NTN Buzztime Inc – ‘10-K/A’ for 12/31/97

As of:  Friday, 5/15/98   ·   For:  12/31/97   ·   Accession #:  944209-98-1003   ·   File #:  1-11460

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Amendment to Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K/A      Amendment to Annual Report                            64    341K 
 2: EX-23       Consent of Independent Auditors                        1      7K 
 3: EX-27       Financial Data Schedule                                2      7K 

10-K/A   —   Amendment to Annual Report
Document Table of Contents

10-K/A
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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D.C. 20549  
_________ 

 FORM 10-K/A
_________ 

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

For the fiscal year ended December 31, 1997 
COMMISSION FILE NUMBER 1-11460  

NTN COMMUNICATIONS, INC.  
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)  

   DELAWARE                                   31-1103425
(STATE OR OTHER JURISDICTION OF                    (I.R.S. EMPLOYER     
INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)  

5966 LA PLACE COURT, CARLSBAD, CALIFORNIA           92008     
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)        (ZIP CODE)  

(760) 438-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

COMMON STOCK, $.005 PAR VALUE                 AMERICAN STOCK EXCHANGE         
REDEEMABLE COMMON STOCK PURCHASE WARRANTS                                     
 (TITLE OF EACH CLASS)               (NAME OF EACH EXCHANGE ON WHICH
                   REGISTERED)

 Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
Registrant was required to file such reports), and (2) has been subject to      
filing requirements for the past 90 days.                                       

YES   [X]    NO [ ] 
     ---       ---

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K (S 229.405 of this Chapter) is not contained herein, and 
will not be contained, to the best of Registrant's knowledge, in definitive     
proxy or information statements incorporated by reference in Part III of this   
Form 10-K or any amendment to this Form 10-K [_]                                

  The aggregate market value of the voting stock held by non-affiliates of
Registrant as of April 10, 1998, computed by reference to the closing sale price
of such stock on the American Stock Exchange, was approximately $17,000,000.    
(All directors and executive officers of Registrant are considered affiliates   
for this purpose.)                                                              

 As of April 10, 1998, Registrant had 24,437,000 shares of Common Stock,
$.005 par value, issued and outstanding.                                        

DOCUMENTS INCORPORATED BY REFERENCE 

Not Applicable

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TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

Item                                                                                 Page
                                            Part I                                       

                                                                                         
 1.   Business                                                                        3  

 3.   Legal Proceedings                                                              19  

                                           Part II                                       

 7.   Management's Discussion and Analysis of Financial Condition and Results of         
      Operations                                                                     22  

 8.   Consolidated Financial Statements and Supplementary Data                       32  

                                           Part III                                      

13.   Certain Relationships and Related Transactions                                 33  

                                           Part IV                                       

14.   Exhibits, Consolidated Financial Statement Schedule, and Reports on Form 8-K   36  

      Index to Consolidated Financial Statements and Schedule                       F-1  

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 This Report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act,          
including, without limitation, statements that include the words "believes,"    
"expects," "anticipates," "plans" or similar expressions and statements relating
to anticipated costs savings, the Company's strategic plans, capital            
expenditures, industry trends and prospects and the Company's financial         
position.  Such forward-looking statements involve known and unknown risks,     
uncertainties and other factors that may cause actual results, performance or   
achievements of the Company to differ materially from those expressed or implied
by such forward-looking statements.  Although the Company believes that its     
plans, intentions and expectation reflected in such forward-looking statements  
are reasonable, it can give no assurance that such plans, intentions or         
expectation will be achieved.  Important factors that could cause actual results
to differ materially from the Company's expectations are set forth in this      
Report.                                                                         

PART I

ITEM 1.         BUSINESS                                                    
--------                                    

GENERAL                                                                         
-------                                                                         

NTN Communications, Inc. ("NTN" or the "Company") was originally      
incorporated in the State of Delaware on April 13, 1984 under the name of Alroy 
Industries.  Alroy Industries completed a public offering of its Common Stock on
November 26, 1984.  On April 15, 1985, Alroy Industries acquired all of the     
outstanding stock of National Telecommunicator Network, Inc.  In connection with
the acquisition, Alroy Industries changed its name to NTN Communications, Inc.  

In 1993, NTN completed a merger with New World Computing, Inc. ("New  
World") pursuant to which New World became a wholly-owned subsidiary of NTN.  In
1996, the Company sold substantially all of the assets of New World.            

   In 1994, the Company formed LearnStar, Inc. ("LearnStar"), which operated
throughout 1997 as a wholly-owned subsidiary of NTN. In January 1998, the Board 
of Directors of NTN resolved to either sell or cease the operations of          
LearnStar.                                                                      

 In 1994, the Company also formed IWN, Inc. ("IWN"), which serves as the
general partner of IWN L.P., a limited partnership engaged in the development of
interactive technology for gaming applications.  IWN has no business or         
operations apart from its service as the general partner of IWN L.P.  In January
1998, the Board of Directors of NTN resolved to either sell or cease the        
operations of IWN and IWN L.P.                                                  

 Unless otherwise indicated, references herein to "NTN" or the "Company"
include NTN and its consolidated subsidiaries, LearnStar, and IWN.              

RECENT DEVELOPMENTS                                                             

RECENT MANAGEMENT PERSONNEL CHANGES                                   
-----------------------------------                                   

   The Company experienced a broad change in its executive management during
1997. Gerald Sokol, Jr. was appointed as Chief Executive Officer of the Company 
in October 1997.  He joined the Company as Chief Financial Officer in July 1996,
was appointed Chief Operating Officer in November 1996, and in February 1997, in
connection with the management reorganization described below, was appointed    
President of the Company.  In September 1997, Geoffrey D. Labat assumed from Mr.
Sokol the duties of Chief Operating Officer after having joined the Company in  
May 1997 as Chief Technical Officer.                                            

In March 1997, Edward C. Frazier, who has served as a director of the 
Company since August 1996, was also appointed Chairman of the Board.  In        
February 1998, Mr. Frazier resigned his position as Chairman of the Board, but  
remains a director of the Company.  Under the Bylaws of the Company, Mr. Sokol, 
as Chief Executive Officer, became the acting Chairman of the Board of          
Directors.                                                                      

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     In August 1997, three of the Company's incumbent directors resigned, and in
September and November 1997, respectively, Esther L. Rodriguez and Stanley B.   
Kinsey were appointed as directors.  There can be no assurance that the new     
management of the Company, under the supervision of the Board of Directors, will
be able to operate the Company more successfully than prior management or that  
additional management changes will not be made in the future.                   

RESIGNATION AGREEMENTS AND MODIFICATION OF RESIGNATION AGREEMENTS     
-----------------------------------------------------------------     

     In late 1996, Ronald E. Hogan, the Company's former Chief Financial Officer
resigned as an executive officer of the Company and the Company discontinued    
certain consulting arrangements with Alan P. Magerman, who was then serving as a
director of the Company.  In March 1997, the Company announced a further        
reorganization of its executive management personnel in which Patrick J. Downs, 
then Chief Executive Officer and Chairman of the Board of the Company, Daniel C.
Downs, then the Company's President, Gerald McLaughlin, then an Executive Vice  
President of the Company, and Michael Downs, then President of LearnStar,       
resigned or were terminated.  The Company entered into separate Resignation and 
General Release Agreements (the "Resignation Agreements") with each of the      
former officers pursuant to which the officers' prior employment agreements were
terminated and each former officer entered into a Consulting Agreement under    
which he agreed to consult with the Company on such matters as it may request   
from time to time.  The three-year terms of the Consulting Agreements coincided 
with the remaining terms of the executives' prior employment agreements.        

