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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________

FORM 10-K
_______________________

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

COMMISSION FILE NUMBER 1-11460

NTN BUZZTIME, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 31-1103425
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

5966 LA PLACE COURT
CARLSBAD, CALIFORNIA 92008
(Address of Principal Executive Offices) (Zip Code)

(760) 438-7400
(Registrant's telephone number, including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
----------------------------- -----------------------
Common Stock, $.005 par value American Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company.
Yes [ ] No [X]

The aggregate market value of the common stock held by non-affiliates
of the Registrant as of June 30, 2005, computed by reference to the closing sale
price of the common stock on the American Stock Exchange on June 30, 2005, was
approximately $90,173,809. Shares of common stock held by each executive officer
and director and by each person who owns 5% or more of the outstanding common
stock have been excluded in that such persons may be deemed to be affiliates.
The determination of affiliate status is not necessarily a conclusive
determination for other purposes.

As of March 1, 2006, Registrant had 53,951,302 shares of common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Not applicable.

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TABLE OF CONTENTS

ITEM PAGE
- ---- ----
PART I
1. Business........................................................ 1
1A. Risk Factors.................................................... 15
1B. Unresolved Staff Comments....................................... 22
2. Properties...................................................... 22
3. Legal Proceedings............................................... 22
4. Submission of Matters to a Vote of Security Holders............. 23

PART II

5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 23
6. Selected Financial Data......................................... 24
7. Management's Discussion and Analysis of Financial
Condition and Results of Operation........................... 25
7A. Quantitative and Qualitative Disclosures About Market Risk 43
8. Consolidated Financial Statements and Supplementary Data........ 43
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 43
9A. Controls and Procedures......................................... 44

PART III

10. Directors and Executive Officers of the Registrant.............. 45
11. Executive Compensation.......................................... 48
12. Security Ownership of Certain Beneficial Owners and Management.. 51
13. Certain Relationships and Related Transactions.................. 53
14. Principal Accountant Fees and Services ......................... 54

PART IV

15. Exhibits and Financial Statement Schedules...................... 54

Index to Consolidated Financial Statements and Schedule......... F-1

THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THE MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE
FORWARD-LOOKING STATEMENTS REFLECT FUTURE EVENTS, RESULTS, PERFORMANCE,
PROSPECTS AND OPPORTUNITIES, INCLUDING STATEMENTS RELATED TO OUR STRATEGIC
PLANS, CAPITAL EXPENDITURES, INDUSTRY TRENDS AND FINANCIAL POSITION OF NTN
BUZZTIME, INC. AND ITS SUBSIDIARIES. FORWARD-LOOKING STATEMENTS ARE BASED ON
INFORMATION CURRENTLY AVAILABLE TO US AND OUR CURRENT EXPECTATIONS, ESTIMATES,
FORECASTS, AND PROJECTIONS ABOUT THE INDUSTRIES IN WHICH WE OPERATE AND THE
BELIEFS AND ASSUMPTIONS OF MANAGEMENT. WORDS SUCH AS "EXPECTS," "ANTICIPATES,"
"COULD," "TARGETS," "PROJECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES," "MAY," "WILL," "WOULD," VARIATIONS OF SUCH WORDS, AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS ARE ONLY PREDICTIONS AND ARE SUBJECT TO RISKS,
UNCERTAINTIES, AND ASSUMPTIONS THAT MAY BE DIFFICULT TO PREDICT. ACTUAL RESULTS
MAY DIFFER MATERIALLY AND ADVERSELY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS REPORT UNDER THE SECTION
ENTITLED "RISK FACTORS," AND IN OTHER REPORTS WE FILE WITH THE SECURITIES AND
EXCHANGE COMMISSION FROM TIME TO TIME. WE UNDERTAKE NO OBLIGATION TO REVISE OR
UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENT FOR ANY REASON.

PART I

ITEM 1. BUSINESS

GENERAL

We operate principally through four business segments: the NTN
Interactive Television Network (NTN iTV Network), NTN Wireless Communications
(NTN Wireless), NTN Software Solutions (Software Solutions) and our wholly-owned
subsidiary, Buzztime Entertainment, Inc. (Buzztime Entertainment). The first
three segments combine to form our NTN Hospitality Technologies Division.

o The NTN iTV Network is a promotional entertainment network that
transmits a variety of multi-player interactive trivia, card and
sports games to restaurants and sports bars throughout the United
States and Canada, and to about 40 pubs (installed or in process)
in the United Kingdom. Subscribing locations use the network to
persuade customers to stay longer, spend more money and return
more often to play the games for free. The network grew in North
America by 359 sites in 2005 to 4,019 subscribers, the highest
subscriber site count in the Company's history. During the past 7
quarters, we have experienced the most significant increase in
domestic iTV site sales in over 8 years.

o NTN Wireless is one of the highest volume providers of wireless
guest paging systems used at restaurants, hospitals, church and
synagogue nurseries, salons, business offices, and retail
establishments in North America. NTN Wireless offers a complete
line of on-site wireless communication management products,
including GuestCall(R) and ServerCall(R) paging systems, repair
and replacement programs for pagers, and transmitters used in
conjunction with the Software Solutions table management software.
More than 2,800 restaurants currently use NTN Wireless products,
including such national chains as Buffalo Wild Wings Grill & Bar,
Fazoli's, O'Charley's, and restaurants operated by Darden
Restaurants, Inc. such as Olive Garden and Smokey Bones.

o Software Solutions designs, develops, and markets innovative
software for the restaurant and hospitality industry. Primary
products include: ProHost(R), a Windows-based seating management
system and RSViP(R), a Windows-based reservation management
system. Software Solutions also provides customer support for
Vision Point-of-Sale software used by Domino's Pizza. Customers of
Software Solutions include Bahama Breeze, Hard Rock Cafe, Charlie
Trotters, Gaylord Entertainment, Harrah's, MGM MIRAGE, Rainforest
Cafe, Tavern on the Green and The Cheesecake Factory.

o Buzztime Entertainment is a developer, distributor and licensor of
single-player and multi-player interactive television games and
technology to interactive consumer platforms. Buzztime games drive
the entertainment on our NTN iTV Network and several other
interactive platforms. The Buzztime(R) Trivia Channel is the first
continuous multi-player game service created exclusively for
digital cable television audiences in the United States. Buzztime
games are also found on satellite television with Echostar DISH
Network and Bell ExpressVu in Canada; on mobile phones with Sprint
and Verizon; and in retail stores with the Buzztime Home Trivia
System, produced and distributed by Cadaco. Buzztime features
casual play-along games for players of all interests and ability
levels with real-time competition and rankings among households
and across a given platform.

Unless otherwise indicated, references herein to "NTN," "we," "us" and
"our" include NTN Buzztime, Inc. and its consolidated subsidiaries. Our
headquarters are located at 5966 La Place Court, Carlsbad, California 92008, and
our telephone number is (760) 438-7400. NTN Buzztime, Inc. was incorporated in
Delaware in 1984 as Alroy Industries and changed its corporate name to NTN
Communications, Inc. in 1985. Our most recent name change was approved by a vote
of shareholders in 2005 to better reflect the growing role of the Buzztime
consumer game brand.

OUR MISSION

Our mission is to build Buzztime into an increasingly popular
entertainment experience for people who are looking for competition, social
interaction and escape, generating income from distribution, advertisers and our
players. As the most broadly distributed massively multi-platform gaming
experience, Buzztime will build an increasingly loyal player community by making
its feature-rich play-along entertainment available any time via television,
personal computer, mobile phone or favorite restaurant or sports bar.

STRATEGIC DIRECTION/POTENTIAL SALE OF ASSETS

For the past several years, we have managed and reported our businesses
through two operating entities: our NTN Hospitality Technologies Division,
consisting of the three segments noted above, and Buzztime Entertainment. This
approach is maintained in the presentation of these financial statements. Going
forward, however, we are changing the way we view and manage our four segments,
and will operate these as our entertainment business, consisting of our NTN iTV
Network segment and Buzztime Entertainment, and our hospitality business,
consisting of our NTN Wireless and Software Solutions segments. In late 2005, we
began consolidating the operations of the NTN iTV Network segment and Buzztime
Entertainment, and managing them as one entertainment unit, independent of NTN
Wireless and Software Solutions. In 2006, we began integrating their product
offerings and aggregating their customers under the Buzztime game brand,
including the re-branding of the NTN iTV Network as the Buzztime iTV Network,
currently planned for late in the first quarter of 2006.

In the third quarter of 2005, we were approached by a hospitality
industry corporation stating an interest in purchasing the assets of NTN
Wireless and Software Solutions. In the fourth quarter of 2005, we disclosed our
interest in considering the sale of these businesses. As of the date of this
filing, discussions with potential buyers are on hold pending the assignment of
certain contracts. If we cannot find buyers willing to pay what we believe are
the market values for the assets of NTN Wireless and Software Solutions, we may
decide to maintain their operations. We will continue to grow these two business
segments, which have experienced increased recent success in the hospitality
industry, until a transaction is consummated.

SECURITIES AND EXCHANGE COMMISSION REPORTING

We file reports with the Securities and Exchange Commission (SEC). The
public may read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC (http://www.sec.gov). Our internet
site is "www.ntnbuzztime.com". Copies of our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act are available free of charge on our website.

INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS

Financial information for each of our business segments for each of the
last three fiscal years is contained in Item 15 - Exhibits and Financial
Statement Schedules. Approximately 90% of our revenue is attributable to
customers in the United States, and substantially all of the remaining 10% is
attributable to customers in Canada.

2006 BUSINESS OBJECTIVES

Our interactive NTN iTV Network, distributed to restaurants and sports
bars across North America, provides us a unique and profitable entertainment
niche business that we have developed over the past 20 years. In 2000, we began
to leverage our network content and technology across emerging interactive
platforms and launched new game offerings under the Buzztime brand as a new
consumer-focused trade name. Today, Buzztime games are uniquely positioned in
emerging markets, with license revenue derived from cable television, satellite
television, mobile phones and retail.

In 2006, our objectives are to grow all entertainment offerings under
the Buzztime brand, drive stronger sales and licensing revenues, and aggregate
our users via a strong new player web portal to efficiently monetize all aspects
of our business, from distribution to advertising to consumer revenues.

We will also provide continuing support to our NTN Wireless and
Software Solutions customers and sales channels to promote our products, many of
which are considered "best of breed" in the hospitality customer management
business.

To accomplish our business objectives, we are pursuing strategies to:

o CONTINUE TO GROW OUR NTN ITV NETWORK REVENUE BY INCREASING THE
NUMBER OF RESTAURANTS AND SPORTS BARS THAT DISTRIBUTE OUR ITV GAME
SERVICE IN THE UNITED STATES AND CANADA. We intend to accomplish
this increase by expanding our product offerings to include more
value-added services, adding independent dealers to our existing
sales force, and continually adding new and appealing game content
such as our popular multi-player Texas Hold'em poker game and
sports fantasy player information through our agreement with CBS
Sportsline. Our major new hospitality game offering for 2006 will
be Buzztime Billiards, a virtual game played on our network by up
to 7 people per game.

o CONTINUE TO GROW THE BUZZTIME NETWORK IN THE UNITED KINGDOM. In
March 2005, we launched our iTV hospitality network product in the
United Kingdom under the brand "Buzztime Network." Over the first
six months, we entered into trials with 11 pubs, changing the
programming mix and promotional messages to optimize the product
for the United Kingdom pub culture. In late fall, we began our
first broad marketing programs with a target of driving sales
growth early in 2006. The year ended with 13 sites in operation.
In January 2006, we had sales of 8 site subscriptions, and in
February 2006, we sold 18 sites. At February 28, 2006, we had 20
sites installed and 20 sold sites awaiting installation. With our
recent momentum, we believe that our network product may become
very successful in this market.

o INCREASE THE DISTRIBUTION OF BUZZTIME-BRANDED CONTENT ON DIGITAL
CABLE TELEVISION IN THE UNITED STATES. Our goal on cable
television is for the Buzztime Network to be the widest deployed
iTV game service on cable television systems nationally. We are
pursuing this goal by leveraging our large library of
single-player and multi-player games, proven technology and
cross-platform marketing programs. Buzztime is currently available
to over 300,000 digital cable subscribers in 10 cable systems in
the United States including Comcast, Time Warner Cable,
Susquehanna Communications and Blue Ridge Communications. Our
early 2006 Blue Ridge system launch of Texas Hold'em and Buzztime
Billiards are firsts in cable television game offerings, and are
proving to be very successful in their initial launch.

o CONTINUE TO EXPAND LICENSE AND SUBSCRIPTION REVENUE BY
DISTRIBUTING OUR BUZZTIME-BRANDED CONTENT THROUGH THIRD-PARTY
NETWORKS AND LICENSEES. Buzztime one-way games are available via
satellite through Echostar DISH and Bell Canada ExpressVu on a
subscription basis. Buzztime multi-player trivia games are
available on advanced mobile phones via Verizon, Sprint, Nextel,
T-Mobile, Alltel and US Cellular wireless networks. Finally,
Buzztime home electronic games, trivia player cards and trivia
books are available in thousands of retail and online stores
through our licensee partners.

o INITIATE A CONSUMER WEB STRATEGY THAT WILL GIVE ALL BUZZTIME
PLAYERS A NEW LEVEL OF PLAY DATA AND PERSONALIZATION FIRST TO
PLAYERS ON THE ITV HOSPITALITY NETWORK, AND SOON FOR OTHER
PLATFORMS. We will launch subscription opportunities in the second
quarter of 2006 for avid Buzztime gamers and we hope to offer
pay-to-play skill gaming by year-end.

o INCREASE THE AWARENESS AND VALUE OF BUZZTIME CONTENT BY GROWING
THE NUMBER OF CONSUMER PLATFORMS WHERE OUR CONTENT IS AVAILABLE
AND CONNECTING ALL OF OUR PLAYERS INTO ONE UNIFIED PLAYER
COMMUNITY. This multi-platform consumer marketing effort to make
the Buzztime multi-player experience valuable across all platforms
will increase the awareness and value of the Buzztime Hospitality
Network to restaurant and sports bar owners by increasing demand
and usage within their establishments.

o INCREASE THE NUMBER OF HOSPITALITY LOCATIONS SERVICED BY THE NTN
WIRELESS AND SOFTWARE SOLUTIONS SEGMENTS. We intend to accomplish
this increase by expanding our product offerings to include more
value-added services, adding independent dealers to our existing
sales force and providing new and updated products. We invested
heavily in our Software Solutions products in 2005 and are
distributing advanced versions of these products to major national
accounts in early 2006. The integration of our NTN Wireless and
Software Solutions products gives us a unique product offering.

THE NTN HOSPITALITY TECHNOLOGIES DIVISION

GENERAL

The NTN Hospitality Technologies Division provides consumer-oriented
interactive entertainment and communications products to the out-of-home
hospitality industry including restaurants, sports bars and other establishments
that are looking for a competitive point-of-difference to attract and retain
customers.

Over the past three years, the division has evolved from one that
provides a single product - interactive entertainment located primarily in the
bar area - to a full-service provider of "front of the house" products and
services across the establishment. These products and services include on-site
wireless commercial communication services, seating management and reservation
systems for the hospitality industry. Providing this expanded array of products
has allowed us to grow revenues in our primary markets, as well as to expand the
market to include hospitality venues, such as fine dining and family dining
formats, that are beyond our traditional customer base of casual dining, sports
bars and taverns.

The NTN Hospitality Technologies Division's operations are divided into
three operating segments:

NTN ITV NETWORK SEGMENT
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The NTN iTV Network has maintained a unique and preemptive position in
the hospitality industry for over 20 years as a platform for providing
interactive entertainment to restaurant and sportsbar patrons. Approximately 72%
of our current consolidated revenues come from the operations of this segment as
we receive recurring service fees from hospitality venues that receive the
transmission of our interactive trivia quiz show, play-along sports programming
and our NTN Blast channel, including Texas Hold'em and the new Buzztime
Billiards.

Through our NTN iTV Network, we transmit engaging interactive game
content to the hospitality locations where patrons use our wireless game devices
to interact with content displayed on television screens. Our new content
concepts are bringing about strong demand for our product. During the past 7
quarters, we have experienced the most significant increase in domestic iTV site
sales in over 8 years.

Through 2003, our NTN iTV Network also received licensing royalty
revenue from NTN Interactive Network (NTNIN), a division of Chell Group
Corporation, our Canadian licensee, which maintained approximately 400 sites as
of December 2003. On December 15, 2003, we acquired most of the operating
assets, certain liabilities and the operations of NTNIN from Chell Group
Corporation. Total consideration for the acquisition was $1,823,000.

UNITED KINGDOM NETWORK LAUNCH

In March 2005, we launched our iTV hospitality network product in the
United Kingdom under the brand "Buzztime Network." In the late fall of 2005, we
began our first broad marketing programs with a target of driving sales growth
early in 2006. The year ended with 13 sites in operation. These sales are made
through our exclusive United Kingdom independent representatives, Q109 Limited.
In January 2006, we had sales of 8 site subscriptions, and in February 2006, we
sold 18 sites. At February 28, 2006 we had 20 sites installed and 20 sold sites
awaiting installation. The February sales momentum has given us good confidence
in the market opportunity as our sales team there has closed 20% of qualified
sales leads during this period. In February 2006, Q109 Limited added three sales
people to bring total sales personnel to five persons.

There are over 60,000 pubs in the United Kingdom and "pub quizzes,"
presented verbally by the manager or a host, are a popular pub activity. Texas
Hold'em is also quite popular, and represents a high proportion of our current
game play. Billiards will be added in 2006 in the United Kingdom as it will be
in North America. With our recent momentum, we believe that our network product
may become very successful in this market.

We also have granted an exclusive license to eBet Limited, an
Australian gaming technology corporation, to distribute our games in commercial
establishments and other public places throughout Australia and New Zealand via
eBet Limited's own licensed network.

THE PRODUCT

Our NTN iTV Network broadcasts a wide variety of entertaining and
popular multi-player interactive games, including play-along sports games,
trivia games and card games to consumers in 3,622 United States venues and 397
Canadian venues. Patrons play using our wireless hand-held game device, called
the Playmaker(R), which allows them to compete locally and nationally with
real-time scoring. We have deployed approximately 71,000 Playmakers across our
NTN iTV Network in the United States.

We target national and regional hospitality chains as well as local
independent venues that are looking for a competitive point-of-difference to
attract and retain customers. Our customers include leading companies in the
casual-dining restaurant segment such as TGIFriday's, Bennigan's Irish Grill,
Applebee's, Damon's Grill and Buffalo Wild Wings, as well as over 2,900
independent locations in North America.

Through the transmission of engaging interactive content stored on a
site server at each location, our NTN iTV Network enables single-player and
multi-player participation as part of local, regional, national or international
competitions supported with prizing and player recognition. Unlike coin-operated
games, live entertainment and themed events are single-player based, expensive
and/or require effort to coordinate and conduct. NTN iTV Network offers a
turnkey solution of unique multi-player, multi-venue entertainment requiring
virtually no site staff involvement at a fraction of the comparable cost.

Our NTN iTV Network also earns revenues from advertising and marketing
communications services to companies seeking to reach the over six million
unique out-of-home consumers each month that visit the NTN iTV Network's 4,019
North America venues. With an average of four dedicated television screens per
location, we provide advertisers with a targeted, cost-effective way to
communicate their brand message, obtain consumer feedback, and stimulate product
trial. Unlike current out-of-home advertising vehicles which are either static
or lack multiple consumer exposure, we provide, as part of our game show
formats, an end-to-end marketing communications solution comprised of
full-motion video commercials, promotional messages, "advergaming" contextual
opportunities and real-time interactive research capabilities at costs well
below current media and research alternatives.

VALUE PROPOSITION

The NTN iTV Network has established itself as a cost-effective means of
generating traffic to hospitality locations, creating loyalty and return on
investment based on the ability to positively impact venue revenue. According to
a May 2000 report by Actionable Marketing Research, players stay longer (39%
compared to non-players); spend more money (47% more than non-players); return
more often (72% more than non-players); and demonstrate positive word-of-mouth
(90% have or will recommend an NTN subscriber venue to a friend).

By distributing turnkey promotional and marketing support to these
venues, we provide a competitive advantage, as well as provide a cost-effective
entertainment option when compared to other alternatives such as live
entertainment, karaoke, and food and drink discounts.

Our NTN iTV Network provides 8 advertising time slots per hour to each
venue that may become a revenue and profit center to cross-promote internal
programs and services, or to resell to local area merchants to offset network
subscription costs and/or generate profit. Our research indicates that an
average of 4.3 patrons view or participate in the game for every Playmaker in
use.

Our customers may employ our proprietary interactive polling service,
OmniPoll(TM), in conjunction with network programming and our wireless Playmaker
units to regularly deliver custom player feedback on food, service and
promotions, allowing the venue to gauge customer satisfaction levels and make
adjustments, if necessary.

In 2005, NTN iTV Network's domestic hospitality customers paid us an
average of $567 per month per venue to use our interactive technology and to
offer our game transmissions to their patrons. NTN iTV Network venues enter into
one- and two-year service agreements, with the average customer life of an NTN
iTV Network site/venue of approximately three years.

TECHNOLOGY

In 2005, we launched a new server platform that is now placed in all
new site installations. The new server, called iTV2, allows two channels of
programming to be delivered to each location. This has enabled channel one to
remain as a primarily trivia-based offering to our long-time loyal players while
channel two is devoted to new content such as Texas Hold'em and, soon, Buzztime
Billiards. Like its single channel predecessor technology, called DITV (Digital
Interactive Television), iTV2 uses the latest Windows-based development tools
and multimedia capabilities, resulting in enhanced, high-resolution graphics and
full-motion video. Both iTV2 and DITV technology allow advertisers to use
existing video footage in their ads on the NTN iTV Network. At December 31,
2005, approximately 58% of the sites had iTV2 technology while 42% had DITV.
DITV sites pay a fee to convert to iTV2, and sign a new one-year commitment
under current pricing.

In late 2004, we began connecting some of our sites via two-way DSL
broadband. In the last half of 2005, approximately 94% of new sites were
connected via DSL. This has been an economically favorable development for us as
prior connectivity required more expensive VSAT (Very Small Aperture Technology)
or FM2 satellite technologies, as described below.

Between 1985 and 2005, the NTN iTV Network transmitted its data through
an FM2 satellite platform and was received by a PC server (base station)
installed at a subscriber's hospitality venue which was configured with a
special communications card equipped for satellite data reception. That
arrangement was originally scheduled to end in February 2005. In late 2003, we
entered into equipment purchase and satellite service agreements to convert the
NTN iTV Network to a much higher speed, two-way VSAT satellite technology over a
two-year period ending February 2005. These agreements were with the same
reseller of satellite services that provided the FM2 satellite platform to us.
We recently amended the agreements with the reseller of satellite services to
push out the expiration date on the FM2 satellite platform to February 2007 and
to modify the VSAT equipment purchase and satellite service agreements. The
modification to the equipment purchase agreement eliminates the requirement to
purchase and install a specific amount of VSAT equipment. It is possible that we
may have to pay some amount of penalties in connection with the reduced amount
of purchases. This flexibility may also enable us to utilize non-satellite based
data transmission platforms, such as digital subscriber lines, wireless
connectivity or cable modems, for customer sites where such platforms may be
appropriate.

The amendment to the FM2 data transmission agreement and the revisions
to the VSAT equipment purchase and satellite service agreements allow us to
spread any conversions to the new VSAT platform over the remainder of the VSAT
satellite services agreement, which is now scheduled to end in April 2009. The
amendments also allow us the flexibility to keep existing FM2 sites on the
existing platform for another two years and do not require us to have defined
levels of VSAT sites by any certain date.

With the exception of our Playmakers, each system installed at a
hospitality location is assembled from off-the-shelf components available from a
variety of sources. The unique software driving our on-site servers is developed
in-house and software launches are carefully managed over our unique network. We
are responsible for the installation and maintenance of each system, which we
continue to own.

END USER "PLAYMAKER" DEVICES

Our iTV2 system uses a 900 MHz wireless Playmaker, a hand-held 900 MHz
radio frequency device with a monochrome LCD display and sealed keypad, used to
enter choices and selections by players. The product is manufactured by a
non-affiliated manufacturer in Taiwan. Our system does not require the "wiring"
of the establishment and the Playmakers have no breakable exterior components.
As a result, external interference and Playmaker failure have been significantly
reduced over previous versions. Our Playmakers are a rugged combination of
hardware and firmware optimized for hospitality environments. We are also in the
process of developing a more advanced 2.4 GHz Playmaker that we currently intend
to put into service in the second half of 2006.

CONTENT SERVICES

The NTN iTV Network licenses game content (both trivia and play-along
sports) from Buzztime and third-party content providers. Buzztime creates the
game content that we transmit to NTN iTV Network hospitality locations. Each
hospitality location is individually addressable, allowing us to send specific
content to selected sites. Hospitality locations throughout the United States
and Canada receive our content, in the form of programming for 15 hours each
day, 365 days each year.

GAME CONTENT AND PROMOTION

Our primary product is the transmission of a variety of multi-player
interactive games that entertain and challenge a player's skill and knowledge
while prompting the customer to stay longer, spend more money and return more
often.

TRIVIA GAMES

We provide premium trivia competitions during evening hours when the
venues, particularly restaurants and sportsbars, tend to be busiest. During
these programs, each venue system simultaneously displays selected trivia
questions on television monitors. Participants use Playmakers to enter their
answers. Answers are collected, transmitted and tabulated. We display the score
of each participant on the television monitors in our customer venues, along
with national, regional and local rankings, as applicable. Players can compete
for prizes and merchandise in their local venues, as well as on a regional and
national scale. In addition to game interaction, other consumer features
available on the Playmaker include real-time sports scores transmitted directly
to the units and player chat. For a list of our trivia games, please see the
Principal Products/Services and Distribution section of the business description
of our Buzztime segment in this report.

SPORTS GAMES

We have developed and produced a number of interactive sports games
over the past 20 years. Most of these are under genres we term Predict the
Play(R) games.

Predict the Play games call for participants to predict the outcome of
events before they happen, primarily in an intensive play-by-play method. Our
lead game in this category is QB1, a live, play-along football game in which
players predict the outcome of each play broadcast within professional and
collegiate football games. We have held a license with the NFL for 20 years in
conjunction with QB1, and have developed a following of thousands of loyal
players who participate weekly in our hospitality locations. More recently, our
auto racing game "Race Day" has also become very popular. The game includes two
elements: one predictive before the race and one trivia during the race. Points
from both elements are added together for a final score.

Our leading Predict the Play games call for predictions before the game
itself, allowing players to later learn the outcome of their play. The lead game
in this category is "Brackets", where our players try to guess which teams will
advance in the annual postseason men's college basketball tournament after the
collegiate basketball selection committee sets the field of 64 teams.

NTN BLAST

In 2005, we launched a series of new programming under the brand of NTN
Blast. The new programming is designed with today's young adults in mind, and
primary products include multi-player card games Blackjack and Texas Hold'em
poker. NTN Blast was developed to secure subscription contracts with new
hospitality sites that might not be attracted to our core trivia and sports
products, as well as retaining existing hospitality sites with the expanded
content offering by driving a broader group of consumers into our subscribing
sites, based on varied tastes in interactive entertainment.

The new offerings were a key to our successful growth in 2005. Texas
Hold'em additionally prompted the creation of a new direction of less intensive
"turn-based" games wherein players participate when it is their turn, but are
free to socialize with friends after taking an action in the game. In 2006, we
intend to launch more turn-based games, including Buzztime Billiards, on the NTN
iTV Network.

PLAYMAKER GAMES

We also offer a suite of Playmaker only games. This suite of games is
independent of the NTN iTV Network and they are played directly on our wireless
Playmakers rather than on one of the television screens in the hospitality
venue. Players access the games by logging onto a Playmaker and following the
instructions on the Playmaker screen. Currently, we have the following Playmaker
only games:

----------------- -------------------------------------------------------
Acey Duecey Two cards are dealt face up. Players bet that the third
card will fall between the previous two
----------------- -------------------------------------------------------
Crystal Ball Ask the Crystal Ball a question and receive your answer
----------------- -------------------------------------------------------
Playmaker Poker Compete against the house in a game of jacks-or-better
poker
----------------- -------------------------------------------------------
Shark Attack Just like hangman, but with an oceanic twist
----------------- -------------------------------------------------------

COMPETITION

Currently, we have no direct competitors to the NTN iTV Network that
furnish live, multi-player interactive entertainment in a similar scope and
nature. While we have no direct competitors, we do compete for total
entertainment dollars in the marketplace. Other forms of entertainment provided
in public venues include music-based systems, live entertainment, cable and
pay-per-view programming, coin-operated single-player games/amusements and
traffic-building promotions like happy hour specials and buffets. However, none
of the alternatives provide the combination of live sports and trivia
entertainment broadcast for 15 hours per day, 365 days per year, and most
require some involvement by the venue staff to be successful, which interferes
with the primary responsibility of the staff.

NTN ITV NETWORK MARKETING, SALES AND DISTRIBUTION

We market our services to the industry primarily through advertising in
national trade periodicals, national and regional trade shows, telemarketing,
direct mail and direct contact through our field sales and marketing
representatives. We organize and track all sales prospects through our
distributed database software.

We have found the most effective trade periodicals for our marketing
purposes to be Nation's Restaurant News, Nightclub & Bar and Military
Hospitality. The key national and regional trade shows to us are the National
Restaurant Association Show, Nightclub & Bar Expo, FS/Tech, WestEx, Northeast
Foodservice and Multi-Unit Foodservice Operators Conference. In addition, we
participate in most of the national chain conference shows. Our field
representatives also participate in a substantial number of smaller regional
shows.

We sell the network primarily through direct sales employees organized
by regions throughout the United States. A portion of our sales are made through
independent dealers and representatives. Our sales cycle varies by customer
type, requiring as little as one week for independent customers and up to 18
months for national chain accounts.

In 2004, we began having success in making sales telephonically rather
than in person. Simultaneously, we are now successfully using the Internet to
drive leads directly to our sales team. Potential customers learn of our
products via marketing and promotional efforts, including direct mail trade ads
or trade shows, and are directed to our website, where their information is
electronically sorted and delivered to the correct sales team.

In some cases, the products may require a field presentation. During
the field presentation, our sales representative determines the prospect's
requirements and presents possible solutions through the benefits of each
product or service presented, including an interactive demonstration, detailed
return on investment calculations, local advertising opportunities made
available through the NTN iTV Network and third-party research results outlining
player purchase behavior and success stories from existing NTN iTV Network
subscribers. Occasionally, demonstration units are provided to validate the
system, with the intent of finalizing the sale upon completion of the trial.

NTN ITV NETWORK SEASONALITY

Our NTN iTV Network business has some seasonal elements. While we bill
revenue monthly as service is provided to customers, three factors increase our
revenues in the second half of the year over the first half. First, sales to new
locations have traditionally been higher in the summer and early fall months
compared to the rest of the year, driven primarily by the start of the
professional and college football season and the availability of our play-along
football game, QB1. Second, many customers order additional Playmakers to meet
their patrons' demands to play this game in late summer and early fall. Third,
we typically gain additional advertising customers who want to participate in
our football-oriented games. In the third quarter of 2003, we started bundling
our QB1 Predict the Play football game with our trivia content. This has reduced
and will likely continue to reduce the seasonal elements of our business over
time.

The hospitality industry has historically experienced a relatively high
business failure rate. That factor combined with change in ownership and
non-renewal of contracts causes us to lose a certain amount of our customers
each year. We refer to this collective loss of customers as "churn". Our
historical churn experience has also been seasonal in that the percentage of
churn has been highest following the completion of the professional football
season in February, although churn occurs in all months. During our operating
history, approximately 18% to 30% of the existing NTN iTV Network customers who
were subscribers at the beginning of a year or subscribed during the year have
churned by the end of that year. The churn rate was 21% for 2005, 21% for 2004
and 22% for 2003.

NTN ITV SIGNIFICANT CUSTOMERS

Our customers are diverse and varied in size as well as location. We
are not dependent on any one customer. We do not have any individual customer,
including chain locations, who accounted for 10% or more of our consolidated
revenues in 2005, 2004 or 2003.

NTN ITV NETWORK BACKLOG

We historically have not had a significant backlog at any time because
we normally can deliver and install new systems at hospitality locations within
the delivery schedule requested by customers (generally, within three to four
weeks).

NTN WIRELESS SEGMENT
--------------------

NTN Wireless earns revenue from the sale of on-site wireless paging
products to restaurants and other hospitality locations. These products are
provided to customers while waiting for a table and will activate to let them
know when their table is ready, as well as to restaurant staff to alert them to
certain issues, such as when hot food is ready to be served.

THE PRODUCT

To expand our presence in the hospitality industry, during 2002 we
completed the acquisitions of the assets of each of ZOOM Communications and
Hysen Technologies, manufacturers and sellers of on-site wireless paging
products. On-site paging systems consist of guest paging systems designed to
improve the wait time for hospitality guests and server paging systems designed
to alert servers when prepared food is ready to be served. Our guest paging
system, GuestCall, is comprised of a tabletop transmitter and between 30 and 70
individual pagers that are distributed to guests upon arrival. The server paging
system, ServerCall, is made up of a transmitter located in the kitchen area, and
between 12 and 36 individual pagers for the wait staff. Both systems may
vibrate, flash or both to indicate either the table or food are ready. We also
sell our paging products into non-hospitality vertical markets such as retail
stores, hospitals and churches.

PlayCall offers all the functionality and quality of our standard
GuestCall coaster pager, combined with five fun, easy-to-play games that guests
of all ages will enjoy. SmartCall pagers provide dynamically updated wait times
based on ProHost's (see our Software Solutions segment) ongoing analysis of
seating trends and table turns. Instead of standing around wondering whether
their name has been called, guests are free to relax at the bar, take a stroll
outside, or do a little window shopping. Both PlayCall game pagers and SmartCall
pagers work with our GuestCall paging system.

The majority of our NTN Wireless products are manufactured based on our
specifications under contract through a third-party manufacturing company
located in Seoul, Korea. The contract expires in April 2007.

VALUE PROPOSITION

On-site paging systems are designed to address a key industry
initiative surrounding "Speed of Service", by improving table turnover and
throughput for a venue's operations. The sooner a guest is seated, and the
quicker prepared food is served, the faster a table can be effectively "turned"
without negatively impacting the customer experience. If a typical restaurant
can add just three parties of four during each waiting shift (defined as
Thursday, Friday and Saturday nights), with a $17.00 average per person check,
the annual incremental gross revenue to the venue over a three-year period would
be $121,000. Shipments of NTN Wireless products occur in most cases within 20
days of receipt of order.

TECHNOLOGY

Onsite paging systems consist of a small tabletop transmitter or
PC-based software and transmitter communicating with a group of pager units in
either vibration flashing LED, or alpha-numeric combinations. These systems are
defined as "closed systems", meaning they work within a limited area for a
specific purpose. The transmitter and pagers are set to the same frequency,
which typically carries a range of between one-quarter and one-half of a mile.

