality chains as well as local independent hospitality venues that desire a competitive point-of-difference to attract and retain customers. As of December 31, 2008, we had 3,429 United States Network subscribers and 317 Canadian subscribers. Approximately 29% of our Network subscribers come from leading national chains in the casual-dining restaurant segment such as Buffalo Wild Wings, TGI Friday's, Old Chicago and Damon's Grill.

We also generate revenue from distributing and licensing our Buzztime-branded content and related technology to consumer platforms, with a focus on interactive networks such as cable TV, satellite TV and mobile phones. Our distribution efforts focus on licensing real-time, mass-participation games such as trivia, head-to-head multi-player games such as Texas Hold'em and single-player games such as solitaire.

Our games have been available as a two-way cable TV game service since June 2002. In 2008, our games (including trivia, Texas Hold'em, Buzztime Billiards and assorted single-player games) were licensed to five cable systems including Comcast and were available to the digital cable subscribers for free. Our games are also available as a premium monthly subscription service to Echostar DISH and Bell ExpressVu satellite customers in the U.S. and Canada, respectively. Revenue from our distribution division is derived primarily from license fees and royalties from third-party licensees who distribute Buzztime content to end-users, as well as from third-party development and production fees.

The Hospitality Division (Discontinued Operations)

NTN Wireless earned revenue from the sale of on-site wireless paging products primarily to restaurants but also hospitals, church and synagogue nurseries, salons, business offices and retail establishments in North America. In restaurants, these products were provided to customers while waiting for a table and activated to let them know when their table was ready, as well as to restaurant staff to alert them to certain issues, such as when hot food is ready to be served.

Software Solutions generated revenue from the licensing of proprietary seating management and reservation management systems software to restaurants, casinos and other venues. Software Solutions also provided professional help desk services and outsourced software development and support and maintenance services to Domino's Pizza and their franchisees and other quick service restaurant locations.

Results of Operations

Change in Reporting Format

Our Hospitality Division is classified as discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The operating results for these businesses have been separately classified and reported as discontinued operations in the consolidated financial statements. In accordance with SFAS No. 144, corporate expenses previously allocated to these divisions have been reclassified to Buzztime iTV for all years presented.

Results of Continuing Operations

Year Ended December 31, 2008 compared to the Year Ended December 31, 2007

Continuing operations, which consists of the Entertainment division, generated a loss of $6,134,000 for the year ended December 31, 2008 compared to a loss of $4,291,000 for the year ended December 31, 2007.

Revenue

Revenue from continuing operations decreased $3,046,000 or 10% to $27,496,000
for the year ended December 31, 2008 from $30,542,000 for the year ended
December 31, 2007. This decrease was due to a reduction in our site count
predominately driven by the closure of our UK operations, the Chapter 7
bankruptcy of the Bennigan's restaurant chain and changes in our pricing
strategy. Comparative site count information for Buzztime iTV Network is as
follows:

                                         Network Subscribers
                                          As of December 31,
                                          2008           2007
                      United States         3,429         3,490
                      Canada                  317           322
                      United Kingdom            -            65
                      Total                 3,746         3,877

Direct Costs and Gross Margin

The following table compares the direct costs and gross margins for the
Entertainment Division for 2008 and 2007:

                                              For the year ended
                                                 December 31,
                                             2008             2007
               Revenues                  $ 27,496,000     $ 30,542,000
               Direct Costs                 7,756,000        9,017,000
               Gross Margin              $ 19,740,000     $ 21,525,000
               Gross Margin Percentage            72%              70%

Gross margin as a percentage of revenue increased by two percentage points to 72% for the year ended December 31, 2008 compared to 70% in the prior year. The two point increase in the gross margin percentage is primarily the result of a reduction in depreciation expense as equipment became fully depreciated. Additionally, installation costs decreased in 2008 compared to 2007 primarily due to an adjustment relating to the amortization of deferred costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $1,442,000 or 6%, to $25,314,000 in 2008 from 23,872,000 in 2007. Selling, general and administrative expenses increased due to several factors. Severance expenses increased $956,000 as a result of the elimination of 22 positions, closing our UK office, and the departure of several executives. Consulting expenses increased $857,000 as we utilized the services of external consultants on a number of initiatives. Software disposal expenses increased $360,000 due to impairments on certain projects that were deemed to no longer fit with our current strategy. Legal fees increased $198,000 related to corporate governance matters as well as an ongoing trademark infringement case. Bad debt expense increased $201,000 related to customer cancellations and bankruptcies. Recruiting expenses increased $202,000 as a result of our efforts to recruit new executive talent to complement our revised business strategy and turnover in several executive positions. In addition, office lease expenses increased $304,000 due to the addition of leased office space in Santa Monica, California.

The above increases were offset by several factors. Marketing expenses decreased $851,000 due to an overall reduction in advertising, trade shows, and outsourced marketing services. Commission expenses decreased $339,000 predominately due to an adjustment relating to the amortization of deferred costs. Other taxes decreased $270,000 due to updated estimates relating to ongoing sales tax obligation settlement discussions, which resulted in the reversal of certain accrued expenses. Additionally, salaries decreased $120,000 due to the closing of the UK office and reductions in force.