    In consideration of entering into the Consulting Agreements, NTN agreed to
extend the expiration dates of certain options and warrants held by the former  
officers and, with respect to Patrick J. Downs and Daniel C. Downs, to waive    
provisions of certain stock options which required that the options be exercised
within a specified period of time following termination. In the first quarter of
1997, the Company recorded charges of $1,450,000 related to the modifications of
options and warrants held by the former officers.                               

Under the Resignation Agreements, the Company agreed to honor certain 
provisions of the officers' prior employment agreements to continue to pay the  
former executives their prior annual salaries and other benefits for the        
remaining terms of such agreements including certain medical and life insurance 
benefits and car allowances.  Total payments to or on behalf of former          
executives were approximately $1,944,000 in 1997.                               

 In March 1998, the Company and three of the former officers agreed to
modify the respective Resignation Agreements of the former officers to defer    
payment of a total of approximately $627,000 of the amounts which were to have  
been paid in 1998 and 1999. The deferred amounts will be paid monthly during    
2000, with an aggregate balloon payment of $102,800 payable on December 31,     
2000. Medical and life insurance benefits to the three former executives were   
also extended to December 31, 2000 pursuant to the modified Resignation         
Agreements. The modifications also provide an option to the Company to settle   
all amounts due pursuant to the Resignation Agreements in shares of Common      
Stock. The option period commenced March 9, 1998 and extends to June 27,        
1998.  The number of shares of Common Stock to be issued will be 66% of the     
number of shares determined by dividing the present value of the amounts then   
owing (using a discount rate of 5%) by the average closing price of the Common  
Stock for the ten trading days prior to the third business day before the notice
of the exercise of the option. Should the conversion option be exercised, the   
Company has agreed to file a Registration Statement on behalf of the former     
officers to register the shares to be issued within 20 days of providing notice 
of its intent to exercise its option. If the Company fails to have the          
Registration Statement declared effective within 120 days of the notice, the    
Company will be obligated to pay a one-time fee of $135,000 to the former       
officers as additional compensation. Amounts to be paid pursuant to the modified
Resignation Agreements are expected to be funded from on-going operations.      

  In 1997, in connection with the management reorganization, NTN agreed to
the vesting of certain options held by Mr. McLaughlin to purchase 100,000 shares
of Common Stock and issued to Mr. McLaughlin a fully vested option to purchase  
150,000 shares of Common Stock at an exercise price of $3.88 per share.  The    
Company also paid Mr. Magerman an aggregate of $225,000 and purchased from him  
for a price of $81,250 certain warrants to purchase 325,000 shares of Common    
Stock.                                                                          

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  In the fourth quarter of 1996, the Company laid off approximately 16% of
its workforce as a cost-cutting measure.  The Company also laid off a           
significant number of employees in 1997 and may continue trimming its workforce 
to reduce costs.  Severance payments related to the layoff will not affect the  
Company's future liquidity, since the majority of the related severance and     
other benefit payments were made in 1996 and 1997.  See Item 7, "Management's   
Discussion and Analysis of Financial Condition and Results of Operations."      

RECENT PRIVATE PLACEMENT OF SERIES B PREFERRED STOCK                  
----------------------------------------------------                  

    On October 31, 1997, the Company completed a private placement in which it
issued and sold to two institutional investors a total of 70,000 shares of the  
Company's Series B Convertible Preferred Stock ("Series B Preferred Stock"),    
$100 stated value per share, for an aggregate purchase price of $7,000,000.  On 
February 12, 1998, 25% of the Series B Preferred Stock, or 17,500 shares, were  
convertible into approximately 2,940,000 shares of Common Stock at the option of
the holder.  In March 1998, the holders of the Series B Preferred Stock         
converted 2,000 shares of Series B Preferred Stock plus accrued dividends into  
336,658 shares of Common Stock at a conversion price of $0.60 per share.  See   
Item 5, "Market for Registrant's Common Equity and Related Stockholder Matters."

RECENT EXCHANGES OF CERTAIN OUTSTANDING OPTIONS AND WARRANTS          
------------------------------------------------------------          

   In the first quarter of 1998, the Company agreed to issue an aggregate of
759,437 shares of Common Stock in exchange for the surrender and cancellation of
certain previously outstanding options and warrants to purchase an aggregate of 
2,578,250 shares of Common Stock at exercise prices ranging from $2.00 to $5.75 
per share. The terms of the exchanges were determined in privately negotiated   
transactions between the Company and the option holders and warrant holders     
involved, based on a discount from the valuation of the options and warrants as 
determined in accordance with the Black-Scholes method, which takes into account
such factors as the exercise prices and exercise periods of the options and     
warrants and the volatility of the market price of the Common Stock. The Company
may enter into similar agreements in the future to exchange shares of Common    
Stock for other currently outstanding options or warrants. The value of the     
shares issued was approximately $900,000, based on the market price of the      
Common Stock at the time of the exchanges which, was less than the estimated    
fair value of the warrants and options received in the exchange.                

   In March 1998, the Company agreed to issue 277,200 shares of Common Stock
and to pay withholding taxes of approximately $107,000 to two former officers in
exchange for the surrender and cancellation of certain previously outstanding   
warrants and options to purchase 1,500,000 shares of Common Stock at exercise   
prices ranging from $2.00 to $4.75 per share. The value of the shares issued and
cash payments was approximately $300,000, based on the market price of the      
Common Stock at the time, which was less than the estimated fair value of the   
warrants and options received in the exchange.                                  

RECENT DECISION CONCERNING SUBSIDIARIES                               
---------------------------------------                               

     In January 1998, the Board of Directors concluded that the interests of the
Company's shareholders are best served by concentrating Company resources and   
efforts on its two core businesses, the NTN Network and Online/Internet         
services. Accordingly, the Board resolved either to sell or cease the operations
of its two subsidiaries, LearnStar and IWN.                                     

    In March 1998, the Company entered into a letter of intent ("LOI") to sell
85% of its interest in LearnStar to NewStar Learning Systems ("NewStar"), a     
company in which Sally A. Zoll, President of LearnStar, is a shareholder. Under 
the LOI, NewStar would pay $1,200,000 for 85% of the Common Stock of LearnStar  
and the Company would retain the LearnStar accounts receivable of approximately 
$800,000 as of February 28, 1998. Pending a closing of the transaction, which   
might occur as late as September 30, 1998, NewStar would be responsible for     
providing operating funds to LearnStar. The Company is currently negotiating a  
definitive agreement; however the terms of the sale have not been finalized.    
There can be no assurance that a definitive agreement will be executed or that  
LearnStar will be sold should the proposed transaction not be completed.        

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On April 1, 1998, the Company reached an agreement in principle with  
Omnigon, a California corporation, to sell 90% of the equity of IWN to Omnigon  
on or before May 31, 1998. The agreement in principle provides that Omnigon will
pay $2,400,000 at closing for the 90% IWN equity interest. At Omnigon's option, 
however, it will have the right to pay $1,200,000 at closing and deliver a      
promissory note, secured by the purchased IWN common shares, for $1,600,000     
payable with interest in three installments over a five-month term. If Omnigon  
elects the latter option, it will acquire a lesser amount of the IWN equity. The
parties are currently negotiating the terms of a definitive agreement for this  
transaction and no assurance can be given that the proposed transaction will be 
completed. Omnigon paid $100,000 in April 1998 and has agreed to pay $100,000 in
May 1998, for the option to acquire IWN on the foregoing terms. Any such payment
made will be non-refundable and will not be applied to the purchase price of the
IWN shares. The Company has agreed that IWN shall use any such payment from     
Omnigon to pay its operating expenses prior to a closing or cancellation of the 
proposed transaction.                                                           

PRINCIPAL SERVICES AND PRODUCTS                                                 
-------------------------------                                                 

     Since the Company has decided either to sell or cease the operations of its
two non-core subsidiaries, LearnStar and IWN, the discussions throughout this   
report are limited to its remaining core operations.  Historical financial      
information related to LearnStar and IWN is included as necessary to provide    
an understanding of the Company's operations.                                   

