UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q





QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934




For
the quarterly period ended March 31, 2009




Commission
file number 001-11460





NTN
Buzztime, Inc.


(Exact
name of registrant as specified in its charter)





DELAWARE
            31-1103425(State
      of incorporation)
            (I.R.S.
      Employer 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)





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 such filing
requirements for the past 90 days.    YES  x    NO   ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  
Yes    ̈    No    ̈




Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer
             ̈
            Accelerated
      filer
             ̈Non-accelerated
      filer
             ̈ (Do not check if
      a smaller reporting company)
            Smaller reporting company
            x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    YES   ̈    NO  x




As of May
13, 2009 the registrant had outstanding 60,142,793 shares of common stock, $.005
par value.


NTN
BUZZTIME, INC. AND SUBSIDIARIES


FORM
10-Q


TABLE
OF CONTENTS




Item
            
            PagePART
      I1.
            Financial
      Statements
            1Condensed
      Consolidated Balance Sheets as of March 31, 2009 (unaudited)
      and December 31, 2008
            1Condensed
      Consolidated Statements of Operations for the three months ended March 31,
      2009 and 2008 (unaudited)
            2Condensed
      Consolidated Statements of Comprehensive Loss for the three months ended
      March 31, 2009 and 2008 (unaudited)
            3Condensed
      Consolidated Statements of Cash Flows for the three months ended March 31,
      2009 and 2008 (unaudited)
            4Notes
      to Condensed Consolidated Financial Statements
            52.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            133.
            Quantitative
      and Qualitative Disclosures About Market Risk
            214.
            Controls
      and Procedures
            21PART II1.
            Legal
      Proceedings
            221A.
            Risk
      Factors
            222.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            223.
            Defaults
      Upon Senior Securities
            244.
            Submission
      of Matters to a Vote of Security Holders
            245.
            Other
      Information
            246.
            Exhibits
            24Signatures
            24









PART
I




ITEM 1.
            Financial
      Statements.




NTN
BUZZTIME, INC. AND SUBSIDIARIES


Condensed
Consolidated Balance Sheets


(Unaudited)


(In thousands,
except share data)


March 31,
                                        2009
                                      
                                      
                                      December 31,
                                        2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                                      
                                      $
                                      3,311
                                      
                                      
                                      $
                                      3,362Accounts
      receivable, net of allowances of $401 and $298,
    respectively
                                      
                                      
                                      614
                                      
                                      
                                      
                                      636Investments
      available-for-sale (Note 5)
                                      
                                      
                                      76
                                      
                                      
                                      
                                      58Prepaid
      expenses and other current assets
                                      
                                      
                                      695
                                      
                                      
                                      
                                      611Total
      current assets
                                      
                                      
                                      4,696
                                      
                                      
                                      
                                      4,667Broadcast
      equipment and fixed assets, net
                                      
                                      
                                      3,375
                                      
                                      
                                      
                                      3,428Software
      development costs, net
                                      
                                      
                                      949
                                      
                                      
                                      
                                      860Deferred
      costs
                                      
                                      
                                      1,346
                                      
                                      
                                      
                                      1,383Goodwill
      (Note 4)
                                      
                                      
                                      1,009
                                      
                                      
                                      
                                      1,032Intangible
      assets, net
                                      
                                      
                                      171
                                      
                                      
                                      
                                      185Other
      assets
                                      
                                      
                                      112
                                      
                                      
                                      
                                      107Total
      assets
                                      
                                      $
                                      11,658
                                      
                                      
                                      $
                                      11,662LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                                      
                                      $
                                      482
                                      
                                      
                                      $
                                      219Accrued
      expenses
                                      
                                      
                                      1,232
                                      
                                      
                                      
                                      1,169Sales
      tax payable
                                      
                                      
                                      676
                                      
                                      
                                      
                                      958Accrued
      salaries
                                      
                                      
                                      325
                                      
                                      
                                      
                                      383Accrued
      vacation
                                      
                                      
                                      336
                                      
                                      
                                      
                                      381Income
      tax payable
                                      
                                      
                                      5
                                      
                                      
                                      
                                      18Obligations
      under capital lease
                                      
                                      
                                      77
                                      
                                      
                                      
                                      8Deferred
      revenue
                                      
                                      
                                      675
                                      
                                      
                                      
                                      657Total
      current liabilities
                                      
                                      
                                      3,808
                                      
                                      
                                      
                                      3,793Sales
      tax payable, excluding current portion
                                      
                                      
                                      225
                                      
                                      
                                      
                                      —Obligations
      under capital lease, excluding current portion
                                      
                                      
                                      103
                                      
                                      
                                      
                                      32Deferred
      revenue, excluding current portion
                                      
                                      
                                      92
                                      
                                      
                                      
                                      91Total
      liabilities
                                      
                                      
                                      4,228
                                      
                                      
                                      
                                      3,916Commitments
      and contingencies (Note 9)Shareholders’
      equity:Series
      A 10% cumulative convertible preferred stock, $.005 par value, $161
      liquidation preference, 5,000,000 shares authorized; 161,000 shares issued
      and outstanding at March 31, 2009 and December 31,
      2008
                                      
                                      
                                      1
                                      
                                      
                                      
                                      1Common
      stock, $.005 par value, 84,000,000 shares authorized; 55,727,000 shares
      issued and outstanding at March 31, 2009 and December 31, 2008,
      respectively
                                      
                                      
                                      277
                                      
                                      
                                      
                                      277Treasury
      stock, at cost, 503,000 shares at March 31, 2009 and
      December 31, 2008
                                      
                                      
                                      (456
                                      )
                                      
                                      
                                      (456
                                      )Additional
      paid-in capital
                                      
                                      
                                      113,306
                                      
                                      
                                      
                                      113,267Accumulated
      deficit
                                      
                                      
                                      (105,606
                                      )
                                      
                                      
                                      (105,351
                                      )Accumulated
      other comprehensive (loss) income (Note 10)
                                      
                                      
                                      (92
                                      )
                                      
                                      
                                      8Total
      shareholders’ equity
                                      
                                      
                                      7,430
                                      
                                      
                                      
                                      7,746Total
      shareholders’ equity and liabilities
                                      
                                      $
                                      11,658
                                      
                                      
                                      $
                                      11,662




See
accompanying notes to unaudited condensed consolidated financial
statements.


1


NTN
BUZZTIME, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Operations


(Unaudited)


(In
thousands, except per share data)




Three months
      endedMarch 31,
                                    2009
                                  
                                  
                                  March 31,
                                    2008Revenues
                                  
                                  $
                                  6,196
                                  
                                  
                                  $
                                  7,182Operating
      expenses:Direct
      operating costs (includes depreciation and amortization of $493 and $719
      for the three months ended March 31, 2009 and 2008,
      respectively)
                                  
                                  
                                  1,502
                                  
                                  
                                  
                                  2,096Selling,
      general and administrative
                                  
                                  
                                  4,832
                                  
                                  
                                  
                                  7,265Depreciation
      and amortization (excluding depreciation and amortization included in
      direct operating costs)
                                  
                                  
                                  127
                                  
                                  
                                  
                                  122Total
      operating expenses
                                  
                                  
                                  6,461
                                  
                                  
                                  
                                  9,483Operating
      loss
                                  
                                  
                                  (265
                                  )
                                  
                                  
                                  (2,301
                                  )Other
      income (expense):Interest
      income
                                  
                                  
                                  43
                                  
                                  
                                  
                                  59Interest
      expense
                                  
                                  
                                  (2
                                  )
                                  
                                  
                                  —Total
      other income
                                  
                                  
                                  41
                                  
                                  
                                  
                                  59Loss
      from continuing operations before income taxes
                                  
                                  
                                  (224
                                  )
                                  
                                  
                                  (2,242
                                  )Provision
      for income taxes
                                  
                                  
                                  31
                                  
                                  
                                  
                                  41Loss
      from continuing operations
                                  
                                  
                                  (255
                                  )
                                  
                                  
                                  (2,283
                                  )Loss
      from discontinued operations
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (291
                                  )Net
      loss
                                  
                                  
                                  (255
                                  )
                                  
                                  
                                  (2,574
                                  )Net
      loss per common shareLoss
      from continuing operations, basic and diluted
                                  
                                  
                                  (0.00
                                  )
                                  
                                  
                                  (0.04
                                  )Loss
      from discontinued operations, basic and diluted
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (0.01
                                  )Net
      loss
                                  
                                  $
                                  (0.00
                                  )
                                  
                                  $
                                  (0.05
                                  )Weighted
      average shares outstandingBasic
      and diluted
                                  
                                  
                                  55,224
                                  
                                  
                                  
                                  55,187




See
accompanying notes to unaudited condensed consolidated financial
statements.