COMPETITION

We are not aware of any industry statistics for the hospitality paging
market. Within the industry, it is estimated that JTech, based in Boca Raton,
Florida, holds a majority position of the hospitality paging market. JTech
markets guest paging and server paging systems, and has recently expanded their
product mix to include other operations-based products that integrate with a
venue's point-of-sale system for check management/paging. JTech was recently
acquired by MICROS Systems, Inc., a leading player in the hospitality
point-of-sale industry. Long Range Systems, Inc., of Dallas, Texas, also markets
products similar to ours and those of JTech, including guest and server paging
products and electronic guest survey card systems.

SOFTWARE SOLUTIONS SEGMENT
--------------------------

Software Solutions earns revenue from the licensing of seating
management and reservation systems software as well as from providing
professional services to Domino's Pizza LLC and to other customers. Software
Solutions was formed in July 2003 when we acquired the assets and assumed
certain liabilities of Breakaway International, Inc.

THE PRODUCT

Our Software Solutions group provides a turnkey solution that augments
our Wireless products to deliver "Speed of Service" by facilitating a
database-driven reservation management solution as well as a dynamic table
management/waitlist management solution. Both solutions currently target the
specific operational and reporting requirements of the food service industry
effectively minimizing the costs and level of expertise required to manage the
guest experience while providing greater intelligence about the customer base.
Our primary Software Solutions products, ProHost and RSViP, combine with our NTN

Wireless products to form a business intelligence solution in the hospitality
market. These products are developed using the following Microsoft technologies:
Visual Basic 6.0, Visual Basic .NET, Visual C++ 6.0, ASP .NET, SQL Server 2000,
Visual C#.NET and Visual Studio.NET 2003. Customers of Software Solutions
include The Cheesecake Factory, MGM MIRAGE, Darden Restaurants and Gaylord
Entertainment.

ProHost is our guest and seating management application that
coordinates all activities with guests, tables, and servers and integrates to
point-of-sale solutions and NTN Wireless solutions. ProHost and wireless provide
a real-time business intelligence and decision making tool to a restaurant
community. The software is designed to increase the number of guests that a
restaurant can seat, serve and satisfy, and thereby help restaurants achieve
higher profits. ProHost solves the complex problem of managing the guest before,
during and after they sit at the table, and adds systems and processes where
restaurants typically have none. ProHost also assists restaurant managers by
providing flash operational data, many operational alerts and staff performance
reporting.

RSViP is a reservations management solution designed to accept advance
reservations for single or multiple locations. RSViP is a client/server
application which connects multiple users in a restaurant to a central database
server. With RSViP, reservations can be centralized for restaurant groups, made
by phone, through the web, and on public or private websites providing
restaurants with a level of service and flexibility they currently cannot offer.
RSViP provides powerful customer relationship management (CRM) features that
include guest tracking and preferences, guest history and marketing tools, and
sophisticated reporting.

On February 4, 2005, we entered into an Asset Purchase Agreement with
Intura Solutions LP (Intura), a Texas limited partnership, pursuant to which we
sold the point-of-sale software products developed and maintained by our
Software Solutions segment. In accordance with the asset purchase transaction,
Gary Peek terminated his position as vice president and general manager of our
Software Solutions segment and immediately thereafter commenced his position
with Intura to oversee business operations. The primary software products sold
by us to Intura were Vision, Relief Manager Plus (RMP), Store Link Plus (SLP),
Sell More Pizzas and other legacy products as well as a non-exclusive right to
develop and market the Enterprise software.

COMPETITION

Software Solutions competes with and/or complements a number of
entities within the hospitality point-of-sale arena that either have partnered
with, or plan to partner with, other companies that have table management and
reservation products. Our competitors include Open Table, MICROS Systems, Inc.
and InfoGenesis.

PROFESSIONAL SERVICES

In addition to software development, Software Solutions provides
professional services to its customers and partners including software support,
hardware configuration, systems staging, deployment, and training services. In
addition to co-developing Domino's Pizza's Pulse POS (point-of-sale) system,
Software Solutions provides a wide range of Help Desk services to include all
levels of support available 24 hours a day, 7 days a week, and 365 days a year,
in both English and Spanish. Software Solutions also provides pre-deployment
support services such as legacy point-of-sale extraction for software
conversion, as well as proactive support for issues pending development.

Our field services group provides complete management of the deployment
process and includes system installation, software setup and training services.
Software Solutions does not provide site preparation services such as network
cabling, electrical, communications installation, and physical site preparation
for mounting and housing of various types of equipment.

BUZZTIME ENTERTAINMENT, INC. SUBSIDIARY (BUZZTIME ENTERTAINMENT)

GENERAL

Buzztime Entertainment, Inc., our wholly-owned subsidiary, was
incorporated in the state of Delaware in December 1999 with the objective of
creating new revenue from distributing and licensing our Buzztime-branded Play
Along TV(R) content and technology to interactive consumer platforms, with a
primary focus on interactive television. Buzztime Entertainment specializes in
real-time, mass-participation games and head-to-head multi-player games
including the Buzztime Trivia Channel for cable television networks. We manage
one of the world's largest trivia game show libraries from our interactive
broadcast studio where we also produce multi-player Texas Hold'em and Buzztime
Billiards competitions, Predict the Play interactive television sports
prediction games, real-time viewer polls and advertising.

The Buzztime Trivia Channel was launched on cable television in June
2002 to digital cable subscribers of Susquehanna Communications (SusCom),
headquartered in York, Pennsylvania. We believe this was the first deployment of
a real-time, two-way game channel via digital cable television in the United

States that operates on commercially deployed digital set-top boxes in the home.
The Buzztime Network is now available to over 300,000 Comcast, Time Warner,
SusCom and Blue Ridge digital cable subscribers within cable television systems
in Pennsylvania, Virginia, Maryland, Maine and Louisiana. Buzztime Entertainment
also has trivia games deployed on satellite television through Echostar DISH
Network in the United States and Bell Canada ExpressVu in Canada, as well as to
major North American wireless carriers through a licensing and development
agreement with Airborne Entertainment. In addition, Buzztime Entertainment
remains the primary content provider to the Buzztime Network in restaurants and
sports bars in the United States, Canada and the United Kingdom. Buzztime
currently works with leading companies such as Media General, Airborne
Entertainment, Cadaco, DTI Software, Square One Publishers and others to bring
consumers Buzztime game content.

Revenue for Buzztime Entertainment is derived 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. It is
also our plan to sell advertising when we achieve a critical mass of subscribers
- - particularly via cable television distribution.

PRINCIPAL PRODUCTS/SERVICES AND DISTRIBUTION

Buzztime Entertainment creates, develops, produces and distributes
single-player and multi-player games for both one-way and two-way consumer
platforms with a primary focus on interactive television. The games are designed
for general audiences and include trivia quiz shows, real-time sports prediction
competitions that are played along with live sporting events, multi-player card
and billiard games as well as single-player card, arcade, puzzle and board
games. The games are distributed through several platforms including the
Buzztime Network, cable television, satellite television, mobile phones, home
electronic games, cards, books and airplanes.

MARKETING

Sales and marketing efforts for Buzztime Entertainment have been
focused on gaining distribution to cable operators in North America. For the
cable systems that are deployed, we operate regular competitions and promotions
to drive consumer awareness and usage of our games. As distribution of the
Buzztime Network increases, we plan to sell subscription services to the players
and advertising to marketing companies. Our business model is supported by
strong market demand for compelling content on emerging interactive television
platforms and the proven success of our content on existing platforms such as
the Buzztime Network.

Key drivers to revenue growth include the integration of interactive
television enabling technology into the cable systems, adoption of interactive
television services in the home, penetration of games into the cable operators,
the ability to charge the cable operator for receiving the Buzztime content and
technology, the ability to charge the end-user for additional games or services
and the ability to sell advertising within our games.

EQUIPMENT

The primary product that Buzztime Entertainment produces is software
code and graphics that enable the Buzztime games. For networked distribution
such as cable television, satellite television and mobile platforms, we
primarily rely on the distribution partners' technology for distribution of our
games to the end users. These partners maintain their own receiving, translation
and re-broadcasting equipment as part of the normal business. Buzztime
Entertainment maintains server facilities in Carlsbad, California, and a
co-located facility in Orange County, California. For cable television
distribution, Buzztime Entertainment may install a computer in the local cable
system facility (head-end) to host its technology and games.

COMPETITION

On a broad basis, the consumer has, and will continue to have, many
options for electronic entertainment and game play. Within each network or
platform through which Buzztime Entertainment distributes, there are numerous
options for entertainment. For example, there are hundreds of channels of
programming on cable and satellite television and there are a growing number of
choices of entertainment on mobile phones. Specifically within the games
category, there are hundreds of game producers that produce thousands of games
for interactive platforms such as the internet, game consoles and mobile
devices. There are also numerous game companies developing various games for
interactive television platforms such as the ones that Buzztime Entertainment is
either operating on or has plans to operate on.

Specific to interactive television on cable television, there are
significant barriers to entry for game developers. First, the technology
necessary to enable games, especially two-way games such as Buzztime
Entertainment's games, is in its early stages and, in some cases, still being
developed. This requires the game developers to devote human resources that have
experience not only in games, but in interactive cable television platforms as
well. Second, not all games are suited for the television and remote control.

Many popular games on non-TV platforms are dependent upon keyboards, a mouse and
advanced game controllers to function properly. Third, there are only a few
cable operators that control the majority of the decision-making for carriage of
interactive applications such as games. The smaller cable operators will follow
the lead of the largest cable companies in selecting game technology and
content. If a game company does not have success in gaining distribution via a
major cable operator, it has little chance of success in the North American
cable market.

Buzztime Entertainment has developed technology which enables the
deployment of one-way and two-way games on iTV platforms. Buzztime
Entertainment, with the support of the Buzztime Network, has an existing
cross-platform promotional network to promote the iTV games and drive consumer
usage. Buzztime Entertainment's games have been designed and produced
specifically for the television and the remote control and are compatible with
the cable and satellite technology. Finally, due to deployed field trials with
Comcast Cable and Time Warner Cable, we have working relationships with the
various departments within these cable companies that manage iTV application
development and deployment.

OTHER ISSUES
- ------------

LICENSING, TRADEMARKS, COPYRIGHTS AND PATENTS

We keep confidential as trade secrets our technology, know-how and
software. The hardware used in our operations is purchased from outside vendors.
We own copyrights to all of our programs and formats. We have either received,
or have applied for, trademark protection for the names of our proprietary
programming, to the extent that trademark protection is available for them. Our
intellectual property assets are important to our business and, accordingly, we
maintain a program directed to the protection of our intellectual property
assets, including regular intellectual property protection meetings and ongoing
internal education on the protection of intellectual property.

As of December 31, 2005, we owned one U.S. patent covering certain
aspects of technology related to an interactive learning system. This patent
will expire in 2017. As of December 31, 2005, we had applied for three
additional patents in the United States.

In June 2001, Buzztime Entertainment entered into a contribution
agreement with NTN effective retroactively to January 1, 2001, whereby NTN
contributed some of its assets to Buzztime Entertainment, including all
company-owned games and related content, trivia game show library, interactive
broadcast studio and related technology and intangible assets.

On May 6, 2003, Buzztime entered into an agreement with Media General,
Inc. to license Media General's Boxerjam game content and selected technology.
The license includes a five-year exclusive interactive television license of
certain intellectual property, with options to extend the license for an
additional five years.

We are party to a license agreement with NFL Enterprises L.P. Our NFL
agreement grants us rights to utilize the trademarks and logos of the NFL member
teams and leagues in connection with production and distribution of our QB1
interactive game on the NTN Buzztime Network in the United States and Canada.
Under the terms of our license, the NFL has granted us data broadcast rights to
conduct our QB1 interactive games on the Buzztime Network in conjunction with
the broadcast of NFL football games. We pay royalties to the NFL of 10% of net
revenues attributable to QB1, subject to payment of a minimum royalty of
approximately $120,000, $115,000 and $110,000 for the years ended December 31,
2005, 2004 and 2003, respectively. Further, we provided additional consideration
to the NFL in the form of advertising rights on the Buzztime Network for the
purpose of supporting NFL initiatives. In April 2005, we renewed our license
agreement with the NFL through March 31, 2006.

GOVERNMENT CONTRACTS

We provide our content distribution services through the Buzztime
Network to a small number of government agencies, typically military base
recreation units. However, the number of government customers is small compared
to our overall customer base. We provide our products and services to government
agencies under contracts with substantially the same terms and conditions as are
in place with other non-government customers.

RESEARCH AND DEVELOPMENT

During 2005, 2004, and 2003, we incurred approximately $248,000,
$329,000, and $329,000, respectively, related to research and development
projects, including projects performed by outside consultants.

There is no assurance that we will successfully complete current or
planned development projects or will do so within the prescribed time parameters
and budgets. There can be no assurance, furthermore, that a market will develop
for any product successfully developed.

ACQUISITIONS AND DIVESTITURES
- -----------------------------

BREAKAWAY INTERNATIONAL

On July 31, 2003, we acquired all of the assets and certain liabilities
of Breakaway International, Inc. (Breakaway), a privately held provider of
restaurant industry hardware and software enterprise solutions. We acquired
Breakaway's assets for $252,000 in cash, 1,292,614 shares of unregistered NTN
common stock, transaction costs and the assumption of certain liabilities. We
may pay additional contingent earn-out amounts in NTN common stock and/or cash
over the first three years following the acquisition, provided that certain
targets over the relevant trailing twelve-month period for earnings before taxes
are met for the acquired assets. The targeted amounts increase by 25% each year.
No earn-out amounts were earned in the first two-year period following the
acquisition. We also entered into employment agreements with five of the
executives of Breakaway.

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition. Total consideration
for the acquisition was $3,630,000, which consisted of 1,292,614 shares
multiplied by the then publicly traded price of $2.44 per share, $252,000 in
cash and $224,000 of transaction costs, plus the assumption of liabilities. To
determine the fair value of the acquired intangible assets and the related
allocation of the purchase price, we commissioned a third-party valuation
analysis. That third-party analysis determined that the identified intangible
assets and the related useful lives are developed technology ($781,000, six-year
life), customer relationships ($1,110,000, six-year life) and non-competition
agreements ($30,000, three-year life). Results of operations from the
acquisition have been included in our consolidated statements of operations
since August 1, 2003.

BREAKAWAY INTERNATIONAL, INC.
ASSETS ACQUIRED AND LIABILITIES ASSUMED

Accounts receivable, net.......... $ 333,000
Inventory, net.................... 35,000
Fixed assets, net................. 108,000
Developed technology.............. 781,000
Customer relationships............ 1,110,000
Non-competition agreements........ 30,000
Goodwill.......................... 2,235,000
---------------
Total assets acquired........... 4,632,000

Accounts payable and accruals..... 482,000
Deferred revenue.................. 520,000
---------------
Total liabilities assumed....... 1,002,000
---------------

Net assets acquired........... $ 3,630,000
===============

In 2004, the above amounts were changed from the initial purchase
accounting as follows: goodwill increased by $10,000 to reflect $7,000 of
additional transaction costs and $3,000 of additional liabilities that were
recorded, accounts payable and accruals increased by $3,000 to reflect the
additional liabilities that were recorded and, as a result, the overall purchase
price increased by $7,000 from the initial amount of $3,623,000 to $3,630,000.

NTN CANADA, INC.

On December 15, 2003, we acquired most of the operating assets, certain
liabilities and the operations of NTN Interactive Network, Inc. (NTNIN), our
long time Canadian licensee from its parent, Chell Group Corporation Inc.
(Chell). We acquired NTNIN's assets for $233,000 in cash, 238,300 shares of
unregistered NTN common stock, the contribution of $550,000 in unpaid licensing
royalties and the assumption of certain liabilities.

NTN INTERACTIVE NETWORK, INC.
ASSETS ACQUIRED AND LIABILITIES ASSUMED

Cash................................ $ 20,000
Accounts receivable, net............ 235,000
Other current assets................ 21,000
Fixed assets, net................... 43,000
Customer relationships.............. 720,000
Trivia database..................... 345,000
Interactive events software......... 102,000
Trivia software..................... 90,000
Licenses............................ 12,000
Goodwill............................ 974,000
--------------
Total assets acquired........... 2,562,000

Accounts payable and accruals....... 628,000
Leases.............................. 44,000
Deferred revenue.................... 67,000
--------------
Total liabilities assumed....... 739,000
--------------

Net assets acquired......... $ 1,823,000
==============

To determine the fair value of the acquired intangible assets and the
related allocation of the purchase price, we commissioned a third-party
valuation analysis. This third-party analysis determined that the identified
intangible assets and the related useful lives are customer relationships
($720,000, four-year life), trivia database ($345,000, ten-year life),
interactive events software ($102,000, five-year life) and trivia software
($90,000, five-year life). Results of operations from the acquisition have been
included in our consolidated statements of operations since December 15, 2003.

In 2004, the above amounts were changed from the initial purchase
accounting as follows: (1) goodwill increased by $99,000 to reflect a variety of
factors including the final calculation of the cash component of the purchase
price based on the final closing balance sheet, which generated an additional
payment to Chell of approximately $10,000 and a payment to the president of
NTNIN on behalf of Chell of approximately $23,000; (2) the final calculation of
the transaction costs (an increase of $38,000); (3) recording $12,000 of
additional liabilities; and (4) making $16,000 of other adjustments to the final
balance sheet. The overall purchase price increased by $37,000 from the initial
amount of $1,786,000 to $1,823,000.

VISION PRODUCT LINE

On February 4, 2005, we entered into an Asset Purchase Agreement with
Intura Solutions LP (Intura), a Texas limited partnership, pursuant to which we
sold the point-of-sale software products developed and maintained by our
Software Solutions segment. In accordance with the asset purchase transaction,
Gary Peek terminated his position as vice president and general manager of our
Software Solutions segment and immediately thereafter commenced his position
with Intura to oversee business operations.

The primary software products sold by us to Intura were Vision, Relief
Manager Plus (RMP), Store Link Plus (SLP), Sell More Pizzas and other legacy
products as well as a non-exclusive right to develop and market the Enterprise
software. We received a non-dilutable 10% partnership interest in Intura in the
transaction and will receive 20% of Intura's gross sales revenues for the Vision
product line through February 4, 2007, up to a maximum of $100,000. Further,
Intura will provide software development maintenance services for the RMP
software through February 4, 2007 (we continue to retain the rights to the
maintenance and support revenue from the legacy products).

GOVERNMENT REGULATIONS

The cost of compliance with federal, state and local laws has not had a
material effect on our capital expenditures, earnings or competitive position to
date. On June 16, 1998, we received approval from the Federal Communications
Commission for our 900 MHz Playmakers. The 900-MHz Playmaker is an integral
component of our network. In connection with distribution of our multi-player
card game content via the Buzztime Network, we have received authorization from

alcohol and gaming regulators in several jurisdictions where we offer such
games. These multi-player card games are restricted in several jurisdictions;
however, the laws and regulations governing distribution of games are subject to
differing interpretations in each jurisdiction and are subject to legislative
and regulatory change in any of the jurisdictions where we offer our games.

We are subject not only to regulations applicable to businesses
generally, but also to laws and regulations that apply directly to the industry
of interactive television products. Although there are currently few such laws
and regulations, state and federal governments may adopt a number of these laws
and regulations governing any of the following issues:

o user privacy;
o copyrights;
o consumer protection;
o the media distribution of specific material or content; and
o the characteristics and quality of interactive television products
and services.

One or more states or the federal government could enact regulations
aimed at companies like us that provide interactive television products. The
likelihood of such regulation being enacted will increase as interactive
television becomes more pervasive and affects the daily lives of more people.
Any such legislation or regulation could dampen the growth of the industry of
interactive television. If such a reduction in growth occurs, demand for our
products and services may decline significantly.

On January 18, 2001, the Federal Communications Commission issued a
Notice of Inquiry concerning interactive television. The notice raised a series
of questions that suggest that cable systems might be regarded as essential open
platforms of spectrum for non-discriminatory third-party access, rather than
facilities-based providers competing in a wider market. The notice sought
comments on the nature of interactive television and whether cable systems will
be a "superior platform" for providing interactive television. The outcome of
the inquiry will determine whether or not a subsequent rulemaking will be held
in order to create regulations for the interactive television industry. Any
regulation of this industry could have an impact on Buzztime and its operations.

EMPLOYEES

As of March 1, 2006, we employed approximately 208 people on a
full-time basis and eight people on a part-time basis. We also utilize
independent contractors for specific projects and hire as many as 45 seasonal
employees as needed to produce our play-along sports games during various
professional and collegiate sports seasons. None of our employees are
represented by a labor union and we believe our employee relations are
satisfactory.

ITEM 1A. RISK FACTORS

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

Our business, results of operation and financial condition could be
adversely affected by a number of factors, including the following:

WE HAVE EXPERIENCED SIGNIFICANT LOSSES AND WE MAY INCUR SIGNIFICANT LOSSES IN
THE FUTURE.

We have a history of significant losses, including net losses of
$2,019,000 in 2005, $4,979,000 in 2004 and $2,711,000 in 2003, and an
accumulated deficit of $88,788,000 as of December 31, 2005. Although our 2005
growth of revenues, combined with a lower rate of growth in expenses, allowed us
to attain profitability in the third and fourth quarters of 2005, there is no
assurance that this profitability will continue. Furthermore, we may not sustain
or increase profitability on a quarterly or annual basis in the future.

OUR LIMITED LIQUIDITY AND CAPITAL RESOURCES MAY CONSTRAIN OUR ABILITY TO OPERATE
AND GROW OUR BUSINESS.

At December 31, 2005, our current assets exceeded our current
liabilities by approximately $4,743,000. Our liquidity and capital resources
remain limited and this may constrain our ability to operate and grow our
business.

We have a revolving line of credit agreement with Pacific Mercantile
Bank, which provides for borrowings of up to $1,000,000 and which was originally
set to expire in July 2004. On January 7, 2004, we entered into an agreement
with Pacific Mercantile to extend the maturity date of the line of credit to
February 1, 2005. We subsequently extended the expiration date to February 11,
2006. The line was amended again to extend the expiration date to May 11, 2006.
As of December 31, 2005, we had a balance of $700,000 outstanding under the line
of credit. The line of credit is secured by substantially all of our assets. Any

reduction in availability under our line of credit may further constrain our
liquidity. Effective March 6, 2006, we signed a new one-year $2.0 million credit
facility agreement with Discovery Bank. This new larger credit facility will
provide for future working capital requirements.

In the third and fourth quarters of 2005, we generated cash from
operations despite making considerable capital investments due to growth and
sustaining losses in our United Kingdom business and Software Solutions segment.
Capital requirements in 2006 will depend primarily on the following: the success
of three growth initiatives; the potential sale of the assets of our Wireless
and Software Solutions segments; potential continued losses in our United
Kingdom business; our Buzztime licensing efforts; and our Software Solutions
segment.

The three growth initiatives are: (1) the continued sales growth of
North American NTN iTV Network sites beyond our historical annual average sales
levels; (2) growth of our United Kingdom Buzztime Network; and (3) potential
installations of the Buzztime Network if a broad deployment agreement is reached
with a cable operator. Additionally, if we were to begin losing more
subscription sites than we gain, our positive cash flow would be adversely
affected.

We believe our capital on hand, combined with our credit line and
expected cash flow, are sufficient to cover our financing requirements for 2006.
However, if we generate operating losses in 2006 (excluding non-cash charges)
that are greater than operating losses we produced in 2005 (excluding non-cash
charges), and if our capital expenditure levels are comparable in 2006 to the
capital expenditure levels in 2005, and if we do not sell our Wireless or
Software Solutions assets, then we may require additional capital or will be
forced to constrain our growth to generate sufficient cash to operate the
business. There can be no assurance that we will be able to raise capital on
acceptable terms, or at all.

NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE MAY RENDER OUR OPERATIONS OBSOLETE
OR NONCOMPETITIVE.

The emergence of new entertainment products and technologies, changes
in consumer preferences and other factors may limit the life cycle of our
technologies and any future products and services we develop. Accordingly, our
future performance will depend on our ability to:

o identify emerging technological trends in our market;
o identify changing consumer needs, desires or tastes;
o develop and maintain competitive technology, including new product
and service offerings;
o improve the performance, features and reliability of our products
and services, particularly in response to technological changes
and competitive offerings; and
o bring technology to the market quickly at cost-effective prices.

If we do not compete successfully in the development of new products
and keep pace with rapid technological change, we will be unable to achieve
profitability or sustain a meaningful market position. The interactive
entertainment and game industry, as well as the wireless paging and software
applications industries, are becoming highly competitive and subject to rapid
technological changes when compared to other industries. We are aware of other
companies that are introducing interactive game products on various platforms
that allow players to compete across the nation. We are also aware of other
companies that are developing and introducing wireless technology and software
applications that may be suitable for use in the hospitality industry. The
wireless paging industry is highly competitive; we may experience pricing
pressure in the wireless markets that could impact our margins with respect to
our wireless product line. Some of these companies have substantially greater
financial resources and organizational capital than we do, which could allow
them to identify emerging trends. In addition, changes in customer tastes may
render our network and its content, our technology, and our wireless and
software products obsolete or noncompetitive.

We may not be successful in developing and marketing new products and
services that respond to technological and competitive developments and changing
customer needs. Such products and services may not gain market acceptance. Any
significant delay or failure in developing new or enhanced technology, including
new product and service offerings, could result in a loss of actual or potential
market share and a decrease in revenues.

WE MUST EFFECTIVELY COMPETE WITHIN THE HIGHLY COMPETITIVE SOFTWARE INDUSTRY.

The software industry is intensely competitive. Several large vendors
develop and market database management programs, business and management
applications, collaboration products and business intelligence products that
compete with our Software Solutions offerings. Some of these competitors have
significantly greater financial and technical resources than we do. We expect to
continue to face intense competition in the software market in which we compete.
We could lose market share if our competitors introduce new competitive products
into one or more of our markets, add new functionality into an existing

competitive product, acquire a competitive product, reduce prices, or form
strategic alliances with other companies. In addition, because new distribution
methods and opportunities offered by the internet and electronic commerce have
removed many of the barriers to entry that were historically faced by small and
start-up companies in the software industry, we expect to face additional future
competition from these companies.

IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, WE MAY LOSE BUSINESS AND EXPERIENCE
REDUCED PROFITABILITY.

Continued implementation of our business plan requires an effective
planning and management process. Our anticipated future growth will continue to
place a significant strain on our management systems and resources. If we are to
grow successfully, we must:

o improve our operational, administrative and financial systems;
o expand, train and manage our workforce; and
o attract and retain qualified management and technical personnel.

THE INTERACTIVE GAMING AND ENTERTAINMENT INDUSTRY IS HIGHLY COMPETITIVE.

The entertainment business is highly competitive. We compete with other
companies for total entertainment related revenues in the marketplace. Our
network programming competes generally with broadcast television, direct
satellite programming, pay-per-view, other content offered on cable television,
and other forms of entertainment. Furthermore, some of our competitors have
greater financial or other resources available to them. The entrance of motion
picture, cable and television companies to the interactive entertainment and
multimedia industries will likely intensify competition in the future.

We also compete with other content and services available to consumers
through online services. The expanded use of online networks and the internet
provide computer users with an increasing number of alternatives to video games
and entertainment software. With this increasing competition and rapidly
changing factors, we must be able to compete in terms of technology, content and
management strategy. If we fail to provide quality services and products, we
will lose revenues to other competitors in the entertainment industry. Increased
competition may also result in price reductions, fewer customer orders, reduced
gross margins, longer sales cycles, reduced revenues and loss of market share.

IF INTELLECTUAL PROPERTY LAW AND PRACTICE DO NOT ADEQUATELY PROTECT OUR
PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY, OUR BUSINESS COULD BE SERIOUSLY
DAMAGED.

We rely on a combination of trademarks, copyrights and trade secret
laws to protect our proprietary rights in some of our products. Furthermore, it
is our policy that all employees and consultants involved in research and
development activities sign non-disclosure agreements. Our competitors may,
however, misappropriate our technology or independently develop technologies
that are as good as, or better than, ours. Our competitors may also challenge or
circumvent our proprietary rights. If we have to initiate or defend against an
infringement claim in the future to protect our proprietary rights, the
litigation over such claims could be time-consuming and costly to us, adversely
affecting our financial condition. In November 2005, we discovered that a former
business partner, and party to a Non-Disclosure and Confidentiality Agreement,
had developed and was distributing a live interactive game substantially similar
to our game. We demanded that this former partner cease and desist its use of
the interactive game application we believe had been developed by that partner
as a result of misappropriation of our trade secrets and proprietary technology.
In addition, we believe that the game constituted an infringement of our
copyrights and other intellectual property rights. We intend to continue to
assert and defend our rights.

From time to time, we hire or retain employees or external consultants
who may work for other companies developing products similar to those offered by
us. These former employers may claim that our products are based on their
products and that we have misappropriated their intellectual property. Any such
litigation could prevent us from exploiting our proprietary portfolio and cause
us to incur substantial costs, which in turn could materially adversely affect
our business.

We believe that the success of our business depends on such factors as
the technical expertise, innovative skills and marketing and customer relations
abilities of our employees, as well as on patents, copyrights, trade secrets and
other intellectual property rights. As of December 31, 2005, we owned one U.S.
patent covering certain aspects of technology related to an interactive learning
system. This patent will expire in 2017. As of December 31, 2005, we had applied
for three additional patents in the United States.

Our pending patent applications and any future applications might not
be approved. Our patents might not provide us with competitive advantages. Third
parties might challenge our patents. In addition, patents held by third parties
might have an adverse effect on our ability to do business. Furthermore, third
parties might independently develop similar products, duplicate our products or,
to the extent patents are issued to us, design around those patents.

Others may have filed and in the future may file patent applications
that are similar or identical to ours. To determine the priority of inventions,
we may have to participate in interference proceedings declared by the United
States Patent and Trademark Office. Such interference proceedings could result
in substantial cost to us. Such third-party patent applications might have
priority over patent applications filed by us.

WE MAY BE LIABLE FOR THE CONTENT WE MAKE AVAILABLE ON THE BUZZTIME NETWORK, THE
BUZZTIME TRIVIA CHANNEL AND THE INTERNET.

We make content available on the Buzztime Hospitality Network, the
Buzztime Trivia Channel and the internet. The availability of this content could
result in claims against us based on a variety of theories, including
defamation, obscenity, negligence or copyright or trademark infringement. We
could also be exposed to liability for third-party content accessed through the
links from our websites to other websites. Federal laws may limit, but not
eliminate, our liability for linking to third-party websites that include
materials that infringe copyrights or other rights, so long as we comply with
certain statutory requirements. We may incur costs to defend ourselves against
baseless claims, and our financial condition could be materially adversely
affected if we are found liable for information that we make available.
Implementing measures to reduce our exposure may require us to spend substantial
resources and may limit the attractiveness of our services to users.

WE MAY FACE EXPOSURE ON SALES AND/OR USE TAXES IN VARIOUS STATES.

From time to time, state tax authorities will make inquiries as to
whether or not a portion of our services might require the collection of sales
and use taxes from customers in those states. In the current difficult economic
climate, many states are expanding their interpretation of their sales and use
tax statutes to derive additional revenue. While in the past the sales and use
tax assessments we have paid have not been significant to our operations, it is
likely that such expenses will grow in the future.

OUR GAMES AND GAME SHOWS ARE SUBJECT TO GAMING REGULATIONS.

We operate games of skill and chance that, in some instances, reward
prizes. These games are regulated in many jurisdictions. The selection of
prizewinners is sometimes based on chance, although none of our games require
any form of monetary payment. We also operate interactive skill card games, such
as Texas Hold'em poker and Blackjack. These skill card games are restricted in
several jurisdictions. The laws and regulations that govern these games,
however, are subject to differing interpretations in each jurisdiction and are
subject to legislative and regulatory change in any of the jurisdictions in
which we offer our games. If such changes were to happen, we may find it
necessary to eliminate, modify or cancel certain components of our products that
could result in additional development costs and/or the possible loss of
revenue.

OUR WIRELESS SEGMENT GROSS MARGINS MAY NOT CONTINUE TO IMPROVE.

The gross margin of NTN Wireless in 2005 is 41.4%, a 3.3% increase from
the 2004 gross margin of 38.1%. The gross margin increase was due to overall
costs of goods sold reduction, as well as selling more of the higher margin
pilot series product. There is no assurance that this gross margin can continue
to improve or be maintained, both due to the competitive nature of the market
and to fluctuations in the cost of goods.

OUR DOMINO'S HELP DESK BUSINESS IN OUR SOFTWARE SOLUTIONS SEGMENT MAY NOT GROW
AS STRONGLY AS IT DID IN 2005.

In 2005, our Help Desk business grew by over 1,100 new subscribers.
Competition for this business may impede our growth in 2006, though our overall
revenue contribution should grow during the year.

DEALER SALES OF OUR SOFTWARE SOLUTIONS PRODUCT MAY BE SLOWER TO DEVELOP THAN
PLANNED.

In early 2005, we began aligning sales of our Software Solutions
products with many independent dealers who also represented Radiant Corporation,
a distributor of point-of-sale software and hardware to restaurants. In 2005,
NTN and Radiant Corporation announced an agreement by which Radiant would
receive a fee to endorse our reseller efforts. In the fourth quarter, both
parties determined to discontinue this endorsement relationship, though we
continue to sell directly to the reseller network. The lack of an agreement with
Radiant may slow the growth of dealer sales; however, we are now free to
approach non-Radiant resellers and are doing so.

IF OUR CHIEF EXECUTIVE OFFICER WERE TO LEAVE US PRIOR TO THE APPOINTMENT OF A
NEW CHIEF EXECUTIVE OFFICER, OUR BUSINESS MAY BE ADVERSELY AFFECTED.

Our success greatly depends on the efforts of our Chief Executive
Officer (CEO). Our ability to operate successfully will depend significantly on
the services and contributions of the person in this position. In December 2005,
our CEO, Stanley B. Kinsey, informed our Board of Directors that he would like
to resign his position at a future date, would not seek renewal of his
employment contract when it expired on February 28, 2006, and has urged our
Board to seek a successor to replace him. Mr. Kinsey has agreed to stay on with
us on a month-to-month basis until after that date, if necessary, until a new
permanent or interim CEO is named. We commenced a search for a new CEO and will
announce our Board's decision at the appropriate time. Our business and
operations may be adversely affected if Mr. Kinsey were to leave before a new
CEO has been appointed.

WE MAY HAVE DIFFICULTY RECRUITING PROFESSIONALS FOR OUR BUSINESS.

Our business requires experienced programmers, creative designers and
application developers. Our success will depend on identifying, hiring, training
and retaining such experienced, knowledgeable professionals. We must recruit
talented professionals in order for our business to grow. There is significant
competition for employees with the skills required to develop the products and
perform the services we offer. There can be no assurance that we will be able to
attract a sufficient number of qualified employees in the future to sustain and
grow our business, or that we will be successful in motivating and retaining the
employees we are able to attract. If we cannot attract, motivate and retain
qualified professionals, our business, financial condition and results of
operations will suffer.

FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES COULD HARM OUR BUSINESS.

On December 15, 2003, we acquired, through NTN Canada, most of the
operating assets, certain liabilities and the operations of NTNIN from Chell
Group Corporation. This acquisition added an additional 350 customer sites that
pay us in Canadian dollars to use our interactive technology and to receive our
game service. Additionally, we are now operating the Buzztime Network in the
United Kingdom, and receive payment in Great Britain Pounds (GBP) from
subscribers who use our technology and receive our game service.