NTN develops, produces and distributes individual and multi-player    
interactive programs to a variety of media platforms.  These interactive sports 
and trivia games permit multiple viewers to participate with and simultaneously 
respond to the programming content.  NTN has an exclusive agreement with the    
National Football League ("NFL") and understandings or agreements with others to
provide interactive play-along programming, such as its proprietary QB1(R)      
football game, in conjunction with live television events.  The Company         
broadcasts a wide variety of games, trivia and informational programming to     
group viewing locations such as hotels, sports taverns and restaurants through  
its own interactive NTN Network.  In addition, NTN brings multi-player          
interactive games into consumer households through its arrangement with personal
computer on-line services and interactive television services.  Since NTN can   
distribute its programs via satellite, cable, telephone and wireless            
transmission technologies, its applications are not dependent on specific       
hardware or technical platforms.                                                

   The Company currently provides its products and services to the following
markets which directly related to multi-player interactive entertainment.       

     Network Services ("Network Services") - Live interactive television network
("NTN Network") featuring sports and trivia games which are broadcast to group  
environments.                                                                   

  Online/Internet Services ("Online/Internet Services") - Live interactive
sports and trivia games including those currently broadcast over the NTN Network
to the home consumer market via third-party providers, such as America OnLine   
("AOL"), CompuServe and GTE MainStreet.                                         

Although the Company has previously derived revenues from licensing it
services to companies in foreign countries ("Foreign Licensing"), there were no 
material revenues from this source in 1997, and the Company has no current plans
to pursue foreign licensing as a source of future revenues.                     

The following is a brief description of each of the Company's markets:

NETWORK SERVICES - Network Services represents the majority of the    
Company's business, providing an interactive television broadcast network       
featuring sports, trivia and informational programming to over 2,700 hospitality
sites in the U.S. as of December 31, 1997.  These sites include restaurant      
chains (e.g., TGI Friday's, Ruby Tuesdays, Black Angus), local and regional     
bowling alleys, pizzerias, sports complexes, taverns and military bases. Through
various platforms including satellite, cable and wireless transmission sources, 
Network Services can link its subscribers to encourage local, regional and      
national competitions for its programming.                                      

     ONLINE/INTERNET SERVICES - The Company provides to the home consumer market
many of the same services as are available on the NTN Network, via arrangements 
with on-line, cable delivery and internet services. Online/Internet Services is 
not dependent on any particular technology or method of transmission to deliver 
its programming. In addition to the same sports and trivia games which are      
currently broadcast over the NTN Network, Online/Internet Services includes     
other multi-player interactive games expressly designed for the home            
environment. Currently, revenues are derived from 1) play-along services, in    
which NTN services are broadcast along with live events generating subscription 
fees from interactive game participation, or "pay-per-play", and 2) information 
services, where NTN's database is provided as a value-added information service 
to subscribers who want statistical data. Customers include AOL, CompuServe, GTE
MainStreet and Bell Canada.                                                     

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Online/Internet Services is not dependent on any particular technology or method
of transmission to deliver its programming. In addition to the same sports and  
trivia games which are currently broadcast over the NTN Network, Online/Internet
Services includes other multi-player interactive games expressly designed for   
the home environment. Currently, revenues are derived from 1) play-along        
services, in which NTN services are broadcast along with live events generating 
subscription fees from interactive game participation, or "pay-per-play", and 2)
information services, where NTN's database is provided as a value-added         
information service to subscribers who want statistical data. Customers include 
AOL, CompuServe, GTE MainStreet and Bell Canada.                                

FOREIGN LICENSING - The Company has licensed independent companies to 
broadcast in Australia/New Zealand and South Africa.  Further, the Company      
licenses its programs and software to Networks North, Inc., a Canadian company  
("NTN Canada").  Licensees, except in Canada, operate their own broadcast center
and produce interactive programs specifically geared to the local culture and   
society.  The Canadian licensee uses the broadcast provided by the Company on   
the NTN Network.  The South African licensee ceased its NTN-licensed operations 
in March 1998.  Foreign licensing is not expected to contribute significantly to
revenues in the foreseeable future.                                             

MARKETING AND DISTRIBUTION OF SERVICES AND PRODUCTS                             

     NETWORK SERVICES.  Network Services are provided via the NTN Network, which
serves over 2,700 locations ("Locations") throughout all 50 States.             

    The NTN Network presently features from 14 hours to 17 hours, depending on
the time zone, of interactive sports and entertainment trivia game programming  
on weekdays, with extended programming hours on weekends.  The balance of       
broadcast time is devoted to a non-audible graphics-based service transmitting  
information, including sports scores and upcoming program promotions.           

   Original programming for the NTN Network is developed and produced at the
Company's corporate offices in Carlsbad, California, for distribution to        
Locations.  The Company's facilities are equipped with video, satellite and     
communications equipment, and multimedia computers.  The Company can provide    
simultaneous transmission of up to 16 live events for interactive play and a    
multitude of interactive games and other programs, allowing distribution of     
different programs to customers in different geographical locations.            

     The Company uses two independent services to distribute NTN programming via
satellite to customers, although it is not dependent upon either service because
there are several other providers that offer similar services.  The Company     
attempts to use the most effective and least expensive multiple data            
transmission techniques to distribute data from the Company's facilities to     
customers, including direct connect, internet transmission, and direct satellite
broadcast.                                                                      

Each Location is furnished with NTN proprietary equipment (a "Location
System") including a personal computer, a satellite data receiving unit (usually
a small satellite dish), and a minimum of five hand-held, portable keypads      
("Playmakers(R)") which players use to make their selections.  During live      
interactive programs, players participate in the play-along programs using two  
television screens.  One screen features the live broadcast from the television 
network (e.g., ABC's Monday Night Football), while the second screen displays   
the NTN Network program.  Participants play the game by entering their selection
on Playmakers(R), which transmit a radio signal to the on-site computer or      
through connection to the NTN broadcast center (the "Broadcast Center") in      
Carlsbad, California.  At the conclusion of the broadcast, total scores are     
calculated and sent via phone lines.  Within seconds, rankings are tabulated and
rankings and scores for each participating Location are transmitted back to such
Location via the NTN Network.  This allows players to compete not only with     
other patrons at their Location, but against all players across the nation who  
are participating interactively on the NTN Network.  The following diagram      
depicts the transmissions for a typical real-time, interactive game via         
satellite.  Customers generally execute a one-year contract to obtain the       
Company's services and pay a monthly fee ranging from $400-$800.                

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[GRAPH OF NTN BROADCAST CENTER] 

In addition to tabulating Playmaker(R) responses at the Location and  
communicating with the Company's Broadcast Center, the Location System can      
manipulate screens locally by calling up high-resolution computer generated     
graphics and inserting the screens into the broadcast schedule. Accordingly, the
Company can offer both national and local advertising.                          