2


NTN
BUZZTIME, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Comprehensive Loss


(Unaudited)


(In
thousands)




Three months endedMarch
      31,
                      2009
                    
                    
                    March 31,
                      2008Net
      loss
                    
                    $
                    (255
                    )
                    
                    $
                    (2,574
                    )Other
      comprehensive loss, net of tax:Foreign
      currency translation adjustment
                    
                    
                    (118
                    )
                    
                    
                    (367
                    )Unrealized
      holding gain (loss) on investment available-for-sale
                    
                    
                    18
                    
                    
                    
                    (125
                    )Other
      comprehensive loss
                    
                    $
                    (100
                    )
                    
                    $
                    (492
                    )Comprehensive
      loss
                    
                    $
                    (355
                    )
                    
                    $
                    (3,066
                    )




See
accompanying notes to unaudited condensed consolidated financial
statements.


3




NTN
BUZZTIME, INC. AND SUBSIDIARIES


Condensed
Consolidated Statements of Cash Flows


(Unaudited)


(In
thousands)




Three months
      endedMarch 31,
                  2009
                
                
                March 31,
                  2008Cash
      flows  provided by (used in) operating
    activities:Net
      loss
                
                $
                (255
                )
                
                $
                (2,574
                )Loss
      from discontinued operations, net of tax
                
                
                —
                
                
                
                291Loss
      from continuing operations
                
                $
                (255
                )
                
                $
                (2,283
                )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activitiesDepreciation
      and amortization
                
                
                620
                
                
                
                841Provision
      for doubtful accounts
                
                
                31
                
                
                
                180Stock-based
      compensation
                
                
                39
                
                
                
                122Loss
      from disposition of equipment and capitalized software
                
                
                39
                
                
                
                231Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (12
                )
                
                
                68Prepaid
      expenses and other assets
                
                
                (91
                )
                
                
                80Accounts
      payable and accrued expenses
                
                
                169
                
                
                
                10Income
      taxes payable
                
                
                (14
                )
                
                
                22Deferred
      costs
                
                
                33
                
                
                
                21Deferred
      revenue
                
                
                19
                
                
                
                (170
                )Net
      cash provided by (used in) operating activities from continuing
      operations
                
                
                578
                
                
                
                (878
                )Discontinued
      operations
                
                
                —
                
                
                
                (360
                )Net
      cash provided by (used in) operating activities
                
                
                578
                
                
                
                (1,238
                )Cash
      flows (used in) provided by investing activities:Purchases
      of broadcast equipment and fixed assets
                
                
                (338
                )
                
                
                (778
                )Software
      development expenditures
                
                
                (200
                )
                
                
                (218
                )Proceeds
      from sale of equipment and other assets
                
                
                —
                
                
                
                78Restricted
      cash
                
                
                —
                
                
                
                16Net
      cash used in investing activities
                
                
                (538
                )
                
                
                (902
                )Cash
      flows used in financing activities:Principal
      payments on capital lease
                
                
                (9
                )
                
                
                (2
                )Net
      cash used in financing activities
                
                
                (9
                )
                
                
                (2
                )Net increase
      (decrease) in cash and cash equivalents
                
                
                31
                
                
                
                (2,142
                )Effect
      of exchange rate on cash
                
                
                (82
                )
                
                
                (277
                )Cash
      and cash equivalents at beginning of period
                
                
                3,362
                
                
                
                10,273Cash
      and cash equivalents at end of period
                
                $
                3,311
                
                
                $
                7,854Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
                
                $
                1
                
                
                $
                —Income
      taxes
                
                $
                90
                
                
                $
                21Supplemental
      disclosure of non-cash investing and financing activities:Unrealized
      holding gain(loss) on investments available-for-sale
                
                $
                18
                
                
                $
                (125
                )Equipment
      acquired under capital leases
                
                $
                149
                
                
                $
                —




See accompanying notes to unaudited
condensed consolidated financial statements.


4




NTN
BUZZTIME, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




(1) BASIS
OF PRESENTATION




Description
of Business




The
Company historically has operated principally through two operating divisions:
Entertainment and Hospitality. The Entertainment division generates revenue
primarily from the Buzztime iTV Network which distributes an interactive
television promotional game network to restaurants, sports bars, taverns and
pubs in North America.  Additionally, revenue is generated through the sale
of advertising for distribution via the Buzztime iTV Network.




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




On
March 30, 2007, the Company completed the sale of substantially all of the
assets of NTN Wireless. On October 25, 2007, the Company sold certain
intellectual property assets of Software Solutions pursuant to an Asset Purchase
Agreement, and in a separate agreement with a customer, the Company discontinued
the outsourced software development. Additionally, the Company completed the
wind down of its professional help desk and support and maintenance services
during the third quarter of 2008 (see Note 12).




Basis
of Accounting Presentation




In the
opinion of management, the accompanying condensed consolidated financial
statements include all adjustments that are necessary for a fair presentation
for the periods presented of the financial position, results of operations and
cash flows of NTN Buzztime, Inc. and its wholly-owned subsidiaries: IWN, Inc.,
IWN, L.P., Buzztime Entertainment, Inc., NTN Wireless Communications, Inc., NTN
Software Solutions, Inc., NTN Canada, Inc., and NTN Buzztime,
Ltd.  Unless otherwise indicated, references to “Buzztime”, “we”, “us”
and “our” include the Company and its consolidated subsidiaries.




IWN,
Inc., IWN, L.P. and Buzztime Entertainment, Inc. are dormant subsidiaries. As of
December 31, 2006, the Company’s Hospitality division was classified as
discontinued operations in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, (see Discontinued Operations—Note 12). The
operating results for these businesses have been separately classified and
reported as discontinued operations in the condensed consolidated financial
statements.




These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto contained in the
Company’s annual report on Form 10-K for the fiscal year ended December 31,
2008. The results of operations for the three months ended March 31, 2009
are not necessarily indicative of the results to be anticipated for the entire
year ending December 31, 2009, or any other period.




Reclassifications




The
Company reclassified the consolidated statement of operations for the three
months ended March 31, 2008 to conform to the 2009
presentation.




(2) CASH
AND CASH EQUIVALENTS




As of
March 31, 2009 and December 31, 2008, the Company had approximately
$2,527,000 and $2,600,000, respectively, in Canadian dollars invested in a
Canadian Variable Rate Guaranteed Investment Contract. The contract, when
initiated, had a one year term, however, the security can be redeemed at any
time without penalty or loss of interest; therefore, management has classified
this security as a cash equivalent as the security is highly
liquid.




The
remaining cash equivalents are deposited in an overnight interest-bearing sweep
depository accounts.




5




(3)
EARNINGS PER SHARE




The
Company computes basic and diluted earnings per share in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings per Share.
Basic earnings per share excludes the dilutive effects of options, warrants and
other convertible securities. Diluted earnings per share reflects the potential
dilutions of securities that could share in our earnings. Options, warrants,
convertible preferred stock and deferred stock units representing approximately
6,580,000 and 8,055,000 as of March 31, 2009 and 2008, respectively, were
excluded from the computations of diluted net loss per common share as their
effect was anti-dilutive.




(4)
GOODWILL AND OTHER INTANGIBLE ASSETS




The
Company’s goodwill balance relates to the purchase of NTN Canada. The Company
performed its annual test for goodwill impairment for NTN Canada as of
September 30, 2008.  It was determined that there were no
indications of impairment as of March 31, 2009.




(5)
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.
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 other income (expense) and a new
cost basis for the security is established.




The one
investment available-for-sale that the Company holds is a 2,518,000 share
investment in its Australian licensee eBet Limited (eBet), an Australian gaming
technology corporation. The Company’s holding in eBet represents less that 1% of
the current outstanding shares.  The value of the investment increased
$18,000 for the three months ended March 31, 2009 compared to a $125,000
decrease for the three months ended March 31, 2008.  The unrealized
gains and losses of this investment are recorded as other comprehensive income
on the Company’s consolidated balance sheet (see Note 10).  As of
March 31, 2009, the cumulative loss of the eBet investment is $88,000, which the
Company will continue to monitor for any additional decline in value that could
be deemed other-than-temporary ultimately resulting in additional
impairments.




(6) FAIR
VALUE OF FINANCIAL INSTRUMENTS




The
Company adopted SFAS No.157 “Fair Value Measurements” (as
amended by associated FSPs), prospectively effective January 1, 2008, with
respect to fair value measurements of (a)nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the Company’s financial statements on a recurring
basis (at least annually) and (b) all financial assets and liabilities. The
Company adopted the remaining aspects of SFAS No.157 relative tononfinancial assets and liabilities that are measured at fair value, but are
recognized and disclosed at fair value on a nonrecurring basis, prospectively
effective January 1, 2009.