Since service fees and operating expenses from both our Canadian and
United Kingdom subsidiaries are recognized in their local currencies, our
financial results could be significantly affected by large fluctuations in
foreign currency exchange rates or by weak economic conditions in foreign
markets.

COMMUNICATION FAILURES WITH OUR SUBSCRIBER LOCATIONS COULD RESULT IN THE
CANCELLATION OF SUBSCRIBERS AND A DECREASE IN OUR REVENUES.

We rely on both satellite and telephone systems to communicate with our
subscriber locations. We currently transmit the majority of our data to our
hospitality customer sites via DSL connectivity and, to a lesser extent, via
PanAmSat's Galaxy IIIR satellite. At December 31, 2005, we had 38% of sites
connected by DSL and 62% by satellite. Interruption in communications with our
subscriber locations under either system could decrease customer loyalty and
satisfaction and result in a cancellation of our services. We are continually
reviewing alternative telephone service providers and establishing contingency
plans; however, such alternative providers and contingency plans have not been
finalized.

In the event that we were forced to switch to another satellite, we
could incur significant costs associated with re-pointing our VSAT satellite
receivers. In addition, we could experience higher operating costs to transmit
data to our customers via telephone lines and the internet during the transition
period.

Another potential risk is the possibility that our government could
preempt our satellite for national security reasons, as the United States
satellite operators are federally licensed. This would appear to be unlikely as
our government has a strong communications infrastructure in place domestically.

RISK FACTORS ASSOCIATED WITH BUZZTIME

WE MAY SELL EQUITY INTERESTS IN BUZZTIME TO THIRD PARTIES, WHICH COULD RESULT IN
THE LOSS OF CONTROL OF BUZZTIME OR DEVALUATION OF OUR EQUITY INTEREST IN
BUZZTIME.

In June 2001, we sold a 6% interest in Buzztime to an affiliate of
Scientific-Atlanta, a leading cable television set-top box manufacturer. While
Scientific-Atlanta's investment position was converted to our common stock in
January 2003, we believe there may be divergent investment preferences between

the strategies pursued by the NTN iTV Network and Buzztime, and may decide in
the future to continue to raise additional financing by issuing and selling
equity interests in Buzztime to third parties. To enhance the ability of
Buzztime to raise such financing, we have previously contributed, and may
contribute in the future, some of our assets to Buzztime in order to allow the
development of a distinct identity that we believe is necessary for it to
effectively grow as a separate concern. These assets include our extensive
trivia game show library and our interactive play-along sports games and related
intangible assets.

In 2005, the operations of our Buzztime Network were re-integrated with
operations of our NTN iTV Network, and we have no current plans to sell the
subsidiary.

IF OUR NEW BUZZTIME PROGRAMMING IS NOT ACCEPTED BY CONSUMERS, WE ARE NOT LIKELY
TO GENERATE SIGNIFICANT REVENUES OR BECOME PROFITABLE.

The new Buzztime Trivia Channel for cable television faces risks as to
whether consumers will accept interactive television products and the trivia
programming produced by Buzztime. If interactive television does not become a
successful, scaleable medium or if consumers do not accept our trivia play-along
sports games and other game products, then we will be unable to draw revenues
from advertising, direct-marketing of third-party products, subscription fees or
pay-per-play fees. Until a sufficient market develops for the digital set-top
boxes enabled to run our interactive television game applications, our profit
potential is uncertain. We may also be unable to attract local cable operators
to add Buzztime programming as a channel to their service.

THE MARKET FOR INTERACTIVE TELEVISION GAMES AND SERVICES IS NEW AND MAY NOT
DEVELOP AS ANTICIPATED.

The interactive television market currently is small and emerging. The
success of Buzztime will partially depend on the growth and development of this
market in the United States and it will depend upon the commercialization and
broad acceptance by consumers and businesses of a wide variety of interactive
television products. Demand and market acceptance of recently introduced
products and services are subject to a high level of uncertainty and, as a
result, our profit potential is unproven. In addition, the potential size of
this new market opportunity and the timing of its development and deployment are
currently uncertain. Development schedules of interactive television offered by
our competitors have been delayed or refocused as the industry evolves. If the
market for interactive television does not develop, or develops more slowly than
anticipated, our revenues will not grow as fast as anticipated, if at all.

COMPETITION MAY INCREASE IN THE INTERACTIVE TELEVISION INDUSTRY.

The number of competitors in the game portion of the interactive
television industry may increase as the industry matures. Some of those
competitors may be larger and better capitalized than we are.

THE ADOPTION OF INCOMPATIBLE STANDARDS COULD RENDER OUR PRODUCTS OBSOLETE OR
NON-COMPETITIVE.

As new digital set-top box standards or middleware platforms are
defined, we do not know whether Buzztime's products will be compatible with such
standards once defined. The establishment of multiple standards could hurt our
business and significantly increase our expenses, particularly if our products
require significant redevelopment in order to conform to the newly established
standards. Any delay or failure on our part to respond quickly, cost-effectively
and sufficiently to these developments could render our existing products and
services obsolete and cause us not to be competitive, resulting in a decrease in
our revenues without a corresponding decrease in our expenses. We may have to
incur substantial expenditures to modify or adapt our products or services to
respond to these developments. We must be able to incorporate new technologies
into the products we design and develop in order to address the increasingly
complex and varied needs of our customer base.

INCREASING GOVERNMENT REGULATION COULD CAUSE DEMAND FOR OUR PRODUCTS AND
SERVICES TO DECLINE SIGNIFICANTLY.

o user privacy;
o copyrights;
o consumer protection;
o the media distribution of specific material or content; and
o the characteristics and quality of interactive television products
and services.

RISK FACTORS ASSOCIATED WITH OUR COMMON STOCK

OUR COMMON STOCK COULD BE DELISTED OR SUSPENDED FROM TRADING ON THE AMERICAN
STOCK EXCHANGE (AMEX).

At December 31, 2005, we were compliant with AMEX listing measures. If
we fail to maintain compliance with the AMEX listing standards, our common stock
may not remain listed on AMEX or any other exchange or quotation system in the
future. If our common stock is delisted from AMEX, spreads can often be higher
for securities traded on the over-the-counter market and the execution time for
orders may be longer. Thus, removing our stock from AMEX may result in decreased
liquidity by making the trading of our stock less efficient.

On May 1, 2003, we received a letter from the AMEX stating that we were
in compliance with their listing standards. Prior to that, we had been out of
compliance since our shareholders' equity was below $6,000,000, the minimum
threshold established by AMEX for companies with multiple years of losses. AMEX
rules alternatively permit a company to remain listed if it has the following
combined elements: a total market capitalization of at least $50,000,000, has at
least 1.1 million shares publicly held, has a market value of publicly held
shares of at least $15,000,000, and has a minimum of 400 round lot shareholders.
At December 31, 2005, we were compliant with all of these listing standards.

OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE AND YOUR INVESTMENT COULD SUFFER A
DECREASE IN VALUE.

The trading price of our common stock has been, and may continue to be,
subject to wide fluctuations. Our stock price may fluctuate in response to a
number of events and factors, such as quarterly variations in operating results,
announcements of technological innovations or new products and media properties
by us or our competitors, changes in financial estimates and recommendations by
securities analysts, the operating and stock price performance of other
companies that investors may deem comparable, and news reports relating to
trends in our markets. In addition, the stock market in general, and the market
prices for technology-related companies in particular, have experienced extreme
volatility that often has been unrelated to the operating performance of such
companies. These broad market and industry fluctuations may adversely affect the
price of our stock, regardless of our operating performance.

OUR CHARTER CONTAINS PROVISIONS THAT MAY HINDER OR PREVENT A CHANGE IN CONTROL
OF OUR COMPANY, WHICH COULD RESULT IN OUR INABILITY TO APPROVE A CHANGE IN
CONTROL AND POTENTIALLY RECEIVE A PREMIUM OVER THE CURRENT MARKET VALUE OF YOUR
STOCK.

Certain provisions of our certificate of incorporation could make it
more difficult for a third party to acquire control of us, even if such a change
in control would benefit our stockholders. For example, our certificate of
incorporation requires a supermajority vote of at least 80% of the total voting
power, voting together as a single class, to amend certain provisions of such
document, including those provisions relating to:

o the number, election and term of directors;
o the removal of directors and the filling of vacancies; and
o the supermajority voting requirements of our restated certificate
of incorporation.

These provisions could discourage third parties from taking control of
our company. Such provisions may also impede a transaction in which you could
receive a premium over then current market prices and your ability to approve a
transaction that you consider in your best interests.

IF THE SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE ARE SOLD, THE MARKET
PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED.

Future sales of substantial amounts of our common stock in the public
market or the anticipation of such sales could have a material adverse effect on
then-prevailing market prices. As of December 31, 2005, there were approximately
10,428,000 shares of common stock reserved for issuance upon the exercise of
outstanding stock options at exercise prices ranging from $0.45 to $4.94 per
share. As of December 31, 2005, there were also outstanding warrants to purchase
an aggregate of approximately 1,344,000 shares of common stock at exercise
prices ranging from $1.00 to $3.91 per share.

The foregoing options and warrants could adversely affect our ability
to obtain future financing or engage in certain mergers or other transactions,
since the holders of these options and warrants can be expected to exercise them
at a time when we would be able to obtain additional capital through a new
offering of securities on terms more favorable than those provided by such
options and warrants. For the life of such options and warrants, the holders are
given the opportunity to profit from a rise in the market price of our common
stock without assuming the risk of ownership. To the extent the trading price of
our common stock at the time of exercise of any such options or warrants exceeds
the exercise price, such exercise will have a dilutive effect on our
stockholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2. PROPERTIES

We lease approximately 41,000 square feet of office and warehouse space
at 5966 La Place Court, Carlsbad, California, for our corporate headquarters and
broadcast center. In July 2001, a five-year lease renewal for approximately
39,000 rentable square feet commenced upon expiration of the prior lease term
that expired in June 2001. In October 2005, we entered into an amendment to our
lease agreement whereby we extended the term of the lease through June 2011. In
February 2006, we further amended the lease agreement to include an approximate
2,000 square feet of expansion warehouse space, bringing the total to
approximately 41,000 square feet of office and warehouse space.

We leased approximately 6,480 square feet of office space in Atlanta,
Georgia, for operation of our NTN Wireless subsidiary until expiration of the
lease agreement in September 2005. Effective August 2005, and continuing through
July 31, 2012, we lease approximately 11,000 square feet of office and warehouse
space in Atlanta, Georgia. We relocated our NTN Wireless operation to this site
in its entirety in September 2005.

Until April 2005, we leased approximately 17,000 square feet of office
and warehouse space in Arlington, Texas, for operation of our Software Solutions
segment, at which time we reduced the total rentable square footage to
approximately 12,000 square feet due to the sale of the Vision assets. In
January 2006, we signed a new lease for the 12,000 square feet continuing
through December 2007. We operate our NTN Canada subsidiary in approximately
5,400 square feet of office and warehouse space in Toronto, Ontario, Canada,
under a lease expiring in December 2014.

ITEM 3. LEGAL PROCEEDINGS

We are subject to litigation from time to time in the ordinary course
of our business. There currently is one potentially material arbitration item
pending or threatened against us.

ARBITRATION WITH FORMER EMPLOYEE

On May 5, 2005, a former employee of the company filed a Demand for
Arbitration claiming that we had wrongfully rejected his request to exercise
20,000 options granted to him in 1997 that we deemed as expired in 1999. The
former employee is seeking validation of his option grants, declaratory relief
and specific performance, money damages for breach of contract and breach of the
covenant of good faith and fair dealing, punitive damages, and attorneys' fees
and costs. We answered the arbitration demand and asserted counterclaims. We
stand by our position that all options granted this former employee had either
not vested or had expired, and we are vigorously defending the case.

LONG RANGE SYSTEMS, INC.

On March 21, 2003, Long Range Systems, Inc. (LRS) filed in the United
States District Court, Northern District of Texas, a patent infringement
complaint against NTN Wireless. This complaint alleged trade dress and patent
infringement and unfair competition. We were served with this complaint on March
27, 2003. In February 2004, LRS amended its complaint to eliminate certain
allegations relating to infringement of its utility patent for wireless pagers.
This complaint related to our repair and replacement activities of LRS pagers,
which is not a significant percentage of our NTN Wireless business.

On or about April 23, 2003, we filed a complaint in the Superior Court
of the State of California, County of San Diego, against LRS alleging defamation
and trade libel, intentional interference with prospective economic advantage,
Lanham Act (trademark violations) and California unfair competition. The case
was subsequently transferred to the United States District Court, Southern
District of California. Our complaint alleged that LRS made false statements in
its complaint and press release regarding our products infringing LRS patents,
that LRS intentionally made false statements to disrupt our business
relationships with our clients, and that LRS registered the domain name
"www.ntnwireless.com" in violation of our trademark rights.

On February 28, 2005, we agreed with LRS to settle and dismiss both
lawsuits. Under the terms of the settlement, NTN and LRS each agreed to settle
and dismiss the two lawsuits without liability or any payment to the other
party. Each party is responsible for its own legal costs. On March 2, 2005, the
court dismissed the LRS lawsuit based on this agreement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted for a vote by security holders during the
fourth quarter of the fiscal year ended December 31, 2005.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is listed on the American Stock Exchange (AMEX) under
the symbol "NTN." Set forth below are the high and low sales prices for the
common stock as reported by the AMEX for the two most recent fiscal years:

COMMON STOCK
----------------
LOW HIGH
--- ----

2004
----
First Quarter......................... $ 2.51 $ 4.25
Second Quarter........................ 2.51 3.19
Third Quarter......................... 1.62 3.20
Fourth Quarter........................ 2.40 3.24

2005
----
First Quarter......................... $ 2.72 $ 3.58
Second Quarter........................ 1.74 3.18
Third Quarter......................... 1.36 2.00
Fourth Quarter........................ 1.23 1.76

On March 1, 2006, the closing price for our common stock as reported on
the AMEX was $1.40 and there were approximately 1,245 holders of record.

To date, we have not declared or paid any cash dividends with respect
to our common stock, and the current policy of our Board of Directors is to
retain earnings, if any, after payment of dividends on the outstanding preferred
stock to provide for our growth. Consequently, no cash dividends are expected to
be paid on our common stock in the foreseeable future. Pursuant to the terms of
our line of credit, we may not pay or declare dividends without the prior
written consent of the lender.

We have 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. In 2005,
we issued approximately 9,000 common shares for payment of these dividends.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
financial statements and the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operation"
included elsewhere in this report. The selected financial data for the years
ended December 31, 2005, 2004, 2003, 2002 and 2001 is derived from our audited
financial statements.

STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEARS ENDED DECEMBER 31,
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------

Total revenue .................................... $ 40,759 $ 35,655 $ 29,489 $ 25,610 $ 22,559
Total operating expenses ......................... 42,602 40,711 32,035 27,465 25,493
-------- -------- -------- -------- --------
Operating loss ................................... (1,843) (5,056) (2,546) (1,855) (2,934)
Other income (expense), net ...................... (90) 171 (128) (505) (807)
-------- -------- -------- -------- --------

Loss from continuing operations .................. (1,933) (4,885) (2,674) (2,360) (3,741)
Income taxes ..................................... (86) (94) (47) (41) --
Minority interest in loss of consolidated
subsidiary ..................................... -- -- 10 212 85
-------- -------- -------- -------- --------

Net loss ......................................... $ (2,019) $ (4,979) $ (2,711) $ (2,189) $ (3,656)
======== ======== ======== ======== ========

Basic and diluted net loss per common share:
Net loss ..................................... $ (.04) $ (.09) $ (.06) $ (.06) $ (.10)
======== ======== ======== ======== ========
Weighted-average shares outstanding .............. 53,501 52,599 45,446 39,081 36,755
======== ======== ======== ======== ========

BALANCE SHEET DATA
(IN THOUSANDS)

DECEMBER 31,
2005 2004 2003 2002 2001
------- ------- ------- ------- -------

Total current assets .......... $13,182 $13,506 $ 6,704 $ 4,184 $ 4,218
Total assets .................. 30,018 29,388 20,630 10,842 13,380
Total current liabilities...... 8,439 6,862 5,939 3,620 4,178
Total liabilities ............. 9,126 7,353 7,566 8,719 9,614
Total minority interest ....... -- -- -- 643 855
Shareholders' equity .......... 20,892 22,035 13,064 1,480 2,911

2005 RESULTS BY QUARTER
(IN THOUSANDS)

THREE-MONTH PERIOD ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, YTD
2005 2005 2005 2005 TOTAL
-------- -------- -------- -------- --------

Total revenue ............................. $ 9,507 $ 9,629 $ 10,425 $ 11,198 $ 40,759
Total operating expenses .................. 10,823 10,654 10,194 10,931 42,602
-------- -------- -------- -------- --------
Operating income (loss) ................... (1,316) (1,025) 231 267 (1,843)
Other income (expense), net ............... 2 (24) (35) (33) (90)
-------- -------- -------- -------- --------
Net income (loss) before income taxes ..... (1,314) (1,049) 196 234 (1,933)

Income taxes .............................. (33) (43) 50 (60) (86)
-------- -------- -------- -------- --------
Net income (loss) ......................... $ (1,347) $ (1,092) $ 246 $ 174 $ (2,019)
======== ======== ======== ======== ========

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

GENERAL

The following discussion should be read in conjunction with the
consolidated financial statements and related notes contained elsewhere in this
report.

2005 HIGHLIGHTS

We achieved a number of key successes in 2005 and in early 2006. These
include:

o NET INCOME IN THE THIRD AND FOURTH QUARTERS OF 2005 - This was
despite carrying losses during these two periods from our
Software Solutions segment and incurring over $400,000 of
expenses in launching our United Kingdom Network.

o SIGNIFICANT INCREASES IN CASH FLOWS FROM OPERATIONS DURING THE
THIRD AND FOURTH QUARTERS OF 2005. In 2005, cash flows from
operations were $1,362,000 and $1,924,000 in the third and
fourth quarters, respectively. This represents a significant
increase over the first and second quarter cash from
operations of $242,000 and $31,000, respectively, and reflects
the trend of improved quarterly operating results.

o NORTH AMERICA NTN ITV NETWORK GROWTH - The 2005 site count
grew by 359 sites, the highest single-year increase in 8
years, and the year-end count exceeded 4,000 sites for the
first time in Company history.

o UNITED KINGDOM NETWORK LAUNCH - We launched our iTV
hospitality network in the United Kingdom as the "Buzztime
Network" to pubs and restaurants. Though there were only 13
sites in operation at year-end, our marketing programs began
to drive sales leads in early 2006 and generated 8 sales in
January 2006 and 18 sales in February. We believe the United
Kingdom will be a strong focus of growth this year, and in
future years.

o BROADER LICENSING DISTRIBUTION - We continued our distribution
of games to emerging interactive game platforms, adding a
retail product and broadening its presence on cable
television, satellite television and mobile phones.

o LAUNCH OF MULTI-PLAYER GAMES ON CABLE TELEVISION - We
announced the availability of the first multi-player game room
products for digital cable interactive television, and the
products were successfully launched in February 2006. We
believe these products are a breakthrough in cable offerings
and, when combined with our other game products, may help
achieve broader success in cable iTV.

o PROFITABILITY IN THE WIRELESS PAGING SEGMENT - Our Wireless
segment generated profits of $455,000 in 2005 versus a net
loss of $(64,000) in 2004.

o KEY FLAGSHIP INSTALLATIONS FOR SOFTWARE PRODUCTS - We achieved
"best-of-breed" installations for some of our software
products in 2005, including flagship installations of our
ProHost Table Management System at flagship Hard Rock Cafe
restaurants in New York's Times Square and in Orlando,
Florida.

o STRONG NATIONAL ACCOUNTS IN OUR SOFTWARE SOLUTIONS SEGMENT -
We invested heavily in new Software Solutions product
development in 2005 for key national contracts, but recognized
little or no revenue on those contracts. Despite posting
losses during 2005, national sales installations are
proceeding in the first quarter of 2006.

o INTENDED SALE OF ASSETS - In late 2005, we announced that we
were considering offers for the sale of NTN Wireless and
Software Solutions, as we intend to focus our investments into
our entertainment businesses. At the time of this filing,
discussions with several interested parties are on hold
pending the assignment of certain contracts. Until the sale,
we intend to continue growing both NTN Wireless and Software
Solutions as their success continues in the hospitality
marketplace.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States (GAAP). The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to deferred costs and revenues, depreciation of broadcast equipment, bad
debts, investments, intangible assets, financing operations, and contingencies
and litigation. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

o We record deferred costs and revenues related to the costs and
related installation revenue associated with installing new
customer sites. Based on SEC Staff Accounting Bulletin (SAB)
104, REVENUE Recognition, we amortize these amounts over an
estimated three-year average life of a customer relationship.

o We incur a relatively significant level of depreciation
expense in relationship to our operating income. The amount of
depreciation expense in any fiscal year is largely related to
the estimated life of handheld wireless Playmaker devices,
VSAT satellite dishes and associated electronics and the
computers located at our customer sites. The Playmakers are
depreciated over a four-year life, VSAT dishes and associated
electronics over a four-year life and the computers over a
three-year life. The depreciable life of these assets was
determined based on their estimated useful life, which
considers anticipated technology changes. If our Playmakers,
VSAT dishes and associated electronics and the computers turn
out to have longer lives, on average, than estimated, our
depreciation expense would be significantly reduced in those
future periods. Conversely, if the Playmakers, VSAT dishes and
associated electronics and the computers turn out to have
shorter lives, on average, than estimated, our depreciation
expense would be significantly increased in those future
periods.

o We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. We reserve for all accounts that have
suspended or terminated our NTN iTV Network services, all auto
debit customers with balances that are greater than 60 days
past due, plus 3% of all outstanding balances for iTV
customers and 5% of outstanding balances for NTN Wireless and
Software Solutions' customers. If the financial condition of
our customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may
be required.

o We assess our inventory for estimated obsolescence or
unmarketable inventory and write down the difference between
the cost of inventory and the estimated market value, based on
assumptions about future sales and supply on-hand. If actual
market conditions are less favorable than those we have
projected, additional inventory write-downs may be required.

o Revenues from sales of software generally contain multiple
elements, and are recorded in accordance with Statement of
Position (SOP) No. 97-2, SOFTWARE REVENUE RECOGNITION, as
amended. Software license fee revenue is recognized when
persuasive evidence of an arrangement exists, delivery of the
product has occurred at our customer's location, the fee is
fixed or determinable and collection is probable, provided
that vendor specific evidence exists for any undelivered
elements, namely annual support and maintenance. Along with
the basic software license, our customers have the option to
elect post contract support (PCS) for an additional fee, which
is based on a stipulated percentage of the license fee. PCS
consists of technical support as well as unspecified software
upgrades and releases when and if made available by us during
the term of the support period.

If, at the outset of an arrangement, we determine that the
arrangement fee is not fixed or determinable, revenue is
deferred until the arrangement fee becomes due. If, at the
outset of an arrangement, we determine that collectibility is
not probable, revenue is deferred until the earlier of when
collectibility becomes probable or when payment is received.
If an arrangement allows for customer acceptance, revenue is
not recognized until the earlier of receipt of customer
acceptance or expiration of the acceptance period.

Revenue from development services consists of customizations
and, therefore, we recognize revenue from development services
as the services are performed under the agreements. We
recognize revenues from PCS, such as maintenance, on a
straight-line basis over the term of the contract.

Additionally, we provide consulting and training services
under both hourly-based time and materials and fixed-priced
contracts. Revenues from these services are generally
recognized as the services are performed.

o We have a significant amount of goodwill and intangible assets
on our balance sheet related to acquisitions. At December 31,
2005, the combined net amount of $6,604,000 of goodwill and
intangible assets represented 22.0% of total assets. Goodwill
represents the excess of costs over fair value of assets of
businesses acquired. As of January 1, 2002, we adopted the
provisions of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS. Goodwill and intangible assets acquired in a purchase
combination determined to have an indefinite useful life are
not amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 144,
ACCOUNTING FOR IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS.

We performed our annual test for goodwill impairment for
Software Solutions and NTN Canada, Inc., as of September 30,
2005, and for NTN Wireless as of December 31, 2005, and
concluded that there was no indication of impairment. We
retained a third-party valuation firm to assist in calculating
fair values. The analysis was based on consideration of (1)
the market value of comparable publicly traded companies; (2)
the market value of similar companies involved in business
combinations; and (3) an income approach of discounting the
projected cash flows of operations. The projections of those
units involved a number of assumptions and estimates,
including revenue growth and operating margins, which we
believe are reasonable based on existing operations and
prospective business opportunities. We completed our
evaluation and concluded that goodwill was not impaired as the
fair values exceeded carrying values, including goodwill. The
amount of goodwill as of December 31, 2005 was $3,658,000.
Future events could cause us to conclude that impairment
indicators exist and that goodwill and other intangible assets
associated with our acquired businesses are impaired.

We continually monitor for any potential indicators of
impairment of goodwill and intangible assets and we have
determined that no such indicators have arisen to date. Any
impairment loss could have a material adverse impact on our
financial condition and results of operations.

o SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES, and SEC SAB 59, ACCOUNTING FOR NONCURRENT
MARKETABLE EQUITY SECURITIES, provide guidance on determining
when an investment is other-than-temporarily impaired.
Investments are reviewed quarterly for indicators of
other-than-temporary impairment. This determination requires
significant judgment. In making this judgment, we employ a
systematic methodology quarterly that considers available
quantitative and qualitative evidence in evaluating potential
impairment of our investments. If the cost of an investment
exceeds its fair value, we evaluate, among other factors,
general market conditions, the duration and extent to which
the fair value is less than cost, and our intent and ability
to hold the investment. We also consider specific adverse
conditions related to the financial health of, and business
outlook for, the investee, including industry and sector
performance, changes in technology, operational and financing
cash flow factors, and rating agency actions. Once a decline
in fair value is determined to be other-than-temporary, an
impairment charge is recorded and a new cost basis in the
investment is established. If market, industry and/or investee
conditions deteriorate, we may incur future impairments.

We do not have any of the following:

o Off-balance sheet arrangements except for purchase orders,
purchase commitments and operating leases;

o Certain trading activities that include non-exchange traded
contracts accounted for at fair value or speculative or
hedging instruments; or

o Relationships and transactions with persons or entities that
derive benefits from any non-independent relationship other
than the related party transactions discussed in Item 13 -
Certain Relationships and Related Transactions, or which are
so non-material to fall below the materiality threshold of
such item.

ASSESSMENTS OF FUNCTIONAL CURRENCIES. The United States dollar is our
functional currency, except for our operations in Canada and the United Kingdom.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 151, INVENTORY
COSTS-AN AMENDMENT OF ARB NO. 43, CHAPTER 4. This accounting standard, which is
effective for annual periods beginning after June 15, 2005, requires that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges. The
adoption of SFAS No. 151 is not expected to have a material effect on our
financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R, SHARE-BASED PAYMENT,
which revises SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123R
supersedes APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
amends SFAS No. 95, STATEMENT OF CASH FLOWS. This Statement requires that a
public entity measure the cost of equity-based service awards based on the grant
date fair value of the award. All share-based payments to employees, including
grants of employee stock options, are required to be recognized in the income
statement based on their fair value. SFAS No. 123R is effective for the first
annual reporting period after June 15, 2005. We will adopt this Statement
effective January 1, 2006.

SFAS No. 123R allows public companies to adopt its requirement using
one of the following transition methods: (a) a modified prospective method in
which compensation cost for all share-based payments granted after the effective
date is recognized based on the requirements of SFAS No. 123R and compensation
costs for all awards granted to employees prior to the effective date that are
unvested as of the effective date of SFAS No. 123R is recognized based on SFAS
No. 123; or (b) a modified retrospective method which includes the requirements
of the modified prospective method and also permits entities to restate prior
periods presented or prior interim periods of the year of adoption based on the
amounts previously recognized in its SFAS No. 123 pro forma disclosures. We will
be adopting SFAS No. 123R using the modified prospective method.

We estimate that 2006 operating results will be reduced by additional
non-cash compensation expense of approximately $1,800,000, similar to the pro
forma amount for 2005 due to the adoption of this Standard. The actual impact of
adopting SFAS No. 123R in 2006 could differ from this estimate depending on the
number and timing of options granted during 2006, as well as their vesting
period and vesting criteria. Our assessment is based on the Black-Scholes
option-pricing model and is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. These variables include,
but are not limited to, the volatility of our stock price, employee's stock
option exercise behaviors and interest rates. As such, actual stock option
expense may differ materially from this estimate.

In November 2005, the FASB issued Staff Position No. FAS 115-1, THE
MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN
INVESTMENTS (FSP 115-1). FSP 115-1 provides accounting guidance for identifying
and recognizing other-than-temporary impairments of debt and equity securities,
as well as cost method investments in addition to disclosure requirements. FSP
115-1 is effective for reporting periods beginning after December 15, 2005. We
do not believe that this will have a material effect on our consolidated
financial statements.

BACKGROUND

Our business is developing and distributing interactive entertainment and
wireless information and communications products. We operate our business
principally through two operating units: the NTN Hospitality Technologies
Division and Buzztime. The NTN Hospitality Technologies Division includes the
NTN iTV Network, NTN Wireless and Software Solutions.

Revenues generated and operating income (loss) by our two business units
are illustrated below. The data presented below includes allocations of
corporate expenses and elimination of intercompany charges.

YEARS ENDED DECEMBER 31,

2005 2004 2003
---- ---- ----

Revenues
--------
NTN Hospitality Technologies Division ..... $ 39,384,000 97% $ 35,296,000 99% $ 29,293,000 99%
Buzztime .................................. 1,375,000 3% 359,000 1% 196,000 1%
------------ --- ------------ --- ------------ ---
Total ............................. $ 40,759,000 100% $ 35,655,000 100% $ 29,489,000 100%
============ === ============ === ============ ===

Operating Income (Loss)
-----------------------
NTN Hospitality Technologies Division ..... $ 762,000 $ (1,097,000) $ 1,211,000
Buzztime .................................. (2,605,000) (3,959,000) (3,757,000)
------------ ------------
Total ............................. $ (1,843,000) $ (5,056,000) $ (2,546,000)
============ ============

Revenue from NTN Hospitality Technologies Division is generated
primarily from providing an interactive entertainment service which serves as a
marketing and promotional vehicle for the hospitality industry, from its
wireless business with restaurant on-site paging systems and electronic
data-managed comment cards and from its hardware and software enterprise
solutions. Revenue for Buzztime Entertainment is primarily generated from the
distribution of its digital trivia game show content, as well as revenue related
to production services for third parties, and from performance under a Trial
Agreement with a major cable operator.

RESULTS OF OPERATIONS

Following is a comparative discussion by fiscal year of the results of
operations for the three years ended December 31, 2005. We believe that
inflation has not had a material effect on the results of operations for the
periods presented.

YEAR ENDED DECEMBER 31, 2005 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2004

Operations for 2005 resulted in a net loss of $2,019,000 compared to a
net loss $4,979,000 for 2004.

REVENUES

Revenue of the NTN Hospitality Technologies Division increased by
$4,088,000 or 11.6%, to $39,384,000 in 2005 from $35,296,000 in 2004. The
increase in revenue is primarily a result of a net increase in site count of
359.

The revenue contribution from the three operating segments of the
division for 2005 and 2004 are illustrated on the following table:

COMPONENTS OF HOSPITALITY TECHNOLOGIES DIVISION REVENUE

2005 2004 Change
---- ---- ------

NTN iTV Network.......................... $ 29,374,000 $ 25,925,000 $ 3,449,000
NTN Wireless............................. 5,689,000 5,337,000 352,000
Software Solutions....................... 4,321,000 4,034,000 287,000
--------------- ------------- -------------
Total Revenue of Division.............. $ 39,384,000 $ 35,296,000 $ 4,088,000
=============== ============= =============

Within the NTN iTV Network, we have several revenue contributors: our
core subscription revenue, advertising revenue, installation revenue, revenue
from our Canadian operations since 2003 and revenue from our United Kingdom
operations since 2005. The primary revenue components are illustrated on the
following table:

COMPONENTS OF NTN ITV NETWORK REVENUE

2005 2004 Change
---- ---- ------

Subscription Revenues.................... $ 23,621,000 $ 20,885,000 $ 2,736,000
UK....................................... 25,000 --- 25,000
Subscription/Installation Revenue from
Canadian Operations.................... 4,153,000 3,644,000 509,000
Advertising Revenue - United States...... 812,000 602,000 210,000
Advertising Revenue - Canada............. 35,000 163,000 (128,000)
Installation Revenue..................... 728,000 631,000 97,000
------------- ------------- -------------
Total NTN iTV Network................ $ 29,374,000 $ 25,925,000 $ 3,449,000
============= ============= =============

As noted in the above table, our subscription revenue from core
hospitality operations, including Canada and the United Kingdom, increased by
$3,270,000, or 13.3%, due to an increase in net site count.

In 2005, the NTN iTV Network generated domestic advertising revenue of
approximately $812,000 compared to approximately $602,000 in 2004. This $210,000
increase was due to the addition of several new advertising clients.

Domestic installation revenue associated with installing new customer
locations increased $97,000, or 15.4%. This was primarily due to the strong
installations in 2005.

The NTN iTV Network customer site count in the United States was 3,622
at December 31, 2005. This was an increase of 313 sites from the United States
site count of 3,309 as of December 31, 2004. The customer site count in Canada
was 397 at December 31, 2005. This was an increase of 46 sites from the Canadian
site count of approximately 351 as of December 31, 2004.

Buzztime's revenues increased $1,016,000, or 283.0%, to $1,375,000 in
2005 from $359,000 in 2004. The primary factors in the increase included
licensing fees (approximately $600,000 in 2005 compared to zero in 2004) from
game products, higher levels of license fees from United States and Canadian
satellite operators for distribution of Buzztime trivia to their users on a
subscription basis, and increased license and development fees from a major
cable operator.

As a result of the above factors, our consolidated revenues increased
$5,104,000, or 14.3%, to $40,759,000 in 2005 from $35,655,000 in 2004.

OPERATING EXPENSES

DIRECT OPERATING COSTS

Direct operating costs increased $1,071,000, or 8.4%, to $13,803,000 in
2005 from $12,732,000 in 2004. A significant amount of this increase was a
combination of increases in technical site visit fees, communication fees,
freight, depreciation and installation fees. The following table compares the
direct costs for each of our operating segments between 2005 and 2004:

DIRECT OPERATING COSTS

2005 2004 Change
---- ---- ------

NTN iTV Network.............................. $ 8,485,000 $ 7,286,000 $ 1,199,000
NTN Wireless................................. 3,333,000 3,304,000 29,000
Software Solutions........................... 611,000 851,000 (240,000)
------------- ------------- -------------
NTN Hospitality Technologies Division...... 12,429,000 11,441,000 988,000
Buzztime................................... 1,374,000 1,291,000 83,000
------------- ------------- ------------
Consolidated Company................... $13,803,000 $12,732,000 $ 1,071,000
============= ============= ============

Direct operating costs in the NTN iTV Network increased by $1,199,000
in 2005. This increase was due to increases in the number of technical site
visits associated with new software releases. Communications increased due to
higher costs of the satellite service and the acquisition of additional
bandwidth. Demand for additional Playmaker devices and conversion of Canadian
sites to DITV from DOS (Disk Operating System) drove increases in freight and
depreciation. Prior to our acquisition of that operation, the site equipment in
Canada was largely fully depreciated. The DITV conversion of Canadian sites as
well as continued strong installations in 2005 contributed to increased
installation expense.