     Interactive Game Programs.  Network Services offers a variety of sports and
--------------------------                                            
entertainment trivia games that challenge players' skill and knowledge and      
create significant customer loyalty.  An example of interactive sports          
programming is QB1(R), the Company's first and most popular game program.       
QB1(R) is an interactive football strategy game developed and broadcast under an
exclusive license from the NFL, which tests a player's ability to predict an    
offensive team's plays during a live televised football game.  Points are       
awarded based on the accuracy of the player's prediction, rather than whether   
the team scores or advances the ball.  The Company broadcasts QB1(R) in         
conjunction with every NFL game and selected Canadian Football League and       
college football games.                                                         

   The NTN Network presently features the following interactive sports games
programs:                                                                       

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   NTN PLAY-ALONG GAMES - Interactive games played in conjunction with live,
televised events.  Games include the following:                                 

                                                                [Download Table]

                  GAME                         DESCRIPTION                      
                  ----                         -----------                      
                                                                                

QB1(R)                  NFL licensed interactive strategy game in conjunction   
                        with live telecasts of college and professional football
                        games                                                   

Triples(R)              Interactive horse racing game in conjunction with live  
                        telecasts of horse races                                

Uppercut(R)             Interactive strategy game in conjunction with live      
                        telecasts of boxing matches                             

NTN PowerPlay(R)        National Hockey League licensed interactive strategy    
                        game in conjunction with live telecasts of professional 
                        hockey games (Canada only)                              

NTN FANTASY GAMES - Fantasy league games played in conjunction with   
sporting events or rotisserie leagues.  Games include the following:            

                                                        [Enlarge/Download Table]

                         GAME                         DESCRIPTION                     
                         ----                         -----------                     
                                                                                      

Brackets(TM)                   Basketball or hockey tournament prediction game        

Dream Team Baseball(TM)        Managing a professional all-star baseball team         

Football Challenge(TM)         Weekly selection of winners of college and professional
                               football games                                         

Football Fantasy(TM)           Managing a professional all-star football team         

Hockey Draft(TM)               Managing a professional all-star hockey team           

Hoops(R)                       Managing a professional all-star basketball team       

Survivor(R)                    Weekly single elimination prediction game for          
                               professional football                                  

Oddsmaker Challenge(TM)        Weekly selection of winners of various sporting events 

INTERACTIVE TRIVIA GAME PROGRAMS.  During trivia game programs, each  
Location System simultaneously displays selected trivia questions which are     
displayed on the NTN television monitor at each Location.  Participants use the 
Playmaker(R) to select answers, which are collected, transmitted and tabulated  
in a similar manner to NTN's interactive sports games.  Participants' scores are
displayed on the dedicated television monitors, along with national, regional   
and local rankings, as applicable.                                              

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   While certain of the Company's sports games are available only during the
seasons when the respective sports are played, trivia game programs allow the   
Company to offer year-round interactive programming.  The NTN Network generally 
provides the trivia programming during evening hours, when Locations,           
particularly restaurants and taverns, tend to be busiest.  The NTN Network      
presently features the following interactive trivia games programs:             

NTN PREMIUM TRIVIA GAMES - Promotion-oriented weekly game shows that  
generally require 1-2 hours of participation.  Prizes are awarded to the top    
finishers, except where prohibited by law.  Games include the following:        

                                                        [Enlarge/Download Table]

                         GAME                         DESCRIPTION                       
                         ----                         -----------                       
                                                                                        

Trivial Pursuit Live(R)        Interactive version of the famous Trivial Pursuit game - 
                               licensed from Hasbro Interactive.                        

Playback (TM)                  Music trivia                                             

Showdown(R)                    Advanced trivia challenge                                

SportsIQ(TM)                   Weekly sports trivia game                                

Sports Trivia Challenge(R)     Advanced sports trivia covering multiple topics          

Spotlight(TM)                  Entertainment and media based trivia game (movies, music)

   NTN TRIVIA GAMES - General-themed, standard games typically one-half hour
in length. Games include the following:                                         

                                                        [Enlarge/Download Table]

                         GAME                         DESCRIPTION                     
                         ----                         -----------                     
                                                                                      

Brain Buster(R)                Interactive trivia game covering esoteric topics       

Countdown(R)                   Interactive trivia game using word plays               

Topix(TM)                      Theme driven trivia game played under controlled timing

Wipeout(TM)                    Interactive trivia game eliminating incorrect answers  

Nightside(R)                   Adult oriented trivia                                  

Sports Trivia(R)               General trivia game covering sports topics             

Viewer's Revue(R)              Audience-supplied content trivia game                  

Retroactive(TM)                Pop-culture trivia with 60's, 70's and 80's content    

Football Weekend Roundup(TM)   Football trivia game                                   

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   CUSTOM GAMES - Interactive games created specifically for media companies
such as Capital Cities/ABC for simultaneous broadcast with their live telecasts.

                                                                [Download Table]

                     GAME                         DESCRIPTION                     
                     ----                         -----------                     
                                                                                  

NTN Awards Show(TM)        Interactive game played in conjunction with the Academy
                           Awards, Grammy Awards and other award shows            

NTN Draft Show(TM)         Interactive game played in conjunction with the annual 
                           NFL draft                                              

   Since 1987, Network Services has broadcast the NTN Awards Show(TM) to all
Locations in connection with the live Academy Awards telecast.  The NTN Awards  
Show(TM) contains movie trivia and biographical information on nominees and     
allows players to select winners up to the actual announcement and compete with 
other players via the NTN Network, in a manner similar to QB1(R).               

Information Programming.  During the hours in which the Company is not
------------------------                                              
broadcasting interactive games, the Company uses its broadcast network to       
transmit sports information as well as NTN Network programming information.  The
Company obtains the majority of its sports information (for which it pays a     
monthly fee) from Sportsticker wire service, electronically formats the         
information and then retransmits it for broadcast to Locations.                 

Advertising.  The NTN Network, in a manner similar to the television  
-----------                                                           
broadcast medium, sets aside a number of minutes of a broadcast hour for        
advertising, promotional spots (promoting NTN Network's competitions and special
events), "tune-in spots" (promoting NTN Network programming schedule), and      
public service announcements.                                                   

The Company has currently set aside fourteen minutes each hour for    
advertising, promotional spots and "tune-in spots."  Each spot is designed to be
fifteen seconds in length, for a total of 56 spots per hour.  The Company can   
insert advertising messages into its interactive sports and trivia programming  
at any number of Locations.  Further, messages can be broadcast over the NTN    
Network or custom-tailored for a specific Location or several Locations.        

    The Company sells advertising in blocks of two-fifteen second ad spots per
hour for a total of fourteen hours per day.  Further, programming content has   
been blended with the advertiser's logo and message.  For example, the Cuervo   
1800 Countdown(R) Shows provide 30 minutes of commercial exposure to Miller and 
Cuervo products.  Sponsorships of programs are also available and provide       
advertisers with specific premium exposure within a sponsored program.          

     Advertisers are also given the opportunity to communicate directly with the
NTN Network's Players Plus(R) ("Players Plus") members, numbering over          
1,000,000.  Players Plus is a frequent player club which members join by        
entering their name, address, zip code and identification number into a         
Playmaker(R), which is then captured at the Broadcast Center.  Members earn     
points each time they play and also a chance to win prizes in the monthly       
Players Plus sweepstakes. Sponsors are capable of receiving feedback through    
interaction with customers in the form of customer surveys.                     

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     ONLINE/INTERNET SERVICES.  The Company offers many of the same services and
programs as seen on the NTN Network to the home consumer market via             
Online/Internet Services.  Online/Internet Services includes multi-player       
interactive games made available to the consumers' households through the       
Company's arrangements with personal computer on-line services and interactive  
television services.  In addition, Online/Internet Services includes other      
multi-player interactive games designed expressly for the home environment.  The
Company offers the games to end users via third party networks such as AOL.     
Revenues received include development fees and monthly revenues based upon usage
and certain minimum guarantees from these third-party networks.  The end-user   
does not pay NTN directly, but pays the online service provider who is          
responsible for paying the Company.                                             

 The current focus of home distribution is via on-line services, such as
AOL, where a substantial customer base already exists.  The Company's           
interactive sports and trivia games are maintained on the Company's servers and 
are available on-line 24 hours a day, seven days a week.                        