SFAS
No. 157 applies to certain assets and liabilities that are being measured
and reported on a fair value basis. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosure about fair value
measurements.  Broadly, the SFAS No. 157 framework requires fair value to
be determined based on the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants.  This Statement enables the reader of the financial
statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The Statement requires that assets
and liabilities carried at fair value will be classified and disclosed in one of
the following three categories:




Level 1:
Quoted market prices in active markets for identical assets or
liabilities.




Level 2:
Observable market based inputs or unobservable inputs that are corroborated by
market data.




Level 3:
Unobservable inputs that are not corroborated by market data.





Assets
and Liabilities that are Measured at Fair Value on a Recurring
Basis:





The fair
value of the Company’s investment in eBet Limited is determined based on quoted
market prices, which is a Level 1 classification. The Company records the
investment on the balance sheet at fair value with changes in fair value
recorded as a component of other comprehensive income (loss) in the consolidated
balance sheet (see Note 10).





6


Assets
and Liabilities that are Measured at Fair Value on a Nonrecurring
Basis:




Certain
assets are measured at fair value on a non-recurring basis. These assets are not
measured at fair value on an ongoing basis but are subject to fair value
adjustments only in certain circumstances. Included in this category are
goodwill written down to fair value when determined to be impaired, and
long-lived assets that are written down to fair value when they are held for
sale or determined to be impaired.  These assets were not subject to FAS
157 during the three months ended March 31, 2009.





(7)
SOFTWARE DEVELOPMENT COSTS




The
Company capitalizes costs related to the development of certain software
products for the Entertainment division in accordance with SOP No. 98-1,
Accounting for the Costs of
Software Developed or Obtained for Internal Use. Amortization of costs
related to interactive programs is recognized on a straight-line basis over
three years. Amortization expense relating to capitalized software development
costs totaled $77,000 and $89,000 for the three months ended March 31, 2009
and 2008, respectively.  As of March 31, 2009 and
December 31, 2008, approximately $454,000 and $404,000, respectively, of
capitalized software costs was not subject to amortization as the development of
various software projects was not complete.




The
Company performs quarterly reviews of its software development projects to
determine if any impairment exists.  In March 2009, the Company
decided to abandon a software development project that was determined to no
longer fit with the current strategy or for which it was determined that the
marketability of the content had decreased due to obtaining additional
information regarding the specific industry for which the content was intended.
As a result, an impairment of $34,000 was recognized which was included in
selling, general, and administrative expenses for the three months ended
March 31, 2009.  The Company incurred a $292,000 impairment
during the three months ended March 31, 2008.




(8)
STOCK-BASED COMPENSATION




The
Company records stock-based compensation in accordance with SFAS No. 123R
and SAB No. 107, Share
Based Payment. The Company estimates the fair value of stock options
using the Black-Scholes option pricing model. The fair value of stock
options granted is recognized as expense over the requisite service period.
Stock-based compensation expense for all share-based payment awards is
recognized using the straight-line single-option method.




The
Company uses the historical stock price volatility as an input to value its
stock options under SFAS No. 123R. The expected term of stock options
represents the period of time options are expected to be outstanding, and is
based on observed historical exercise patterns of the Company, which the Company
believes are indicative of future exercise behavior. For the risk-free interest
rate, the Company uses the observed interest rates appropriate for the term of
time options are expected to be outstanding. The dividend yield assumption is
based on the Company’s history and expectation of dividend payouts.




Stock
Option Activity




The
following table summarizes stock option activity for the three months ended
March 31, 2009:




Shares
                  
                  
                  Weighted average
                    exercise
      priceOutstanding as of
      December 31, 2008
                  
                  
                  5,249,000
                  
                  
                  $
                  1.22Granted
                  
                  
                  1,892,000Exercised
                  
                  
                  —Forfeited
      or expired
                  
                  
                  (1,019,000
                  )Outstanding
      as of March 31, 2009
                  
                  
                  6,122,000
                  
                  
                  $
                  0.86




The
weighted-average fair value per share of the options granted during the three
months ended March 31, 2009 and 2008, respectively, as computed using the
Black-Scholes pricing model were $0.11 and $0.26, respectively. The
following weighted-average assumptions were used for grants issued for the three
months ended March 31, 2009 and 2008, respectively, under the
SFAS No. 123R requirements:




Three
      months ended
              March 31,2009
            
            
            2008Weighted
      average risk-free interest rate
            
            
            1.52%
            
            
            
            
            3.00%Weighted
      average volatility
            
            
            86.85%
            
            
            
            
            57.00%Forfeiture
      rate
            
            
            17.63%
            
            
            
            
            4.58%Expected
      life
            
            
            3.97
      years
            
            
            
            
            4.8 yearsDividend
      yield
            
            
            0.00%
            
            
            
            
            0.00%






7




SFAS
No. 123R requires forfeitures to be estimated at the time of grant and
revised if necessary in subsequent periods if actual forfeiture rates differ
from those estimates. Forfeitures were estimated based on historical activity
for the Company. Stock-based compensation expense for employees was $39,000 and
$122,000 for the three months ended March 31, 2009 and 2008, respectively,
and is recorded in selling, general and administrative expenses.




As of
March 31, 2009, the Company had $619,000 of unrecognized compensation
expense related to outstanding unvested options, net of estimated forfeitures,
to be recognized over a weighted-average period of 3.52 years.




Deferred
Stock Unit Activity




The
Company has outstanding 130,000 deferred stock units with performance based
accelerated vesting provisions as of March 31, 2009.  Those provisions are
based on certain revenue targets for the Company which could result in
accelerated vesting of up to 50% of the total award.  The Company has
evaluated the likelihood of attaining the performance based targets and they are
not considered probable, therefore, accelerated expense was not recorded. 
The Company will continue to monitor its revenue results and should any
estimates made regarding the satisfaction of those performance based conditions
change at any time during the estimated requisite period, an adjustment will be
calculated and recorded in accordance with SFAS No. 123R.




Warrant
Activity




The
Company has outstanding 167,000 and 403,000 warrants as of March 31, 2009 and
December 31, 2008.




(9)
CONTINGENCIES




The
Company is subject to litigation from time to time in the ordinary course of
business. There can be no assurance that any or all of the following claims will
be decided in the Company’s favor and the Company is not insured against all
claims made. During the pendency of such claims, the Company will continue to
incur the costs of its legal defense.




Recent
Legal Action




The
Company has a commitment, under a long-term agreement, to purchase equipment
from a vendor.  Under the original terms of the agreement, the Company
was obligated to purchase $835,000 and $76,000 of equipment in 2008 and 2009,
respectively, after the Company’s acceptance of certain milestones. Issues have
arisen under the terms of the agreement, which still remain unresolved as of
March 31, 2009.  In early 2008, the Company informed the vendor that
numerous defects existed with the equipment.  The vendor failed to
remedy the defects in a timely manner and the Company was forced to purchase
equipment from a different manufacturer.  Due to the vendor's failure
to cure the defects in accordance with the provisions in the agreement, the
Company does not believe the required milestones were met.





On April
15, 2009, the Company received a letter from the vendor requesting $300,000 to
cover certain costs incurred citing breach of the agreement.  The Company
responded to the letter, indicating that certain contract milestones had not
been met by the vendor and therefore the contract was not enforceable.  The
Company ultimately requested a mutual release to the agreement without any cash
payment by either party.  The vendor responded to the Company's rebuttal
indicating that it disagreed with the Company's assertions, however, was willing
to resolve the matter amicably.  The Company believes the vendor's claim
lacks merit and does not plan to make any payments.  The Company has not
recorded a reserve as it has assessed the likelihood that it would have to pay
any amounts as less than probable.




Sales
and Use Tax




From time
to time, state tax authorities will make inquiries as to whether or not a
portion of our services require the collection of sales and use taxes from
customers in those states. Many states have expanded their interpretation of
their sales and use tax statutes to derive additional revenue.  The
Company evaluates such inquiries on a case-by-case basis and has favorably
resolved these tax issues in the past without any material adverse
consequences.  During the quarter ended March 31, 2009, the Company
settled a long on-going sales tax evaluation with the state of
Texas.  The evaluation began in 2004 when the state concluded that the
Company’s services were subject to sales tax on an amusement services basis and
assessed the Company $1,100,000 for the five year audit period ending December
31, 2002.  The Company objected to that conclusion based on the facts
of the business and in August 2006, the Texas State Attorney indicated that the
State agreed that the Company’s services did not constitute taxable amusement
services.  However, the State adopted a new position whereby it
concluded that the Company provides taxable cable television
services.  The Company believes that it provides interactive game
services for the purpose of providing a vehicle for customers to promote their
business.  However, based on the nebulous definition of cable
broadcast services as defined by the Texas Tax Code, the Company believed that,
if it pursued this defense all the way to a formal court procedure, the risk
that it could lose the case was significant enough to enter into settlement
discussions with the state.  As a result of those discussions, the
Company and the State of Texas executed an Audit Resolution Agreement and Joint
Motion to Dismiss in the amount of approximately $450,000.  As part of
those agreements, both parties agreed to waive all rights to any redetermination
or refund hearings.  In February 2009, the Company began collecting
and remitting sales tax in the state of Texas in accordance with the state tax
statutes.