The $240,000 decrease in Software Solutions' direct operating costs was
due to a reduction in hardware component associated software sales in 2005
versus 2004, which also contributed to the 7.0% increase in gross margin from
78.9% to 85.9%.

The $29,000 increase in NTN Wireless' direct operating costs relates to
the cost of goods sold associated with the NTN Wireless revenue increase of
$352,000 in 2005 noted above. The gross margin of NTN Wireless in 2005 is 41.4%,
a 3.3% increase from the 2004 gross margin of 38.1%. The gross margin increase
was due to overall costs of goods sold reduction, as well as selling more of the
higher margin pilot series product.

The $83,000 increase in Buzztime's direct operating costs was driven by
an increased level of personnel costs for development related to non-deployable
service platforms.

NON-CASH CHARGE RELATED TO SOFTWARE PRODUCT SALE

On February 4, 2005, we entered into an Asset Purchase Agreement with
Intura Solutions LP (Intura), a Texas limited partnership, pursuant to which we
sold the point of sale software products developed and maintained by our
Software Solutions segment. The primary software products sold by us to Intura
were Vision, Relief Manager Plus (RMP), Store Link Plus (SLP), Sell More Pizzas
and other legacy products as well as a non-exclusive right to develop and market
the Enterprise software. We received a non-dilutable 10% partnership interest in
Intura in the transaction and will receive 20% of Intura's revenues received
during the next two years, up to a maximum of $100,000. Further, Intura will
provide software development maintenance services for the RMP and SLP software
for two years (we continue to retain the rights to the maintenance and support
revenue from the legacy products).

We engaged a third party valuation firm to estimate the value of our
10% ownership interest in Intura. Based upon that analysis, we concluded that
the fair value of our investment in Intura was approximately $69,000.
Additionally, based on that analysis, we concluded that there was no impairment
of the goodwill in the Software Solutions segment as a result of this
transaction. The transfer of the software products, which we carried as part of
our intangible assets, resulted in a one-time, non-cash charge of $276,000.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses (SG&A) increased
$1,156,000 or 4.7%, to $25,992,000 in 2005 from $24,836,000 in 2004. More than
half of this increase resulted from our expansion into the United Kingdom. The
following table compares the selling, general and administrative expenses for
each of our operating segments between 2005 and 2004:

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

2005 2004 Change
---- ---- ------

NTN iTV Network............................... $ 16,480,000 $ 15,214,000 $ 1,266,000
NTN Wireless.................................. 1,777,000 1,575,000 202,000
Software Solutions............................ 5,013,000 5,153,000 (140,000)
-------------- ------------- -------------
NTN Hospitality Technologies Division....... 23,270,000 21,942,000 1,328,000
Buzztime.................................... 2,446,000 2,894,000 (448,000)
-------------- ------------- -------------
Consolidated Company...................... $ 25,716,000 $ 24,836,000 $ 880,000
============== ============= =============

The $1,266,000 SG&A increase in the NTN iTV Network segment was largely
due to $632,000 incurred as a result of the expansion into the United Kingdom.
The remainder of the SG&A increase of $634,000 in the NTN iTV Network's domestic
operations came from a variety of items including $244,000 in commission expense
associated with the increased volume of sales and $249,000 increase in bad debt
expense.

SG&A expenses increased $202,000 in the NTN Wireless segment largely
due to increased salaries and benefits associated with additional sales
personnel, commission expense associated with the higher sales volume compared
to 2004, and facility expense associated with moving to a larger facility to
accommodate sales growth. The $140,000 decrease in the Software Solutions
segment is primarily due to reductions in personnel, travel and marketing
related expenses. The $448,000 SG&A decrease in the Buzztime segment was largely

due to personnel reduction resulting from the completion of development
projects. SG&A expenses include an allocation of our corporate SG&A to the
segments based on a variety of factors, including headcount, square footage of
facilities and other factors.

STOCK-BASED COMPENSATION EXPENSE

Stock-based compensation expense decreased by $3,000, or 1.0%, to
$290,000 in 2005 compared to $293,000 in 2004. This decrease arises from
valuation of warrant grants issued and stock price fluctuations throughout 2005
when compared to 2004.

LITIGATION, LEGAL AND PROFESSIONAL FEES

Litigation, legal and professional fees decreased $226,000, or 13.8%,
to $1,415,000 in 2005 compared to $1,641,000 in 2004. This decrease relates to
non-recurring legal fees associated with the litigation of the LRS lawsuit in
2004 that was dismissed and settled without liability in the first quarter of
2005.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization not related to direct operating costs
decreased $26,000, or 3.0%, to $854,000 in 2005 from $880,000 in 2004. This
decrease was due to assets having been fully amortized during 2004.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses were $248,000 in 2005 and $329,000 in
2004. Research and development expenses, which are salary expense, primarily
related to projects to develop new technologies for the NTN iTV network.

OTHER INCOME (EXPENSE)

INTEREST INCOME AND EXPENSE

Interest income decreased $3,000 to $95,000 in 2005, compared to
$98,000 in 2004.

Interest expense increased $33,000, or 21.7%, to $185,000 in 2005,
compared to $152,000 in 2004, due to the various capitalized leases entered into
for site equipment during 2005.

OTHER INCOME

In 2004, we recorded $225,000 of other income that arose from the
settlement of a derivative securities lawsuit.

INCOME TAXES

For the year ended December 31, 2005, the NTN Hospitality Technologies
Division had taxable income of $CD 430,000 in Canada and taxable income of $US
1,209,000 in the United States. As a result, NTN Hospitality Technologies
Division recorded a tax provision of $86,000 in 2005. The 2005 United States tax
expense was substantially reduced through the utilization of both federal and
state net operating loss carryforwards generated in prior years. The 2005 tax
provision was an $8,000 decrease from the $94,000 provision for income taxes
recorded in 2004.

EBITDA

Our earnings before interest, taxes, depreciation and amortization
(EBITDA) increased by $3,190,000 to $2,292,000 in 2005 from EBITDA of $(898,000)
in 2004. This EBITDA increase was largely a result of the decrease in net loss
of $2,960,000 in 2005.

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 NTN that carry significant levels of non-cash depreciation and
amortization charges in comparison to their GAAP earnings.

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

YEAR ENDED
DECEMBER 31
-----------
2005 2004
---- ----
EBITDA CALCULATION

Net loss per GAAP $ (2,019,000) $ (4,979,000)
Interest expense (net) 90,000 54,000
Depreciation and amortization 4,135,000 3,933,000
Income taxes 86,000 94,000
-------------- --------------
EBITDA $ 2,292,000 $ (898,000)
============== ==============

On a segment basis, our segments generated EBITDA levels as presented
below:

($000) YEAR ENDED
DECEMBER 31, 2005
-----------------------------------------------------------------------------
EBITDA CALCULATION: TOTAL
NTN ITV NTN SOFTWARE HOSP.
NETWORK WIRELESS SOLUTIONS TECH. DIV. BUZZTIME TOTAL
-------- -------- -------- -------- -------- --------

Net income (loss) ...................... $ 1,810 $ 455 $ (1,673) $ 592 $ (2,611) $ (2,019)

Interest expense (net) ............ 84 -- -- 84 6 90
Depreciation and amortization ..... 3,149 68 343 3,560 575 4,135
Income taxes ...................... 86 -- -- 86 -- 86
-------- -------- -------- -------- -------- --------
EBITDA ................................. $ 5,129 $ 523 $ (1,330) $ 4,322 $ (2,030) $ 2,292
======== ======== ======== ======== ======== ========

($000) YEAR ENDED
DECEMBER 31, 2004
-----------------------------------------------------------------------------
EBITDA CALCULATION: TOTAL
NTN ITV NTN SOFTWARE HOSP.
NETWORK WIRELESS SOLUTIONS TECH. DIV. BUZZTIME TOTAL
-------- -------- -------- -------- -------- --------

Net income (loss) ...................... $ 1,122 $ (64) $ (2,074) $ (1,016) $ (3,963) $ (4,979)

Interest expense (net) ............ 49 1 -- 50 4 54
Depreciation and amortization ..... 2,881 100 392 3,373 560 3,933
Income taxes ...................... 94 -- -- 94 -- 94
-------- -------- -------- -------- -------- --------
EBITDA ................................. $ 4,146 $ 37 $ (1,682) $ 2,501 $ (3,399) $ (898)
======== ======== ======== ======== ======== ========

YEAR ENDED DECEMBER 31, 2004 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2003

Operations for 2004 resulted in a net loss of $4,979,000 compared to a
net loss of $2,711,000 for 2003.

REVENUES

The revenues of the NTN Hospitality Technologies Division increased by
$6,003,000 or 20.5%, to $35,296,000 in 2004 from $29,293,000 in 2003. 2004
included twelve months of operations of the Software Solutions segment and the
NTN Canada unit while 2003 included only five months and two weeks of operations
from those entities, respectively.

For the purpose of this analysis, revenue for NTN iTV Network includes
$22,000 and $18,000 of "other" revenue for 2004 and 2003, respectively, as shown
on our consolidated statements of operations. The revenue contribution from the
three operating segments of the division for 2004 and 2003 are shown on the
following table:

COMPONENTS OF HOSPITALITY TECHNOLOGIES DIVISION REVENUE

2004 2003 Change
---- ---- ------

NTN iTV Network........................ $25,925,000 $23,024,000 $ 2,901,000
NTN Wireless........................... 5,337,000 4,742,000 595,000
Software Solutions..................... 4,034,000 1,527,000 2,507,000
----------- ----------- -----------
Total Revenue of Division............ $35,296,000 $29,293,000 $ 6,003,000
=========== =========== ===========

Within the NTN iTV Network there are several revenue contributors,
including our core subscription revenue, Canadian licensing revenue,
installation revenue, advertising revenue and as of December 15, 2003, revenue
from our Canadian operations. The primary revenue components are broken out in
the following table:

COMPONENTS OF NTN ITV NETWORK REVENUE

2004 2003 Change
---- ---- ------

Subscription Revenues.................. $20,885,000 $20,011,000 $ 874,000
Canadian License Revenue............... -- 745,000 (745,000)
Subscription/Installation Revenue from
Canadian Operations.................. 3,644,000 167,000 3,477,000
Advertising Revenue - United States.... 602,000 868,000 (266,000)
Advertising Revenue - Canada........... 163,000 10,000 153,000
Installation Revenue................... 631,000 1,223,000 (592,000)
----------- ----------- -----------
Total NTN iTV Network.............. $25,925,000 $23,024,000 $ 2,901,000
=========== =========== ===========

As noted in the above table, our subscription revenue from core
hospitality operations increased by $874,000, or 4.4%, due to an increase in net
site count and average per site revenue. Licensing revenues from our Canadian
licensee ceased in the fourth quarter of 2003 as we finalized the acquisition of
the operations of the licensee. On December 15, 2003, we acquired the operations
of our Canadian licensee, so we now show the overall revenues of the Canadian
operation rather than the previous license revenue.

In 2004, the NTN iTV Network generated domestic advertising revenue of
approximately $602,000 compared to approximately $868,000 in 2003. This $266,000
decrease was due to several advertising campaigns in the 2003 period that ended
without comparable campaigns in the 2004 period.

Installation revenue associated with installing new customer locations
decreased $592,000, or 48.4%. This was primarily due to deferred revenue
associated with prior year installations becoming fully amortized. To a lesser
extent, over the past two years, we have adopted a strategy of charging new
sites a lower installation fee and higher recurring monthly fees than our
previous pricing in order to grow our customer base. This strategy has had the
beneficial impact of increasing our subscription revenues, as noted in the above
chart, but it has also reduced the amount of deferred revenue from those new
sites that is recognized as installation revenue over an average customer life
of three years. This trend coupled with the falloff of amortization of deferred
revenue from prior years led to this lower level of installation revenue.
However, we believe this move to a lower installation fee coupled with higher
recurring fees has a greater long-term financial benefit to NTN. We added 184
net new domestic sites in 2004 compared to a decrease of 46 net new domestic
sites in 2003. This domestic site count increase was the largest annual net
addition of sites in 7 years.

The NTN iTV Network customer site count in the United States was 3,309
at December 31, 2004. This was an increase of 184 sites from the United States
site count of 3,125 as of December 31, 2003. The customer site count in Canada
was 351 at December 31, 2004. This was a decrease of 49 sites from the Canadian
site count of approximately 400 as of December 31, 2003.

Buzztime service revenues increased $163,000, or 83.2%, to $359,000 in
2004 from $196,000 in 2003. The primary factor in the increase was $150,000 from
United States and Canadian satellite operators for distribution of Buzztime
trivia to their users on a subscription basis. There was no comparable
satellite-related revenue in 2003. 2004 included $130,000 in revenues recognized
under a development agreement with a major cable operator compared to $170,000
in 2003. The remainder of the revenue growth came from a variety of sources
including increases in license revenue from SusCom, Digeo and ICTV.

As a result of the above factors, NTN's consolidated revenues increased
$6,166,000, or 20.9%, to $35,655,000 in 2004 from $29,489,000 in 2003.

OPERATING EXPENSES

DIRECT OPERATING COSTS

Direct operating costs of services increased $1,505,000, or 13.4%, to
$12,732,000 in 2004 from $11,227,000 in 2003. A significant amount of this
increase was because 2004 had a full year of operations of Software Solutions
compared to approximately five months in 2003 and because we operated NTN Canada
for a full year in 2004 compared to two weeks in 2003. The following table
compares the direct costs for each of our operating segments between 2004 and
2003:

DIRECT OPERATING COSTS

2004 2003 Change
---- ---- ------

NTN iTV Network............................... $ 7,286,000 $ 6,821,000 $ 465,000
NTN Wireless.................................. 3,304,000 2,952,000 352,000
Software Solutions............................ 851,000 292,000 559,000
-------------- ------------- ------------
NTN Hospitality Technologies Division....... 11,441,000 10,065,000 1,376,000
Buzztime.................................... 1,291,000 1,162,000 129,000
-------------- ------------- ------------
Consolidated Company...................... $ 12,732,000 $ 11,227,000 $ 1,505,000
============== ============= ============

Our direct operating costs in the NTN iTV Network increased by $465,000
in 2004. This increase was due to a $1,028,000 increase in our direct operating
costs with NTN Canada. That $1,028,000 increase in Canadian direct costs was
partially offset by a $563,000 decrease in domestic direct operating costs. This
$563,000 decrease was primarily due to a $457,000 decrease in direct
depreciation, which, in turn, was caused by an increasing level of fully
depreciated broadcast equipment at our customer sites and to a $71,000 reduction
of communication expenses.

The $559,000 increase in the direct operating costs of Software
Solutions largely related to the cost of goods sold associated with twelve
months of operations in that segment in 2004 compared to five months in 2003.
The gross margin of Software Solutions in 2004 was 78.9%, a 2.0% decrease from
the 2003 gross margin of 80.9%. The gross margin decline was due to a larger
hardware component as a percentage of revenue in 2004 than in 2003 and greater
license expense relating to certain Microsoft products imbedded in our software.
Our hardware revenues typically carry lower margins than our software revenues.

The $352,000 increase in the NTN Wireless direct operating costs
largely related to the cost of goods sold associated with the NTN Wireless
revenue increase of $595,000 in 2004 noted above. The gross margin of NTN
Wireless was comparable in both years with a gross margin of 38.1% in 2004 and a
gross margin of 37.7% in 2003.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased $6,436,000 or
35.0%, to $24,836,000 in 2004 from $18,400,000 in 2003. A great deal of this
increase was because 2004 had a full year of operations of Software Solutions
compared to approximately five months in 2003 and a full year of operations of
NTN Canada in 2004 compared to two weeks in 2003. The following table compares
the selling, general and administrative expenses for each of our operating
segments between 2004 and 2003:

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

2004 2003 Change
---- ---- ------

NTN iTV Network............................. $ 15,214,000 $ 12,374,000 $ 2,840,000
NTN Wireless................................ 1,575,000 1,617,000 (42,000)
Software Solutions.......................... 5,153,000 1,802,000 3,351,000
------------- ------------ ------------
NTN Hospitality Technologies Division... 21,942,000 15,793,000 6,149,000
Buzztime................................ 2,894,000 2,607,000 287,000
------------- ------------ ------------
Consolidated Company.................. $ 24,836,000 $ 18,400,000 $ 6,436,000
============= ============ ============

The $2,840,000 SG&A increase in the NTN iTV Network segment was largely
due to $1,504,000 of SG&A expenses in our new NTN Canada subsidiary compared to
$162,000 in 2003, or a $1,342,000 increase. The remainder of the SG&A increase
of $1,498,000 in the NTN iTV Network's domestic operations came from a variety
of items including increased salaries and benefits of approximately $800,000,
increased office rental expense of $111,000, increased telephone expense of
$176,000, increased marketing expenses of $229,000 and increased repairs and
maintenance expense of approximately $125,000. The increases in salaries and
related expenses were related to the hiring of additional personnel.

SG&A expenses decreased $42,000 in the NTN Wireless segment largely due
to a combination of factors including reduced bad debt expense. The $287,000
SG&A increase in the Buzztime segment was largely due to increased payroll of
$476,000 partially offset by a decrease in marketing expenses of $142,000. SG&A
expenses include an allocation of our corporate SG&A to the segments based on a
variety of factors, including headcount, square footage of facilities and other
factors.

STOCK-BASED COMPENSATION EXPENSE

Stock-based compensation expense increased by $61,000, or 26.3%, to
$293,000 in 2004 compared to $232,000 in 2003. This increase largely arises from
recognition of non-cash expense associated with the grants of certain deferred
stock units to our executives in 2004 under the 2004 Performance Incentive Plan.

LITIGATION, LEGAL AND PROFESSIONAL FEES

Litigation, legal and professional fees increased $810,000, or 97.5%,
to $1,641,000 in 2004 compared to $831,000 in 2003. This increase relates to
$369,000 of Sarbanes-Oxley-related expenses, an increase of $227,000 in legal
fees related to the Long Range Systems, Inc., litigation in our Wireless
segment, an increase of $67,000 in audit fees, additional legal fees for
trademark registrations and generally to an increase in the scope of our
business.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization not related to direct operating costs
decreased $136,000, or 13.4%, to $880,000 in 2004 from $1,016,000 in 2003. The
decrease was due to assets having been fully amortized during 2004.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses were $329,000 in both 2004 and 2003.
Research and development expenses, which are salary expense, primarily related
to projects to develop new technologies for the NTN iTV network.

OTHER INCOME (EXPENSE)

INTEREST INCOME AND EXPENSE

Interest income increased $93,000 to $98,000 in 2004, compared to
$5,000 in 2003. This increase was due to a larger amount of cash invested in
short-term marketable securities in 2004 than in 2003.

Interest expense decreased $86,000, or 36.1%, to $152,000 in 2004,
compared to $238,000 in 2003, due to the expiration of various capitalized
leases and a paid down line of credit for the majority of the year, partially
offset by the imputed interest associated with the equipment notes payable.

OTHER INCOME

Other income was $225,000 in 2004. This other income arose from the
settlement of a derivative securities lawsuit. In 2003, we recorded $105,000 of
other income that arose from a gain on early extinguishment of debt.

MINORITY INTEREST

Minority interest in loss of consolidated subsidiary decreased $10,000
to zero in 2004 compared to $10,000 in 2003. The 2003 figure represented an
allocation of six percent of Buzztime's losses for only the first half of the
month of January 2003 since Scientific-Atlanta converted their minority interest
in the Buzztime subsidiary into NTN common stock on January 16, 2003.

INCOME TAXES

For the year ended December 31, 2004, the NTN Hospitality Technologies
Division had taxable income in Canada and a loss in the United States. In states
where separate filing is required, the division will incur a state tax
liability. As a result, NTN Hospitality Technologies Division recorded a tax
provision of $94,000 in 2004. This was a $47,000 increase over the $47,000
provision for income taxes recorded in 2003.

EBITDA

Our earnings before interest, taxes, depreciation and amortization
(EBITDA) decreased by $2,364,000 to $(898,000) in 2004 from EBITDA of $1,466,000
in 2003. This EBITDA decrease was primarily due to the increased loss in 2004 of
$2,268,000.

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

YEAR ENDED
DECEMBER 31,
-----------------------------
2004 2003
---- ----
EBITDA CALCULATION

Net loss per GAAP $ (4,979,000) $ (2,711,000)
Interest expense (net) 54,000 233,000
Depreciation and amortization 3,933,000 3,897,000
Income taxes 94,000 47,000
------------ ------------
EBITDA $ (898,000) $ 1,466,000
============= ============

On a segment basis, our segments generated EBITDA levels as presented below:

Net income (loss) ...................... $ 1,122 $ (64) $ (2,074) $ (1,016) $ (3,963) $ (4,979)

($000) YEAR ENDED
DECEMBER 31, 2003
-----------------------------------------------------------------------------
EBITDA CALCULATION: TOTAL
NTN ITV NTN SOFTWARE HOSP.
NETWORK WIRELESS SOLUTIONS TECH. DIV. BUZZTIME TOTAL
-------- -------- -------- -------- -------- --------

Net income (loss) ...................... $ 1,772 $ (171) $ (565) $ 1,036 $ (3,747) $ (2,711)

Interest expense (net) ............ 232 1 -- 233 -- 233
Depreciation and amortization ..... 3,057 138 164 3,359 538 3,897

Income taxes ...................... 47 -- -- 47 -- 47
-------- -------- -------- -------- -------- --------
EBITDA ................................. $ 5,108 $ (32) $ (401) $ 4,675 $ (3,209) $ 1,466
======== ======== ======== ======== ======== ========

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2005, we had cash and cash equivalents of $5,982,000
and working capital (current assets in excess of current liabilities) of
$4,743,000 compared to cash and cash equivalents of $6,710,000 and working
capital of $6,644,000 at December 31, 2004. Net cash provided by (used in)
operations was $3,551,000 in 2005 and $(2,556,000) in 2004. This fluctuation in
cash provided by operating activities was primarily due to a decrease in our net
loss and the increase in recorded deferred revenue.

Net cash used in investing activities was $4,576,000 in 2005 and
$4,056,000 in 2004. Included in net cash used in investing activities in 2005
was approximately $3,951,000 in capital expenditures, $360,000 of software
development, and $265,000 in deposits on broadcast equipment. The capital
expenditure levels and related deposits on broadcast equipment increased largely
due to our site count growth noted above and the process of converting our
Canadian customer base to updated NTN iTV Network technology.

Net cash provided by financing activities was $273,000 in 2005 and
$10,766,000 in 2004. Included in net cash provided by financing activities in
2005 was $700,000 in borrowings on our revolving line of credit and $566,000 in
proceeds from exercise of options and warrants. These cash inflows were
partially offset by $620,000 in principal payments on our revolving line of
credit as well as $373,000 in principal payments on our capital leases.

Net cash provided by financing activities in 2004 included $13,001,000
from the issuance of common stock, net of issuance costs. This was partially
offset by $2,548,000 in principal payments on notes payable and our revolving
line of credit. Net cash provided by financing activities in 2003 included
$3,712,000 of proceeds from issuance of common stock, net of offering expenses,
and $1,843,000 of proceeds from the exercise of options and warrants. The
$3,712,000 was raised in private offerings with Robert M. Bennett, one of our
former directors, and Media General, Inc. These proceeds were partially offset
by cash used in financing activities, which included $1,550,000 of net principal
payments on the revolving line of credit and $216,000 of principal payments on
capital leases and notes payable for VSAT equipment.

CONTRACTUAL CASH OBLIGATIONS

Our contractual cash obligations as of December 31, 2005:

PAYMENTS DUE BY PERIOD
-----------------------------------------------------------

CONTRACTUAL OBLIGATION LESS THAN 1 YEAR 2ND & 3RD YEARS 4TH, 5TH & 6TH YEARS TOTAL
---------------------- ---------------- ---------------- -------------------- --------

Revolving line of credit... $ 700,000 $ --- $ --- $ 700,000
Capital lease obligations.. 524,000 383,000 --- 907,000
Purchase commitments....... 150,000 910,000 --- 1,060,000
Operating leases, net of
subleases............... 888,000 1,706,000 2,341,000 4,935,000
------------ ------------ ------------ -----------
Total................. $ 2,262,000 $ 2,999,000 $ 2,341,000 $ 7,602,000
============ ============ ============ ===========

BENNETT INVESTMENT

On January 15, 2003, we issued and sold one million shares of
restricted common stock along with fully vested warrants to purchase 500,000
shares of common stock at $1.15 per share, exercisable through January 15, 2008,
through a private offering to Robert M. Bennett, one of our former directors, at
a price per share of $1.00 for an aggregate amount of $1,000,000. No commissions
or placement agent fees were paid in connection with the offering.

CONVERTIBLE SENIOR SUBORDINATED NOTES

As of December 31, 2002, we had outstanding convertible senior
subordinated notes of $2,000,000, payable February 1, 2003 and bearing interest
at 8% per year. The notes permitted us to convert up to the full principal
amount into shares of our common stock at maturity. On February 1, 2003, the
$2,000,000 of convertible senior subordinated notes converted into 1,568,627
shares of our common stock based on the agreed conversion price of $1.275 per
share.

REVOLVING LINE OF CREDIT

On July 16, 2003, we entered into a $1,000,000 line of credit
arrangement with Pacific Mercantile Bank (PMB). Interest on the line is based on
an independent index which is the highest rate on corporate loans posted by at
least 75% of the 30 largest banks in the United States, known as the "Wall
Street Journal's prime rate". The interest rate to be applied to the unpaid
principal balance is 2% over the index. The line originally was set to mature on

July 16, 2004, and contained one financial covenant based on our cash flow
coverage of the balance on the line of credit. On January 7, 2004, we amended
the line of credit to extend the expiration date of the facility to February 1,
2005, and to replace the cash flow-based financial covenant with a balance sheet
oriented financial covenant that limits the ratio of our debt to tangible net
worth to 2:1. We were in compliance with that covenant as of December 31, 2005.
The line was then amended again on February 11, 2005 to extend the expiration
date of the line to February 11, 2006. The line was amended again on February 7,
2006, to extend the expiration date of the line to May 11, 2006. The line is
secured by all inventories, equipment, accounts receivable and various other
assets of NTN.

Effective March 6, 2006, we signed a new one-year $2.0 million credit
facility agreement with Discovery Bank. This new larger credit facility will
provide for future working capital requirements.

Prior to establishing our line of credit with PMB, we had a line of
credit with Coast Business Credit (Coast) since August 1999. On February 7,
2003, Coast and its parent company, Southern Pacific Bank, were seized by the
Federal Deposit Insurance Corporation (the FDIC). The FDIC then sold off the
portion of Coast's loan portfolio that contained our line of credit to GF Asset
Management, LLC (GF), a subsidiary of GE Capital. On July 17, 2003, we paid off
our revolving line of credit with GF. The amount paid was approximately
$1,411,000, which is net of a 5% settlement discount of approximately $105,000.

MEDIA GENERAL INVESTMENT

On May 6, 2003, Media General, Inc., a communications company with
interests in newspapers, television stations, interactive media and diversified
information services, made a $3.0 million investment in NTN. In return for the
investment, we issued and sold 2,000,000 shares of unregistered NTN common stock
through a private offering to Media General. Pursuant to the terms of the
transaction, upon receipt of $3.0 million from Media General, we issued the
unregistered shares along with fully vested warrants to purchase 500,000 shares
of Buzztime common stock at $3.46 per share, exercisable through May 7, 2007. In
connection with the Buzztime common stock, the parties agreed that Media General
would have co-sale rights and NTN would have certain drag-along rights. Media
General has the right to convert each share of Buzztime common stock into two
shares of NTN common stock (subject to adjustment) on the second and fourth
anniversaries of the transaction date, in the event of a sale of NTN, upon
certain bankruptcy and other insolvency proceedings of Buzztime, and in certain
circumstances if NTN exercises its drag-along rights. Media General has the
further right to convert the warrant to purchase 500,000 shares of Buzztime
common stock into a warrant to purchase 1,000,000 shares of NTN common stock at
$1.73 per NTN share (subject to adjustment) in the event of bankruptcy or
insolvency of Buzztime. NTN has the right to require Media General to convert
its equity interests in Buzztime into equity interests in NTN if there is a sale
of NTN.

Simultaneous with the transaction described above, we issued 666,667
shares of unregistered NTN common stock to license selected technology and
content (Boxerjam games) from Media General to add additional game content to
the Buzztime interactive television game channel and the Buzztime Network. The
license includes a five-year exclusive interactive television license of certain
intellectual property, with options to extend the license for an additional five
years. In September 2003, we entered into an amendment to the Boxerjam games
license with Media General pursuant to which we agreed to pay to Media General a
license fee in the amount of $150,000 (or $50,000 more than the original amount
of $100,000) in exchange for the unilateral right to exercise the option to
extend the Boxerjam games license for an additional five years following the
initial five-year term on a non-exclusive basis. Previously, that non-exclusive
right was at Media General's option. The renewal license fee may be paid to
Media General in shares of NTN common stock or, in the event Buzztime's common
stock is publicly traded at the time of such renewal, Buzztime shall issue a
number of shares of Buzztime common stock with an aggregate value of $150,000.

We recorded both transactions at the fair value of the consideration
exchanged on May 6, 2003, and utilized a third-party valuation. We used the
publicly traded stock price, as of the date of the transactions, of $1.77 per
share to determine the $4,720,000 fair value of the shares issued. The
consideration allocated to the acquired Boxerjam game license was valued at
$1.72 million and we are amortizing it over the estimated contractual life of 10
years, which assumes that we will exercise our five-year renewal option. We
determined that, based on the lack of marketability of Buzztime common stock and
limited convertibility into NTN common stock, the fair value of the Buzztime
warrants was not material, and no allocation of fair value was made.

On January 30, 2004, Media General invested approximately $2.0 million
as one of the purchasers in the sale of 3,943,661 shares of our common stock at
$3.55 per share. Media General participated on the same terms as the other
investors in the financing.

BREAKAWAY INTERNATIONAL TRANSACTION

common stock, transaction costs and the assumption of certain liabilities. We
may pay additional contingent earn-out amounts in NTN common stock and/or cash
over the first three years following the acquisition, provided that certain
targets over the relevant trailing twelve month period for earnings before taxes
are met for the acquired assets. The targeted amounts increase by 25% each year.
No earn-out amounts were earned in the first two year period following the
acquisition. We also entered into employment agreements with five of the
executives of Breakaway.

Total consideration for the acquisition was $3,630,000, which consisted
of 1,292,614 shares multiplied by the then publicly traded price of $2.44 per
share, $252,000 in cash and $224,000 of transaction costs, plus the assumption
of liabilities. To determine the fair value of the acquired intangible assets
and the related allocation of the purchase price, we commissioned a third-party
valuation analysis. This third-party analysis determined that the identified
intangible assets and the related useful lives are developed technology
($781,000, six-year life), customer relationships ($1,110,000, six-year life)
and non-competition agreements ($30,000, three-year life). Results of operations
from the acquisition have been included in our consolidated statements of
operations since August 1, 2003.

WARRANT EXERCISE

On November 13, 2003, NorthBay Opportunities, L.P. (formerly known as
BayStar Capital, L.P.) and NorthBay International Opportunities, Ltd. (formerly
known as BayStar International, Ltd.) exercised warrants to purchase shares of
our common stock in the amounts of 493,827 and 123,456 shares, respectively. The
warrant exercise price for both firms was $1.62 per share. Those firms paid us
approximately $1,000,000 on November 13, 2003, in order to exercise those
warrants. These warrants were existing instruments that were issued as part of a
previous financing by those firms.

NTN INTERACTIVE NETWORK TRANSACTION

Total consideration for the acquisition was approximately $1,823,000,
which consisted of 238,300 shares multiplied by the then publicly traded price
of $3.70 per share, $233,000 in cash, the contribution of $550,000 in unpaid
licensing royalties, $122,000 of transaction costs, plus the assumption of
liabilities. To determine the fair value of the acquired intangible assets and
the related allocation of the purchase price, we commissioned a third-party
valuation analysis. This third-party analysis determined that the identified
intangible assets and the related useful lives are customer relationships
($720,000, four-year life), trivia database ($345,000, ten-year life),
interactive events software ($102,000, five-year life) and trivia software
($90,000, five-year life). NTN Canada's results of operations have been included
in our consolidated statements of operations since December 15, 2003.

SALE OF SOFTWARE PRODUCTS

On February 4, 2005, we entered into an Asset Purchase Agreement with
Intura Solutions LP (Intura), a Texas limited partnership, pursuant to which we
sold the point-of-sale software products developed and maintained by our
Software Solutions segment. In accordance with the asset purchase transaction,
Gary Peek terminated his position as vice president and general manager of our
Software Solutions segment and immediately thereafter commenced his position
with Intura to oversee business operations.

The primary software products sold by us to Intura were Vision, Relief
Manager Plus (RMP), Store Link Plus (SLP), Sell More Pizzas and other legacy
products as well as a non-exclusive right to develop and market the Enterprise
software. We received a non-dilutable 10% partnership interest in Intura in the
transaction and will receive a royalty representing 20% of Intura's revenues
during the two years after February 4, 2005, up to a maximum of $100,000. In
2005, we recorded $28,000 of such royalties. Further, Intura will provide
software development maintenance services for the RMP and SLP software for two
years (we continue to retain the rights to the maintenance and support revenue
from legacy products).

We engaged a third-party valuation firm to assist in determining the
fair value of our 10% ownership interest in Intura. Based on this analysis, we
concluded that the fair value of our investment in Intura was approximately
$69,000. Additionally, based on this analysis, we considered whether this
transaction resulted in any impairment of the goodwill in the Software Solutions
segment and we concluded that it did not result in any such impairment. The sale
of the software products, which we carried as part of our intangible assets,
resulted in a one-time, non-cash charge of $276,000. That amount would have been
amortized over the remaining four-year life of those assets if we had retained
them.

JANUARY 2004 FINANCING

On January 30, 2004, we completed the sale of 3,943,661 shares of our
common stock at $3.55 per share, resulting in gross proceeds of approximately
$14.0 million, pursuant to an existing shelf registration filed under the
Securities Act. Roth Capital Partners, LLC acted as placement agent in the
offering. After commissions and expenses, the net proceeds of this offering were
approximately $13.0 million. The offering was purchased primarily by a number of
institutional investors and by Media General, Inc., a related party, which
invested approximately $2.0 million.

FUTURE FINANCING NEEDS

Our liquidity and capital resources, while stronger now than in recent
years, remain limited, which may constrain our ability to operate and grow our
business. However, cash flows from operations have increased significantly as of
the third and fourth quarters of 2005.

In 2005, we experienced the most significant increase in iTV site sales
in 8 years, with 359 site sales. We believe that this sales increase can be
attributed in large part to our announcement in February 2004 of the planned
deployment of a wireless electronic multi-player version of the popular poker
game, Texas Hold'em, on our NTN iTV Network in 2005. Additionally, we are
halfway through the conversion of approximately 350 Canadian NTN iTV Network
sites to our newest iTV2 technology, which allows the play of Texas Hold'em, as
well as other new game content.