  The Company's Online/Internet Services are unique since the programs are
not dependent upon, and consequently not bound by, any particular technology or 
method of delivery.  Regardless of which technology emerges as the primary means
of delivery to home users, management believes its programming content will be  
available to the household.                                                     

    The Company also assists other companies in providing content and programs
via content distributors.  For a share of the revenue generated by consumer use,
the Company provides program translation services and maintains the programs on 
its servers.  This has not been a significant source of revenue in the past and 
is not expected to be a significant source of revenue in the future.            

     Online/Internet Services are distributed to on-line networks, also known as
content distributors.  These games, in turn, are made available to their        
customer base for a fee.  The diagram below depicts the transmissions necessary 
for a consumer to use the Company's service in his or her home.                 

[GRAPH OF VIA CABLE/TELEPHONE]  

FOREIGN LICENSING.  NTN has provided its services in certain foreign  
markets through licensing agreements with foreign licensees.  Generally, the    
Company licenses its products in foreign countries by granting the rights to use
NTN's interactive broadcast technology.  NTN provides licensees with            
technological know-how and assistance to build                                  

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a broadcast center, and to develop interactive products and programs. For many  
years, NTN has provided service to customers in Canada through its unaffiliated 
licensee, NTN Canada. In 1993, NTN issued a 20-year license to an unaffiliated  
company in Australia ("NTN Australasia"), to create the first interactive       
television network in Australia and New Zealand. In 1994, NTN issued a license  
to MultiChoice Ltd., an unaffiliated company, to develop and operate an         
interactive broadcast network in South Africa. The South African licensee ceased
its NTN-licensed operations in March 1998.                                      

MARKETING AND EXPANSION STRATEGY                                                
--------------------------------                                                

     NETWORK SERVICES.  Network Services markets services to customers primarily
through advertising in national trade periodicals, national and regional        
industry trade shows, telemarketing, direct mail and direct contact through the 
field representatives.  All sales prospects are organized and tracked through   
shared database software.  Currently, services are sold through a regional-based
management team that utilize direct salespersons as well as independent         
representatives.  The independent representatives' agreements are typically one-
year agreements, with renewal clauses if the representative meets certain       
performance goals.  In late 1997, the Company expanded the number of regional   
sales managers and direct salespersons in selected markets.  The Company also   
terminated many of the prior arrangements with independent representatives.  In 
connection with the cancellation of the independent representative agreements,  
the Company paid one representative a total of $288,000 and may pay additional  
sums in the future, as other terminations occur.  The Company believes its in-  
house sales team will be more successful in meeting its sales goals.  In March  
1998, the Company entered into an agreement with Datatec Systems, Inc. to       
provide installation and repair services to its NTN Network customers throughout
the United States.                                                              

 The Company's future business strategy related to the NTN Network is to
continue to increase available programming and market to additional group       
viewing Locations.  In addition, the Company intends to develop additional      
revenue sources for the NTN Network such as local and regional advertising.  No 
assurance can be given that the Company will be successful in the implementation
of its business strategy.                                                       

   ONLINE/INTERNET SERVICES.  Since the end-user of Online/Internet Services
is the service provider's customer, the Company relies on the service provider's
marketing efforts to promote its products.  However, the Company works in       
conjunction with service providers to develop the promotions and advertisements.
For example, service providers such as AOL may include the Company's game logo  
on an initial "start-up" screen which millions of its subscribers can access at 
no expense to NTN.  Subscribers generally pay the service provider a flat fee or
a fee based on the amount of time that the subscriber has participated with the 
Company's games and services, and the service provider pays NTN.                

 In the future, the Company expects its products to elicit more exposure
from the distributors as a result of increased brand recognition and continued  
promotions.  NTN will continue to take a proactive position with respect to     
marketing products to each distributor to ensure inclusion in as many of their  
promotional efforts as possible.  The Company expects its direct marketing costs
to continue to be minimal.  No assurance can be given as to whether the Company 
will be successful in the implementation of its business strategy.              

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SOURCES OF REVENUE                                                              

The following table sets forth certain information with respect to the
principal sources of the Company's revenues during the years ended December 31, 
1997, 1996 and 1995.                                                            

                                                                [Download Table]


(Dollars in thousands)          YEARS ENDED DECEMBER 31      
                          ---------------------------------- 
                             1997         1996        1995   
                          ----------   ----------   ---------

                                                             
Network Services          $   20,245       20,029      15,559
Online/Internet Services       3,326        1,811         620
Advertising                      772        1,590       1,128
Equipment Sales, net              55        1,310       1,363
LearnStar Revenues               786          447         440
IWN Revenues                     275            0           0
Other Revenue                    402          524         972

    NETWORK SERVICES.  The primary market for Network Services is comprised of
approximately 300,000 taverns and restaurants in North America.  Other potential
Locations may also be found among hotels, military bases, college campuses,     
hospitals, and other group viewing Locations such as country clubs, fraternal   
organizations, and bowling centers.                                             

 To date, Network Services' customers have generally been public viewing
locations such as restaurant chains (e.g., TGI Friday's, Ruby Tuesdays, Black   
Angus), local and regional bowling alleys, pizzerias, sports complexes, sports  
taverns and military bases.  Many of the Company's customers such as hotel and  
restaurant chains have multiple Locations.  Locations generally enter into a    
one-year broadcast service agreement with the Company pursuant to which they pay
a monthly broadcast fee of approximately $400-800 per Location.  The Company    
currently serves over 2,700 Locations located in all 50 States.                 

The Company has a license agreement with an indpemendent licensee, NTN
Canada, pursuant to which NTN Canada solicits Locations for the NTN Network in  
Canada. The Company provides NTN Network programs to NTN Canada in exchange for 
an annual license fee payable in monthly installments based upon the number of  
Locations in Canada, which presently number approximately 550.                  

  As a percentage of total revenues, Network Services revenues amounted to
78%, 78% and 77% in 1997, 1996 and 1995, respectively.                          

 ONLINE/INTERNET SERVICES.  The Company provides its services to on-line
users pursuant to the agreements with various system providers such as AOL.  The
on-line computer industry remains a fast-growing consumer market in terms of    
subscribers.  Fees from system providers are individually negotiated.  In 1997, 
the Company received from AOL a one-time fee of $1,000,000 for agreeing to      
terminate its existing contract and renegotiate the terms of a continuing       
relationship.  Revenue from other service providers is based on the actual use  
of the NTN interactive programs by their underlying customers.                  

 The Company has granted to NTN Canada the exclusive right to market NTN
interactive services to online users in Canada.  The Company is entitled to     
receive a royalty equal to 25% of any revenues generated from Canadian online   
customers.  The Company has not received any revenues to date relating to the   
Canadian online services and no assurance can be given that the Company will    
receive any such royalties in the future.  As a percentage of total revenue,    
Online/Internet Services revenues amounted to 13%, 7% and 3% in 1997, 1996 and  
1995, respectively.                                                             

    ADVERTISING REVENUE.  The Company sells advertising spots for broadcast on
the NTN Network as well as for Online/Internet Services.  Advertisers can buy   
time for promotional spots as well as sponsorship of specific events            

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or programs. As a percentage of total revenue, Advertising amounted to 3%, 6%   
and 6% in 1997, 1996 and 1995, respectively. Advertising revenue decreased in   
1997 due to reorganizations in personnel assigned to sell advertising spots. The
Company has retained an independent advertising agency to obtain additional     
advertising revenues from certain industry sectors and intends to execute one or
more additional advertising sales agency agreements in the coming year. Although
the Company is confident in its ability to attract substantial advertisers to   
the NTN Network, no assurance can be given that the Company will be successful  
in the implementation of its advertising strategy.                              