8


The
Company is involved in ongoing sales tax inquiries, including certain
formal assessments of $601,000, with other states.  As a result of
those inquiries and the Texas liability discussed above, the Company recorded a
total liability of $801,000 and $867,000 as of March 31, 2009 and December 31,
2008, respectively.  Based on the guidance set forth by SFAS No. 5,
Accounting for
Contingencies, management has deemed the likelihood that it will be
forced to pay an assessment as reasonably possible.




(10)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)




Accumulated
other comprehensive income (loss) is the combination of accumulated net
unrealized gains or losses on investments available-for-sale and the accumulated
gains or losses from foreign currency translation adjustments. The Company
translated the assets and liabilities of its Canadian statement of financial
position into U.S. dollars using the period end exchange rate. Revenue and
expenses were translated using the average exchange rate for the reporting
period.




For the
three months ended March 31, 2009 and 2008, the components of accumulated other
comprehensive income (loss) were as follows:




Three months
      endedMarch 31,
                    2009
                  
                  
                  March 31,
                    2008Beginning
      balance
                  
                  $
                  8,000
                  
                  
                  $
                  1,662,000Foreign
      currency translation adjustment
                  
                  
                  (118,000
                  )
                  
                  
                  (367,000
                  )Unrealized
      gain (loss) during period in investment
      available-for-sale
                  
                  
                  18,000
                  
                  
                  
                  (125,000
                  )Ending
      balance
                  
                  $
                  (92,000
                  )
                  
                  $
                  1,170,000




(11)
RECENT ACCOUNTING PRONOUNCEMENTS




In
December 2007 the FASB issued SFAS No. 141R, a revision of SFAS
No. 141, Business
Combinations, which applies to all acquiring entities. This Statement
establishes principles and requirements for how the acquirer is to recognize and
measure in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree, and how to
recognize and measure the goodwill acquired in the business combination or a
gain from a bargain purchase. The objective is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. This Statement applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company is in
the process of evaluating the impact of adopting SFAS No. 141R on its financial
position, results of operations and cash flows.




On
April 1, 2009, the FASB issued FASB Staff Position (“FSP”) FAS 141(R)-1,
“Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies.” The FSP amends the guidance in FASB Statement
No. 141 (Revised 2007), “Business Combinations,” to:
(i) require that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair value if fair
value can be reasonably estimated. If fair value of such an asset or liability
cannot be reasonably estimated, the asset or liability would generally be
recognized in accordance with FASB Statement No. 5, “Accounting for
Contingencies,” and FASB Interpretation No. 14, “Reasonable Estimation of the Amount
of a Loss;” (ii) eliminate the requirement to disclose an estimate
of the range of outcomes of recognized contingencies at the acquisition date.
For unrecognized contingencies, the FASB decided to require that entities
include only the disclosures required by Statement No. 5 and that those
disclosures be included in the business combination footnote; and
(iii) require that contingent consideration arrangements of an acquiree
assumed by the acquirer in a business combination be treated as contingent
consideration of the acquirer and should be initially and subsequently measured
at fair value in accordance with Statement No. 141R. This FSP is effective
for assets or liabilities arising from contingencies in business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.




On April
9, 2009, the FASB issued three FSPs intended to provide additional application
guidance and enhanced disclosures regarding fair value measurements and
other-than-temporary impairments of securities.




●
            
            FSP
      FAS 157-4, “Determining
      Fair Value When the Volume and Level of Activity for the Asset or
      Liability Have Significantly Decreased and Identifying Transactions That
      Are Not Orderly,” provides guidelines for making fair value
      measurements more consistent with the principles presented in FASB
      Statement No. 157, “Fair
      Value Measurements.” FSP FAS 157-4 must be applied prospectively
      and retrospective application is not permitted. FSP FAS 157-4 is effective
      for interim and annual periods ending after June 15, 2009, with early
      adoption permitted for periods ending after March 15, 2009. An entity
      early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS124-2.




9





●
            
            FSP
      FAS 115-2 and FAS124-2. “Recognition and Presentation
      of Other-Than-Temporary Impairments,” provides additional guidance
      designed to create greater clarity and consistency in accounting for and
      presenting impairment losses on debt securities. FSP FAS115-2 and FAS 124-2 is effective for
      interim and annual periods ending after June 15, 2009, with early adoption
      permitted for periods ending after March 15, 2009. An entity may early
      adopt this FSP only if it also elects to early adopt FSP FAS
      157-4.




●
            
            FSP
      FAS 107-1 and APB 28-1, “Interim Disclosures about
      Fair Value of Financial Instruments,” enhances consistency in
      financial reporting by increasing the frequency of fair value disclosures.
      FSP 107-1 and APB 28-1 is effective for interim periods ending after
      June 15, 2009, with early adoption permitted for periods ending after
      March 15, 2009. However, an entity may early adopt these interim fair
      value disclosure requirements only if it also elects to early adopt FSP
      FAS 157-4 and FSP FAS 115-2 and
      FAS 124-2.




The
Company is currently evaluating the impact, if any, that the adoption of these
FSPs will have on its Consolidated Condensed Financial Statements.





FSP No. FAS 142-3—Determination of
the Useful Life of Intangible Assets — In April 2008, the FASB issued FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets  (“FSP
No. FAS 142-3”). FSP No. FAS 142-3 applies to recognized intangible
assets that are accounted for pursuant to SFAS No. 142. FSP No.
FAS 142-3 is effective for fiscal years beginning after December 15,
2008, or January 1, 2009 for the Company. The guidance for determining the
useful life of a recognized intangible asset will be applied prospectively to
intangible assets acquired after the effective date. The disclosure requirements
will be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date. The adoption of this FSP did not have a
material impact on the Company’s financial position, results of operations or
cash flows.




(12)
DISCONTINUED OPERATIONS




In
November 2006, the Company began to actively pursue the sale of its Hospitality
division comprised of NTN Wireless and Software Solutions. In the fourth quarter
of 2006, the Company applied the provisions of SFAS No. 144,Accounting for the Impairment
or Disposal of Long-Lived Assets, to certain of its assets which were
held for sale. SFAS No. 144 requires that a long-lived asset classified as
held for sale, be measured at the lower of its carrying amount or fair value,
less costs to sell, and that the Company ceases depreciation, depletion and
amortization. As of December 31, 2006, the Hospitality division’s assets
were classified as held for sale and the respective assets were revalued as of
December 31, 2006. Depreciation on these assets ceased effective
December 31, 2006. Additionally, corporate expenses previously allocated to
the discontinued operations have been reclassified to Buzztime iTV in accordance
with SFAS No. 144.




On
March 30, 2007, the Company completed the sale of substantially all of the
assets of NTN Wireless for $2.4 million and recognized a gain, net of tax, of
approximately $396,000. On October 25, 2007, the Company sold certain
intellectual property assets of Software Solutions pursuant to an Asset Purchase
Agreement, and in a separate agreement with a customer, the Company discontinued
the outsourced software development it was providing. The Company wound down the
professional help desk and support and maintenance services as the Company
fulfilled its obligations under existing customer agreements. The intellectual
property sold constituted substantially all of the remaining operating assets of
the Company’s Hospitality Division, which had originally consisted of its
Software Solutions and Wireless communications businesses.