On February 6, 2005, we announced the deployment of Texas Hold'em to
all of our iTV2 sites, which numbered about 900 in North America. Over 2005, we
have witnessed continued strong growth of sales for the NTN iTV Network. At the
Nightclub and Bar Trade Show in early March 2005, which is one of our strongest
trade shows, we had continued strong sales success. Each new site requires a
capital investment of approximately $5,000 when connected to the NTN iTV Network
via VSAT satellite technology. We believe that we have sufficient cash to
operate our businesses through 2006.

Capital requirements in 2006 will additionally depend upon two other
growth initiatives. The first is the launch of our NTN iTV Network in the United
Kingdom, beginning with an initial trial of 11 NTN iTV Network sites that began
on March 1, 2005. We believe that a significant growth opportunity exists in the
United Kingdom for our iTV product, and success in sales would require
substantial capital for any level of significant deployments. The second is the
intended broad distribution of the Buzztime Trivia Channel in digital cable
television systems as sales efforts continue to focus on cable MSOs (the largest
multiple system operators in the United States). With 8 current sites in
operation, if this initiative succeeds as planned and we enter into national
agreements with those cable operators, we intend to aggressively increase
Buzztime sales and marketing efforts to more quickly advance our distribution
within the United States market.

A primary driver of capital use over the past three years has been the
cost of deploying the VSAT technology in our NTN iTV Network. For more than 10
years, we transmitted our data through the FM(2) satellite one-way platform. In
2003, we were informed that this platform would no longer be available to us
after February 2005. After considering several alternative delivery channels, we
entered into equipment purchase and satellite service agreements in 2003 to
convert the Network to a much higher speed, two-way VSAT (Very Small Aperture
Technology) satellite technology over the two-year period ending February 2005.
These agreements were with the same reseller of satellite services that provided
the FM(2) satellite platform to us. The VSAT technology is more expensive than
FM2, and, with our strong sales in 2005, our cash usage increased to fund the
new installations.

On January 20, 2005, after learning that the FM2 platform life was
being extended, we amended our agreements with our satellite services provider
to push out the expiration date on the FM2 satellite platform to February 2007
and to modify our VSAT equipment purchase and satellite service agreements. The
amendments will help us in three ways: First, the modification to the equipment
purchase agreement eliminates the requirement to purchase and install a specific
amount of VSAT equipment. Second, the flexibility will enable us to utilize
non-satellite based data transmission platforms, such as digital subscriber
lines (DSL), wireless connectivity or cable modems, for customer sites where
such platforms may be appropriate. We have begun installing some sites with DSL
connectivity in areas that cannot be reached by VSAT, which lowers the cost of
the installations by a significant amount of approximately $1,800 per site.
Third, the amendment allows us to slow our rate of converting sites from the FM2
system to the new VSAT platform over the remainder of the amended FM2 satellite
services agreement, which is now scheduled to end in February 2007. As of
December 31, 2005, approximately 65% of our domestic sites had been converted
from FM2 to DSL or VSAT. We anticipate that with the extension of FM2 sites, an
increasing number of DSL installations and the revised VSAT agreement, North
America installation costs overall and installation costs per site over the
coming years will trend down from what was seen in 2003, 2004 and 2005.

We acquired the NTN Canada Network assets of our Canadian licensee in
December 2003. The previous owner had not converted the Canadian customer base
to DITV during the 1999 to 2001 period when our domestic sites were converted,
and the Canadian Network had become antiquated and was rapidly losing customers.
Following the purchase, we have been in the process of upgrading the technology
for all 397 active sites there. Through December 31, 2005, approximately 91% of
the Canadian sites had been converted to iTV2, our newest technology platform,
and connected via either VSAT or DSL communication platforms. Over the next 12
months, we plan to convert the remaining 9% of our current customer base at a
cost on the order of $175,000. However, we believe that these Canadian capital
expenditures will be financed through the operating cash flow we generate in
Canada.

We also have taken actions to reduce operating losses in two of our
segments that produced losses in 2005, as follows:

o Software Solutions - In February 2005, we sold the Vision
Point-of-Sale product line, which had produced losses, to a
new venture formed by the former president of Breakaway
International. We retained a 10% ownership in that new
venture.

o NTN Wireless - This segment has been profitable in 2005. We
believe this segment should produce operating profits going
forward, although this segment is very competitive and its
gross margins remain under pressure.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to risks related to currency exchange rates, stock
market fluctuations, and interest rates. As of December 31, 2005, we owned
common stock of an Australian company that is subject to market risk. At
December 31, 2005, the carrying value of this investment was $258,000, which is
net of a $559,000 unrealized loss. This investment is exposed to further market
risk in the future based on the operating results of the Australian company and
stock market fluctuations. Additionally, the value of the investment is further
subject to changes in Australian currency exchange rates. At December 31, 2005,
a hypothetical 10% decline in the value of the Australian dollar would result in
a reduction of $26,000 in the carrying value of the investment.

We do not have any derivative financial instruments. Nor do we have any
speculative or hedging instruments.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See "Index to Consolidated Financial Statements and Schedule" on page
F-1 for a listing of the Consolidated Financial Statements and Schedule filed
with this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

As noted in our SEC filings, we changed our independent public
accountants in the third quarter 2004 from KPMG LLP (KPMG) to Haskell & White
LLP. We have agreed to indemnify and hold KPMG LLP harmless against and from any
and all legal costs and expenses incurred by KPMG in successful defense of any
legal action or proceeding that arises as a result of KPMG's consent to the
incorporation by reference of its audit report on our past financial statements
into our Registration Statements on Form S-8 and Form S-3.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

We maintain "disclosure controls and procedures", as such term is
defined under Exchange Act Rule 13a-15(e), that are designed to ensure that
information required to be disclosed, in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosures.

In designing and evaluating the disclosure controls and procedures, we
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and we were required to apply our judgment in evaluating the
cost-benefit relationship of possible controls and procedures. We have carried
out an evaluation as of the end of the period covered by this report under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures.

Based on our evaluation and subject to the foregoing, our Chief
Executive Officer and Chief Financial Officer concluded that there were no
material weaknesses in our disclosure controls and procedures, that, except for
the material weakness disclosed in Item 9A below, and that such disclosure
controls and procedures were effective as of the end of the period covered by
this report in providing reasonable assurance of achieving the desired control
objectives, and therefore there were no corrective actions taken.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

We are responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.

As of our prior fiscal year, we and our outside auditors identified one
material weakness due to inadequate documentation of the design and testing of
controls over relevant assertions related to certain significant accounts and
disclosures. This pertains to documenting to the degree appropriate how certain
controls were initiated, authorized, recorded, processed, tested or reported. In
connection with our current 2005 fiscal year-end, this material weakness no
longer exists due to the improved documentation regarding how controls are
initiated, authorized, recorded, processed, tested and reported, provided during
the 2005 evaluation.

Throughout much of 2005, we pursued the analysis of our internal
controls using significant management and staff time at all levels of the
organization including the full-time use of an external consulting firm
specializing in internal control documentation and testing to guide us in the
process. The team reviewed, tested and documented over one hundred internal
controls in our significant business cycles and processes to determine where
deficiencies in the system might occur in a comprehensive evaluation as to who
and/or how the control was initiated, authorized, recorded, processed, or
reported.

Under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2005. According to the guidelines
established by INTERNAL CONTROL - INTEGRATED FRAMEWORK issued by the Committee
of Sponsoring Organizations of the Treadway Commission, one or more material
weaknesses renders a company's internal control over financial reporting
ineffective. Based on this evaluation, we have concluded that our internal
control over financial reporting was effective as of December 31, 2005. The
Company's independent registered public accounting firm, Haskell & White LLP,
has issued an attestation report on management's assessment of the effectiveness
of the Company's internal control over financial reporting and on the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2005, which appears on page F-2 of this Annual Report on Form 10-K.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Except as described above, during the fiscal quarter ended December 31,
2005, there was no change in our internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

PART III

MANAGEMENT

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

BOARD OF DIRECTORS

The following table sets forth the members of our board of directors:

NAME AGE (1)
------------------------- -------
Stanley B. Kinsey........ 52
Gary Arlen............... 61
Kendra Berger............ 39
Barry Bergsman........... 69
Robert Clasen............ 61
Michael Fleming.......... 52
Neal Fondren............. 47
- ----------
(1) As of March 1, 2006

The following biographical information is furnished with respect to
members of our board of directors:

GARY H. ARLEN was appointed as a Director in August 1999. Mr. Arlen
currently serves on the Audit Committee and Compensation Committee of the board.
Since 1980, he has been president of Arlen Communications, Inc., a research and
consulting firm specializing in interactive information, transactions,
telecommunications and entertainment. Arlen Communications provides research and
analytical services to domestic and international organizations in
entertainment, media, telecommunications and Internet industries. Mr. Arlen was
a founder and board member of several interactive media trade associations. He
is a member of the Academy of Digital TV Pioneers and the Cable TV Pioneers.

KENDRA BERGER has been a Director since July 2005 and was appointed
Audit Committee Chairperson and financial expert at the time of appointment as
director. Ms. Berger is currently the Executive Director of Finance and
Controller of Stressgen Biotechnologies, Inc. and formerly was the Vice
President, Finance and Controller of Discovery Partners International, Inc. Both
Stressgen Biotechnologies, Inc. and Discovery Partners International, Inc. are
publicly traded companies. Prior to joining Discovery Partners International,
Inc. in 2001, Ms. Berger was the Chief Financial Officer of the Company. She is
a licensed CPA.

BARRY BERGSMAN has been a Director since August 1998 and was appointed
independent lead director in August, 2004. Mr. Bergsman serves on the
Compensation Committee and Nominating and Governance Committee of the board. He
is president of Baron Enterprises, Inc., a privately owned consulting company
established in 1965. As president of Intertel Communications, Inc., from 1985 to
1998, Mr. Bergsman pioneered the use of the telephone and interactive technology
for promotion, entertainment and information. Prior to 1985, Mr. Bergsman was
engaged in television production and syndication and was an executive with CBS.
He currently serves as a director and member of the management team of
Photogenesis, Inc., a private medical device and biotechnology company.

ROBERT B. CLASEN has been a Director since November 2001. Currently he
is President and CEO for Starz Entertainment Media Group, the largest provider
of premium movie services in the United States providing thirteen channels of
movies to multichannel television homes. He was appointed to this position in
December 2004, previously serving as President of Sales and Marketing since
September 2003 and President and COO since May 2004. For most of the past 10
years, Mr. Clasen has been President and CEO of Clasen Associates, an advisor to
a broad range of technology and service companies who operate in the broadband,
wireless and satellite sectors. In this capacity he often has served as an
interim executive. In January 2002, he was appointed Acting Chairman and Chief
Executive Officer of Inetcam, Inc., a privately held international streaming
media management software company, where he served for five months. From
September, 2002 through July, 2003, Mr. Clasen served as Interim Chief Strategy
Officer and director for Path 1 Network Technologies (PNWK), a publicly traded
provider of broadcast quality video over packet-based networks and he remains on
the Board. During this period he also served as Chairman for Broadband
Innovations and Lightwave Solutions, two San Diego companies providing
components to the cable television industry. From 1999 until June 2001, Mr.
Clasen served as Chairman and Chief Executive Officer of ICTV, an
interactive/internet television provider. From June 2001 until December, 2001,
Mr. Clasen remained as Chairman of the board at ICTV and, continued to serve as
a director for ICTV until July 2003. During 1997, Mr. Clasen served as President
and Chief Executive Officer of ComStream Corporation, an international provider
of digital transmission solutions for voice, data, imaging, audio and video
applications during the sale of the Company. Prior to 1997, Mr. Clasen held
positions as President of each of Comcast International Holdings, the
international division of Comcast Cable Communications, and Comcast Cable
Communications, one of the country's five largest cable television companies.

MICHAEL FLEMING was appointed a Director in November 2001. Since May
2002, he has also served as Chairman of the Board of our Buzztime Entertainment,
Inc. subsidiary. Mr. Fleming serves on the Nominating and Governance Committee
of the board. Mr. Fleming is currently chairman and Chief Executive Officer of
the Fleming Media Group, advising a broad range of content and technology
companies on interactive television, broadband, wireless and other convergent
technology opportunities. He is the founder and recent past-President of Game
Show Network, a satellite delivered television programming service dedicated to
the world of games and game play. Mr. Fleming has held senior executive
positions at Playboy Entertainment Group, ESPN, Turner Broadcasting and Warner
Amex Satellite Entertainment Company. He was inducted into the Cable Pioneers in
1999.

NEAL FONDREN was appointed as a Director in May 2003 upon consummation
of the investment in NTN by Media General. Mr. Fondren serves on the Audit
Committee of the board. Mr. Fondren has served as Vice President of Media
General and President of Media General's Interactive Media Division since
January 2001. Prior to joining Media General, Mr. Fondren was a 20-year veteran
of E.W. Scripps Co., where he was vice president of new media from 1997 to 2000.
Before that, he held a succession of executive-level positions in Scripps' cable
television division from 1982 to 1997.

STANLEY B. KINSEY has served as Chairman and Chief Executive Officer of
NTN since October 1998, after having been appointed as a Director in November
1997. Prior to that, Mr. Kinsey served as chairman and Chief Executive Officer
at IWERKS Entertainment, a high-technology entertainment company he helped
co-found in 1985 until 1995, when he resigned to spend more time with his
family. Before that, he left his position as senior vice president of operations
and new technologies for The Walt Disney Company from 1980 to 1985 to co-found
IWERKS Entertainment. From 1976 to 1978, Mr. Kinsey served as an analyst in the
consulting division of Arthur Anderson & Co. (now Accenture). Mr. Kinsey
received a BA in mathematics from DePauw University and an MBA from Stanford
University.

AUDIT COMMITTEE

We have a separately designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended. The Audit Committee is currently comprised of three non-employee
directors who each meet the independence requirements of the American Stock
Exchange and SEC rules: Ms. Berger, Mr. Fondren and Mr. Arlen. The role of the
Audit Committee of the Board of Directors is to assist the Board in its
oversight of our financial reporting process. The primary functions of the Audit
Committee are to periodically review our accounting and financial reporting and
internal control policies and procedures, to recommend to the Board of Directors
the firm of certified public accountants to be retained as our independent
auditors, to review our policies and procedures relating to business conduct and
conflicts of interest and to review our specific disclosures contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our periodic financial reports to the SEC, in addition to review
of our annual audited and quarterly financial statements.

AUDIT COMMITTEE FINANCIAL EXPERT

Ms. Berger was appointed Audit Committee Chairperson and financial
expert at the time of her appointment as Director in July 2005. See "Board of
Directors" for Ms. Berger's biography, including financial expert qualifications
and relevant experience.

RECOMMENDATION OF DIRECTOR NOMINEES

The Nominating and Governance Committee will consider candidates for
Board membership suggested by other Board members, as well as by management and
stockholders. As a stockholder, you may recommend any qualified person for
consideration as a nominee for director by writing to the Nominating and
Governance Committee of the Board of Directors, c/o NTN Buzztime, Inc., 5966 La
Place Court, Carlsbad, California 92008. Recommendations must include the name
and address of the stockholder making the recommendation, a representation that
the stockholder is a holder of record of common stock, biographical information
about the individual recommended and any other information the stockholder
believes would be helpful to the Nominating and Governance Committee in
evaluating the individual recommended. The procedures for considering candidates
recommended by a stockholder for Board membership will be no different than the
procedures for candidates recommended by members of the Board or by management.

EXECUTIVE OFFICERS

The following table sets forth certain information regarding our
executive officers:

NAME AGE (1) POSITION(S) HELD
--------------------- ------- -------------------------------------------------------------------

Stanley B. Kinsey.... 52 Chief Executive Officer and Chairman of the Board
V. Tyrone Lam........ 44 President and Chief Operating Officer, Buzztime Entertainment, Inc.
Andy Wrobel.......... 54 Chief Financial Officer

- ----------
(1) As of March 1, 2006.

See "Board of Directors" for Mr. Kinsey's biography. The following
biographical information is furnished with respect to our other executive
officers:

V. TYRONE LAM was appointed President and Chief Operating Officer of
Buzztime Entertainment, Inc. in December 1999, upon incorporation of the
subsidiary. Prior to his current appointment, Mr. Lam served as executive vice
president of NTN, responsible for sales, marketing and operations of the NTN
Network. Before joining NTN in 1994, he managed the development of iTV game and
sports applications for EON Corporation, formerly known as TV Answer, a pioneer
in the interactive television industry, from April 1992 until December 1994.
Additionally, Mr. Lam has served in sales and marketing management positions
within the PC software industry, is past chairman of the Interactive Services
Association's Interactive Television Council and is an author of articles on
interactive television and sales and marketing strategies.

ANDY WROBEL was appointed Chief Financial Officer in June 2005. Mr.
Wrobel has held senior executive positions over the past 20 years. He was CEO
and CFO of Intecam, Inc., a video streaming software company, from 2002 to 2004
and CEO of technology company Microelectronic Packaging/Meltronix, a technology
company, from 1997 to 2001. Mr. Wrobel founded Gigatek Memory Systems, Inc. in
1989 and sold it to a Samsung affiliate in the mid 1990s. Previously he held
managerial positions with Texas Instruments, BASF and Carlisle MPG. He holds a
graduate degree from MIT with courses from MIT Sloan School of Management.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under federal securities laws, our directors and officers and any
persons holding more than 10% of our common stock are required to report their
beneficial ownership of our common stock and any changes in that ownership to
the Securities and Exchange Commission. We believe that, based on the written
representations of our directors and officers and copies of reports filed with
the Commission in 2005, our directors, officers and holders of more than 10% of
our common stock complied with the requirements of Section 16(a) with the
exception of Fidelity National Financial Inc.

On November 21, 2005, Fidelity National Financial, Inc. (FNF) filed a
Form 3 Initial Statement of Beneficial Ownership of Securities to report
ownership, by six of its wholly- and majority-owned subsidiaries, of an
aggregate 5,307,911 shares of common stock as of December 2, 2004. Subsequently,
FNF filed a Schedule 13G to report that FNF became the beneficial owner of more
than 5% of the common stock on August 8, 2003 and that additional purchases were
made from time to time from that date through September 2005. On FNF's most
recent 13G filing on February 14, 2006, FNF reported that it was the direct
beneficial owner of 613,400 shares of common stock, and its reporting
subsidiaries, in the aggregate, were the direct beneficial owners of an
additional 6,031,211 shares; beneficial ownership of which the subsidiaries may
be deemed to share with FNF.

CODE OF ETHICS

We have adopted a Code of Ethics for Senior Financial Officers, which
applies to our Chief Executive Officer and Chief Financial Officer. Our Code of
Ethics for Senior Financial Officers, and other corporate governance materials
and related information, are posted in the Corporate Governance section of our
website at "www.ntnbuzztime.com", or you may receive copies without charge by
writing to us at NTN Buzztime, Inc., 5966 La Place Court, Carlsbad, California
92008, Attention: Investor Relations.

ITEM 11. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

The following Summary Compensation Table shows the compensation paid or
accrued as of each of the last three fiscal years to all individuals who served
as our Chief Executive Officer during 2005, the two other most highly
compensated executive officers who were serving as executive officers at the end
of 2005 and the two most highly compensated executive officers for whom
disclosure hereunder would have been required but for the fact that the
individuals were not serving as executive officers at the end of 2005, whose
salary and bonus exceeded $100,000 (collectively, the "Named Executive
Officers"):

ANNUAL COMPENSATION LONG-TERM COMPENSATION ALL OTHER
------------------- AWARDS COMPENSATION
------ ------------
SECURITIES UNDERLYING
---------------------
DEFERRED
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS STOCK UNITS
- --------------------------- ---- --------- ----- ------- -----------
($) ($) (#) (#) ($)
--- --- --- --- ---

Stanley B. Kinsey(2) ...................... 2005 $389,000 $ 15,000(3) 250,000 -- --
Chief Executive Officer ................... 2004 367,000 50,000 300,000 50,000 --
and Chairman of the Board .............. 2003 340,000 15,000 400,000 -- --

V. Tyrone Lam ............................. 2005 $283,000 $ 15,000(3) 50,000 -- --
President and Chief Operating Officer ..... 2004 271,000 50,000 100,000 20,000 --
Buzztime Entertainment, Inc. ............ 2003 250,000 15,000 100,000 -- --

Andy Wrobel(4) ............................ 2005 $130,000 $ 20,000(5) 440,000 -- --
Chief Financial Officer ................... 2004 -- -- -- -- --
2003 -- -- -- -- --

Mark deGorter(6) .......................... 2005 $249,000 $ 15,000(3) 50,000 -- $ 60,000(7)
President and Chief Operating Officer, .... 2004 271,000 15,000 40,000 20,000 --
NTN Hospitality Technologies ............ 2003 250,000 50,000 100,000 -- --

James B. Frakes(8) ........................ 2005 $119,000 $ 15,000(3) 40,000 -- $109,000(7)
Chief Financial Officer ................... 2004 206,000 50,000 40,000 20,000 --
2003 189,000 15,000 -- -- --

- --------
(1) Includes amounts, if any, deferred under NTN's 401(k) Plan.
(2) Mr. Kinsey waived compensation for serving as a director of NTN. Mr.
Kinsey received perquisites and personal benefits that did not exceed
the lesser of $50,000 or 10% of his annual salary and bonus.
(3) Represents cash bonus paid out in accordance with the performance-based
bonus program as established by the Compensation Committee of the Board
of Directors. Includes amounts deferred under NTN's 401(k) Plan.
(4) Mr. Wrobel was appointed Chief Financial Officer in June 2005.
(5) Represents a one time cash bonus paid out per the Compensation
Committee of the Board of Directors.
(6) Mr. deGorter served as President and Chief Operating Officer of the
Company's Hospitality Technologies Division until October, 2005.
(7) Amounts paid for severance.
(8) Mr. Frakes served as Chief Financial Officer until June 2005.

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning individual grants
of stock options made during 2005 to each of the Named Executive Officers:

INDIVIDUAL GRANTS
----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR PRICE DATE VALUE(1)
----------------------- ----------- ------------ --------- ---------- ----------

Stanley B. Kinsey ..... 250,000(2) 16.0% $ 1.88 06/26/15 $ 1.21
V. Tyrone Lam ......... 50,000(3) 3.3 1.88 06/26/15 1.21
Andy Wrobel ........... 440,000(4) 29.0 1.85 06/19/15 1.20
Mark deGorter ......... 50,000(5) 3.3 1.88 10/02/07 1.21
James B. Frakes ....... 40,000(5) 2.6 2.03 06/17/06 0.49

- ----------
*less than 1%
(1) The present value of grant on the grant date was estimated using the
Black Scholes option-pricing model with the following weighted average
assumptions: dividend yield of 0%, risk-free interest rate of 3.73%,
expected volatility of 75.67%, and expected option life of 4.8 years.
(2) Represents options granted under the NTN Communications, Inc. 2004
Performance Incentive Plan, which become fully vested and exercisable
as of July 31, 2006. The options were granted to Mr. Kinsey in
consideration of Mr. Kinsey's agreement to extend the term of his
employment agreement through February 28, 2006. The options were priced
at $1.88 per share in accordance with the terms of Mr. Kinsey's
employment agreement dated June 28, 2005. Such options vest in twelve
(12) equal monthly installments.
(3) Represents options granted under the NTN Communications, Inc. 2004
Performance Incentive Plan. Such options vest and become exercisable as
to 1/12 of the total shares on the last day of each of the twelve (12)
calendar months immediately following the grant date.
(4) Represents options granted under the NTN Communications, Inc. 2004
Performance Incentive Plan. Such options vest and become exercisable as
to 25% of the total shares on the first anniversary of the date of
grant and will become exercisable as to an additional 1/36 of the
remaining shares on the last day of each of the thirty-six (36)
calendar months immediately following the first anniversary of the
grant date.
(5) Options vested in full upon termination of employment.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

The following table contains information concerning aggregated option
exercises and fiscal year-end value of stock options which were unexercised at
the end of 2005 with respect to each of the Named Executive Officers.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(1)
EXERCISE REALIZED --------------------------- -----------------------------
(#) ($) (#) ($)
--- --- --- ---
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------- ----------- ------------- ----------- -------------

Stanley B Kinsey ..... -- -- 3,225,000 125,000 $1,655,500 --
V. Tyrone Lam ......... -- -- 754,584 95,416 376,530 12,895
Andy Wrobel ........... -- -- -- 440,000 -- --
Mark deGorter ......... -- -- 610,000 -- 414,800 --
James B. Frakes ....... 139,700 173,000 285,300 -- 147,823 --

- ----------
(1) Represents the amount by which the aggregate market price on December 31,
2005 of the shares of our common stock subject to such options exceeded the
respective exercise prices of such options.

DIRECTOR COMPENSATION

Effective July 1, 2005, directors are entitled to receive an annual
cash retainer in the amount of $22,000 for their services as directors. In
addition, directors are entitled to participation fees for meeting attendance.
In accordance with the director compensation program, each director shall be
entitled to $1,200 per meeting for personal attendance, $400 per meeting for
attendance via telephone and no fee shall be payable for meetings not attended.
Prior to July 2005, directors received $28,800 cash compensation annually with
no per meeting attendance fees.

Directors receive additional compensation for committee service. Those
directors who serve on the Audit Committee receive an additional $3,000 annually
for such service, with the Audit Committee chairperson and financial expert
earning $13,000 for such service. Those directors serving on our Nominating and
Governance Committee each receive an additional $1,000 annually for their
service; the Nominating and Governance Committee chairperson receives $3,000
annually. Those directors who serve on the Compensation Committee are each
entitled to receive an additional $2,000 annually for such service, with the
Compensation Committee chairperson earning $3,000 for such service. Our
independent lead director receives an additional $10,000 per year for his
service. In 2005, Mr. Bergsman, our independent lead director, received a
one-time additional compensation payment of $10,000 in consideration for out of
scope efforts and time commitment.

Directors are also eligible for the grant of options to purchase common
stock for services in their capacity as directors. Upon the date of commencement
of a new director's term of service, we grant to each director options to
purchase 20,000 shares of our common stock. These options are priced at the
closing market price of the common stock on the date of grant. As of the date of
grant, 10,000 options are fully vested and exercisable; thereafter, the
remaining 10,000 options vest and become exercisable in equal installments each
month immediately subsequent to the date of grant and up to the date of the next
annual meeting of shareholders. Further, a director who is re-elected for an
additional term of service will be granted options to purchase 20,000 shares of
common stock, priced at the closing market price of the common stock on the date
of our annual meeting of shareholders, subject to monthly vesting and continued
service. Finally, all options granted to directors as compensation for service
on the Board of Directors shall expire on the earlier of ten years from the date
of grant or two years from the date the director ceases to serve on the Board of

Directors. The options provide for immediate vesting in full upon the occurrence
of a change of control event.

The director compensation program is subject to board review and
renewal annually on or around the date of our annual meeting of shareholders.

EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS

On June 28, 2005, we entered into a written employment agreement with
Stanley B. Kinsey, effective July 1, 2005, extending the term of Mr. Kinsey's
employment through February 28, 2006. As provided by the employment agreement,
Mr. Kinsey is paid a salary of $394,000 per annum through February 28, 2006, and
shall be eligible to participate in our executive bonus program. We also granted
Mr. Kinsey options to purchase 250,000 shares of common stock at $1.88 per share
pursuant to the NTN Communications, Inc. 2004 Performance Incentive Plan. The
options shall vest as to 1/12 of the total shares as of the last day of each
calendar month commencing July 2005.

In the event of a change of control, Mr. Kinsey shall be entitled to
one year's additional compensation and accelerated vesting of his stock options.
In addition, upon termination of the agreement by the Company, without cause or
for disability, Mr. Kinsey shall be entitled to the greater of one year's
additional compensation or the compensation that was to accrue during the
balance of the term of employment. The agreement provides that Mr. Kinsey and
the Company would attempt to negotiate an extension of the agreement by January
1, 2006.

In December 2005, Mr. Kinsey informed the Board of Directors that he
would not seek renewal of his employment contract after its expiration date of
February 28, 2006. The Board is currently searching for a Chief Executive
Officer, and Mr. Kinsey will remain in his position until a permanent or interim
Chief Executive Officer is named.

INDEMNITY AGREEMENTS

We have entered into indemnity agreements with each of our directors
and executive officers. The indemnity agreements provide that we will indemnify
these individuals under certain circumstances against certain liabilities and
expenses they may incur in their capacities as our directors or officers. We
believe that the use of such indemnity agreements is customary among
corporations and that the terms of the indemnity agreements are reasonable and
fair to us, and are in our best interests to retain experienced directors and
officers.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

All compensation determinations for 2005 for our executive officers
were made by the Board of Directors as a whole upon the recommendation of the
Compensation Committee or by the Compensation Committee under authority granted
to them by the Board. During 2005, Mr. Arlen and Mr. Bergsman served on the
Compensation Committee. None of our directors or executive officers has served
on the Board of Directors or the compensation committee of any other company or
entity, any of whose officers served either on our Board of Directors or on our
Compensation Committee. In connection with the investment by Media General, Inc.
in 2003, we agreed to increase the size of our Board of Directors and appoint
Neal F. Fondren, Vice President of Media General and President of Media
General's Interactive Media Division, to fill the board seat. Media General's
ability to maintain that seat on our Board of Directors is subject to Media
General retaining ownership of certain percentages of the shares they purchased.
Media General also received preemptive rights to purchase on a pro rata basis
any new securities that NTN or our Buzztime Entertainment subsidiary may
subsequently offer. The preemptive rights also are dependent upon Media General
maintaining ownership of certain percentages of the shares they purchased.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of March 1, 2006, the number and
percentage ownership of common stock by (i) all persons known to us to own
beneficially more than 5% of the outstanding shares of common stock based on
reports filed by each such person with the Securities and Exchange Commission;
(ii) each of our directors; (iii) each of the Named Executive Officers; and (iv)
all of the Named Executive Officers and directors as a group. Beneficial
ownership includes any shares which a person has the right to acquire within 60
days of March 1, 2006. Except as otherwise indicated and subject to applicable
community property and similar laws, each of the persons named has sole voting
and investment power with respect to the shares of common stock shown. Except as
otherwise indicated, the address for each person is c/o NTN Buzztime, Inc., 5966
La Place Court, Carlsbad, California 92008.

NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OWNED COMMON STOCK(1)
--------------------------------------------------- ---------------- ---------------

Gary Arlen(2)...................................... 197,110 *
Kendra Berger(3)................................... 18,333 *
Barry Bergsman(4).................................. 307,667 1%
Robert B. Clasen(5)................................ 116,667 *
Michael Fleming(6)................................. 96,667 *
Neal Fondren(7).................................... 1,320 *
Stanley B. Kinsey(8)............................... 3,408,000 6%
Andy Wrobel........................................ --- *
V. Tyrone Lam(9)................................... 782,917 1%
Mark deGorter(10).................................. 610,000 1%
James B. Frakes(11)................................ 271,300 1%
Media General, Inc.(12)............................ 3,287,334 6%
Fidelity National Financial, Inc.(13).............. 5,326,111 10%
----------- ----
All executive officers and directors of NTN as a
Group (11 persons)(14)............................. 5,867,111 10%
----------- ----

- ----------
*less than 1%
(1) Included as outstanding for purposes of this calculation are 53,951,302
shares of common stock (the amount outstanding as of March 1, 2006)
plus, in the case of each particular holder, the shares of common stock
subject to currently exercisable options, warrants, or other
instruments exercisable for or convertible into shares of common stock
(including such instruments exercisable within 60 days after March 1,
2006) held by that person, which instruments are specified by footnote.
Shares issuable as part or upon exercise of outstanding options,
warrants, or other instruments other than as described in the preceding
sentence are not deemed to be outstanding for purposes of this
calculation.
(2) Includes 196,667 shares subject to currently exercisable options held
by Mr. Arlen.
(3) Includes 18,333 shares subject to currently exercisable options held by
Ms. Berger.
(4) Includes 196,667 shares subject to currently exercisable options held
by Mr. Bergsman.
(5) Includes 96,667 shares subject to currently exercisable options held by
Mr. Clasen. Includes 20,000 owned by the Clasen Family Trust, of which
Mr. Clasen is co-trustee with members of his immediate family. As
co-trustee, Mr. Clasen shares voting and investment power with respect
to the shares.
(6) Includes 96,667 shares subject to currently exercisable options held by
Mr. Fleming.
(7) Includes 500 shares owned by Mr. Fondren as custodian for his son.
Excludes shares subject to options issued to Media General for Mr.
Fondren's service as director.
(8) Includes 3,308,333 shares subject to currently exercisable options and
50,000 deferred stock units held by Mr. Kinsey.
(9) Represents shares subject to currently exercisable options and deferred
stock units held by Mr. Lam.
(10) Represents shares subject to currently exercisable options and deferred
stock units held by Mr. deGorter.
(11) Represents shares subject to currently exercisable options held by Mr.
Frakes.
(12) Includes 564,000 shares acquired January 20, 2004 in a registered
public offering; 2,000,000 shares acquired pursuant to the Purchase
Agreement dated May 5, 2003; 666,667 shares acquired pursuant to the
Licensing Agreement dated May 7, 2003; and 56,667 shares subject to
currently exercisable options issued for Mr. Fondren's service as
director. The address of the principal business office of Media
General, Inc. is 333 E. Franklin Street, Richmond, Virginia 23219.

(13) As disclosed in Form 3 Statement of Beneficial Ownership filed with the
Securities and Exchange Commission by Fidelity National Financial, Inc.
(FNF) on November 21, 2005, includes 1,055,330 shares owned by Security
Union Title Insurance Company (Security Union); 1,057,479 shares owned
by Alamo Title Insurance Company (Alamo); 1,063,702 shares owned by
Chicago Title Insurance Company (CTIC); 1,084,600 shares owned by Ticor
Title Insurance Company (TTIC); 903,000 shares owned by Fidelity Title
Insurance Company of New York; and 162,000 shares owned by Fidelity
National Title Insurance Company (FNT). Fidelity Title Insurance
Company of New York merged into Fidelity National Title Insurance
Company in July 2004. Alamo Title Insurance Company is a wholly-owned
subsidiary of Alamo Title Holding Company. Security Union Title
Insurance Company, Chicago Title Insurance Company, Alamo Title Holding
Company, Ticor Title Insurance Company and Fidelity National Title
Insurance Company are wholly-owned subsidiaries of Chicago Title and
Trust Company, which is in turn a wholly-owned subsidiary of Fidelity
National Title Group, Inc., which is in turn a majority-owned
subsidiary of Fidelity National Financial, Inc. The address of the
principal business office of FNF is 601 Riverside Avenue, Jacksonville,
Florida 32204. The address of the principal business office of each of
Security Union and TTIC is 4050 Calle Real, Santa Barbara, California
93110. The address of the principal business office of CTIC is 171 N.
Clark Street, Chicago, Illinois 60601. The address of the principal
business office of FNT is 17911 Von Karman, Suite 300, Irvine,
California 92614. The address of the principal business office of Alamo
is 10010 San Pedro, Suite 700, San Antonio, Texas 78216.
(14) Includes 5,634,218 shares subject to currently exercisable options and
deferred stock units held by executive officers and directors,
including those described in notes (2) through (12) above.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth as of December 31, 2005 our compensation
plans authorizing us to issue equity securities and the number of securities
issuable thereunder.