Impairment of Capitalized License

During the third quarter of 2007, we performed an evaluation of our capitalized license agreement with Media General, Inc., which would have been up for renewal in May 2008. We determined that the intangible asset related to selected technology and content licensed from Media General was impaired. In May 2003, in connection with an investment Media General made in us, we issued 666,667 shares of unregistered shares of our common stock as consideration for this license. The original license was for five years with an option to renew. At that time, we had intended to renew for the additional five year period in part related to our plans to deploy the games relating to this license as a premium subscription tier to the Buzztime cable channel. As of September 30, 2007, we determined that the license agreement was no longer a strategic fit and did not renew it. Therefore, we incurred a loss on impairment equal to the remaining net book value of the capitalized license agreement of approximately $968,000 during the third quarter of 2007.

Restructuring Costs

We recorded restructuring charges totaling $478,000 during the year ended December 31, 2007 in connection with the restructuring of the Canadian operation to reduce costs and streamline operations. Of this amount, approximately $337,000 was for one-time termination benefits, $99,000 related to costs to exit certain contractual and lease obligations and $42,000 for moving and relocation costs. The restructuring involved a reduction of 10 employees and relocating to a smaller space.

Depreciation and amortization

Depreciation and amortization not related to direct operating costs decreased $34,000, or 6%, to $532,000 in 2008 from $566,000 in 2007, due to various fixed assets becoming fully depreciated, thereby reducing our depreciation in 2008.

Interest Income and Expense

Interest income decreased $209,000, to $138,000 in 2008 from $347,000 in the prior year due to a decrease in our average cash balance invested. Interest expense decreased $25,000, to $5,000 in 2008 from $30,000 in 2007 due to a reduction in capital leases.

We expect to report a U.S. tax loss for the year ended December 31, 2008. We expect that we will not incur a federal tax liability; however, we will likely incur a state tax liability. We also expect to pay income taxes in Canada due to the profitability of NTN Canada. As a result, we recorded a tax provision of $234,000 for the year ended December 31, 2008. This was a $98,000 decrease compared to the $332,000 provision for income taxes recorded for the year ended December 31, 2007. We continue to provide a 100% valuation allowance against our deferred tax assets related to certain net operating losses as realization of such tax benefits is not assessed as more likely than not. Further, we have not quantified the potential impact that Section 382 of the Internal Revenue Code may have on the ability for us to utilize our net operating loss carryforwards. The use of some or all of those net operating losses may be limited if certain changes in ownership are deemed to have occurred.

Results of Discontinued Operations

Year Ended December 31, 2008 compared to the Year Ended December 31, 2007

Discontinued operations generated a loss of $332,000 for the year ended
December 31, 2008 compared to a loss of $735,000 for the year ended December 31,
2007. The operating results of the discontinued operations are as follows for
2008 and 2007:

                                                         For the year ended
                                                            December 31,
                                                        2008            2007
     Operating revenues                              $   21,000     $  4,825,000
     Operating expenses                                 530,000        5,919,000
     Operating loss                                    (509,000 )     (1,094,000 )
     Other income                                       177,000          388,000
     Loss before income taxes                          (332,000 )       (706,000 )
     Income tax expense                                       -           29,000
     Loss from discontinued operations, net of tax   $ (332,000 )   $   (735,000 )

On March 30, 2007, we completed the sale of substantially all of the assets of NTN Wireless for $2.4 million and recognized a gain, net of tax, of approximately $396,000. On October 25, 2007, we sold certain intellectual property assets of Software Solutions pursuant to an Asset Purchase Agreement, and in a separate agreement with a customer, we discontinued the outsourced software development it was providing. The intellectual property sold constituted substantially all of the remaining operating assets of our Hospitality division, which had originally consisted of our Software Solutions and Wireless. We completed the wind down of our professional help desk and support and maintenance services during the third quarter of 2008. As such, we do not anticipate any further costs in subsequent periods.

Moving, relocation and other associated costs related to the dissolution were expensed as incurred. Severance expenses for involuntary employee terminations were approximately $52,000 for 2008 and $55,000 for 2007.

We recorded a loss from discontinued operations, net of tax, of approximately $332,000 during 2008. That loss was substantially due to the wind down activities associated with the discontinuation of those operations.

EBITDA-Consolidated Operations

Earnings before interest, taxes, depreciation and amortization, or EBITDA, is not intended to represent a measure of performance in accordance with accounting principles generally accepted in the United States (GAAP). Nor should EBITDA be considered as an alternative to statements of cash flows as a measure of liquidity. EBITDA is included herein because we believe it is a measure of operating performance that financial analysts, lenders, investors and other interested parties find to be a useful tool for analyzing companies like us that carry significant levels of non-cash depreciation and amortization charges in comparison to their GAAP earnings or loss.