The
operating results for the Hospitality division have been separately classified
and reported as discontinued operations in the consolidated statements of
operations as follows:




March
      31,
                        2008Operating
      revenues
                      
                      $
                      17,000Operating
      expenses
                      
                      
                      308,000Operating
      loss
                      
                      $
                      (291,000
                      )Gain
      on sale of assets
                      
                      
                      —Other
      income (expense)
                      
                      
                      —Loss
      before income taxes
                      
                      $
                      (291,000
                      )Income
      tax expense
                      
                      
                      -Loss
      from discontinued operations, net of tax
                      
                      $
                      (291,000
                      )






10




The
Company accounted for the dissolution of the help desk and support and
maintenance operation pursuant to the provisions of Statement of SFAS
No. 146,Accounting
for Costs Associated with Exit or Disposal Activities. SFAS No. 146
requires that a liability for costs associated with an exit or disposal activity
be recognized when the liability is incurred, as opposed to when there is a
commitment to disposing a business segment. Severance for involuntary employee
terminations is expensed over the requisite service period in which it is earned
as certain employees are required to continue to render service until the
Company has fulfilled its obligations under existing customer contracts. Moving,
relocation and other associated costs related to the dissolution are expensed as
incurred. The Company did not incur severance expenses for involuntary employee
terminations after the quarter ended June 30, 2008 and incurred $52,000 for
2008.  The Company concluded its wind down activities in 2008
and it does not expect to incur any additional expenses related to the help
desk and support and maintenance function in subsequent
periods.




The
Company does not have components of assets and liabilities of discontinued
operations on NTN Buzztime’s consolidated balance sheet as of March 31, 2009 and
December 31, 2008.




(13)
GEOGRAPHICAL INFORMATION




In the
first half of 2008, the Company marketed its products in the United States,
Canada, and the United Kingdom.  The table below contains information
about these geographical areas in which the Company operated.  Total
assets are based on location of domicile.  In the third quarter of
2008, the Company ceased its operations in the United Kingdom.




Three months
      endedMarch
      31,
                    2009
                  
                  
                  March
      31,
                    2008Revenues
      by geographical area:United
      States
                  
                  $
                  5,557,000
                  
                  
                  $
                  6,119,000Canada
                  
                  
                  639,000
                  
                  
                  
                  963,000United
      Kingdom
                  
                  
                  -
                  
                  
                  
                  100,000Total
      revenue
                  
                  $
                  6,196,000
                  
                  
                  $
                  7,182,000




March 31,
                    2009
                  
                  
                  December 31,
                    2008Assets
      by geographical area:United
      States
                  
                  $
                  7,084,000
                  
                  
                  $
                  6,936,000Canada
                  
                  
                  4,574,000
                  
                  
                  
                  4,726,000Total
      assets
                  
                  $
                  11,658,000
                  
                  
                  $
                  11,662,000




(14)
SIGNIFICANT CUSTOMER




For the
three months ended March 31, 2009 and 2008, the Company generated
approximately 15% and 11%, respectively, of revenue from a national chain,
Buffalo Wild Wings together with its franchisees.  As of
March 31, 2009 and 2008, approximately $46,000 and $83,000, respectively,
were included in accounts receivable from this customer.




(15)
OBLIGATIONS UNDER CAPITAL LEASE




In 2009,
the Company entered into a $500,000 equipment lease facility with an
equipment leasing company.  The terms of that agreement allow for use
of the facility in multiple tranches with each individual tranche having 24
month terms.  As of March 31, 2009, the Company had utilized $149,000
of that facility which has been accounted for as a capital lease.




As of
March 31, 2009 and December 31, 2008, in aggregate, the Company had
obligations under capital leases of $180,000 and $40,000,
respectively.




11




(16)
SUBSEQUENT EVENT




iSports
Acquisition




On April
24, 2009, the Company entered into an Asset Purchase Agreement (the “iSports
Agreement”) with iSports Inc. (the “Seller”), a California corporation,
providing for the sale of substantially all of Seller’s assets used in the
conduct of its business as a provider of mobile sports and entertainment content
(the “iSportsAcquired Assets”) and the assumption by the Company of certain
liabilities of Seller.  The sale was consummated the same
day.  Pursuant to the terms of the Agreement, in consideration for the
Acquired Assets, the Company issued to Seller (i) five hundred thousand
(500,000) unregistered shares of the Company’s Common Stock, (ii) a warrant to
purchase one million (1,000,000) shares of unregistered Common Stock, with an
exercise price of $0.30 per share, and (iii) a warrant to purchase five hundred
thousand (500,000) shares of unregistered Common Stock, with an exercise price
of $0.50 per share.  In addition, if certain business conditions are
satisfied in each of 2009, 2010 and 2011, the Company would pay as additional
consideration 35% of the amount by which the Company’s net media revenues (as
defined in the “iSports Agreement”) for such years exceed specified threshold
amounts.  The Agreement contains customary representations, warranties
and covenants.




The
Acquired Assets were used by Seller in the business of delivering over a mobile
platform near real-time sports scores and news, and unique interactive gameplay
within a graphically rich user experience.  In connection with the
closing under the Agreement, the Company has employed the Seller’s former CEO,
Nick Glassman, and its former President and COO, Kartik
Ramachandran.  There is no material relationship, other than in
respect of the Agreement, between the Company and its affiliates, or any
director or officer of the Company, or any associate of any such director or
officer on the one hand, and the Seller or any of its directors or officers on
the other hand.





i-am
TV Acquisition





On May
11, 2009, the Company entered into an Asset Purchase Agreement (the “i-am TV
Agreement”) and acquired certain assets of i-am TV from Instant Access Media,
LLC.  I-am TV has been in the business of providing programming and
advertising to approximately 368 hospitality venues located in the top 15
designated market areas throughout the United States.  The transaction
included the acquisition of approximately 1,400 flat panel television screens
installed in approximately 368 locations as well as the related communication
equipment.  Pursuant to the terms of the i-am TV Agreement, in
consideration for the acquired assets, the Company issued (i) one million five
hundred thousand (1,500,000) unregistered shares of the Company’s Common Stock,
(ii) a warrant to purchase one million (1,000,000) shares of unregistered Common
Stock with an exercise price of $0.50 per share, (iii) a warrant to purchase one
million (1,000,000) shares of unregistered Common Stock with an exercise price
of $1.00 per share and (iv) a warrant to purchase one million (1,000,000) shares
of unregistered Common Stock with an exercise price of $1.50 per
share.





In
addition, the Company has agreed to provide future earnout consideration (the
“Earnout”) in the calendar years 2010 through 2012 based on net advertising
revenues as defined in the i-am TV Agreement.  The Earnout will be
calculated as the product of the total net advertising revenues for the Company
multiplied by the percentage of qualifying venues that have converted from i-am
TV to the Company’s Buzztime iTV Network in relation to the total population of
Buzztime iTV Network subscribers.  The i-am TV Agreement also contains
customary representations, warranties and covenants.





The
Company also entered into an agreement with certain investors in Instant Access
Media, LLC whereby they purchased two million four hundred nineteen thousand
three hundred fifty five (2,419,355) shares of the Company’s Common Stock in a
private placement raising $750,000 in additional working
capital.





12




Item 2.  Management’s Discussion and Analysis
of Financial Condition and Results of Operations.




CAUTION
CONCERNING FORWARD-LOOKING STATEMENTS




This
Quarterly Report on Form 10-Q, including 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. In
addition, any statements which refer to projections of our future financial
performance, our anticipated growth and trends in our businesses, and other
characterizations of future events or circumstances, are forward-looking
statements. Readers are cautioned that these forward-looking statements are only
predictions and are subject to risks, uncertainties, and assumptions that may be
difficult to predict. Therefore, 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 our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, under the section entitled “Risk Factors,” and in
Item 1A of Part II of this Quarterly Report on Form 10-Q, 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.




OVERVIEW




We
historically have operated principally through two operating divisions:
Entertainment and Hospitality. The Entertainment division generates revenue
primarily from the Buzztime iTV Network which distributes an interactive
television promotional game network to restaurants, sports bars, taverns and
pubs, primarily in North America.  Additionally, we generate revenue
by selling advertising for distribution via our interactive television
network.




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




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




Restructuring
of Operations




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




The
Entertainment Division




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




13


We target
national and regional hospitality chains as well as local independent
hospitality venues that desire a competitive point-of-difference to attract and
retain customers. As of March 31, 2009, we had 3,446 United States
Network subscribers and 318 Canadian subscribers. Approximately 29% of our
Network subscribers come from leading national chains in the casual-dining
restaurant segment such as Buffalo Wild Wings, TGI Friday’s, Old Chicago and
Damon’s Grill.




Through
the transmission of interactive game content stored on a site server at each
location, our Buzztime iTV Network enables single-player and multi-player
participation as part of local, regional, national or international competitions
supported with prizes and player recognition. Our Buzztime iTV Network also
generates revenue through the sale of advertising and marketing services to
companies seeking to reach the millions of consumers that visit the Buzztime iTV
Network’s venues.




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




Our games
are available as a premium monthly subscription service to Echostar DISH and
Bell ExpressVu satellite customers in the U.S. and Canada, respectively. Revenue
from our distribution division is derived primarily from license fees and
royalties from third-party licensees who distribute Buzztime content to
end-users, as well as from third-party development and production
fees.