     EQUIPMENT SALES.  Typically, Location Systems are provided to customers but
ownership is maintained by the Company or is leased from third parties.  The    
Company sells interactive equipment, particularly Playmakers(R), to its         
licensees in Canada and Australia.  Equipment is generally sold to customers    
with no return rights except in the case of defect.  As a percentage of total   
revenue, Equipment Sales amounted to 0%, 5% and 7% in 1997, 1996 and 1995,      
respectively.  Equipment sales are not expected to contribute significantly to  
revenues in the foreseeable future.                                             

  LEARNSTAR REVENUES.  LearnStar revenues are comprised of equipment sales
and software licensed to schools and school districts.  Software is licensed and
the Company agrees to provide maintenance of equipment and software upgrades for
three to five years.  A portion of the revenue related to licensed software is  
deferred and amortized over the contract term.  Payment terms are generally     
provided over the term of the contract.  As a percentage of total revenue,      
LearnStar Revenues amounted to 3%, 2% and 2% in 1997, 1996 and 1995,            
respectively.  LearnStar Revenues are not expected to contribute to revenues in 
the foreseeable future, as the Board has determined either to sell or cease the 
operations of LearnStar.                                                        

   IWN REVENUES.  IWN Revenues are comprised of a software license agreement
with IWN Australasia Limited, an Australian corporation of which IWN L.P. owns  
25% of the outstanding common stock.  IWN Revenues are not expected to          
contribute to revenues in the foreseeable future, as the Board has determined   
either to sell or cease the operations of IWN.                                  

RAW MATERIALS                                                                   

   For media platforms such as on-line services, the Company distributes its
programs to the recipients who maintain their own receiving, translation and re-
broadcasting equipment.  Accordingly, the Company has no raw materials or       
equipment needs for these customers beyond its own back-end servers.            

  For the NTN Network, the Location System is assembled from off-the-shelf
components available from a variety of sources, except for the Playmaker(R)     
package.  The Company installs and maintains the Location Systems.  The         
Playmaker(R) is currently manufactured to the Company's specifications by a non-
affiliated manufacturer in Taiwan.  In 1997, the Company obtained all design    
plans and source codes for the Playmaker(R) from the manufacturer.  Over the    
past two years, and currently, the Company's Network Services customers have    
experienced reliability problems with Playmakers(R).  The 1997 results include a
charge of $650,000 for the replacement and repair of defective equipment and a  
charge of $1,893,000 for obsolete and defective equipment.  Equipment function  
problems have been a substantial cause of customer contract terminations in the 
past.  The Company is working to provide a solution to such reliability         
problems, although no assurances can be given that a timely solution can be     
reached without undue cost.  The Company believes that there are numerous other 
manufacturers who could supply Playmakers(R) although no assurances can be given
that, if necessary, such alternative sources could be secured at commercially   
reasonable costs and without undue delay.                                       

LICENSING, TRADEMARKS, COPYRIGHTS AND PATENTS                                   

   The Company's sports games make use of simultaneous telecasts of sporting
events.  Where the Company has licenses with various sporting leagues, the      
Company is also permitted to utilize the trademarks and logos of national teams 
and leagues in connection with the playing of an interactive game.              

     The Company is party to an agreement with the NFL, which grants the Company
the exclusive right to use the trademarks and service marks of the NFL in       
connection with the playing and marketing of QB1(R).  The NFL agreement grants  
the Company the exclusive data broadcast rights to conduct interactive games in 
conjunction with the broadcast of NFL football games, for which the NFL receives
a royalty based on revenues billed by the Company in                            

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connection with QB1(R) play. The agreement with the NFL expires in March 2000.  
This most recent agreement expanded the Company's rights to include certain     
approved online services to all territories in which such online services are   
accessible and significantly includes the Internet. There can be no guarantee   
that the Company will be able to renew the agreement in the future. Further, it 
is unclear whether non-renewal of the agreement would have a material adverse   
effect on the Company.                                                          

  The Company keeps confidential as trade secrets the software used in the
production of its programs.  The hardware used in the Company's operations is   
virtually off-the-shelf, except for the Playmaker(R) keypads.  The Company owns 
copyrights to all of its programs.  In addition to the registration of the      
trademark for QB1(R), the Company has either received, or is presently applying 
for, trademark protection for the names of its other proprietary programming, to
the extent that trademark protection is available for them. The Company's       
intellectual property assets are important to the Company's business and,       
accordingly, the Company maintains a program directed to the protection of its  
intellectual property assets.                                                   

SEASONAL BUSINESS                                                               

Overall, the Company's business generally is not seasonal.  Revenue is
billed monthly as service is provided to customers.  However, sales of new      
Locations have traditionally been higher in the Summer and early Fall months    
compared to the rest of the year.  This trend coincides with the start of the   
NFL season in August.                                                           

 The hospitality industry has historically experienced a relatively high
business failure rate.  Likewise, the Company has lost customers due to the     
failure of customer businesses; to change in ownership and non-renewal of       
contracts, collectively referred to as "churn".  The Company's historical churn 
experience has also been seasonal in that the percentage of churn has been      
highest following the completion of the NFL season in February, although churn  
occurs in all months.  During the Company's operating history, approximately 25-
30% of the existing Network Services customers at the beginning of a year, have 
churned by the end of that year.  The Company has implemented marketing programs
and other efforts to reduce the churn rate, however no assurance can be given   
that such efforts will be successful.                                           

    Online/Internet Services are provided to consumers via online distributors
such as AOL and CompuServe.  This industry is relatively young and little       
historical data is available.  No seasonal effect has been noted, however.      

WORKING CAPITAL                                                                 

    The discussion under "Liquidity and Capital Resources" included in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations", is incorporated herein by reference.                               

SIGNIFICANT CUSTOMERS                                                           

     The Company's customers are diverse and varied in size as well as location.
The services are provided point to multi-point so that the Company is not       
dependent on any one customer.  The Company does not have any individual        
customer who accounted for 10% or more of its consolidated revenues in 1997,    
1996 or 1995.                                                                   

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BACKLOG                                                                         

The Company generally does not have a significant backlog at any time 
because the Company normally can deliver and install new Location Systems within
the delivery schedule requested by customers (generally within two to three     
weeks).  For other Online Services, there is no backlog because services are    
generally distributed point to multi-point and the Company does not have to     
provide specific equipment to the customer, making it relatively simple to add  
new customers without any significant delay.                                    

GOVERNMENT CONTRACTS                                                            

The Company provides its distribution services to a small number of   
government agencies (usually military base recreation units), however the number
of government customers is small compared to the overall customer base.         
Contracts with government agencies are provided under substantially the same    
terms and conditions as other corporate customers.                              

COMPETITIVE CONDITIONS                                                          

     The Interactive Entertainment industry is still in its formative stage, but
currently may be divided into three major segments: (1) media distribution      
services such as on-line services, telephone companies and cable television     
companies and the NTN Network; (2) equipment providers such as computer and     
peripheral equipment manufacturers; and (3) content and programming providers,  
such as movie studios, NTN and software publishers. The Company does not act as 
a direct provider of equipment to consumers.  The Company operates as a media   
distribution service through its own NTN Network.  Also, the Company is a       
program provider to an array of other media distribution services to consumers  
utilizing a variety of equipment and delivery mechanisms.                       

   NTN has a growing number of competitors in the programming segment of the
Interactive Entertainment industry.  The Company's programming content is not   
dependent upon, and consequently not bound by, any particular technology or     
method of distribution to the consumer.  The Company's programming is,          
therefore, readily available to consumers on a wide variety of entertainment and
media services including: the NTN Network; on-line services including AOL, and  
cable television, including GTE MainStreet, which is available to households in 
certain regions.                                                                

   The Company competes with other companies for total entertainment dollars
in the marketplace.  The Company's programming competes generally with broadcast
television, pay-per-view, and other content offered on cable television.  On    
other mediums, the Company competes with other content and services available to
the consumer through on-line services.  The Company's programming is interactive
in nature but is distinguished from other forms of interactive programming by   
its simultaneous multi-player format and the two-way interactive features.      
Presently, the technological capabilities of transmitting entertainment products
to the consumer exceed the supply of quality programming and services available 
on the existing delivery systems. The Company is able to utilize the wide       
variety of services available for transmission of entertainment products to the 
consumer by forming strategic alliances with service providers to supply the    
Company's programs for re-transmission.  The Company's programming is available 
to the consumer over a multitude of media platforms and delivery systems.       