(a) (b) (c)
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE NUMBER OF SECURITIES REMAINING
BE ISSUED UPON EXERCISE EXERCISE PRICE OF AVAILABLE FOR FUTURE ISSUANCE
PLAN CATEGORY OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY COMPENSATION PLANS,
WARRANTS AND RIGHTS WARRANTS AND RIGHTS EXCLUDING SECURITIES REFLECTED
IN COLUMN (A)

EQUITY COMPENSATION
PLANS APPROVED BY
SECURITY HOLDERS 11,058,000(1) $1.49 807,000(2)

EQUITY COMPENSATION
PLANS NOT APPROVED BY
SECURITY HOLDERS 1,344,000(4) $2.16 --
-------------- --------------

TOTAL 12,402,000(3) 807,000
============== ==============

- ----------
(1) Includes 10,558,000 shares issuable upon exercise of options and rights
granted pursuant to the NTN Buzztime, Inc. 2004 Performance Incentive
Plan and 500,000 shares issuable upon exercise of options granted
pursuant to the NTN Communications, Inc. 1996 Special Stock Option Plan.
(2) Remaining available for grant under the NTN Buzztime, Inc. 2004
Performance Incentive Plan. No additional securities are authorized and
available for grant under the NTN Communications, Inc. 1996 Special Stock
Option Plan.
(3) Does not include 300,000 shares of Buzztime Entertainment, Inc. common
stock available for grant under the Buzztime Entertainment, Inc. 2001
Incentive Stock Option Plan. To date, no options have been granted under
the plan.
(4) The 1,344,000 shares issuable that are not pursuant to equity
compensation plans approved by security holders are all pursuant to
warrants granted in connection with consulting agreements with
non-employees or were warrants associated with equity financings.
Warrants to purchase 237,000 shares were granted in 2004, 500,000 shares
were granted in 2003 and 607,000 shares were granted in 2002 or earlier.
As of December 31, 2005, the range of exercise prices and the
weighted-average remaining contractual life of outstanding warrants were
$1.00 to $3.91 and 2 years, respectively.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

CERTAIN RELATIONSHIPS

See "Compensation Committee Interlocks and Insider Participation" in
Item 11 - Executive Compensation.

RELATED TRANSACTIONS

On February 4, 2005, we entered into an Asset Purchase Agreement with
Intura Solutions LP (Intura), a Texas limited partnership, pursuant to which we
sold the point-of-sale software products developed and maintained by our
Software Solutions segment. Gary Peek, vice president and general manager of our
Software Solutions segment, is a member of Intura Management, LLC, general
partner of Intura Solutions LP. In accordance with the asset purchase
transaction, Gary Peek terminated his position as vice president and general
manager of our Software Solutions segment and immediately thereafter commenced
his position with Intura to oversee business operations. We received a
non-dilutable 10% partnership interest in Intura in the transaction.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

PRINCIPAL ACCOUNTING FIRM FEES

The Audit Committee has reviewed the advisability and acceptability of
utilizing our external auditor Haskell & White LLP for non-audit services. In
reviewing this area, the Committee focused on the ability of the external
auditor to maintain independence. Based on input from management and a review of
procedures established within the external audit firm, the Committee finds that
it is both advisable and acceptable to employ the external auditor for certain
limited non-audit services, from time-to-time. The Audit Committee reviews and
approves all services to be provided by Haskell & White LLP before the firm is
retained. The Audit Committee pre-approved the estimated audit fees for the
fiscal year 2005 and related quarterly reviews prior to commencement of the
audit services.

AUDIT FEES

We incurred fees for the fiscal year 2005 audit and quarterly reviews
in an aggregate amount of $405,000 to Haskell & White LLP, of which $90,000 was
paid as of December 31, 2005.

We incurred and paid fees for the fiscal year 2004 audit and quarterly
reviews in an aggregate amount of $264,000 to Haskell & White LLP. In
addition, we paid expense reimbursements of $14,000 to Haskell & White LLP.

We incurred and paid fees for fiscal year 2004 quarterly reviews
conducted, and consents provided, by our former external auditor, KPMG LLP, in
an aggregate amount of $100,750.

AUDIT-RELATED FEES

Aggregate fees billed by Haskell & White, LLP for other audit related
services for fiscal year 2005 and 2004 were $17,000 and $0, respectively.

TAX FEES

There were no aggregate fees billed and paid for tax services for
fiscal years 2005 and 2004 to Haskell & White LLP. Aggregate fees billed and
paid to KPMG LLP for tax services for fiscal years 2005 and 2004 were $0 and
$1,000, respectively.

ALL OTHER FEES

Aggregate fees billed and paid to Haskell & White LLP for other
services for fiscal years 2005 and 2004 were $10,000 and $0, respectively.

PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as a part of this report:

CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE. The
consolidated financial statements and schedule of the Company and its
consolidated subsidiaries are set forth in the "Index to Consolidated
Financial Statements and Schedule" on page F-1.

EXHIBITS. The following exhibits are filed as a part of this
report:

EXHIBIT NO. DESCRIPTION
----------- -----------

3.1 -- Amended and Restated Certificate of Incorporation of the
Company, as amended (4)
3.2 -- Certificate of Designations, Rights and Preferences of
Series B Convertible Preferred Stock (7)
3.3 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated March 22, 2000 (8)
3.4 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated March 24, 2000 (8)
3.5 -- By-laws of the Company (2)
3.6 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated May 27, 2003 (16)
3.7 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated October 20, 2005 (1)
3.8 -- Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated December 27, 2005 (1)
4.1 -- Specimen Common Stock Certificate (10)
4.2* -- Stock Option Agreement, dated October 7, 1998, by and
between NTN Communications, Inc. and Stanley B. Kinsey (5)
4.3* -- Stock Option Agreement, dated October 7, 1999, by and
between NTN Communications, Inc. and Stanley B. Kinsey (6)
4.4* -- Stock Option Agreement, dated January 26, 2001, by and
between NTN Communications, Inc. and Stanley B. Kinsey (12)
4.5 -- Warrant Certificate issued January 13, 2003 by NTN
Communications, Inc. to Robert M. and Marjie Bennett,
Trustees The Bennett Family Trust dated 11-17-86 (19)
4.6 -- NTN Investor Rights Agreement, dated May 7, 2003, by and
between NTN Communications, Inc. and Media General, Inc.
(18)
4.7 -- Buzztime Investor Rights Agreement, dated May 7, 2003, by
and among NTN Communications, Inc., Buzztime Entertainment,
Inc. and Media General, Inc. (18)
4.8 -- Common Stock Purchase Warrant dated May 7, 2003 issued to
Media General, Inc. exercisable for 500,000 shares of common
stock of Buzztime Entertainment, Inc. (18)
4.9 -- Form of Common Stock Purchase Warrant by and between Roth
Capital Partners, LLC and NTN Communications, Inc. (14)
4.10* -- NTN Communications, Inc. 2004 Performance Incentive Plan
(22)
4.11* -- Stock Option Agreement, dated June 28, 2005, by and
between NTN Communications, Inc. and Stanley B. Kinsey (1)
10.1* -- Employment Agreement, dated October 7, 1998, by and
between NTN Communications, Inc. and Stanley B. Kinsey (5)
10.2 -- Subscription Agreement dated January 13, 2003 between NTN
Communications, Inc. and Robert M. and Marjie Bennett,
Trustees The Bennett Family Trust dated 11-17-86 (19)
10.3 -- Scientific-Atlanta Strategic Investments, L.L.C. Notice
of Exchange of Buzztime Preferred Stock for NTN Common
Stock, dated January 16, 2003 (19)
10.4 -- Securities Purchase Agreement dated May 5, 2003 by and
among NTN Communications, Inc., Buzztime Entertainment, Inc.
and Media General, Inc. (18)
10.5 -- Placement Agency Agreement dated January 26, 2004 by and
between Roth Capital Partners, LLC and NTN Communications,
Inc. (14)
10.6 -- Manufacturing Agreement, dated November 25, 1997, by and
between NTN Communications, Inc. and Climax Technology Co.,
Ltd. (9)
10.7 -- Office Lease, dated July 17, 2000, between Prentiss
Properties Acquisition Partners, L.P. and NTN
Communications, Inc. (11)
10.8 -- Asset Purchase Agreement dated July 30, 2003 by and among
NTN Software Solutions, Inc., NTN Communications, Inc.,
Breakaway International, Inc. and the Seller Shareholders
(17)
10.9 -- Asset Purchase Agreement dated December 15, 2003 by and
among NTN Canada, Inc., NTN Communications, Inc., NTN
Interactive Network, Inc. and Chell Group Corporation (15)
10.10* -- Employment Agreement, dated September 9, 2004, by and
between NTN Communications, Inc. and Stanley B. Kinsey (20)
10.11 -- First Amendment to Lease, dated October 4, 2005, between
Prentiss Properties Acquisition Partners, L.P. and NTN
Communications, Inc. (1)
10.12 -- License Agreement with NTN Canada, Inc. (3)
14.0 -- Code of Ethics for Senior Financial Officers (13)
16.1 -- Letter, dated August 20, 2004, from KPMG to the
Securities and Exchange Commission regarding change in
certifying accountant of NTN ( 21)

21.1 -- Subsidiaries of Registrant (1)
23.1 -- Consent of HASKELL & WHITE LLP (1)
23.2 -- Consent of KPMG LLP (1)
31 -- Certification of Officers pursuant to Rule 13a-14(a) (1)
32 -- Certification of Officers pursuant to Rule 13a-14(b) (23)

- ----------

* Management Contract or Compensatory Plan.
(1) Filed herewith.
(2) Previously filed as an exhibit to NTN's registration statement on Form
S-8, File No. 33-75732, and incorporated by reference.
(3) Previously filed as an exhibit to NTN's report on Form 10-K for the
fiscal year ended December 31, 1990, and incorporated by reference.
(4) Previously filed as an exhibit to NTN's report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated by reference.
(5) Previously filed as an exhibit to NTN's report on Form 10-K for the
fiscal year ended December 31, 1998 and incorporated by reference.
(6) Previously filed as an exhibit to NTN's report on Form 10-K for the
fiscal year ended December 31, 1999 and incorporated herein by
reference.
(7) Previously filed as an exhibit to NTN's report on Form 8-K dated
October 31, 1997 and incorporated herein by reference.
(8) Previously filed as an exhibit to NTN's report on Form 10-K/A filed on
April 5, 2000 and incorporated herein by reference.
(9) Previously filed as an exhibit to NTN's report on Form 10-K/A filed on
March 5, 2001 and incorporated herein by reference.
(10) Previously filed as an exhibit to NTN's registration statement on Form
8-A, File No. 0-19383, and incorporated by reference.
(11) Previously filed as an exhibit to NTN's report on Form 10-K for the
fiscal year ended December 31, 2000 and incorporated by reference.
(12) Previously filed as an exhibit to NTN's report on Form 10-Q for the
quarterly period ended March 31, 2001 and incorporated by reference.
(13) Previously filed as an exhibit to NTN's Form 10-K dated for the fiscal
year ended December 31, 2002 and incorporated herein by reference.
(14) Previously filed as an exhibit to NTN's report on Form 8-K filed on
January 29, 2004 and incorporated herein by reference.
(15) Previously filed as an exhibit to NTN's registration statement on Form
S-3, File No. 333-111538, filed on December 24, 2003 and incorporated
herein by reference.
(16) Previously filed as an exhibit to NTN's Form 10-Q for the quarterly
period ended June 30, 2003 and incorporated herein by reference.
(17) Previously filed as an exhibit to NTN's report on Form 8-K dated July
31, 2003 and incorporated herein by reference.
(18) Previously filed as an exhibit to NTN's registration statement on Form
S-3, File No. 333-105429, filed on May 21, 2003 and incorporated herein
by reference.
(19) Previously filed as an exhibit to NTN's Form 10-Q for the quarterly
period ended March 31, 2003 and incorporated herein by reference.
(20) Previously filed as an exhibit to NTN's Form 10-Q for the quarterly
period ended September 30, 2004, and incorporated herein by reference.
(21) Previously filed as an exhibit to NTN's report on Form 8-K dated August
23, 2004 and incorporated herein by reference.
(22) Previously filed as an exhibit to NTN's report on Form 10-Q dated
August 9, 2005 and incorporated herein by reference.
(23) Furnished concurrently herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

NTN BUZZTIME, INC.

By: /s/ Andy Wrobel
-----------------------------
Andy Wrobel
Chief Financial Officer

Dated: March 23, 2006

KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose name
appears below appoints and constitutes Stanley B. Kinsey and Andy Wrobel, and
each one of them, acting individually and without the other, as his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to execute any and all amendments to this Report on Form
10-K and to file the same, together with all exhibits thereto, with the
Securities and Exchange Commission, and such other agencies, offices and persons
as may be required by applicable law, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ----------------------------- --------------------------- --------------

/s/ Stanley B. Kinsey Chief Executive Officer and March 23, 2006
- ----------------------------- Chairman of the Board
Stanley B. Kinsey

/s/ Gary Arlen Director March 23, 2006
- -----------------------------
Gary Arlen

/s/ Kendra Berger Director March 23, 2006
- -----------------------------
Kendra Berger

/s/ Barry Bergsman Director March 23, 2006
- -----------------------------
Barry Bergsman

/s/ Robert B. Clasen Director March 23, 2006
- -----------------------------
Robert B. Clasen

/s/ Michael Fleming Director March 23, 2006
- -----------------------------
Michael Fleming

/s/ Neal Fondren Director March 23, 2006
- -----------------------------
Neal Fondren

NTN BUZZTIME, INC. AND SUBSIDIARIES
(Formerly NTN Communications, Inc. and Subsidiaries)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

PAGE
----

Reports of Independent Registered Public Accounting Firms.............. F-2

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2005 and
2004............................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 2005, 2004, and 2003.................................. F-5
Consolidated Statements of Comprehensive Income (Loss)
for the years ended December 31, 2005, 2004, and 2003.............. F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2005, 2004, and 2003...................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004, and 2003.................................. F-7

Notes to Consolidated Financial Statements........................... F-9

Financial Statement Schedule II -- Valuation and Qualifying Accounts... F-35

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors
NTN Buzztime, Inc. (formerly NTN Communications, Inc.) and Subsidiaries

We have audited the accompanying consolidated balance sheets of NTN Buzztime,
Inc. (formerly NTN Communications, Inc.) and Subsidiaries (the "Company") as of
December 31, 2005 and 2004 and the related consolidated statements of
operations, comprehensive income (loss), shareholders' equity and cash flows for
each of the years in the two-year period ended December 31, 2005. In connection
with our audit of the consolidated financial statements, we have also audited
the financial statement schedule for the years ended December 31, 2005 and 2004.
We have also audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that NTN
Buzztime, Inc. and Subsidiaries maintained effective internal control over
financial reporting as of December 31, 2005, based on criteria established in
INTERNAL CONTROL--INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). The Company's management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on these financial statements, an opinion on management's assessment,
and an opinion on the effectiveness of the Company's internal control over
financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

F-2

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NTN Buzztime, Inc.
and Subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 2005 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the related 2005
and 2004 information in the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Also, in our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of December 31, 2005 is
fairly stated, in all material respects, based on criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organization of the Treadway Commission ("COSO"). Furthermore, in our opinion,
NTN Buzztime, Inc. and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO").

/s/ HASKELL & WHITE LLP

Irvine, California
March 16, 2006

F-2.2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
NTN Buzztime, Inc.:

We have audited the accompanying consolidated statements of operations,
comprehensive income (loss), shareholders' equity, and cash flows of NTN
Buzztime, Inc. (formerly NTN Communications, Inc.) for the year ended December
31, 2003. In connection with our audit of the consolidated financial statements,
we also have audited the financial statement schedule for the year ended
December 31, 2003. These consolidated financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of NTN Buzztime, Inc.'s (formerly
NTN Communications, Inc.) operations and cash flows for the year ended December
31, 2003, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related 2003 information in the financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/s/ KPMG

San Diego, California
March 15, 2004

F-3

NTN BUZZTIME, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004

ASSETS (Pledged)
2005 2004
------------- -------------
Current Assets:
Cash and cash equivalents ............................ $ 5,982,000 $ 6,710,000
Restricted cash ...................................... 69,000 66,000
Accounts receivable, net of allowance for doubtful
accounts of $563,000 in 2005 and $762,000 in 2004 ... 3,630,000 3,405,000
Inventory ............................................ 371,000 399,000
Investments available-for-sale ....................... 258,000 304,000
Deposits on broadcast equipment ...................... 799,000 534,000
Deferred costs ....................................... 1,118,000 960,000
Prepaid expenses and other current assets ............ 955,000 1,128,000
------------- -------------
Total current assets .......................... 13,182,000 13,506,000

Broadcast equipment and fixed assets, net .............. 8,085,000 6,451,000
Software development costs, net of accumulated
amortization of $1,170,000 in 2005 and
$993,000 in 2004 .................................... 706,000 763,000
Deferred costs ......................................... 1,256,000 922,000
Goodwill ............................................... 3,658,000 3,658,000
Intangible assets, net ................................. 2,946,000 4,011,000
Other assets ........................................... 185,000 77,000
------------- -------------
Total assets .................................. $ 30,018,000 $ 29,388,000
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable ..................................... $ 725,000 $ 1,590,000
Accrued expenses ..................................... 1,799,000 1,125,000
Sales tax payable .................................... 714,000 465,000
Accrued salaries ..................................... 643,000 447,000
Accrued vacation ..................................... 619,000 635,000
Income taxes payable ................................. 147,000 93,000
Obligations under capital leases - current portion ... 436,000 148,000
Equipment note payable ............................... -- 620,000
Revolving line of credit ............................. 700,000 --
Deferred revenue ..................................... 2,024,000 1,448,000
Deferred revenue-Buzztime ............................ 632,000 291,000
------------- -------------
Total current liabilities ..................... 8,439,000 6,862,000

Obligations under capital leases, excluding current
portion ................................................ 366,000 123,000
Deferred revenue, excluding current portion ............ 321,000 368,000
------------- -------------
Total liabilities ............................. 9,126,000 7,353,000
------------- -------------

Commitments and contingencies (Notes 8 and 13)

Shareholders' equity:
Series A 10% cumulative convertible preferred stock,
$.005 par value, $161,000 liquidation preference,
5,000,000 shares authorized; 161,000 shares issued
and outstanding at December 31, 2005 and December
31, 2004 ........................................... 1,000 1,000
Common stock, $.005 par value, 84,000,000 shares
authorized; 53,877,000 and 53,026,000 shares issued
and outstanding at December 31, 2005 and December
31, 2004, respectively ............................. 268,000 264,000
Additional paid-in capital ........................... 109,860,000 109,008,000
Accumulated deficit .................................. (88,788,000) (86,769,000)
Accumulated other comprehensive loss ................. (449,000) (469,000)
------------- -------------
Total shareholders' equity .................... 20,892,000 22,035,000
------------- -------------

Total liabilities and shareholders' equity .... $ 30,018,000 $ 29,388,000
============= =============

See accompanying notes to consolidated financial statements

F-4

NTN BUZZTIME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

2005 2004 2003
------------ ------------ ------------
Revenues:
NTN Hospitality Technologies Division revenues ........... $ 39,384,000 $ 35,296,000 $ 29,293,000
Buzztime service revenues ................................ 1,375,000 359,000 196,000
------------ ------------ ------------
Total revenues ................................... 40,759,000 35,655,000 29,489,000
------------ ------------ ------------

Operating expenses:
Direct operating costs of services (includes
depreciation of $3,281,000, $3,053,000, and
$2,881,000 for 2005, 2004, and 2003, respectively)..... 13,803,000 12,732,000 11,227,000
Non-cash charge related to software product sale ........ 276,000 -- --
Selling, general and administrative ..................... 25,716,000 24,836,000 18,400,000
Litigation, legal and professional fees ................. 1,415,000 1,641,000 831,000
Stock-based compensation ................................ 290,000 293,000 232,000
Depreciation and amortization ........................... 854,000 880,000 1,016,000
Research and development ................................ 248,000 329,000 329,000
------------ ------------ ------------
Total operating expenses ......................... 42,602,000 40,711,000 32,035,000
------------ ------------ ------------

Operating loss ............................................. (1,843,000) (5,056,000) (2,546,000)

Other income (expense):
Interest income .......................................... 95,000 98,000 5,000
Interest expense ......................................... (185,000) (152,000) (238,000)
Gain on early extinguishment of debt ..................... -- -- 105,000
Gain from litigation settlement .......................... -- 225,000 --
------------ ------------ ------------
Total other income (expense) ..................... (90,000) 171,000 (128,000)
------------ ------------ ------------

Loss before income taxes and minority interest
in loss of consolidated subsidiary ......................... (1,933,000) (4,885,000) (2,674,000)

Provision for income taxes ................................. (86,000) (94,000) (47,000)

Minority interest in loss of consolidated subsidiary ....... -- -- 10,000
------------ ------------ ------------
Net loss ................................................... $ (2,019,000) $ (4,979,000) $ (2,711,000)
============ ============ ============

Net loss per common share - basic and diluted .............. $ (0.04) $ (0.09) $ (0.06)

Weighted average shares outstanding -- basic and diluted ... 53,501,000 52,599,000 45,446,000

NTN BUZZTIME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

2005 2004 2003
------------ ------------ ------------
Net loss ................................................... $ (2,019,000) $ (4,979,000) $ (2,711,000)
------------ ------------ ------------

Other comprehensive income (loss), net of tax:
- ----------------------------------------------
Foreign currency translation adjustments ................... 66,000 44,000 --
Unrealized holding (loss)/gain in
investment available for sale ........................ (46,000) 115,000 11,000
------------ ------------ ------------
Other comprehensive income ....................... 20,000 159,000 11,000
------------ ------------ ------------

Comprehensive loss ..................................... $ (1,999,000) $ (4,820,000) $ (2,700,000)
============ ============ ============

See accompanying notes to consolidated financial statements

F-5

NTN BUZZTIME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

SERIES A
CUMULATIVE
CONVERTIBLE
PREFERRED
STOCK COMMON STOCK
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Balance, December 31, 2002 .................. 161,000 $ 1,000 39,381,000 $ 196,000
Issuance of stock for exercise of
warrants and options .................... -- -- 1,414,000 7,000
Issuance of stock in lieu of interest ..... -- -- 55,000 --
Issuance of stock in lieu of dividends .... -- -- 6,000 --
Issuance of stock in payment of accrued
board compensation ...................... -- -- -- --
Issuance of stock for acquisitions ........ -- -- 1,531,000 8,000
Convertible note payable converted to
common stock ............................ -- -- 1,569,000 8,000
Issuance of stock in private placement,
net of issuance costs ................... -- -- 3,667,000 18,000
Conversion of Buzztime preferred series
A to NTN common stock ................... -- -- 1,000,000 5,000
Stock-based compensation .................. -- -- -- --
Unrealized holding gain on investments
available for sale ...................... -- -- -- --
Net loss .................................. -- -- -- --
------------- ------------- ------------- -------------
Balance, December 31, 2003 .................. 161,000 $ 1,000 48,623,000 $ 242,000
Issuance of stock for exercise of
warrants and options .................... -- -- 453,000 2,000
Issuance of stock in lieu of dividends .... -- -- 6,000 --
Issuance of stock in public offering,
net of issuance costs ................... -- -- 3,944,000 20,000
Stock options granted below market ........ -- -- -- --
Options and warrants granted to
non-employees ........................... -- -- -- --
Deferred stock units granted to
employees ............................... -- -- -- --
Accumulated other comprehensive loss....... -- -- -- --
Net loss .................................. -- -- -- --
------------- ------------- ------------- -------------
Balance, December 31, 2004 .................. 161,000 $ 1,000 53,026,000 $ 264,000
Issuance of stock for exercise of
warrants and options .................... -- -- 842,000 4,000
Issuance of stock in lieu of dividends .... -- -- 9,000 --
Options and warrants granted to
non-employees ........................... -- -- -- --
Deferred stock units granted to
employees ............................... -- -- -- --
Accumulated other comprehensive loss ...... -- -- -- --
Net loss .................................. -- -- -- --
------------- ------------- ------------- -------------
Balance, December 31, 2005 .................. 161,000 $ 1,000 53,877,000 $ 268,000
============= ============= ============= =============
(CONTINUED)

F-6a

continued on next page

continued from above

NTN BUZZTIME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

ACCUMULATED
ADDITIONAL OTHER
PAID-IN ACCUMULATED COMPREHENSIVE TREASURY
CAPITAL DEFICIT LOSS STOCK TOTAL
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2002 .................. $ 81,211,000 $ (79,079,000) $ (639,000) $ (210,000) $ 1,480,000
Issuance of stock for exercise of
warrants and options .................... 1,836,000 -- -- -- 1,843,000
Issuance of stock in lieu of interest ..... 54,000 -- -- -- 54,000
Issuance of stock in lieu of dividends .... -- -- -- -- --
Issuance of stock in payment of accrued
board compensation ...................... (156,000) -- -- 210,000 54,000
Issuance of stock for acquisitions ........ 4,028,000 -- -- -- 4,036,000
Convertible note payable converted to
common stock ............................ 1,992,000 -- -- -- 2,000,000
Issuance of stock in private placement,
net of issuance costs ................... 5,451,000 -- -- -- 5,469,000
Conversion of Buzztime preferred series
A to NTN common stock ................... 591,000 -- -- -- 596,000
Stock-based compensation .................. 232,000 -- -- -- 232,000
Unrealized holding gain on investments
available for sale ...................... -- -- 11,000 -- 11,000
Net loss .................................. -- (2,711,000) -- -- (2,711,000)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2003 .................. $ 95,239,000 $ (81,790,000) $ (628,000) $ -- $ 13,064,000
Issuance of stock for exercise of
warrants and options .................... 495,000 -- -- -- 497,000
Issuance of stock in lieu of dividends .... -- -- -- -- --
Issuance of stock in public offering,
net of issuance costs ................... 12,981,000 -- -- -- 13,001,000
Stock options granted below market ........ 2,000 -- -- -- 2,000
Options and warrants granted to
non-employees ........................... 151,000 -- -- -- 151,000
Deferred stock units granted to
employees ............................... 140,000 -- -- -- 140,000
Accumulated other comprehensive loss....... -- -- 159,000 -- 159,000
Net loss .................................. -- (4,979,000) -- -- (4,979,000)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2004 .................. $ 109,008,000 $ (86,769,000) $ (469,000) -- $ 22,035,000
Issuance of stock for exercise of Warrants,
options and deferred stock units ........ 562,000 -- -- -- 566,000
Issuance of stock in lieu of dividends .... -- -- -- -- --
Options and warrants granted to
non-employees ........................... 78,000 -- -- -- 78,000
Deferred stock units granted to
employees ............................... 212,000 -- -- -- 212,000
Accumulated other comprehensive loss ...... -- -- 20,000 -- 20,000
Net loss .................................. -- (2,019,000) -- -- (2,019,000)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2005 .................. $ 109,860,000 $ (88,788,000) $ (449,000) $ -- $ 20,892,000
============= ============= ============= ============= =============

See accompanying notes to consolidated financial statements

F-6b

NTN BUZZTIME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

2005 2004 2003
------------ ------------ ------------

Cash flows provided by (used in) operating activities:
Net loss ................................................. $ (2,019,000) $ (4,979,000) $ (2,711,000)
Adjustments to reconcile net loss to net cash
provided by operating activities (net of
effects of acquisitions):
Depreciation and amortization ......................... 4,135,000 3,933,000 3,897,000
Provision for doubtful accounts ....................... 801,000 436,000 243,000
Provision for obsolete inventory ...................... -- (16,000) --
Provision for warranty reserve ........................ -- 17,000 --
Gain on early extinguishment of debt .................. -- -- (105,000)
Loss from disposition of equipment and
capitalized software ................................ 230,000 164,000 81,000
Stock-based compensation charges ...................... 290,000 293,000 232,000
Non-cash charge related to software product sale ...... 276,000 -- --
Non-cash interest expense ............................. -- -- 14,000
Accreted interest expense ............................. -- -- 3,000
Minority interest in loss of subsidiary ............... -- -- (10,000)
Changes in assets and liabilities:
Restricted cash ................................... -- (66,000) 102,000
Accounts receivable ............................... (990,000) (1,482,000) (536,000)
Inventory ......................................... 28,000 21,000 (128,000)
Prepaid expenses and other assets ................. 190,000 (383,000) (128,000)
Accounts payable and accrued expenses ............. 226,000 219,000 764,000
Income taxes payable .............................. 54,000 13,000 9,000
Deferred costs .................................... (494,000) (883,000) (136,000)
Deferred revenue .................................. 875,000 157,000 (493,000)
Deferred tax asset ................................ (39,000) -- --
------------ ------------ ------------

Net cash provided by (used in)
operating activities ........................... 3,551,000 (2,556,000) 1,098,000
------------ ------------ ------------

Cash flows used in investing activities:
Capital expenditures ..................................... (3,951,000) (2,986,000) (1,664,000)
Software development expenditures ........................ (360,000) (476,000) (371,000)
Deposits on broadcast equipment .......................... (265,000) (492,000) (34,000)
Acquisition of businesses, net of cash acquired .......... -- (102,000) (892,000)
------------ ------------ ------------

Net cash used in investing activities ............ (4,576,000) (4,056,000) (2,961,000)
------------ ------------ ------------

Cash flows provided by (used in) financing activities:
Principal payments on capital leases ..................... (373,000) (184,000) (216,000)
Borrowings from revolving line of credit ................. 700,000 -- 16,631,000
Principal payments on note payable and
revolving line of credit ............................... (620,000) (2,548,000) (18,181,000)
Proceeds from issuance of common stock, net of
issuance costs ......................................... -- 13,001,000 3,712,000
Proceeds from exercise of warrants and options ........... 566,000 497,000 1,843,000
------------ ------------ ------------

Net cash provided by financing activities ........ 273,000 10,766,000 3,789,000
------------ ------------ ------------

Net (decrease) increase in cash and cash equivalents ....... (752,000) 4,154,000 1,926,000
------------ ------------ ------------

Effect of exchange rate on cash ............................ 24,000 53,000 --
------------ ------------ ------------

Cash and cash equivalents at beginning of year ............. 6,710,000 2,503,000 577,000
------------ ------------ ------------

Cash and cash equivalents at end of year ................... $ 5,982,000 $ 6,710,000 $ 2,503,000
============ ============ ============

F-7

NTN BUZZTIME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

2005 2004 2003
---------- ---------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .......................................................... $ 185,000 $ 152,000 $ 223,000
========== ========== ===========
Income taxes ...................................................... $ 98,000 $ 57,000 $ 38,000
========== ========== ===========

Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock in payment of interest ...................... $ -- $ -- $ 54,000
========== ========== ===========
Issuance of treasury stock in payment of board compensation .......... $ -- $ -- $ 54,000
========== ========== ===========
Equipment acquired under capital leases and notes payable ............ $ 906,000 $2,003,000 $ 744,000
========== ========== ===========
Convertible notes exchanged for common stock ......................... $ -- $ -- $ 2,000,000
========== ========== ===========
Conversion of Buzztime preferred series A into common stock .......... $ -- $ -- $ 596,000
========== ========== ===========
Unrealized holding gain/(loss) on investments available for sale ..... $ 46,000 $ 115,000 $ 11,000
========== ========== ===========
Issuance of common stock for licensed technology ..................... $ -- $ -- $ 1,720,000
========== ========== ===========
Issuance of common stock in payment of dividends ..................... $ 9,000 $ 16,000 $ 16,000
========== ========== ===========
Investment in limited partnership .................................... $ 69,000 $ -- $ --
========== ========== ===========

Supplemental non-cash disclosure of acquisition of businesses:
Accounts receivable (net) ........................................... $ -- $ -- $ 18,000
Inventory ........................................................... -- -- 35,000
Prepaid expenses .................................................... -- -- 50,000
Fixed assets ........................................................ -- -- 151,000
Goodwill and intangibles ............................................ -- 25,000 6,301,000
Accounts payable and accrued liabilities ............................ -- -- (1,155,000)
Deferred revenue .................................................... -- -- (587,000)
Capital lease obligations ........................................... -- -- (44,000)
Common stock issued ................................................. -- -- (4,036,000)

See accompanying notes to consolidated financial statements

F-8

NTN BUZZTIME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

We develop and distribute interactive communications and entertainment
products for the home and for the hospitality industry. Our reportable segments
have been determined based on the nature of the services offered to customers,
which include the Buzztime segment, the NTN Interactive Television Network (NTN
iTV Network), NTN Wireless and NTN Software Solutions segments, which combine to
form the NTN Hospitality Technologies Division. NTN Hospitality Technologies
revenue is generated primarily from providing an interactive entertainment
service which serves as a marketing and promotional vehicle for the hospitality
industry. Additional revenue is derived from advertising sold for distribution
via the interactive entertainment service, from its wireless business with
restaurant on-site paging systems and from its hardware and software enterprise
solutions. Buzztime, our wholly-owned subsidiary formed in December 1999, owns
the exclusive rights to one of the largest known digital trivia game show
libraries and many unique Play Along TV sports games. Buzztime's mission is to
deploy our interactive games in the home through digital cable television.

BASIS OF ACCOUNTING PRESENTATION

The consolidated financial statements include the accounts of NTN
Buzztime, Inc. (NTN) and its wholly owned subsidiaries, IWN Inc. (IWN), IWN,
L.P., Buzztime, NTN Canada, Inc., NTN Software Solutions, Inc. and NTN Wireless
Communications, Inc. (collectively NTN or the Company). IWN and IWN, L.P. are
dormant subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation. Unless otherwise indicated, references to
"NTN", "we", "us" and "our" include NTN and its consolidated subsidiaries.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to deferred costs and revenues, depreciation of broadcast equipment, bad
debts, investments, intangible assets, financing operations, and contingencies
and litigation. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

o We record deferred costs and revenues related to the costs and
related installation revenue associated with installing new
customer sites. Based on SEC Staff Accounting Bulletin (SAB)
104, REVENUE RECOGNITION, we amortize these amounts over an
estimated three-year average life of a customer relationship.

F-9

customers and 5% of outstanding balances for NTN Wireless and
Software Solutions' customers. If the financial condition of
our customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may
be required.

F-10

o SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES, SEC SAB 59, ACCOUNTING FOR NONCURRENT
MARKETABLE EQUITY SECURITIES, and EITF 03-01, OTHER THAN
TEMPORARY IMPAIRMENTS, provide guidance on determining when an
investment is other-than-temporarily impaired. Investments are
reviewed quarterly for indicators of other-than-temporary
impairment. This determination requires significant judgment.
In making this judgment, we employ a systematic methodology
quarterly that considers available quantitative and
qualitative evidence in evaluating potential impairment of our
investments. If the cost of an investment exceeds its fair
value, we evaluate, among other factors, general market
conditions, the duration and extent to which the fair value
is less than cost, and our intent and ability to hold the
investment. We also consider specific adverse
conditions related to the financial health of, and business
outlook for, the investee, including industry and sector
performance, changes in technology, operational and financing
cash flow factors, and rating agency actions. Once a decline
in fair value is determined to be other-than-temporary, an
impairment charge is recorded and a new cost basis in the
investment is established. If market, industry and/or investee
conditions deteriorate, we may incur future impairments.