The
Hospitality Division (Discontinued Operations)




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




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




On
March 30, 2007, we completed the sale of substantially all of the assets of
NTN Wireless for $2.4 million and recognized a gain, net of tax, of
approximately $396,000. On October 25, 2007, we sold certain intellectual
property assets of Software Solutions pursuant to an Asset Purchase Agreement,
and in a separate agreement with a customer, we discontinued the outsourced
software development it was providing. The intellectual property sold
constituted substantially all of the remaining operating assets of our
Hospitality division, which had originally consisted of our Software Solutions
and Wireless. We have accounted for our Hospitality division as a reportable
segment but we have presented its operations as discontinued operations since
the fourth quarter of 2006. We have completed the dissolution and do not
anticipate any further costs related to the dissolution of the professional help
desk and support and maintenance services.




Web
Site Access to SEC Filings





We
maintain an Internet website at www.buzztime.com. We make
available free of charge on our Internet website our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, amendments to those reports filed or furnished pursuant to
Section 13(a) of the Exchange Act and certain other filings as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC.




Materials
we file with the SEC may be read and copied at the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet website at www.sec.gov that contains
reports, proxy and information statements, and other information regarding our
Company that we file electronically with the SEC.




CRITICAL
ACCOUNTING POLICIES




The
discussion and analysis of our financial condition and results of operations are
based on our condensed 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, the
provision for income taxes including the valuation allowance, bad debts,
investments, intangible assets and contingencies. 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. Critical accounting
policies and estimates are defined as those that are both most important to the
portrayal of the Company’s financial condition and results and require
management’s most subjective judgments.




14




We
believe that the estimates, assumptions and judgments involved in the accounting
policies described in the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section of our most recent Annual Report on
Form 10-K have the greatest potential impact on our financial statements, so we
consider these to be our critical accounting policies.




RESULTS
OF OPERATIONS




Our
Hospitality division is classified as discontinued operations in accordance with
SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The operating
results for these businesses have been separately classified and reported as
discontinued operations in the condensed consolidated financial
statements.




Results
of Continuing Operations




Three
months ended March 31, 2009 compared to the three months ended
March 31, 2008




Continuing
operations, which consists of the Entertainment division, generated a net loss
of $255,000 for the three months ended March 31, 2009, compared to net loss
of $2,283,000 for the three months ended March 31, 2008.




Revenue




Revenue
from continuing operations decreased $986,000 or 14%, to $6,196,000 for the
three months ended March 31, 2009 from $7,182,000 for the three months ended
March 31, 2008, primarily due to a strategic reduction in pricing combined with
a slight reduction in site count due primarily to the closure of our UK
operations in the third quarter of 2008, and the bankruptcy of the Bennigan’s
restaurant chain. Comparative site count information for Buzztime iTV Network is
as follows:




Network subscribers
                    As of March 31,2009
                  
                  
                  2008United
      States
                  
                  
                  3,446
                  
                  
                  
                  3,415Canada
                  
                  
                  318
                  
                  
                  
                  316United
      Kingdom
                  
                  
                  -
                  
                  
                  
                  46Total
                  
                  
                  3,764
                  
                  
                  
                  3,777




Direct
Costs and Gross Margin




The
following table compares the direct costs and gross margin from continuing
operations for 2009 and 2008:




Three
      months ended
                    March 31,2009
                  
                  
                  2008Revenue
                  
                  $
                  6,196,000
                  
                  
                  $
                  7,182,000Direct
      costs
                  
                  
                  1,502,000
                  
                  
                  
                  2,096,000Gross
      margin
                  
                  $
                  4,694,000
                  
                  
                  $
                  5,086,000Gross
      margin percentage
                  
                  
                  76%
                  
                  
                  
                  71%




Gross
margin as a percentage of revenue improved to 76% for the three months ended
March 31, 2009 compared to 71% in the prior year period. The five point
increase in the gross margin percentage is primarily the result of a reduction
in depreciation expense as equipment became fully depreciated and a decrease in
fees paid to service providers as the number of onsite visits dropped by
approximately 22% in the first quarter of 2009 compared to the first quarter of
2008.




15




Selling,
General and Administrative Expenses




Selling,
general and administrative expenses decreased $2,433,000 or 34%, to $4,832,000
for the three months ended March 31, 2009 from $7,265,000 for the three months
ended March 31, 2008.  Selling, general and administrative expenses
decreased due to several factors.  Salary expenses decreased $707,000
due to a planned reduction in headcount.  Marketing expenses decreased
$386,000 due to a change in our marketing strategy, including reducing direct
mail campaigns, and scheduling of promotions and trade
shows.  Consulting services decreased $381,000 as we decreased our
overall utilization of external consulting services.  Software
disposal expenses decreased $258,000 as the first quarter of 2008 included a
$292,000 impairment charge.  Other taxes decreased $132,000 primarily
due to the finalization of the sales settlement with the state of
Texas.  Bad debt expense decreased $147,000 in 2009 compared to 2008
predominately due to recoveries of certain accounts previously written
off.




Cost
cutting initiatives were taken to reduce overhead spending in numerous
areas.  Specifically, travel and entertainment expenses decreased
$84,000.  General spend related to seminars, supplies, telephone,
professional tax services and payroll processing fees decreased
approximately $211,000.




Interest
Income and Expense




Interest
income decreased $16,000, to $43,000 for the three months ended March 31, 2009
from $59,000 in the prior year. The Company’s average cash balance invested in
interest bearing securities decreased which resulted in less interest
income.  Interest expense in 2009 remained consistent with the prior
year period.




Income
Taxes




We expect
to incur minimal federal and state tax liability in 2009. We also expect to pay
income taxes in Canada due to the profitability of NTN Canada. As a result, we
recorded a tax provision of $31,000 for the three months ended March 31,
2009. This was a $10,000 decrease compared to the $41,000 provision for income
taxes recorded for the three months ended March 31, 2008. We continue to
provide a 100% valuation allowance against our deferred tax assets related to
certain net operating losses as realization of such tax benefits is not assessed
as more likely than not.




Results
of Discontinued Operations




Three
months ended March 31, 2009 compared to the three months ended
March 31, 2008




The wind
down of our discontinued operations was completed in the third quarter of 2008;
therefore, we have no activity to report for the three months ended March 31,
2009. The operating results of the discontinued operations are as follows for
the three months ended March 31, 2008:




March
      31,
                      2008Operating
      revenues
                    
                    $
                    17,000Operating
      expenses
                    
                    
                    308,000Operating
      loss
                    
                    $
                    (291,000
                    )Other
                    
                    
                    —Loss
      from discontinued operations, net of tax
                    
                    $
                    (291,000
                    )




EBITDA
– Consolidated Operations




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






16




The
following table reconciles our consolidated net loss per GAAP to
EBITDA:
  Three months
      endedMarch
      31,
                        2009
                      
                      
                      March
      31,
                        2008Net
      loss per GAAP
                      
                      $
                      (255,000
                      )
                      
                      $
                      (2,574,000
                      )Interest
      income, net
                      
                      
                      (41,000
                      )
                      
                      
                      (59,000
                      )Depreciation
      and amortization
                      
                      
                      620,000
                      
                      
                      
                      841,000Income
      taxes
                      
                      
                      31,000
                      
                      
                      
                      41,000EBITDA
                      
                      $
                      355,000
                      
                      
                      $
                      (1,751,000
                      )


Our
operations generated EBITDA levels as presented below:




Three months
      ended March 31, 2009Entertainment
                  
                  
                  Discontinued
                    operations
                  
                  
                  TotalNet
      loss per GAAP
                  
                  $
                  (255,000
                  )
                  
                  $
                  —
                  
                  
                  $
                  (255,000
                  )Interest
      income, net
                  
                  
                  (41,000
                  )
                  
                  
                  —
                  
                  
                  
                  (41,000
                  )Depreciation
      and amortization
                  
                  
                  620,000
                  
                  
                  
                  —
                  
                  
                  
                  620,000Income
      taxes
                  
                  
                  31,000
                  
                  
                  
                  —
                  
                  
                  
                  31,000EBITDA
                  
                  $
                  355,000
                  
                  
                  $
                  —
                  
                  
                  $
                  355,000






Three months
      ended March 31, 2008Entertainment
                  
                  
                  Discontinued
                    operations
                  
                  
                  TotalNet
      loss per GAAP
                  
                  $
                  (2,283,000
                  )
                  
                  $
                  (291,000
                  )
                  
                  $
                  (2,574,000
                  )Interest
      income, net
                  
                  
                  (59,000
                  )
                  
                  
                  —
                  
                  
                  
                  (59,000
                  )Depreciation
      and amortization
                  
                  
                  841,000
                  
                  
                  
                  —
                  
                  
                  
                  841,000Income
      taxes
                  
                  
                  41,000
                  
                  
                  
                  —
                  
                  
                  
                  41,000EBITDA
                  
                  $
                  (1,460,000
                  )
                  
                  $
                  (291,000
                  )
                  
                  $
                  (1,751,000
                  )




LIQUIDITY
AND CAPITAL RESOURCES




As of
March 31, 2009, we had cash and cash equivalents of $3,311,000 compared to
cash and cash equivalents of $3,362,000 as of December 31,
2008.  We used $51,000 in cash in the three months ended March 31,
2009 compared to cash used of $2,419,000 in the three months ended March 31,
2008.  The $2,368,000 decrease of cash used in the three months ended
March 31, 2009 was driven predominately by the $2,319,000 decrease of our net
loss.  We have taken strong measures to reduce our use of
cash.  Those measures included reducing headcount through strategic
reductions in our work force, renegotiated pricing with numerous vendors,
decrease in the use of consultants where practical and a revision of our
marketing plan designed to reduce costs while continuing to support our
business plan.