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   NETWORK SERVICES.  Currently, Network Services on the NTN Network have no
competitors that furnish live, multi-player interactive entertainment similar in
scope and nature.  Although the Company has no direct competitors in this area, 
it does compete for total entertainment dollars in the marketplace.  Other forms
of entertainment provided in public eating and drinking establishments include  
music-based systems and cable and pay-per-view television.  However, evidence   
provided by customers indicates that patrons are inclined to stay longer and    
consume more food and drink when NTN Network interactive games are offered as   
the main source of entertainment. Accordingly, Network Services customers       
generally tend to view these services as a profit generator rather than a cost  
center.                                                                         

ONLINE/INTERNET SERVICES.  In the Online/Internet Services market, the
consumer has many entertainment options from which to choose, ranging from cable
television to telephone based services to computer on-line providers and the    
Internet.  The Company offers live, multi-player games and services which are   
available to multiple interactive platforms in the home.  Also, the Company     
competes for a share of the total home entertainment dollars against broadcast  
television, pay-per-view and other content offered on cable television.  The    
Company also competes with other programming available to consumers through on- 
line services such as AOL.  Cable television, in its various forms, provides    
consumers the opportunity to make viewing selections from anywhere between 30 to
100 free and pay channels, thus limiting the amount of time devoted to any      
particular channel.  For the most part, cable television is predominantly a     
passive medium, and does not offer the viewer the opportunity to participate in 
its programming, and even less frequently, does it offer programming designed   
for active participation.  On-line providers, such as AOL, can provide literally
thousands of options for content and entertainment, however, such on-line       
services have traditionally been confined to that company's subscriber base.    
Interaction among viewers is thus limited to the particular program as offered  
only on the specific on-line service.  The Company offers consumers the         
opportunity to participate and compete against other viewers who are seeing the 
identical program over several different technological media, including         
interactive television, personal computers and/or the NTN Network.              

RESEARCH AND DEVELOPMENT                                                        

During the three years ended December 31, 1997, the Company incurred  
approximately $1,600,000, $3,396,000 and $1,471,000, respectively related to    
Company-sponsored research and development projects, including projects         
performed by consultants for the Company.                                       

   The Company has previously experienced problems in the performance of its
49 megahertz Playmaker(R) device.  The Company is currently developing a new 900
megahertz Playmaker(R) device to augment its existing 49 megahertz Playmaker(R) 
device.  The new device is expected to be more reliable.  Further, the Company  
is developing enhancements to its interactive software including a planned      
migration to a "Windows/TM/" based platform and continued research into new and 
enhanced graphics.  The Company continuously evaluates various methods of       
transmitting its programs and services.  There is no assurance that the Company 
will successfully complete current or planned development projects or will do so
within the prescribed time parameters and budgets.  There can be no assurance,  
furthermore, that a market will develop for any product successfully developed. 

 The Company works closely with independent user groups in an attempt to
develop new and enhanced services and products in response to customer needs.   

GOVERNMENT REGULATIONS                                                          

 The cost of compliance with federal, state and local laws has not had a
material effect upon the Company's capital expenditures, earnings or competitive
position to date. On October 25, 1996, the Company reported that it was advised 
by the United States Federal Communications Commission (FCC) that its           
Playmaker(R) keypad had never received FCC approval.  Upon notification, the    
Company commenced testing its equipment and submitted its application to the    
FCC.  There was no interruption of the Company's services to existing NTN       
Network customers, nor were any of the Company's Online/Internet Services ever  
affected.  The Company implemented a corrective action program approved by the  
FCC on January 15, 1997 and immediately began shipments to new Locations.  To   
date, the FCC has not advised the Company of the amount of penalty, if any,     
which may be imposed.  In light of the circumstances, the Company believes that 
the amount of any such penalty will not have a material, adverse effect on the  
financial position, results of operations or liquidity of the Company. The      
Company does not anticipate that it will have to incur any material expenses in 
the future in order to comply with federal, state or local laws.                

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EMPLOYEES                                                                       

     The Company and its subsidiaries employ approximately 155 people on a full-
time basis and 30 people on a part-time basis, and also utilize independent     
contractors for specific projects.  In addition, the Company retains a number of
non-affiliated programming and systems consultants.  It is expected that as the 
Company expands, additional employees and consultants will be required.  The    
Company believes that its present employees and consultants have the technical  
knowledge necessary for the operation of the Company and that it will experience
no particular difficulties in engaging additional personnel with the necessary  
technical skills when required.  None of the Company's employees are represented
by a union and the Company believes its employee relations are satisfactory.    

ITEM 3.     LEGAL PROCEEDINGS                                         
-----------------                             

     In February 1998, the Company completed its previously announced settlement
of a class-action lawsuit pending against the Company since 1993.  The terms of 
the settlement were as follows: A settlement fund was established consisting of 
$400,000 in cash plus 565,000 warrants to purchase the Common Stock of the      
Company ("Settlement Warrants").  Each Settlement Warrant has a term of three   
years from February 18, 1998.  The Settlement Warrants were issued on February  
18, 1998 and entitle the holder of a Settlement Warrant to purchase a share of  
Common Stock of the Company at a price of $0.96.  During the period from        
February 18, 2000 to February 18, 2001, the holders of Settlement Warrants have 
the right, but not the obligation, to put the Settlement Warrants to the Company
for repurchase at a price of $3.25 per Settlement Warrant (the "Put Right"),    
provided, however, that this Put Right shall expire, if at any time after       
February 18, 1998 the closing price per share of the Company's Common Stock on  
the American Stock Exchange is more than $4.21 on any seven trading days,       
whether consecutive or not.  Upon expiration of the Put Right, the Company shall
have no further obligation to repurchase the Settlement Warrants.  In no event  
shall the Company have any obligation to repurchase its Common Stock.           

    Although the Put Right may expire based on the closing price of the Common
Stock over the next three years, the Company has recognized the potential       
liability related to the Put Right.  Accordingly, a charge of $1,291,000 for the
present value (discounted at 15%) and related interest expense for the Put Right
was recognized in 1996.  The difference between the amount expensed and the     
total potential liability, $545,000, will be accreted as interest expense and   
charged over the period from September 1996 until February 18, 2000.  In 1997, a
total of $225,000 was charged to interest expense.                              

On April 18, 1995, a class action lawsuit was filed in United States  
District Court for the Southern District of California entitled Lenora Isaacs,  
                                                              --------------
on behalf of herself and all others similarly situated vs. NTN Communications   
-----------------------------------------------------------------------------   
and Patrick J. Downs.  The complaint alleges violations of federal securities   
--------------------                                                            
laws based upon the Company's projections for the fourth quarter of 1994 and for
the 1994 fiscal year, and further alleges that certain of the Company's insiders
sold stock on information not generally known to the public.  As previously     
reported, the Company has agreed to a settlement having a total value of        
$1,450,000.  The settlement, which was approved by the Court in January 1998,   
consists of $250,000 in cash with the remaining balance of $1,200,000 being     
payable with the Company's Common Stock or in cash, at the Company's election.  
It is anticipated that the claims process will be completed by the summer of    
1998 and that the Common Stock will be issued shortly thereafter.  A charge of  
$2,800,000 was recorded in 1996 for the estimated settlement.  In the fourth    
quarter of 1997, the Company reduced                                            

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the accrual for the settlement and accordingly reduced its legal expense by     
$1,350,000 as a result of the change in estimate related to the settlement.     