We do not have any of the following:

o Off-balance sheet arrangements except for purchase orders,
purchase commitments and operating leases;

o Certain trading activities that include non-exchange traded
contracts accounted for at fair value or speculative or
hedging instruments; or

o Relationships and transactions with persons or entities that
derive benefits from any non-independent relationship other
than the related party transactions discussed in Note 16 -
Related Parties or in Note 21 - Subsequent Events, or which
are immaterial.

ASSESSMENTS OF FUNCTIONAL CURRENCIES. The United States dollar is our
functional currency, except for our operations in Canada and the United Kingdom.

CASH AND CASH EQUIVALENTS

For the purpose of financial statement presentation, we consider all
highly liquid investment instruments with original maturities of three months or
less to be cash equivalents. Cash equivalents at December 31, 2005, and 2004
consist primarily of investments in short term debt instruments of United States
government agencies and money market accounts.

RESTRICTED CASH

The restricted cash balance at December 31, 2005, represents cash
invested in an interest bearing restricted account at a Canadian bank that
collateralizes a letter of credit issued by that bank in favor of the landlord
of our Canadian office.

INVENTORY

Inventory consists of wireless paging equipment and computer hardware
and is stated at the lower of cost (weighted average cost basis, which
approximates FIFO) or market.

BROADCAST EQUIPMENT AND FIXED ASSETS

Broadcast equipment and fixed assets are stated at cost. Equipment
under capital leases is stated at the present value of future minimum lease
payments. Depreciation of fixed assets is computed using the straight-line
method over the estimated useful lives of the assets (three to seven years).
Depreciation of broadcast equipment is computed using the straight-line method
over the estimated useful lives of the assets (two to four years). Depreciation
of fixed assets under capital leases is computed using the straight-line method
over the shorter of the estimated useful lives of the assets or the lease
period, and is included in depreciation expense.

F-11

REVENUE RECOGNITION

We recognize revenue from three sources: NTN Hospitality Technologies
Division, Buzztime service revenues and other sources. Revenue is not recognized
until collectibility of fees is reasonably assured. To the extent our
arrangements contain multiple deliverables, we evaluate the criteria in EITF
Issue No. 00-21 to determine whether such deliverables represent separate units
of accounting. In order to be considered a separate unit of accounting, the
delivered items in an arrangement must have stand-alone value to the customer
and there must exist objective and reliable evidence of fair value for any
undelivered elements. Our arrangements for the transmission of the NTN iTV
Network contain two deliverables: the installation of our equipment for which we
receive an upfront fee, and the transmission of our network content for which we
receive monthly broadcast fees. As the installation deliverable does not have
stand-alone value to the customer, it does not represent a separate unit of
accounting and, therefore, all installation fees received are deferred and
recognized as revenue on a straight-line basis of 36 months, the estimated life
of the customer relationship. Installation fees not recognized in revenue have
been recorded as deferred revenue in the accompanying consolidated balance
sheets. In addition, the direct expenses of the installation, setup and training
are deferred and amortized on a straight-line basis over 36 months, and are
classified as deferred costs on the accompanying consolidated balance sheets.

Revenues from NTN iTV Network are generated primarily from distributing
content and advertising. Revenues generated from transmitting content to
subscriber locations is recognized ratably over the contract term as the content
is broadcast 15 hours a day, seven days a week. Consistent with the terms of
advertising agreements, advertising is aired a specified number of times per
hour everyday and, therefore, revenues are recognized ratably over the contract
term. Included in the revenue reported for NTN iTV Network are amounts earned
under a previous license agreement with our Canadian licensee, which operated
approximately 350 hospitality locations. Revenue under this license agreement
was recognized on a monthly basis as broadcast content was aired. We acquired
the operations of our Canadian licensee on December 15, 2003 (see Note 15 -
Acquisitions).

Revenues from NTN Wireless consist primarily of sales of wireless
paging equipment and are recognized upon the shipment of equipment to the
customer.

Revenues from Software Solutions are recognized in accordance with
Statement of Position (SOP) No. 97-2, SOFTWARE REVENUE RECOGNITION, as amended.
Software license fee revenue is recognized when persuasive evidence of an
arrangement exists, delivery of the product has occurred at our customer's
location, the fee is fixed or determinable and collection is probable - provided
that vendor specific evidence exists for any undelivered elements, namely annual
support and maintenance. Along with the basic software license, our customers
are provided post-contract support (PCS) for an additional fee, which is based
on a stipulated percentage of the license fee. PCS consists of technical support
as well as unspecified software upgrades and releases when and if made available
by us during the term of the support period.

If, at the outset of an arrangement, we determine that the arrangement
fee is not fixed or determinable, revenue is deferred until the arrangement fee
becomes due. If, at the outset of an arrangement, we determine that
collectibility is not probable, revenue is deferred until the earlier of when
collectibility becomes probable or when payment is received. If an arrangement
allows for customer acceptance, revenue is not recognized until the earlier of
receipt of customer acceptance or expiration of the acceptance period.

Additionally, we provide consulting and training services under both
hourly-based time and materials and fixed-priced contracts. Revenues from these
services are generally recognized as the services are performed.

Buzztime service revenues are recognized as the service is provided.

Other revenue is recognized when all material services or conditions
relating to the transaction have been performed or satisfied.

SOFTWARE DEVELOPMENT COSTS

We capitalize costs related to the development of certain software
products. In accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR
OTHERWISE MARKETED, capitalization of costs begins when technological
feasibility has been established and ends when the product is available for
general release to customers. Amortization of costs related to interactive
programs is recognized on a straight-line basis over three years.

We capitalize web site development costs in accordance with Emerging
Issues Task Force Issue No. 00-02, ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS.
Costs incurred during the planning and operating stages are expensed as incurred
while costs incurred during the web site application and infrastructure
development stage are capitalized and amortized on a straight-line basis over
their expected useful life of three years. These costs are included in software
development costs on the accompanying consolidated balance sheets.

Amortization expense for software development costs was $283,000,
$597,000 and $284,000 in 2005, 2004 and 2003, respectively.

F-12

STOCK-BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE-AN AMENDMENT OF FASB STATEMENT NO. 123
(SFAS No. 148). SFAS 148 amends FASB Statement No. 123; ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS No. 123), to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. We adopted the disclosure provisions of SFAS No. 148 beginning with our
annual financial statements for the year ended December 31, 2002.

The per share weighted-average fair value of stock options granted
during 2005, 2004, and 2003 was $1.059, $1.874 and $1.106, respectively. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 2005 - dividend yield of 0%, risk-free interest rate of 3.99%,
expected volatility of 71.9%, and expected life of 4.80 years; 2004 - dividend
yield of 0%, risk-free interest rate of 3.24%, expected volatility of 93.9%, and
expected life of 4.73 years; and 2003 - dividend yield of 0%, risk-free interest
rate of 2.86%, expected volatility of 113.17%, and expected life of 4.58 years.
In compliance with APB No. 25, we expensed $0, $2,000, and $6,000 in 2005, 2004,
and 2003, respectively, associated with the grants of 600,000 options in 1999
below market value pursuant to the Option Plan. No options were granted below
market value in 2005, 2004, and 2003 pursuant to the Option Plan.

We apply APB Opinion No. 25 and related interpretations in accounting
for our stock option plans. Accordingly, no compensation cost has been
recognized in the consolidated financial statements for the issuance of options
to employees pursuant to the Special Plan and the Option Plan unless the grants
were issued with exercise prices below market value. Had compensation cost
related to employees for our stock-based compensation plans been determined
consistent with SFAS No. 123 as amended by SFAS No. 148, our net loss and net
loss per share applicable to common stock would have been increased to the pro
forma amounts indicated below:

2005 2004 2003
----------- ----------- -----------

Net loss as reported ........................ $(2,019,000) $(4,979,000) $(2,711,000)
Add: stock-based employee compensation
expense included in reported net
loss, net of related tax effects ........ -- 2,000 6,000
Deduct: stock-based employee
compensation expense, net of ............ (1,776,000) (1,523,000) (1,284,000)
----------- ----------- -----------
related tax effects
Pro forma ................................... $(3,795,000) $(6,500,000) $(3,989,000)
=========== =========== ===========

Basic and diluted net loss per share
as reported ............................... $ (0.04) $ (0.09) $ (0.06)

Pro forma ................................... $ (0.07) $ (0.12) $ (0.09)

We account for options and warrants issued to non-employees in exchange
for services in accordance with SFAS No. 123 and EITF 96-18, ACCOUNTING FOR
EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN
CONJUNCTION WITH SELLING, GOODS OR SERVICES. We estimate the fair value of
options and warrants using the Black-Scholes option-pricing model. For
agreements which require the achievement of specific performance criteria be met
in order for the options or warrants to vest, the measurement date is the date
at which the specific performance criteria are met. Prior to the measurement
date, options and warrants subject to vesting based on the achievement of
specific performance criteria that, based on different possible outcomes, result
in a range of aggregate fair values are measured at each financial reporting
period at their lowest aggregate then-current fair value, while options and
warrants which vest over the service period or at completion of the service
period are measured at each financial reporting period at their then-current
fair value, for purposes of recognition of costs during those periods. For
agreements which provide for services to be rendered without the requirement of
specific performance criteria, we measure the fair value of the options and
warrants at the earlier of the date the services are completed or the date the
options and warrants vest and are non-forfeitable. Generally, services are not
rendered prior to the grant date and the related agreements do not contain
performance commitments. Accordingly, the measurement date for compensation
expense occurs subsequent to the grant date. From the grant date to the
measurement date, compensation expense is estimated at each financial reporting
period and is recorded over the service period. The unvested options and

F-13

warrants continue to be remeasured at each financial reporting period until they
vest or until the services are completed. For agreements which provide options
and warrants for services already rendered, the options and warrants immediately
vest and the measurement date is the date of grant. Modifications that increase
the fair value of the warrants are treated as an exchange of the original
warrant for a new one. Additional compensation expense related to modifications,
if any, is recorded over the remaining service period.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of costs over fair value of assets of
businesses acquired. We adopted the provisions of SFAS No. 142, GOODWILL AND
OTHER INTANGIBLE ASSETS, as of January 1, 2002. Goodwill and intangible assets
acquired in a purchase combination that are determined to have an indefinite
useful life are not amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 144, ACCOUNTING FOR
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Amortization expense for intangible
assets was $756,000, $842,000 and $406,000 in 2005, 2004 and 2003, respectively.

As of December 31, 2005, intangible assets were comprised of the
following:

ACCUMULATED
COST AMORTIZATION NET
-------------- -------------- --------------

Customer relationships................ $ 1,980,000 $ 974,000 $ 1,006,000
License agreements.................... 1,720,000 452,000 1,268,000
Developed technology.................. 619,000 246,000 373,000
Trivia database....................... 345,000 72,000 273,000
Non-competition agreements............ 15,000 12,000 3,000
Employment agreements................. 140,000 140,000 ---
Trademarks............................ 149,000 126,000 23,000
-------------- -------------- --------------
Total........................ $ 4,968,000 $ 2,022,000 $ 2,946,000
============== ============== ==============

As of December 31, 2004, intangible assets were comprised of the
following:

ACCUMULATED
COST AMORTIZATION NET
-------------- -------------- --------------
Customer relationships................ $ 1,980,000 $ 587,000 $ 1,393,000
License agreements.................... 1,739,000 298,000 1,441,000
Developed technology.................. 1,047,000 232,000 815,000
Trivia database....................... 345,000 36,000 309,000
Non-competition agreements............ 30,000 14,000 16,000
Employment agreements................. 140,000 140,000 --
Trademarks............................ 149,000 112,000 37,000
-------------- -------------- --------------
Total........................ $ 5,430,000 $ 1,419,000 $ 4,011,000
============== ============== ==============

The estimated aggregate amortization expense relating to our intangible
assets for each of the five succeeding years is as follows:

Year 2006 2007 2008 2009 2010
---------------------------------------------------------------------------------------------------------------
Estimated aggregate amortization expense $725,000 $679,000 $487,000 $348,000 $208,000

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows (undiscounted and without interest) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.

F-14

INVESTMENTS AVAILABLE-FOR-SALE

Investment securities consist of equity securities, which are
classified as available-for-sale securities. Available-for-sale securities are
recorded at fair value and unrealized holding gains and losses are excluded from
earnings and are reported as a separate component of comprehensive income until
realized (see Note 17 - Accumulated Other Comprehensive Loss). Realized gains
and losses from the sale of available-for-sale securities are determined on a
specific-identification basis. A decline in the market value of any
available-for-sale security below cost that is deemed to be other than
temporary, results in a reduction in the carrying amount to fair value. Any
resulting impairment is charged to operations and a new cost basis for the
security is established.

The one investment available-for-sale that we hold is a 2,518,260 share
investment in our Australian licensee, eBet Limited (eBet - an Australian gaming
technology corporation). Our cost basis in the eBet shares is AUD$0.50 per
share. Our initial investment in 1999 was for 4,000,000 shares and at various
points in 2000, we sold 1,481,740 eBet shares, leaving our existing holding of
2,518,260 shares, which represents less than 1.2% of eBet's current shares
outstanding.

eBet develops and markets a range of networked solutions for gaming
machines. It is one of the world's largest gaming systems companies with more
than 450 customers who collectively operate more than 40,000 gaming machines.
Its card-based cashless gaming systems, player tracking and loyalty systems and
data management solutions are installed in leading gaming venues in Australia,
New Zealand, the Philippines, Russia and Singapore.

eBet's stock price has traded below our cost of AUD$0.50 since
September 2000. At December 31, 2005, eBet's stock traded at AUD$0.14, which,
when combined with the AUD/USD exchange rate, represents an unrealized loss of
approximately USD$559,000. This amount has been recorded as accumulated other
comprehensive loss on our consolidated balance sheet. As of March 1, 2006,
eBet's stock price closed at AUD$0.14 on the Australian Stock Exchange. We
believe that eBet's stock fell late in 2000 along with many internet technology
companies in the worldwide post-internet "bubble." We believe that the
impairment of our investment in eBet is temporary.

FAIR VALUE OF FINANCIAL INSTRUMENTS

We believe that the fair value of financial instruments approximate
their carrying value. The following methods and assumptions were used to
estimate the fair value of financial instruments:

The carrying values of cash and cash equivalents, restricted cash,
accounts receivable, accounts payable and accrued liabilities approximate fair
value because of the short maturity of these instruments. The carrying value of
the revolving line of credit approximates its fair value because the interest
rate is indexed by current market rates, and the other terms are comparable to
those currently available in the market place.

INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

RESEARCH AND DEVELOPMENT AND ADVERTISING

Research and development costs and marketing-related advertising costs
are expensed as incurred. Research and development costs amounted to $248,000,
$329,000 and $329,000 in 2005, 2004 and 2003, respectively. Marketing-related
advertising costs amounted to $1,967,000, $1,575,000 and $1,316,000 in 2005,
2004 and 2003, respectively, and are included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations.

CONCENTRATION OF CREDIT RISK

Cash and cash equivalents - At times, our cash balances held in
financial institutions are in excess of federally insured limits. We perform
periodic evaluations of the relative credit standing of financial institutions
and limit the amount of risk by selecting financial institutions with a strong
relative credit standing.

F-15

In our NTN iTV Network segment, which represented 72% of our overall
revenues in 2005, we provide services to group viewing locations, generally
restaurants, sports bars and lounges throughout North America. Concentration of
credit risk with respect to trade receivables is limited due to the large number
of customers comprising our customer base, and their dispersion across many
different geographies. We perform ongoing credit evaluations of our customers
and generally require no collateral. We maintain an allowance for doubtful
accounts to provide for credit losses.

BASIC AND DILUTED EARNINGS PER COMMON SHARE

We compute basic and diluted earnings per share in accordance with SFAS
No. 128, EARNINGS PER SHARE. Basic EPS excludes the dilutive effects of options,
warrants and other convertible securities. Diluted EPS reflects the potential
dilution of securities that could share in our earnings. Options, warrants,
convertible preferred stock, deferred stock units and convertible notes
representing approximately 12,402,000, 12,384,000 and 11,453,000 shares were
excluded from the computations of diluted net loss per common share for the
years ended December 31, 2005, 2004 and 2003, respectively, as their effect is
anti-dilutive.

RECLASSIFICATIONS

We have reclassified Other Revenues as NTN Hospitality Technologies
Division revenues in the 2003 and 2004 consolidated financial statements to
conform to the 2005 presentation. In addition, depreciation expense related to
the Canada and Software Solutions businesses in 2003 and 2004 was reclassified
from "Depreciation and amortization expense" into "Direct operating costs of
services" on the Consolidated Statements of Operations to conform to the 2005
presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123R, SHARE-BASED PAYMENT,
which revises SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123R
supersedes APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
amends SFAS No. 95, STATEMENT OF CASH FLOWS. This Statement requires that
entities measure the cost of equity-based service awards based on the grant date
fair value of the award. All share-based payments to employees, including grants
of employee stock options, are required to be recognized in the income statement
based on their fair value. SFAS No. 123R is effective for the first annual
reporting period after June 15, 2005. We will adopt this Statement effective
January 1, 2006.

SFAS No. 123R allows public companies to adopt its requirement using
one of the following transition methods: (a) a modified prospective method in
which compensation cost for all share-based payments granted after the effective
date is recognized based on the requirements of SFAS No. 123R and compensation
costs for all awards granted to employees prior to the effective date that are
unvested as of the effective date of SFAS No. 123R are recognized based on SFAS
No. 123; or (b) a modified retrospective method which includes the requirements
of the modified prospective method and also permits entities to restate prior
periods presented or prior interim periods of the year of adoption based on the
amounts previously recognized in its SFAS No. 123 pro forma disclosures. We will
be adopting SFAS No. 123R using the modified prospective method.

In November 2005, the FASB issued Staff Position No. FAS 115-1, THE
MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN
INVESTMENTS ("FSP 115-1"). FSP 115-1 provides accounting guidance for
identifying and recognizing other-than-temporary impairments of debt and equity
securities, as well as cost method investments in addition to disclosure
requirements. FSP 115-1 is effective for reporting periods beginning after
December 15, 2005. We do not believe that this will have a material effect on
our consolidated financial statements.

F-16

(2) BROADCAST EQUIPMENT AND FIXED ASSETS

Broadcast equipment and fixed assets are recorded at cost and consist
of the following:

2005 2004
------------ ------------

Broadcast equipment ........................... $ 18,510,000 $ 15,139,000
Furniture and fixtures ........................ 872,000 745,000
Machinery and equipment ....................... 10,359,000 9,840,000
Leasehold improvements ........................ 1,276,000 978,000

Equipment under capital lease:
------------------------------
Broadcast equipment ......................... 712,000 1,127,000
Machinery and equipment ..................... 1,733,000 1,715,000
Other equipment ............................. 22,000 108,000
------------ ------------
33,484,000 29,652,000
Accumulated depreciation and amortization ..... (25,399,000) (23,201,000)
------------ ------------
$ 8,085,000 $ 6,451,000
============ ============

(3) COMMON STOCK OPTIONS, WARRANTS AND DEFERRED STOCK UNITS

OPTIONS

We have two active stock option plans. The 2004 Performance Incentive
Plan (the 2004 Plan) was approved by our shareholders in September 2004 in a
Special Meeting of Shareholders (Special Meeting). Our previous plan (the 1995
Plan) had approximately 77,000 options available for grant in September 2004. As
noted in our Proxy for the Special Meeting, the number of shares of common stock
that remained available for award grants under the 1995 Plan immediately prior
to the Special Meeting became available for award grants under the 2004 Plan.
Under the 2004 Plan, options for the purchase of our common stock or other
instruments such as deferred stock units may be granted to officers, directors
and employees. Options may be designated as incentive stock options or as
nonqualified stock options, and generally vest over four years. At its
discretion, the Board of Directors can authorize acceleration of vesting
periods. Options under both the 1995 Plan and the 2004 Plan, which have a term
of up to ten years, are exercisable at a price per share not less than the fair
market value on the date of grant. The aggregate number of shares authorized for
issuance under the 2004 Plan as of December 31, 2005 was 2,577,000. As of the
effective date of the 2004 Plan, a total of 9,946,000 shares of common stock
were then subject to outstanding awards granted under the 1995 Plan and any such
awards that expire, are cancelled or otherwise terminate after will also be
available for award grant purposes under the 2004 Plan.

In addition, we have issued options pursuant to a Special Stock Option
Plan (Special Plan). Options issued under the Special Plan are made at the
discretion of the Board of Directors and are designated only as nonqualified
options. The options generally have a term of up to ten years, are exercisable
at a price per share not less than the fair market value on the date of grant
and vest over various terms. The aggregate number of shares issued and
outstanding under the Special Plan as of December 31, 2005 is 500,000.

On May 31, 2001, Buzztime adopted an incentive stock option plan.
Pursuant to the option plan, Buzztime may grant options to purchase Buzztime
common stock, subject to applicable share limits, upon terms and conditions
specified in the plan. There are 300,000 shares authorized under this plan. To
date, no options have been granted under the plan.

A summary of stock option activity during 2005, 2004 and 2003 is as
follows:

SPECIAL PLAN OPTION PLAN
------------------------------- -------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------

OUTSTANDING DECEMBER 31, 2002 ..... 500,000 $ 2.81 7,712,000 $ 1.26
Granted ......................... -- -- 2,311,000 1.43
Exercised ....................... -- -- (643,000) 1.14
Cancelled ....................... -- -- (206,000) 1.18
----------- -------- ----------- --------
OUTSTANDING DECEMBER 31, 2003 ..... 500,000 $ 2.81 9,174,000 $ 1.31
Granted ......................... -- -- 1,221,000 2.53
Exercised ....................... -- -- (384,000) 1.07
Cancelled ....................... -- -- (218,000) 1.85
----------- -------- ----------- --------
OUTSTANDING DECEMBER 31, 2004 ..... 500,000 $ 2.81 9,793,000 $ 1.46
Granted ......................... -- -- 1,525,000 1.70
Exercised ....................... -- -- (479,000) 0.91
Cancelled ....................... -- -- (411,000) 2.20
----------- -------- ----------- --------
OUTSTANDING DECEMBER 31, 2005 ..... 500,000 $ 2.81 10,428,000 $ 1.49
=========== ======== =========== ========

F-17

A summary of options outstanding and exercisable by exercise price
range at December 31, 2005, is as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
Special Plan:
$2.81 500,000 1 year $ 2.81 500,000 $ 2.81
========== ===========

Option Plan:
$0.45-$1.50 6,432,000 5 years $ 0.95 5,752,000 $ 0.91
$1.51-$3.00 3,776,000 6 years $ 2.31 2,503,000 $ 2.43
$3.01-$4.94 220,000 6 years $ 3.30 138,000 $ 3.38
---------- -----------
10,428,000 8,393,000
=========== ===========

DEFERRED STOCK UNITS

In 2004, we granted 150,000 deferred stock units to certain employees.
These grants of stock units will be 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 will be 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. The measurement date for these initial stock unit grants
was the September 30, 2004 date of the Special Meeting of Stockholders. Since
the deferred stock units are to be paid in an equal number of shares of common
stock without any kind of offsetting payment by the employee, the measurement of
cost was based on the quoted market price of the stock at the measurement date,
which was $2.60.

The company recognized non-cash compensation expense of $213,000 and $140,000
for the years ended December 31, 2005 and 2004, respectively. There were 20,000
and zero deferred stock units exercised in 2005 and 2004, respectively.

WARRANTS

In 2005, 2004 and 2003, we granted 0, 236,000 and 514,000 warrants to
non-employees, respectively. The warrant issued in 2004 was an underwriter's
warrant that was issued to Roth Capital Partners, LLC in connection with our
public offering in January 2004 and was valued at approximately $655,000. Since
that warrant was issued in connection with the public offering, the cost of this
warrant was accounted for as a deduction from equity. We expensed zero dollars
in 2005 and 2004, and $226,000 in 2003 for the grant of these warrants.

The following summarizes warrant activity during 2005, 2004 and 2003:

OUTSTANDING WEIGHTED AVERAGE
WARRANTS EXERCISE PRICES
-------- ---------------

DECEMBER 31, 2002...................... 2,062,000 $ 1.68
Granted.............................. 514,000 1.15
Exercised............................ (771,000) 1.46
Canceled............................. (25,000) 2.38
--------- ------
DECEMBER 31, 2003...................... 1,780,000 $ 1.61
Granted.............................. 236,000 3.91
Exercised............................ (70,000) 1.25
Canceled............................. (5,000) 1.30
--------- ------
DECEMBER 31, 2004...................... 1,941,000 $ 1.91
Granted.............................. -- --
Exercised............................ (343,000) 1.20
Canceled............................. (254,000) 1.51
--------- ------
DECEMBER 31, 2005...................... 1,344,000 2.16
========= ======
BALANCE EXERCISABLE AT DECEMBER 31, 2005 1,344,000 $ 2.16
========= ======

F-18

A summary of warrants outstanding and exercisable by exercise price
range at December 31, 2005 is as follows:

WARRANTS OUTSTANDING WARRANTS EXERCISABLE
------------------------------------------------- -------------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------ ------------ ----------------- ------------------ ------------------ ------------------

$1.00-$1.30 667,000 2 years $1.11 667,000 $1.11
$1.31-$3.91 677,000 2 years $3.19 677,000 $3.19
---------- ----------
1,344,000 1,344,000
========== ==========

(4) COMMON STOCK

On January 30, 2004, we completed the sale of 3,943,661 shares of our
common stock at $3.55 per share, resulting in gross proceeds of approximately
$14.0 million, pursuant to an existing shelf registration filed under the
Securities Act. Roth Capital Partners, LLC acted as placement agent in the
offering. After commissions and expenses, the net proceeds of this offering were
approximately $13.0 million. The offering was purchased primarily
by a number of institutional investors and by Media General, Inc. (see Note 12 -
Media General Investment), a related party, which invested approximately $2.0
million.

(5) CUMULATIVE CONVERTIBLE PREFERRED STOCK

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

At December 31, 2005 and 2004, 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. In 2005, 2004 and 2003, we issued approximately 9,000, 6,000
and 6,000 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 our 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. During 2005, 2004 and 2003, there
were no conversions. There are no mandatory conversion terms or dates associated
with the Series A Preferred Stock.

(6) RETIREMENT AND SAVINGS PLANS

In 1994, we established a defined contribution plan which is organized
under Section 401(k) of the Internal Revenue Code, which allowed employees who
have completed at least one month of service and have reached age 21 to defer up
to 20% of their pay on a pre-tax basis. In 2002, we amended the plan to permit
employees who have reached age 18 to defer up to 50% of their pay on a pre-tax
basis. We may at our discretion contribute to the plan. For the years ended
December 31, 2005, 2004 and 2003, we made no such contributions.

(7) INCOME TAXES

For each of the years 2005, 2004 and 2003, current tax provisions and
current deferred provisions were recorded as follows:

2005 2004 2003
--------- --------- ---------
Current Tax Provision:
Federal ............... $ 39,000 $ -- $ --
State ................. 11,000 25,000 47,000
Foreign ............... 75,000 86,000 --
--------- --------- ---------
Total ............. 125,000 111,000 47,000
Deferred Provision:
Federal ............... -- -- --
State ................. -- -- --
Foreign ............... (39,000) (17,000) --
--------- --------- ---------
Total ............. (39,000) (17,000) --
Total Tax Provision:
Federal ............... 39,000 -- --
State ................. 11,000 25,000 47,000
Foreign ............... 36,000 69,000 --
--------- --------- ---------
Total ............. $ 86,000 $ 94,000 $ 47,000
========= ========= =========

F-19

The components that comprise deferred tax assets and liabilities at
December 31, 2005 and 2004 are as follows:

2005 2004
------------ ------------

Deferred tax assets:
NOL Carryforwards ........................ $ 20,932,000 $ 22,246,000
UK NOL Carryforwards ..................... 158,000 --
Legal and litigation accruals ............ 31,000 11,000
Allowance for doubtful accounts .......... 186,000 148,000
Compensation and vacation accrual ........ 563,000 325,000
Operating accruals ....................... 236,000 172,000
Deferred revenue ......................... 531,000 176,000
Research and experimentation credit ...... 186,000 186,000
AMT credit ............................... 39,000 --
Amortization ............................. 565,000 631,000
Depreciation ............................. 1,028,000 1,008,000
Foreign .................................. 57,000 18,000
Charitable contributions ................. 2,000 2,000
------------ ------------
Total gross deferred tax assets ..... 24,514,000 24,923,000
Valuation allowance ........................ (24,143,000) (24,239,000)
------------ ------------
Net deferred tax assets ......... 371,000 684,000
Deferred tax liabilities:
Capitalized software ..................... 314,000 296,000
Deferred revenue ......................... -- 306,000
Amortization ............................. -- 64,000
------------ ------------
Total gross deferred liabilities .... 314,000 666,000
------------ ------------

Net deferred tax assets .... $ 57,000 $ 18,000
============ ============

The reconciliation of computed expected income taxes to effective
income taxes by applying the federal statutory rate of 34% is as follows:

2005 2004 2003
----------- ----------- -----------

Tax at federal income tax rate .................... $ (657,000) $(1,660,000) $ (909,000)
State (benefit) taxes net of federal benefit ...... 7,000 (257,000) (143,000)
Foreign tax differential .......................... 135,000 103,000 --
Change in valuation allowance ..................... (96,000) 1,330,000 (120,000)
Change in beginning deferred asset related to
fixed assets and warrants ....................... -- -- 256,000
Expiration and adjustments of net operating
loss carryforwards .............................. 680,000 568,000 1,029,000
Other ............................................. 17,000 10,000 (66,000)
----------- ----------- -----------
$ 86,000 $ 94,000 $ 47,000
=========== =========== ===========

The net change in the total valuation allowance for the year ended
December 31, 2005 was a decrease of $96,000. The net change in the total
valuation allowance for the years ended December 31, 2004 and December 31, 2003
was an increase of $1,330,000 and a decrease of $120,000 respectively. In
assessing the reliability of deferred tax assets, we consider whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during periods in which those temporary
differences become deductible. We consider the scheduled reversal of deferred
tax liabilities, projected future taxable income, and planning strategies in
making this assessment. Based on the level of historical operating results and
projections for the taxable income for the future, we have determined that it is
more likely than not that the portion of deferred taxes not utilized through the
reversal of deferred tax liabilities will not be realized. Accordingly, we have
recorded a valuation allowance to reduce deferred tax assets to the amount that
is more likely than not to be realized. Approximately $655,000 of the valuation
allowance, if realized, will be recognized as a credit to paid in capital. There
can be no assurance that we will ever be able to realize the benefit of some or
all of the federal and state loss carryforwards, either due to ongoing operating
losses or due to ownership changes, which limit the usefulness of the loss
carryforwards.

At December 31, 2005, we have available net operating loss
carryforwards of approximately $60,000,000 for federal income tax purposes,
which will begin to expire in 2007. The net operating loss carryforwards for
state purposes, which will begin to expire in 2012, are approximately
$10,000,000.

F-20

(8) COMMITMENTS

OPERATING LEASES

We lease office and production facilities and equipment under
agreements which expire at various dates. Certain leases contain renewal
provisions and generally require us to pay utilities, insurance, taxes and other
operating expenses. Additionally, we entered into lease agreements for certain
equipment used in broadcast operations and the corporate computer network. Lease
expense under operating leases totaled $1,009,000, $962,000, and $775,000 in
2005, 2004 and 2003, respectively, net of sublease income of $39,000, $78,000,
and $156,000 in 2005, 2004 and 2003, respectively.

As of December 31, 2005, future minimum lease obligations under
non-cancelable operating leases, net of contractual sublease income, are as
follows:

YEAR LEASE
ENDING PAYMENT
---------------- ----------
2006 ........... $ 888,000
2007 ........... 886,000
2008 ........... 820,000
2009 ........... 779,000
2010 ........... 768,000
Thereafter ..... 794,000
----------
Total ........ $4,935,000
==========

CAPITAL LEASES

We lease certain equipment under capital leases. As of December 31,
2005, future minimum lease payments under the capital leases, together with the
present value of the net minimum lease payments, are as follows:

YEAR ENDING TOTAL
------------------------------------------------------ ---------
2006.................................................. $ 524,000
2007.................................................. 365,000
2008.................................................. 18,000
---------
Total minimum lease payments................ 907,000
Less: Amount representing interest ranging from
9.81 % to 29.95%...................................... (105,000)
---------
Present value of net minimum lease payments........... 802,000
Less current portion.................................. (436,000)
---------
Long term portion.......................... $ 366,000
=========

Property held under capital leases is as follows:

2005 2004
----------- -----------
Equipment........................... $ 3,353,000 $ 2,950,000
Accumulated depreciation............ (2,488,000) (2,624,000)
------------ -----------
$ 865,000 $ 326,000
=========== ===========

PURCHASE COMMITMENTS

We have a commitment under a long-term agreement to purchase equipment
over a three-year period which began in March 2004. Future minimum payments
under the agreement are as follows:

YEAR ENDING TOTAL
------------------------------------------------------ --------
2006.................................................. $ 150,000
2007.................................................. 607,000
2008.................................................. 303,000
----------
Total of net minimum payments........................ $1,060,000
==========

Payments made in 2005 and 2004 were $154,000 and $0, respectively.

F-21

(9) DEBT

REVOLVING LINE OF CREDIT

On July 16, 2003, we entered into a $1,000,000 line of credit
arrangement with Pacific Mercantile Bank (PMB). Interest on the line is based on
an independent index which is the highest rate on corporate loans posted by at
least 75% of the USA's thirty largest banks known as The Wall Street Journal's
Prime rate. The interest rate to be applied to the unpaid principal balance is
2% over the index. The arrangement precludes us from paying cash dividends.

The PMB line originally was set to mature on July 16, 2004 and
contained one financial covenant based on our cash flow coverage of the balance
on the line of credit. On January 7, 2004, we amended the line of credit to
extend the expiration date of the facility to February 1, 2005 and to replace
the cash flow-based financial covenant with a balance sheet oriented financial
covenant that limits the ratio of our debt to tangible net worth to 2:1. We were
in compliance with that covenant as of December 31, 2005. The line was then
amended again on February 11, 2005 to extend the expiration date of the line to
February 11, 2006. The line was amended again on February 7, 2006 to extend the
expiration date of the line to May 11, 2006. The line is secured by all
inventories, equipment, accounts receivable and various other assets of NTN.

Effective March 6, 2006, we signed a new one-year $2.0 million credit
facility agreement with Discovery Bank. This new larger credit facility will
provide for future working capital requirements.

Prior to establishing our line of credit with PMB, we had a line of
credit with Coast Business Credit (Coast). In August 1999, we entered into an
agreement with Coast for a revolving line of credit not to exceed $4,000,000.

On February 7, 2003, Coast and its parent company, Southern Pacific
Bank, were seized by the Federal Deposit Insurance Corporation (the "FDIC"). The
FDIC then sold off the portion of Coast's loan portfolio that contained our line
of credit to GF Asset Management, LLC (GF), a subsidiary of GE Capital. On July
17, 2003, we paid off our revolving line of credit with GF. The amount paid was
approximately $1,411,000 which is net of a 5% settlement discount of
approximately $105,000.