The following table reconciles our consolidated net loss per GAAP to EBITDA:

                                                 For the year ended
                                                    December 31,
                                                2008             2007
            Net loss per GAAP               $ (6,466,000 )   $ (5,026,000 )
            Interest income, net                (133,000 )       (317,000 )
            Depreciation and amortization      3,101,000        3,932,000
            Income taxes                         234,000          361,000
                 EBITDA                     $ (3,264,000 )   $ (1,050,000 )

Our operations generated EBITDA levels as presented below:

                                           For the year ended December 31, 2008
                                                        Discontinued
                                    Entertainment        operations          Total
    Net loss per GAAP               $   (6,134,000 )   $     (332,000 )   $ (6,466,000 )
    Interest income, net                  (133,000 )                -         (133,000 )
    Depreciation and amortization        3,101,000                  -        3,101,000
    Income taxes                           234,000                  -          234,000
    EBITDA                          $   (2,932,000 )   $     (332,000 )   $ (3,264,000 )



                                           For the year ended December 31, 2007
                                                        Discontinued
                                    Entertainment        operations          Total
    Net loss per GAAP               $   (4,291,000 )   $     (735,000 )   $ (5,026,000 )
    Interest income, net                  (317,000 )                -         (317,000 )
    Depreciation and amortization        3,932,000                  -        3,932,000
    Income taxes                           332,000             29,000          361,000
    EBITDA                          $     (344,000 )   $     (706,000 )   $ (1,050,000 )

Liquidity and Capital Resources

As of December 31, 2008, we had cash and cash equivalents of $3,362,000 compared to cash and cash equivalents of $10,273,000 as of December 31, 2007. We used $5,912,000 in cash in 2008 compared to cash generation of $774,000 in 2007. Cash use in 2008 was driven by our net loss of $6,466,000. In 2008, especially in the second half of the year, we began to take strong measures to reduce our use of cash. Those measures included reducing headcount through strategic reductions in our work force, renegotiated pricing with numerous vendors, decrease in use of certain vendors, decrease in use of consultants, decreased marketing spending and a decrease in travel and entertainment expenditures. Additionally, we took a further reduction in our work force in January 2009 in a further effort to align our human resources with our current business objectives.

During 2009, we intend to continue to rely upon our cash on hand and cash flow from operations to meet our liquidity needs. While we believe that the actions taken in 2008 to reduce our operating costs, improve our gross profit margin and manage working capital should benefit us in 2009, there can be no assurance in these uncertain economic times that those actions will be sufficient.

We believe existing cash and cash equivalents, together with funds generated from operations, will be sufficient to meet our operating cash requirements for at least the next 12 months. We have no debt obligations other than capital leases and we do not expect to incur debt in 2009. In the event that net cash provided by operating activities and cash on hand are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, further reduce operational cash uses, sell assets or seek financing. Any actions we may undertake to reduce planned capital purchases, further reduce expenses, or generate proceeds from the sale of assets may be insufficient to cover shortfalls in available funds. If we require additional capital, we may be unable to secure additional financing on terms that are acceptable to us, or at all.

Working Capital

As of December 31, 2008, we had working capital (current assets in excess of
current liabilities) of $874,000 compared to $7,698,000 as of December 31,
2007. The following table shows our change in working capital from December 31,
2007 to December 31, 2008.

                                                           Increase
                                                          (Decrease)
                                                        (In thousands)
           Working capital as of December 31, 2007     $          7,698
           Changes in current assets:
           Cash and cash equivalents                             (6,911 )
           Restricted cash                                          (55 )
           Accounts receivable, net of allowances                  (718 )
           Investment available-for-sale                           (206 )
           Prepaid expenses and other current assets               (134 )
           Assets held for sale                                    (212 )
           Total current assets                                  (8,236 )
           Changes in current liabilities:
           Accounts payable                                         612
           Accrued expenses                                        (269 )
           Sales tax payable                                         24
           Accrued salaries                                         (26 )
           Accrued vacation                                          66
           Income tax payable                                        18
           Deferred revenue                                         315
           Liabilities of discontinued operations                   672
           Total current liabilities                              1,412
           Net change in working capital                         (6,824 )
           Working capital as of December 31, 2008     $            874

Cash and cash equivalents decreased $6,911,000 as a result of $2,963,000 of cash used in operating activities, $2,925,000 used in investing activities, $24,000 used in financing activities and a $999,000 effect of changes in exchange rates, primarily from converting Canadian Dollars to US Dollars.

Restricted cash decreased $55,000 due to the release of restricted cash used to collateralize leased office space in Canada.

Accounts receivable decreased $718,000 from $1,354,000 as of December 31, 2007 to $636,000 as of December 31, 2008. The decrease is primarily attributable to lower revenue in 2008. This decrease in revenue resulted from a decline in our customer site count, from 3,877 as of December 31, 2007 to 3,746 as of December 31, 2008, combined with an overall decrease in pricing.

Accounts payable decreased $612,000 from $831,000 as of December 31, 2007 to $219,000 as of December 31, 2008. That decrease was primarily attributable to efforts taken by management during 2008 to reduce spending in key areas which ultimately resulted in decreased accounts payable at the end of the year.

Liabilities of discontinued operations decreased as we fulfilled our obligations related to the wind down of the Wireless and Software Solutions businesses in 2008. We do not expect to incur any additional expenses or cash outflows related to those discontinued operations.

Cash Flows


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