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




On May
11, 2009, we entered into an agreement with certain investors in Instant Access
Media, LLC whereby they purchased two million four hundred nineteen thousand
three hundred fifty five (2,419,355) shares of our Common Stock in a private
placement raising $750,000 in additional working capital. That cash will be
used to fund general working capital requirements as well as certain capital
expenditures.




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




17


Working
Capital




As of
March 31, 2009, we had working capital (current assets in excess of current
liabilities) of $888,000 compared to $874,000 as of December 31,
2008.  The following table shows our change in working capital from
December 31, 2008 to March 31, 2009.




Working
      Capital
              Increase
              (Decrease)(In
      thousands)Working
      capital as of December 31, 2008
            
            $
            874Changes
      in current assets:Cash
      and cash equivalents
            
            
            (51
            )Accounts
      receivable, net of allowances
            
            
            (22
            )Investment
      available-for-sale
            
            
            18Prepaid
      expenses and other current assets
            
            
            84Total
      current assets
            
            
            29Changes
      in current liabilities:Accounts
      payable
            
            
            (263
            )Accrued
      expenses
            
            
            (63
            )Sales
      tax payable
            
            
            282Accrued
      salaries
            
            
            58Accrued
      vacation
            
            
            45Income
      tax payable
            
            
            13Obligations
      under capital lease
            
            
            (69
            )Deferred
      revenue
            
            
            (18
            )Total
      current liabilities
            
            
            (15
            )Net
      change in working capital
            
            
            14Working
      capital as of March 31, 2009
            
            $
            888




Cash and
cash equivalents decreased $51,000 as a result of $578,000 of cash provided by
operating activities, $538,000 used in investing activities, $9,000 used in
financing activities and a $82,000 effect of changes in exchange rates,
primarily from converting Canadian Dollars to US Dollars.




Accounts
payable increased $263,000 from $219,000 as of December 31, 2008 to $482,000 as
of March 31, 2009.  That increase was primarily attributable to the
timing of annual recurring invoices relating to services that we receive
throughout the year.





18


Cash
Flows




Cash
flows from operating, investing and financing activities, as reflected in the
accompanying Consolidated Statements of Cash Flows, are summarized as follows
(in thousands):




(In
      thousands)
              For
      the year endedMarch
      31,
              2009
            
            
            March
      31,
              2008Cash
      provided by (used in):Operating
      activities
            
            $
            578
            
            
            $
            (1,238
            )Investing
      activities
            
            
            (538
            )
            
            
            (902
            )Financing
      activities
            
            
            (9
            )
            
            
            (2
            )Effect
      of exchange rates
            
            
            (82
            )
            
            
            (277
            )Net
      decrease increase in cash and cash equivalents
            
            $
            (51
            )
            
            $
            (2,419
            )





Net cash from operating
activities.  We are dependent on cash flows from operations to
meet our cash requirements.  Net cash provided by operating activities
was $578,000 during the three months ended March 31, 2009 compared to net cash
used in operating activities of $1,238,000 for the three months ended March 31,
2008.  The $1,816,000 improvement in cash provided by operations was
primarily due to a significant decrease in our net loss.  Our primary
source of cash is cash we generate from customers.  Cash received from
customers decreased $865,000 to $6,322,000 for the three months ended March 31,
2009 from $7,187,000 in 2008 for the same period.  The principal
changes in non-cash items that affected operating cash flow for the three months
ended March 31, 2009 when compared to the same period in 2008 included a
$221,000 decrease in depreciation and amortization and a $192,000 change from a
$231,000 loss on disposition of assets recorded in the three months ended March
31, 2008 compared to a $39,000 loss recorded in 2009.





Our
largest use of cash is payroll and related costs.  Payroll and related
costs were $3,190,000 for the three months ended March 31, 2009 compared to
$3,925,000 for the same period in 2008.  This is the result of our
strategic reductions in work force in 2008 and the first quarter of
2009.





Cash used
by discontinued operations was $360,000 for the three months ended March 31,
2008 compared to $0 cash used for discontinued operations for the same period in
2009.  The reduction in cash used by discontinued operations was due
to the completion of the wind down in operations, which we completed in the
third quarter of 2008.




Net cash from investing
activities.  For the three months ended March 31, 2009, we used
$538,000 in cash for investing activities.  That was a reduction of
$364,000 from the prior year when we used $902,000 in cash from investing
activities.  The change in cash flows from investing activities when
comparing the three months ended March 31, 2009 to the same period in 2008 was
due to the following:




●
            Cash
      used for capital expenditures decreased
  $440,000,




●
            Cash
      used for software development initiatives decreased
    $18,000,





●
            Proceeds
      from the sale of equipment and other assets in continuing operations
      decreased $78,000, and




●
            Restricted
      cash associated with an office lease in Canada decreased $16,000 due to
      the maturation of the agreement.




19


We
currently anticipate investing approximately $2.0 million during the remainder
of 2009 for software development, equipment purchases and infrastructure
improvements. Our actual future capital requirements will depend on a number of
factors, including our cash availability, success in increasing sales, industry
competition and technological developments.




Net cash from financing
activities.  Net cash used in financing activities increased
$7,000 to $9,000 for the three months ended March 31, 2009 compared to net cash
used of $2,000 in 2008 for the same period. Included in net cash used in
financing activities for the three months ended March 31, 2009 were $9,000 in
principal payments on capital leases.




Other
information. In 2009, we entered into a
$500,000 equipment lease facility with an equipment leasing
company.  The terms of that agreement allow for use of the facility in
multiple tranches with each individual tranche having 24 month
terms.  As of March 31, 2009, we utilized $149,000 of that facility
which has been accounted for as a capital lease.  We expect to utilize the
full $500,000 facility before the end of 2009.




RECENT
ACCOUNTING PRNOUNCEMENTS




In
December 2007 the FASB issued SFAS No. 141R, a revision of SFAS
No. 141, Business
Combinations, which applies to all acquiring entities. This Statement
establishes principles and requirements for how the acquirer is to recognize and
measure in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree, and how to
recognize and measure the goodwill acquired in the business combination or a
gain from a bargain purchase. The objective is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. This Statement applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We are in the
process of evaluating the impact of adopting SFAS No. 141R on its financial
position, results of operations and cash flows.




On
April 1, 2009, the FASB issued FASB Staff Position (“FSP”) FAS 141(R)-1,
“Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies.” The FSP amends the guidance in FASB Statement
No. 141 (Revised 2007), “Business Combinations,” to:
(i) require that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair value if fair
value can be reasonably estimated. If fair value of such an asset or liability
cannot be reasonably estimated, the asset or liability would generally be
recognized in accordance with FASB Statement No. 5, “Accounting for
Contingencies,” and FASB Interpretation No. 14, “Reasonable Estimation of the Amount
of a Loss;” (ii) eliminate the requirement to disclose an estimate
of the range of outcomes of recognized contingencies at the acquisition date.
For unrecognized contingencies, the FASB decided to require that entities
include only the disclosures required by Statement No. 5 and that those
disclosures be included in the business combination footnote; and
(iii) require that contingent consideration arrangements of an acquiree
assumed by the acquirer in a business combination be treated as contingent
consideration of the acquirer and should be initially and subsequently measured
at fair value in accordance with Statement No. 141R. This FSP is effective
for assets or liabilities arising from contingencies in business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.




On April
9, 2009, the FASB issued three FSPs intended to provide additional application
guidance and enhanced disclosures regarding fair value measurements and
other-than-temporary impairments of securities.