AMENDMENTS TO SATELLITE AGREEMENTS

On January 20, 2005, but effective as of December 31, 2004, we amended
our agreements with our satellite services provider to push out the expiration
date on the FM(2) satellite platform to February 2007 and to modify our VSAT
equipment purchase and satellite service agreements. The modification to the
equipment purchase agreement eliminates the requirement to purchase and install
a specific amount of VSAT equipment. The amendment to the equipment purchase
agreement also called for us to pay off immediately approximately $278,000 of
the equipment notes payable to the satellite services provider, which we paid in
January 2005, and the remaining $342,000 of the equipment notes payable was paid
in full as of December 31, 2005. This flexibility may also enable us to utilize
non-satellite based data transmission platforms, such as digital subscriber
lines, wireless connectivity or cable modems, for customer sites where such
platforms may be appropriate.

The amendment to FM2 data transmission agreement and the revisions to
the VSAT equipment purchase and satellite service agreements allow us to spread
any conversions to the new VSAT platform over the remainder of the VSAT
satellite services agreement, which is now scheduled to end in April 2009. The
amendments also allow us the flexibility to keep existing FM(2) sites on the
existing platform until February 2007 and they do not require us to have defined
levels of VSAT sites by any certain date.

(10) STRATEGIC PARTNERSHIP AND INVESTMENT IN BUZZTIME ENTERTAINMENT, INC.

On June 8, 2001, Buzztime Entertainment entered into a development,
license and marketing agreement (the Marketing Agreement) with
Scientific-Atlanta, Inc. (S-A) to co-develop an application to enable the
operation of a Buzztime Entertainment interactive trivia game show channel on
S-A's Explorer digital interactive set-top network, for distribution by cable
operators to their subscribers. Buzztime Entertainment was responsible for the
trivia game channel content including ongoing programming and player promotions.
The channel was to derive revenue from cable operator license fees, premium
subscription fees and advertising revenue. Under the Marketing Agreement,
Buzztime Entertainment and S-A predetermined commission arrangements based on
sales and support of Buzztime Entertainment's products to the cable system
operators.

F-22

In connection with the Marketing Agreement, Scientific-Atlanta
Strategic Investments, L.L.C., a Delaware limited liability company and
affiliate of S-A, invested $1.0 million in Buzztime Entertainment for 636,943
shares of Buzztime Entertainment's Series A Convertible Preferred Stock,
representing 6% of Buzztime Entertainment's common shares outstanding on an
as-converted basis, and warrants to obtain an additional 159,236 shares of
Series A Convertible Preferred Stock (the S-A Warrants). Each share of preferred
stock was convertible into one share of Buzztime Entertainment's common stock,
subject to future adjustment, and entitled to a non-cumulative dividend of 8%,
if, when and as declared by Buzztime Entertainment's board of directors. The
$1.0 million investment may only be used towards development of the application
for S-A and fulfillment of Buzztime Entertainment's obligations under the
Marketing Agreement, which are currently Buzztime Entertainment's primary focus.

NTN granted S-A the right to exchange its shares of Buzztime
Entertainment's preferred stock into shares of NTN common stock upon the earlier
of (i) Buzztime Entertainment being unable to obtain additional equity financing
of $2.0 million before June 8, 2002, (ii) the liquidation, dissolution or
bankruptcy of Buzztime Entertainment before June 8, 2002, (iii) the failure of
Buzztime to conduct a qualified public offering by June 8, 2004, or (iv) a
change in control of Buzztime Entertainment before June 8, 2002. The exchange
price was the 20-day average closing price of NTN's common stock immediately
preceding the date S-A gives notice of its intent to exercise its rights.

The exercise price of the S-A warrants is $1.57 per share. The warrants
vest in 10% increments as cable system operators sign on for the Buzztime Trivia
Channel. Based on the two Buzztime deployments with Susquehanna Cable (SusCom),
20% of the warrants are vested as of December 31, 2003. No expense has been
recorded for the year ended December 31, 2003 as the fair value of the warrants
is not material.

On January 16, 2003, the 636,943 shares of Buzztime Entertainment
Series A Convertible Preferred Stock were converted to 1,000,000 shares of NTN
common stock. For purposes of the exchange, the Series A liquidation preference
was $1.57 per share of Buzztime Entertainment Series A preferred stock. The
conversion price of the NTN common stock was $1.00 per share.

(11) MINORITY INTEREST ACCOUNTING

We retained majority ownership of Buzztime Entertainment, Inc.
(Buzztime) following the S-A investment and, as a result, continued to
consolidate Buzztime's operations in our financial statements. We recorded no
gain or loss on the sale of Buzztime's shares in accordance with Staff
Accounting Bulletin Topic 5h - Miscellaneous Accounting, ACCOUNTING FOR SALES OF
STOCK IN A SUBSIDIARY, as the realization of the gain is not assured given
Buzztime's history of losses from operations, net operating loss carryforwards
which are generally not available to offset capital gains, and the start-up
nature of Buzztime's products designed for the interactive television market. In
addition, the ongoing business relationship with S-A through the Marketing
Agreement and restrictions placed on the use of proceeds were additional factors
considered in accounting for the sale of Buzztime's shares. As a result, the
investment was reflected as a capital transaction.

The investment in Buzztime was presented as a minority interest in
consolidated subsidiary on our consolidated balance sheet until S-A converted
its Buzztime interest into NTN common stock in January 2003 (see Note 10 -
Strategic Partnership and Investment in Buzztime Entertainment, Inc.). As a
result, there was no minority interest account on our balance sheet on December
31, 2004, or December 31, 2005. Prior to S-A's conversion of its interest from
Buzztime into NTN common stock in January 2003, the minority interest balance
was reduced by S-A's share of Buzztime's net loss in the amount of $10,000 for
the year ended December 31, 2003.

(12) MEDIA GENERAL INVESTMENT

On May 6, 2003, Media General, Inc., a communications company with
interests in newspapers, television stations, interactive media and diversified
information services, made a $3.0 million investment in NTN. In return for the
investment, we issued and sold 2,000,000 shares of unregistered NTN common stock
through a private offering to Media General. Pursuant to the terms of the
transaction, upon receipt of $3.0 million from Media General, we issued the
unregistered shares along with fully vested warrants to purchase 500,000 shares
of Buzztime Entertainment common stock at $3.46 per share, exercisable through
May 7, 2007. In connection with the Buzztime Entertainment common stock, the
parties agreed that Media General would have co-sale rights and NTN would have
certain drag-along rights. Media General has the right to convert each share of
Buzztime Entertainment common stock into two shares of NTN common stock (subject
to adjustment) on the second and fourth anniversaries of the transaction date,
in the event of a sale of NTN, upon certain bankruptcy and other insolvency
proceedings of Buzztime Entertainment, and in certain circumstances if NTN
exercises its drag-along rights. Media General has the further right to convert
the warrant to purchase 500,000 shares of Buzztime Entertainment common stock
into a warrant to purchase 1,000,000 shares of NTN common stock at $1.73 per NTN
share (subject to adjustment) in the event of bankruptcy or insolvency of
Buzztime Entertainment. We have the right to require Media General to convert
its equity interests in Buzztime Entertainment into equity interests in NTN if
there is a sale of NTN.

F-23

Simultaneous with the transaction described above, we issued 666,667
shares of our unregistered common stock to license selected technology and
content (Boxerjam games) from Media General to add additional game content to
the Buzztime interactive television game channel and the Buzztime Hospitality
Network. The license includes a 5-year exclusive interactive television license
of certain intellectual property, with options to extend the license for an
additional 5 years. In September 2003, we entered into an amendment to the
Boxerjam games license with Media General pursuant to which we agreed to pay to
Media General a license fee in the amount of $150,000 (or $50,000 more than the
original amount of $100,000) in exchange for the unilateral right to exercise
the option to extend the Boxerjam games license for an additional 5 years
following the initial 5 year term on a non-exclusive basis. Previously, that
non-exclusive right was at Media General's option. The renewal license fee may
be paid to Media General in shares of our common stock or, in the event Buzztime
Entertainment's common stock is publicly traded at the time of such renewal,
Buzztime Entertainment shall issue a number of shares of Buzztime Entertainment
common stock with an aggregate value of $150,000.

We recorded both transactions at the fair value of the consideration
exchanged on May 6, 2003. We used the publicly traded stock price, as of the
date of the transactions, of $1.77 per share to determine the $4,720,000 fair
value of the shares issued. The consideration allocated to the acquired Boxerjam
game license was valued at $1.72 million and is being amortized over the
estimated contractual life of 10 years, which assumes, based on management's
intent, that we will exercise our five year renewal option. We determined that,
based on the lack of marketability of Buzztime Entertainment common stock and
limited convertibility into our common stock, the fair value of the Buzztime
Entertainment warrants was not material and no allocation of fair value was
made.

The terms of the transaction called for us to file a resale
registration statement with the Securities and Exchange Commission (SEC) to
register the 2,666,667 shares issued to Media General. Subsequent to the
transaction, we filed the resale registration statement on which we also
registered the Bennett shares (Note 16) and Scientific-Atlanta conversion shares
(Note 10) and the SEC declared effective the resale registration statement in
June 2003.

Also in connection with the investment, we agreed to increase the size
of our Board of Directors and appoint Neal F. Fondren, Vice President of Media
General and President of Media General's Interactive Media Division to fill the
vacancy. Media General's ability to maintain that seat on our Board of Directors
is subject to Media General retaining ownership of certain percentages of the
shares they purchased. Media General also received preemptive rights to purchase
on a pro rata basis any new securities that NTN or Buzztime Entertainment may
subsequently offer. The preemptive rights also are dependent upon Media General
maintaining ownership of certain percentages of the shares they purchased.

(13) CONTINGENCIES

We are subject to litigation from time to time in the ordinary course
of our business. There can be no assurance that any or all of the following
claims will be decided in our favor and we are not insured against all claims
made. During the pendency of such claims, we will continue to incur the costs of
our legal defense. Other than set forth below, there is no material litigation
pending or threatened against us.

INTERACTIVE NETWORK, INC.

On April 14, 2004, we settled the lawsuit filed against us in 1992 by
Interactive Network, Inc. (now Two Way TV (US), Inc.) that involved licensing
and patent infringement issues in Canada. These actions related to the delivery
of the NTN iTV Network to subscribers of our former Canadian licensee (we
acquired our licensee's operations in December 2003) and did not extend to our
network operations in the United States or elsewhere. We settled the matter for
$116,500. We recorded expense related to this matter, including the settlement
amount, of approximately $200,000 in the first quarter of 2004 and we recorded
further legal fees of approximately $92,000 relating to this matter in the third
quarter of 2004.

ARBITRATION WITH FORMER EMPLOYEE

F-24

LONG RANGE SYSTEMS, INC.

OPEN TABLE

In March 2004, we received correspondence from Open Table, Inc. (Open
Table) alleging breach of the non-compete provisions of the Asset Purchase
Agreement entered into by and between Open Table and Breakaway International,
Inc. (Breakaway) in February 2002. Our NTN Software Solutions, Inc. subsidiary
assumed certain obligations of Breakaway pursuant to the Asset Purchase
Agreement we entered into with Breakaway in July 2003. In March 2004, we
acknowledged receipt of the Open Table correspondence and advised Open Table
that we were investigating the allegations set forth in such correspondence. On
April 23, 2004, Open Table filed a complaint in the Superior Court of the State
of California, County of San Francisco, against NTN Communications, Inc. f/k/a
Breakaway International, Inc., alleging breach of contract, breach of implied
covenant of good faith and fair dealing, intentional interference with economic
relationship, negligent interference with economic relationship, fraud,
accounting, constructive trust and declaratory relief. In December 2004, we
agreed with Open Table to settle and dismiss this lawsuit. We paid Open Table
$15,000 under the terms of the settlement.

CANADIAN TAX MATTER

In previous filings, we disclosed as a contingency that our Canadian
licensee was in discussions with the Canada Customs and Revenue Agency (CCRA)
regarding a liability relating to withholding tax on certain amounts previously
paid to us by our Canadian licensee. Our licensee was assessed approximately
$649,000 Canadian dollars by the CCRA and they had appealed the assessment. At
that time, it was unclear as to what, if any, liability we might have in the
matter. We had an understanding with our licensee that we would equally share
the eventual assessment, if any was assessed, at the end of the appeal process.
On December 15, 2003, through a newly formed subsidiary, NTN Canada, Inc., we
acquired the assets, the operations and a number of the liabilities of our
Canadian licensee including this withholding tax matter with the CCRA (see Note
15 - Acquisitions). In February 2004, we entered into a settlement agreement
with the CCRA that reduced the assessment from Canadian $788,000 to Canadian
$443,000 (or approximately $609,000 to approximately $342,000 U.S. dollars).
That amount was further reduced by approximately $80,000 for the application
of a partial refund from payments made during the period of January 2002 through
March 2003. To be consistent with our previous agreement, we recorded one-half
of this settlement as operating expense and recorded one-half as a liability
recorded through the purchase accounting when we acquired NTN Interactive
Network, Inc. (see Note 15 - Acquisitions).

SALES AND USE TAX

From time to time, state tax authorities will make inquiries as to
whether or not a portion of our services might require the collection of sales
and use taxes from customers in those states. In the current difficult economic
climate, many states are expanding their interpretation of their sales and use
tax statutes to derive additional revenue. While in the past our sales and use
tax assessments have not been significant to our operations, it is likely that
such expenses will grow in the future.

We evaluate such inquiries on a case-by-case basis and have favorably
resolved these tax issues in the past without any material adverse consequences.
During 2003, the state of Texas, our largest state in terms of iTV Network
sites, began a sales tax audit. They concluded that our services are subject to
sales taxes on an amusement services basis. On January 12, 2004, the state
assessed us for approximately $1,115,000 for the five year audit period ended
December 31, 2002. We have objected to this approach since our services are
provided to the consumers for free as a promotional service, which we believe

F-25

falls outside the definition of amusement services as defined by the Texas tax
code. We have successfully argued this position regarding amusement services
with other states. We have appealed the assessment and the matter is currently
at the administrative appeals level. We have retained a team of sales and use
tax specialists in Texas to assist us in this matter. If we are able to reach a
mutually agreeable conclusion at the administrative appeals level, we expect
that a conclusion may be reached by the end of 2006. In the event the matter is
not resolved at administrative appeals, we would likely take the matter before
the District Court. At the District Court level, we would anticipate a
resolution no earlier than 2007. While we believe that we have a strong position
in this matter, there can be no assurance that we will resolve this matter in
our favor.

(14) DEFERRED REVENUE - BUZZTIME

In February 2003, we entered into a Trial Agreement with a major cable
operator that involves developing the Buzztime Trivia Channel for potential
deployment on two different cable technology platforms within their system.
Under the Trial Agreement, the cable operator has the right to apply 50% of any
amount they pay us related to the Trial Agreement against future development
and/or license fees paid for the carriage of the Buzztime Trivia Channel. In
2005, we amended this Trial Agreement by adding license option rights to new
game applications (in addition to the Buzztime Trivia Channel) and new
development platforms. We extended the expiration date of this Trial Agreement
through December 2006 and have also extended the right for the cable operator to
use their 50% credit per the original agreement.

During the year ended December 31, 2003, the cable operator paid us an
initial non-refundable amount of $100,000 and an additional payment of $200,000
under the Trial Agreement. The $200,000 payment was related to entering a trial
on one of the two specified technology platforms. During the year ended December
31, 2003, we recognized $150,000 of revenue related to this agreement.

During the year ended December 31, 2004, the cable operator paid us
$200,000 under the Trial Agreement and we recognized 50% of that payment as
revenue and the other 50% was recorded as Deferred Revenue-Buzztime. At December
31, 2004, we carried $250,000 in Deferred Revenue-Buzztime related to the Trial
Agreement. The remaining deferred revenue balance of $41,000 at December 31,
2004, on the accompanying consolidated balance sheet was from our agreements
with Digeo Interactive LLC (Digeo), Airborne Entertainment Inc. and ICTV, Inc.

During the year ended December 31, 2005, the cable operator paid us
$500,000 under the Trial Agreement Amendment and we recognized 24.2% of that
payment as revenue and the remainder as Deferred Revenue-Buzztime. At December
31, 2005, we carried $629,000 in Deferred Revenue-Buzztime related to the Trial
Agreement and Amendment. The remaining deferred revenue balance of $3,000 on the
accompanying consolidated balance sheet relates to our agreement with ICTV, Inc.

(15) ACQUISITIONS

BREAKAWAY INTERNATIONAL

On July 31, 2003, we acquired, through NTN Software Solutions, Inc.
(Software Solutions), a wholly owned subsidiary of NTN, all of the assets and
certain liabilities of Breakaway International, Inc. (Breakaway), a privately
held provider of restaurant industry hardware and software enterprise solutions.
We acquired Breakaway's assets for $252,000 in cash, 1,292,614 shares of
unregistered NTN common stock, transaction costs and the assumption of certain
liabilities. We may pay additional contingent earn-out amounts in NTN common
stock and/or cash over the first three years following the acquisition, provided
that certain targets for earnings before taxes are met for the acquired assets.
The targeted amounts increase by 25% each year. No earn-out amounts were earned
in the first twenty-four month period following the acquisition. We also entered
into employment agreements with five of the executives of Breakaway.

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition. Total consideration
for the acquisition was $3,630,000, which consisted of 1,292,614 shares
multiplied by the then publicly traded price of $2.44 per share, $252,000 in
cash and $224,000 of transaction costs. To determine the fair value of the
acquired intangible assets and the related allocation of the purchase price, we
commissioned a third-party valuation analysis. Based on this third party
analysis, we determined that the identified intangible assets and the related
useful lives are developed technology ($781,000, 6 year life), customer
relationships ($1,110,000, 6 year life) and non-competition agreements ($30,000,
3 year life). Breakaway's results of operations have been included in our
consolidated statements of operations since August 1, 2003.

F-26

BREAKAWAY INTERNATIONAL, INC.
ASSETS ACQUIRED AND LIABILITIES ASSUMED

Accounts receivable, net $ 333,000
Inventory, net 35,000
Fixed assets, net 108,000
Developed technology 781,000
Customer relationships 1,110,000
Non-competition agreements 30,000
Goodwill 2,235,000
---------------
Total assets acquired 4,632,000

Accounts payable and accruals 482,000
Deferred revenue 520,000
---------------
Total liabilities assumed 1,002,000
---------------

Net assets acquired $ 3,630,000
===============

NTN CANADA, INC.

NTN INTERACTIVE NETWORK, INC.
ASSETS ACQUIRED AND LIABILITIES ASSUMED

Cash....................................... $ 20,000
Accounts receivable, net................... 235,000
Other current assets....................... 21,000
Fixed assets, net.......................... 43,000
Customer relationships..................... 720,000
Trivia database............................ 345,000
Interactive events software................ 102,000
Trivia software............................ 90,000
Licenses................................... 12,000
Goodwill................................... 974,000
---------------
Total assets acquired.................. $ 2,562,000
---------------

Accounts payable and accruals.............. $ 628,000
Leases..................................... 44,000
Deferred revenue........................... 67,000
---------------
Total liabilities assumed.............. 739,000

---------------
Net assets acquired................ $ 1,823,000
===============

To determine the fair value of the acquired intangible assets and the
related allocation of the purchase price, we commissioned a third-party
valuation analysis. Based on this third party analysis, we determined that the
identified intangible assets and the related useful lives are customer
relationships ($720,000, four-year life), trivia database ($345,000, ten-year
life), interactive events software ($102,000, five-year life) and trivia
software ($90,000, five-year life). Results of operations from the acquisition
have been included in our consolidated statements of operations since December
15, 2003.

F-27

In 2004, the above amounts changed from the initial purchase accounting
as follows: (1) goodwill increased by $99,000 to reflect a variety of factors
including the final calculation of the cash component of the purchase price
based on the final closing balance sheet, which generated an additional payment
to Chell of approximately $10,000 and a payment to the president of NTNIN on
behalf of Chell of approximately $23,000, (2) the final calculation of the
transaction costs (an increase of $38,000), (3) recording $12,000 of additional
liabilities, and (4) making $16,000 of other adjustments to the final balance
sheet. The overall purchase price increased by $37,000 from the initial amount
of $1,786,000 to $1,823,000.

If we had owned both the Breakaway and Canadian operations during
fiscal year 2003, our pro forma results of operations would have been as
follows:

2003
--------------
Revenues:
NTN actual revenues..................... $ 29,489,000
Incremental Breakaway revenues.......... 2,332,000
Incremental Canadian revenues........... 4,288,000
--------------
Pro forma revenues.................... $ 36,109,000
==============

Net loss:
NTN actual loss......................... $ (2,711,000)
Incremental Breakaway loss.............. (579,000)
Incremental Canadian income............. 284,000
--------------
Pro forma loss........................ $ (3,006,000)
==============

Loss per share:
NTN actual loss per share............... $ (0.06)
--------------
Pro forma loss per share.............. $ (0.06)
--------------

(16) RELATED PARTIES

On May 8, 2001, we entered into an advertising sales representative
agreement with Baron Enterprises, Inc., a corporation wholly-owned and operated
by Barry Bergsman, a member of our board of directors, pursuant to which Baron
provides advertising sales representation services to us under the direction of
president and chief operating officer NTN iTV Network. For Baron's services
under the advertising sales representative agreement, we granted Baron a
three-year warrant to purchase 20,000 shares of common stock at an exercise
price of $0.50 per share. The warrant vests and becomes exercisable as to 1/12
of the total shares on the last business day of each of the twelve months
commencing April 2001, subject to Baron continuing to provide services to us. In
addition, Baron will receive a commission in the amount of 35% of net
advertising revenues received by NTN iTV Network from any advertising contract
solicited by Baron. We paid Baron a monthly recoverable cash advance against
commissions to be earned in the amount of $5,000 per month, not to exceed an
aggregate of $60,000 per year. The advertising sales representative agreement
expired on April 1, 2002. An amendment to the agreement was entered into in
October 2002, to extend the contract to October 31, 2003, to reduce the rate of
commission to 25% of net advertising revenues received by us and to include
bartered advertising. Under the amended agreement, Baron was paid $15,000 in
commissions in 2002. In September, 2003, we entered into a three-year agreement
with Baron to negotiate on our behalf with a third-party advertising
representative. Baron was to receive commissions of 3% to 10% based on the
period of time over which the negotiated advertising would run and upon the
related advertising revenue. This arrangement has since been extinguished.

In May 2002, Michael Fleming was appointed Chairman of the Board of our
Buzztime subsidiary, after having served, since January 8, 2002, as an
independent consultant. Pursuant to the consulting arrangement, Mr. Fleming
provided general consulting services to us in connection with Buzztime's cable
television initiatives. We paid Mr. Fleming approximately $2,000 per month for
these consulting services. This arrangement was discontinued in September 2003.

In January 2002, we entered into a consulting agreement with Robert
Clasen, one of our directors, whereby Mr. Clasen provides consulting services to
us with respect to Buzztime's cable television initiatives. We paid Mr. Clasen
$2,000 per month for the services provided under the consulting agreement
through June 2003, at which time we mutually agreed to discontinue the
arrangement.

On January 15, 2003, we issued and sold 1,000,000 shares of restricted
common stock through a private offering to Robert M. Bennett, one of our former
directors, at a price per share of $1.00. Pursuant to the terms of the
transaction, upon receipt of $1.0 million from Mr. Bennett, we issued the
restricted shares along with fully vested warrants to purchase 500,000 shares of
common stock at $1.15 per share, exercisable through January 15, 2008. No
commissions or placement agent fees were paid in connection with the offering.

F-28

On January 30, 2004, Media General, Inc. (see Note 12 - Media General
Investment), a related party, purchased $2 million of our common stock as part
of a group of institutional investors that invested $14 million into our company
(see Note 4 - Common Stock). Media General invested on the same terms as the
other investors.

On February 4, 2005, we entered into an Asset Purchase Agreement with
Intura Solutions LP (Intura), a Texas limited partnership, pursuant to which we
sold the point-of-sale software products developed and maintained by our
Software Solutions segment. Gary Peek, vice president and general manager of our
Software Solutions segment, is a member of Intura Management, LLC, general
partner of Intura Solutions LP. In accordance with the asset purchase
transaction, Gary Peek terminated his position as vice president and general
manager of our Software Solutions segment and immediately thereafter commenced
his position with Intura to oversee business operations. We received a
non-dilutable 10% partnership interest in Intura in the transaction.

(17) ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss is the combination of accumulated
net unrealized losses on investment available for sale and the accumulated gains
or losses from foreign currency translation adjustments. We translated the
assets and liabilities of NTN Canada into U.S. dollars using the period end
exchange rate. Revenue and expenses were translated using the average exchange
rates for the reporting period.

For the year ended December 31, 2005 and 2004, the components of
accumulated other comprehensive loss are as follows:

2005 2004
-------------- ---------------

Beginning balance................... $ (469,000) $ (628,000)
Unrealized gain (loss) in investment
available-for-sale................ (46,000) 115,000
Foreign currency translation
adjustments....................... 66,000 44,000
-------------- ---------------
Ending balance.................. $ (449,000) $ (469,000)
============== ===============

For the year ended December 31, 2005, 2004 and 2003, the comprehensive
losses were as follows:

2005 2004 2003
-------------- --------------- ---------------
Net loss............................ $ (2,019,000) $ (4,979,000) $ (2,711,000)
Comprehensive income (loss)......... 20,000 159,000 11,000
-------------- --------------- ---------------
Comprehensive net loss.......... $ (1,999,000) $ (4,820,000) $ (2,700,000)
============== =============== ===============

(18) AMERICAN STOCK EXCHANGE LISTING

On May 1, 2003, we received a letter from the American Stock Exchange
(AMEX) stating that we are now in compliance with AMEX listing standards. In our
SEC filings over the previous 12 months, we had disclosed that we needed to
achieve $6 million of shareholders' equity to be in compliance with AMEX listing
standards. However, as a result of the AMEX rules that became effective January
2003, the AMEX determined that we were in compliance with their listing
standards. The new rules permit a company to remain listed on AMEX if it, like
NTN, has a total market capitalization of at least $50 million, has at least 1.1
million shares publicly held, has a market value of publicly held shares of at
least $15 million and has a minimum of 400 round lot shareholders. As of
December 31, 2005 and December 31, 2004, we had satisfied these requirements.

In the event we no longer satisfy the requirements of the new rule
(from subsequent changes in market capitalization or otherwise), we would be
subject to other AMEX listing requirements for companies that have not reported
profits during the past five years. As of December 31, 2005 and December 31,
2004, we had also met the requirement of $6 million of shareholders' equity.

(19) SEGMENT INFORMATION

We operate our businesses principally through four reportable segments:
NTN iTV Network, NTN Wireless and Software Solutions, which combine to form the
NTN Hospitality Technologies Division, and our Buzztime Entertainment, Inc.
subsidiary (Buzztime). The NTN Hospitality Technologies Division provides
entertainment promotional services and on-site communications and management
products to the hospitality industry. Buzztime operates our live broadcast
studio, produces our trivia and live sports Play Along TV content to both the
NTN iTV Network and new consumer interactive platforms, and is selling the
Buzztime Trivia Channel to cable television operators in the United States.

F-29

Our reportable segments have been determined based on the nature of the
services offered to customers, which include, but are not limited to, revenue
from the Buzztime segment and the three segments within the NTN Hospitality
Technologies Division. Revenue from NTN Hospitality Technologies Division is
generated primarily from providing an interactive entertainment service which
serves as a marketing and promotional vehicle for the hospitality industry, from
advertising sold for distribution via the interactive entertainment service,
from its wireless business with restaurant on-site paging systems, electronic
data-managed comment cards and from its hardware and software enterprise
solutions. Its revenues comprise 97% of our total revenue for the year ended
December 31, 2005. Buzztime's revenue is primarily generated from the
Xdistribution of its digital trivia game show content and Play Along TV sports
games as well as revenue related to production services for third parties and
from performance under a Trial Agreement with a major cable operator. Included
in the operating loss and depreciation and amortization for the three segments
included within the NTN Hospitality Technologies Division and for Buzztime is an
allocation of corporate expenses, while the related corporate assets are not
allocated to the segments.

The following tables set forth certain information regarding our
segments and other operations that conform to the consolidated balance sheet and
statement of operations presented elsewhere in this report:

2005 2004 2003
----------- ----------- -----------

Revenues:
NTN iTV Network (includes "other revenues")... $29,374,000 $25,925,000 $23,024,000
NTN Wireless.................................. 5,689,000 5,337,000 4,742,000
Software Solutions............................ 4,321,000 4,034,000 1,527,000
----------- ----------- -----------
NTN Hospitality Technologies Division....... 39,384,000 35,296,000 29,293,000
Buzztime.................................... 1,375,000 449,000 287,000
Eliminations................................ --- (90,000) (91,000)
----------- ------------ ------------

Total revenue............................. $40,759,000 $35,655,000 $29,489,000
=========== =========== ===========

Operating income (loss):
NTN iTV Network............................... $ 1,980,000 $ 1,040,000 $ 1,946,000
NTN Wireless.................................. 455,000 (63,000) (170,000)
Software Solutions............................ (1,673,000) (2,074,000) (565,000)
------------ ------------ ------------
NTN Hospitality Technologies Division....... 762,000 (1,097,000) 1,211,000
Buzztime.................................... (2,605,000) (3,959,000) (3,757,000)
------------ ------------ ------------

Operating loss............................ $(1,843,000) $(5,056,000) $(2,546,000)
============ ============ ===========

Net income (loss):
NTN iTV Network............................... $ 1,810,000 $ 1,122,000 $ 1,772,000
NTN Wireless.................................. 455,000 (64,000) (171,000)
Software Solutions............................ (1,673,000) (2,074,000) (565,000)
------------ ------------ ------------
NTN Hospitality Technologies Division....... 592,000 (1,016,000) 1,036,000
Buzztime.................................... (2,611,000) (3,963,000) (3,747,000)
------------ ------------ ------------

Net loss.................................. $(2,019,000) $(4,979,000) $(2,711,000)
============ ============ ===========

Total assets:
NTN iTV Network............................... $16,989,000 $13,289,000
NTN Wireless.................................. 1,704,000 1,690,000
Software Solutions............................ 4,178,000 4,816,000
----------- -----------
NTN Hospitality Technologies Division....... 22,871,000 19,795,000
Buzztime.................................... 2,791,000 2,600,000
Corporate................................... 4,356,000 6,993,000
----------- -----------
Total assets.............................. $30,018,000 $29,388,000
=========== ===========

F-30

Capital expenditures and Software Development
Costs:
NTN iTV Network............................. $ 3,375,000 $2,307,000
NTN Wireless................................ 18,000 92,000
Software Solutions.......................... 395,000 177,000
----------- ----------
NTN Hospitality Technologies Division..... 3,788,000 2,576,000
Buzztime.................................. 76,000 555,000
Corporate................................. 447,000 331,000
----------- ----------
Total Capital Expenditures and Software
Development Costs .................... $ 4,311,000 $3,462,000
=========== ==========

Depreciation and Amortization:
NTN iTV Network............................... $ 3,149,000 $2,881,000
NTN Wireless.................................. 68,000 100,000
Software Solutions............................ 343,000 392,000
----------- ----------
NTN Hospitality Technologies Division....... 3,560,000 3,373,000
Buzztime.................................... 575,000 560,000
----------- ----------
Total Depreciation and Amortization....... $ 4,135,000 $3,933,000
=========== ==========

Interest Expense (Income), net:
NTN iTV Network............................... $ (84,000) $ 49,000
NTN Wireless.................................. --- 1,000
Software Solutions............................ --- ---
----------- ----------
NTN Hospitality Technologies Division....... (84,000) 50,000
Buzztime.................................... (6,000) 4,000
----------- ----------
Total Interest Expense (Income), net...... $ (90,000) $ 54,000
=========== ==========

Provision for Income Taxes:
NTN iTV Network............................... $ 86,000 $ 94,000
NTN Wireless.................................. --- ---
Software Solutions............................ --- ---
----------- ----------
NTN Hospitality Technologies Division....... 86,000 $ 94,000
Buzztime.................................... --- ---
----------- ----------
Total Provision for Income Taxes.......... $ 86,000 $ 94,000
=========== ==========

(20) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE)

THREE-MONTH PERIOD ENDED
--------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, TOTAL
2005 2005 2005 2005 2005
-------- -------- -------- -------- --------

Total revenue .................................... $ 9,507 $ 9,629 $ 10,425 $ 11,198 $ 40,759
Total operating expenses ......................... 10,823 10,654 10,194 10,931 42,602
-------- -------- -------- -------- --------
Operating income (loss) .......................... (1,316) (1,025) 231 267 (1,843)
Other income (expense), net ...................... 2 (24) (35) (33) (90)
-------- -------- -------- -------- --------
Net income (loss) before income taxes ......... (1,314) (1,049) 196 234 (1,933)
Income taxes ..................................... (33) (43) 50 (60) (86)
-------- -------- -------- -------- --------
Net income (loss) ................................ $ (1,347) $ (1,092) $ 246 $ 174 $ (2,019)
======== ======== ======== ======== ========

Per share amounts:
------------------
Net income (loss) ...................... $ (0.03) $ (0.02) $ -- $ -- $ (0.04)
======== ======== ======== ======== ========
Weighted-average shares outstanding - basic ..... 53,222 53,403 53,604 53,769 53,501

Net loss ............................... $ (0.03) $ (0.02) $ -- $ -- $ (0.04)
======== ======== ======== ======== ========
Weighted-average outstanding - diluted .......... 53,222 53,403 60,632 60,819 53,501

F-31

THREE-MONTH PERIOD ENDED
--------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, TOTAL
2005 2005 2005 2005 2005
-------- -------- -------- -------- --------

Total revenue .................................... $ 8,844 $ 8,528 $ 8,772 $ 9,511 $ 35,655
Total operating expenses ......................... 10,098 9,810 9,986 10,817 40,711
-------- -------- -------- -------- --------
Operating loss ................................... (1,254) (1,282) (1,214) (1,306) (5,056)
Other income (expense), net ...................... (19) 220 (6) (24) 171
-------- -------- -------- -------- --------
Net loss before income taxes .................. (1,273) (1,062) (1,220) (1,330) (4,885)
Income taxes ..................................... (21) (12) (12) (49) (94)
-------- -------- -------- -------- --------
Net loss ......................................... $ (1,294) $ (1,074) $ (1,232) $ (1,379) $ (4,979)
======== ======== ======== ======== ========

Per share amounts:
Net loss ............................... $ (0.02) $ (0.02) $ (0.02) $ (0.03) $ (0.09)
======== ======== ======== ======== ========
Weighted-average shares outstanding
- basic and diluted ........................... 51,871 52,703 52,868 52,941 52,599

(21) SUBSEQUENT EVENTS

CREDIT FACILITY AGREEMENT

Effective March 6, 2006, we signed a new one-year $2.0 million credit
facility agreement with Discovery Bank. This new larger credit facility will
provide for future working capital requirements.

F-32

SCHEDULE II

NTN BUZZTIME, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

ADDITIONS BALANCE AT
ALLOWANCE FOR BALANCE AT CHARGED TO END OF
DOUBTFUL ACCOUNTS BEGINNING EXPENSE DEDUCTIONS(A) PERIOD
- ------------------ ----------------------- -------------------- -----------
2005.............. $ 762,000 801,000 (1,000,000) $ 563,000
2004.............. $ 811,000 436,000 485,000 $ 762,000
2003.............. $ 437,000 243,000 (131,000) $ 811,000

- ----------

(a) Reflects trade accounts receivable written off during the year, net of
amounts recovered.

See accompanying report of independent registered public accounting firms.

F-33

INDEX TO EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- -----------

- ----------