●
            
            FSP
      FAS 157-4, “Determining
      Fair Value When the Volume and Level of Activity for the Asset or
      Liability Have Significantly Decreased and Identifying Transactions That
      Are Not Orderly,” provides guidelines for making fair value
      measurements more consistent with the principles presented in FASB
      Statement No. 157, “Fair
      Value Measurements.” FSP FAS 157-4 must be applied prospectively
      and retrospective application is not permitted. FSP FAS 157-4 is effective
      for interim and annual periods ending after June 15, 2009, with early
      adoption permitted for periods ending after March 15, 2009. An entity
      early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS
      124-2.




●
            
            FSP
      FAS 115-2 and FAS 124-2. “Recognition and Presentation
      of Other-Than-Temporary Impairments,” provides additional guidance
      designed to create greater clarity and consistency in accounting for and
      presenting impairment losses on debt securities. FSP FAS 115-2 and FAS
      124-2 is effective for interim and annual periods ending after June 15,
      2009, with early adoption permitted for periods ending after March 15,
      2009. An entity may early adopt this FSP only if it also elects to early
      adopt FSP FAS 157-4.




20





●
            
            FSP
      FAS 107-1 and APB 28-1, “Interim Disclosures about
      Fair Value of Financial Instruments,” enhances consistency in
      financial reporting by increasing the frequency of fair value disclosures.
      FSP 107-1 and APB 28-1 is effective for interim periods ending after
      June 15, 2009, with early adoption permitted for periods ending after
      March 15, 2009. However, an entity may early adopt these interim fair
      value disclosure requirements only if it also elects to early adopt FSP
      FAS 157-4 and FSP FAS 115-2 and FAS
124-2.




We are
currently evaluating the impact, if any, that the adoption of these FSPs will
have on our Consolidated Condensed Financial Statements.





FSP No. FAS 142-3—Determination of
the Useful Life of Intangible Assets — In April 2008, the FASB issued FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets  (“FSP
No. FAS 142-3”). FSP No. FAS 142-3 applies to recognized intangible
assets that are accounted for pursuant to SFAS No. 142. FSP No.
FAS 142-3 is effective for fiscal years beginning after December 15,
2008, or January 1, 2009 for us. The guidance for determining the useful
life of a recognized intangible asset will be applied prospectively to
intangible assets acquired after the effective date. The disclosure requirements
will be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date. The adoption of this FSP did not have a
material impact on our financial position, results of operations or cash
flows.




Item 3.
            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 March 31, 2009, we owned common stock of an
Australian company that is subject to market risk.  The value of the
investment has increased $18,000 during the three months ended March 31, 2009
and is recorded as other comprehensive income on our consolidated balance
sheet.  We have reviewed the eBet investment in accordance with SFAS
No. 115 to determine if the accumulated loss is more than temporary in
nature.  We have determined that the loss is temporary based on the fact
that the investment appreciated in value in the three months ended March 31,
2009.




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 which would impact the value of the
investment.




Our
interest income is sensitive to changes in the general level of U.S. and
Canadian interest rates, particularly since a significant portion of our
investments are and will be in short-term marketable securities. Due to the
nature and maturity of our short-term investments, we have concluded that there
is no material market risk exposure to our principal. The average redemption
period of our investment portfolio is 30 days. A 1% change in interest rates
would have an effect of approximately $25,000 for a one year
period.




We do not
believe that inflation has had a material impact on our business or operating
results during the periods presented.




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




Item 4.
            Controls and
      Procedures.




Evaluation
of Disclosure Controls and Procedures




As of the
end of the period covered by this report, our management evaluated our
disclosure controls and procedures (as defined in Securities Exchange Act Rule
13a-15(e)) as to whether such disclosure controls and procedures were effective
in providing reasonable assurance that the information required to be disclosed
by us in reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms and ensuring
that information required to be disclosed in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including the chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure. Based on
our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that such disclosure controls and procedures were effective as of the
end of the period covered by this report.




Changes
in Internal Control Over Financial Reporting




During
the period covered by this report, we have had no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




21


PART
II — OTHER INFORMATION




Item 1.
            Legal
      Proceedings.




Sales
and Use Tax





From time
to time, state tax authorities will make inquiries as to whether or not a
portion of our services require the collection of sales and use taxes from
customers in those states. Many states have expanded their interpretation of
their sales and use tax statutes to derive additional revenue.  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 the quarter ended March 31, 2009, we settled a
long on-going sales tax evaluation with the state of Texas.  The
evaluation began in 2004 when the state concluded that the our services were
subject to sales tax on an amusement services basis and assessed us $1.1 million
for the five year audit period ending December 31, 2002.  We objected
to that conclusion based on the facts of the business and in August 2006, the
Texas State Attorney indicated that the State agreed that our services did not
constitute taxable amusement services.  However, the State adopted a
new position whereby it concluded that we provide taxable cable television
services.  We believe that we provide interactive game services for
the purpose of providing a vehicle for customers to promote their
business.  However, based on the nebulous definition of cable
broadcast services as defined by the Texas Tax Code, we believed that, if it
pursued this defense all the way to a formal court procedure, the risk that we
could lose the case was significant enough to enter into settlement discussions
with the state.  As a result of those discussions, we and the State of
Texas executed an Audit Resolution Agreement and Joint Motion to Dismiss in the
amount of approximately $450,000.  As part of those agreements, both
parties agreed to waive all rights to any redetermination or refund
hearings.  In February 2009, we began collecting and remitting sales
tax in the state of Texas in accordance with the state tax
statutes.




We are
involved in ongoing sales tax inquiries, including certain formal assessments of
$601,000, with other states.  As a result of those inquiries and the
Texas liability discussed above, we recorded a total liability of $801,000 and
$867,000 as of March 31, 2009 and December 31, 2008,
respectively.  Based on the guidance set forth by SFAS No. 5, Accounting for
Contingencies, we deemed the likelihood that we will be forced to
pay an assessment as reasonably possible.




Item 1A.
            Risk
      Factors.




Risk
Factors That May Affect Future Results




An
investment in our common stock involves a high degree of risk. You should
consider carefully the risks and uncertainties described under Item 1A of
Part I of our Annual Report on Form 10-K for the year ended
December 31, 2008 together with all other information contained or
incorporated by reference in this report before you decide to invest in our
common stock.  If any of the risks described in our annual report
actually occurs, our business, financial condition, results of operations and
our future growth prospects could be materially and adversely affected. Under
these circumstances, the trading price of our common stock could decline, and
you may lose all or part of your investment.





Strategy
to acquire companies may result in unsuitable acquisitions or failure to
successfully integrate acquired companies, which could lead to reduced
profitability.




There is
no assurance that a growth strategy through acquisition of companies or
operations will complement our existing products, customers or other
capabilities. Moreover, even if we become involved in a business opportunity
because of the unforeseen costs, expenses, and difficulties involved with a new
business opportunity, there is no assurance that it will generate revenues or
profits, or that the market price of our common stock
will increase.




Item 2.
            Unregistered Sales of Equity
      Securities and Use of
Proceeds.




As
reported in the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 29, 2009, in connection with the Company's
acquisition of substantially all of the assets of iSports Inc. used in the
conduct of iSports' business as a provider of mobile sports and entertainment
content, the Company issued to iSports (i) 500,000 unregistered shares of the
Company’s common stock, (ii) a warrant to purchase 1,000,000 shares of
unregistered common stock, with an exercise price of $0.30 per share, and (iii)
a warrant to purchase 500,000 shares of unregistered common stock, with an
exercise price of $0.50 per share. Both such warrants are exercisable for a
period of eight years from the date of issuance and contain a cashless or net
exercise provision.  The shares of common stock and the warrants to
purchase common stock issued to iSports were issued without registration under
the Securities Act or state securities laws, in reliance on the exemptions
provided by Section 4(2) of the Securities Act and in reliance on similar
exemptions under applicable state securities laws.


22




Item 3.
            Defaults Upon Senior
      Securities.




None




Item 4.
            Submission
      of Matters to a Vote of Security Holders.




None




Item 5.
            Other
      Information.




None




Item 6.
            Exhibits.




Exhibit
Index




Exhibit No.
            Description31.1
            Certification
      of principal executive officer pursuant to Rule
  13a-14(a)31.2
            Certification
      of principal financial officer pursuant to Rule
  13a-14(a)32.1
            Certification
      of principal executive officer pursuant to Rule 13a-14(b) / 18 U.S.C.
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
            Certification
      of principal financial officer pursuant to 13a-14(b) / 18 U.S.C. 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002






SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.




NTN
      BUZZTIME, INC.Date:
      May 15, 2009
            By:
            /s/
      Kendra BergerKendra
      BergerChief
      Financial Officer(on
      behalf of the Registrant, and as its Principal Financial and Accounting
      Officer)