   In May 1997, a shareholder derivative complaint was filed in the Superior
Court of California, San Diego, North County Branch.  The complaint, which      
sought injunctive relief and an unspecified amount of damages, was brought by a 
current shareholder against the Company and certain officers and directors.     
More specifically, the plaintiff alleged that the Company was injured by a lack 
of independence and breach of business judgment by virtue of certain agreements 
entered into in connection with the recent management reorganization.  The      
Company believed that the lawsuit was without merit and conveyed its position to
the plaintiffs' counsel.  On June 10, 1997, the plaintiff voluntarily dismissed 
the lawsuit without any payment from the Company.                               

 On June 11, 1997, the Company was included as a defendant in litigation
entitled Eliot Miller and Jay Iyer, shareholders on behalf of themselves and all
         -----------------------------------------------------------------------
others similarly situated vs. NTN Communications, Inc., Patrick J. Downs, Daniel
--------------------------------------------------------------------------------
C. Downs, Donald C. Klosterman, Ronald E. Hogan, Gerald P. McLaughlin and KPMG  
------------------------------------------------------------------------------  
Peat Marwick LLP, which complaint was filed by the same lead plaintiff and lead 
----------------                                                                
attorneys as in the previously dismissed derivative action.  The new complaint  
alleges violations of state and federal securities laws based upon purported    
omissions from the Company's filings with the Securities and Exchange           
Commission.  More particularly, the complaint alleges that the directors and    
former officers devised an "exit strategy" to provide themselves with undue     
compensation upon their resignation from the Company.  Plaintiffs further allege
that defendants made false statements about, and failed to disclose, contingent 
liabilities (guaranteed compensation to management and the right of an investor 
in IWN to require the Company to repurchase its investment during 1997) and     
phantom assets (loans to management) in the Company's financial statements and  
KPMG Peat Marwick LLP's audit reports, all of which served allegedly to inflate 
the trading price of the Company's Common Stock.  In 1997, KPMG Peat Marwick LLP
was dismissed from the suit after filing a motion to dismiss.  In November 1997,
the Court dismissed all of the plaintiff's state law causes of action against   
the Company but retained the plaintiff's federal law causes of action. In       
February 1998, the attorneys representing the plaintiffs in this litigation     
filed an action entitled Dorman vs. NTN Communications, Inc. in the Superior    
Court of San Diego County, California in which they essentially replead the     
state law causes of action dismissed in the federal lawsuit. In the Company's   
opinion, the claims in these two lawsuits are covered by directors and officers 
liability insurance providing $10,000,000 of coverage. The Company has submitted
these claims to its directors and officers liability insurance underwriters, who
have accepted such claims subject to reservation of rights.  The Company's      
deductible under the insurance policy is $200,000 claim.                        

Until recently the Company was involved as a plaintiff or defendant in
various previously reported lawsuits in both the United States and Canada       
involving Interactive Network, Inc. ("IN").  With the courts assistance, the    
Company and IN have been able to reach a resolution of all pending disputes in  
the United States and have agreed to private arbitration regarding any future   
licensing, copyright or infringement issues which may arise between the parties.
There remain two lawsuits involving the Company, its unaffiliated Canadian      
licensee and IN, which were filed in Canada in 1992.  No substantive action has 
been taken in furtherance of either action.  These actions affect only the      
Canadian operations of the Company and its Canadian licensee and do not extend  
to the Company's operations in the United States or elsewhere.  Although they   
cannot be estimated with certainty, any damages the Company might incur are not 
expected to be material.                                                        

   The Company is a defendant in two other lawsuits.  In November, 1997, the
Company's former advertising manager brought a suit alleging breach of an       
alleged employment contract and age discrimination.  The Company has denied any 
liability in this case and does not believe its resolution will have a material 
adverse effect on the financial position, results of operations and liquidity   
of the Company.                                                                 

In March, 1998, the Company's former independent representative in the
State of Georgia filed suit against the Company in Atlanta, Georgia alleging    
wrongful termination of its distributor agreement and other breaches of such    
agreement.  The Company denied these claims and intends to defend itself        
vigorously in this litigation.  It is not anticipated at the present time that  
the outcome of this lawsuit will have a material adverse effect on the financial
position, results of operations and liquidity of the Company.                   

   There can be no assurance that any or all of the foregoing claims will be
decided in favor of the Company, which is not insured against all claims made.  
During the pendency of such claims, the Company will continue to incur the costs
of defense of same.  Other than set forth above, there is no material litigation
pending or threatened against the Company.                                      

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Recently the Company was informed that it was in default of certain   
covenants contained in two leases for equipment installed at various NTN Network
locations.  The Company has made all payments pursuant to these leases when and 
as due and expects to do so for the remaining terms of the leases, which expire 
in June and October, 1999, respectively.  The respective covenants provide for a
minimum working capital ratio, for customer payments to be directed to a        
specific account maintained by an independent bank, and for a minimum collection
to lease payment ratio.  The Company has agreed to direct the payments of       
additional customers to the specific bank accounts each month to provide the    
lessors with further security.  Excess account balances are returned to the     
Company each month following the monthly lease payments. The Company has reached
an agreement to cure the alleged lease defaults with one lessor and such lessor 
has rescinded its default notice to the Company subject to the execution and    
delivery of a lease amendment and an additional collateral assignment agreement 
on or before April 30, 1998.  The other lessor has agreed to accept the         
Company's offer to cure the default if it is paid an administrative fee.  The   
Company believes that it will reach an agreement to cure the alleged default on 
the second lease transaction. The Company's only other sale-leaseback           
transaction also contains similar covenant provisions and the Company is in     
default for the same reasons. The third lessor has not declared a default. If it
does, the Company believes it may be able to enter into a similar arrangement to
direct payments from additional customers to the individual collateral bank     
account. The third lease also expires in 1999.                                  

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

GENERAL                                                                         

    Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the selected financial data and   
the consolidated financial statements and notes thereto included elsewhere      
herein.                                                                         

 The Company uses existing technology to develop, produce and distribute
two-way multi-player interactive live events and also produces and distributes  
its own original interactive programs.  The Company's principal sources of      
revenue from distribution activities are derived from (a) service distribution  
fees in the United States; (b) advertising fees, (c) sales of equipment to      
foreign licensees; (d) service distribution fees and royalties from foreign     
licensees; and (e) licensing fees from foreign and domestic licensees.          

    The Company has traditionally funded its operations through cash flow from
operations, sales of equity interests, and various debt financings. Although the
Company should benefit from additional operational cash flow from the growth of 
new Locations, there can be no assurances that this cash flow will be sufficient
to sustain the Company's operations. The Company has generated cash in the past 
from the sale of licenses, however, this source is sporadic and dependent upon  
many influences, including the Company's willingness to continue foreign        
licensing activities. Another source of cash in recent years has been           
advertising revenue. Although this revenue source has grown in prior years,     
advertising revenues decreased in 1997 and the NTN Network remains a relatively 
new media for advertisers. There can be no assurances that advertising revenue  
will grow or that the interactive broadcasting medium will become an accepted   
advertising venue.                                                              

   On March 5, 1997, the Company announced a reorganization of its executive
management personnel in which Patrick J. Downs resigned as Chief Executive      
Officer and Chairman of the Board, and Daniel C. Downs resigned as President.   
In addition, three other officers resigned or were terminated in connection with
the reorganization.  The Company recorded substantial charges related to the    
management reorganization and other items as more fully described below.        

RESULTS OF OPERATIONS                                                           

Following is a comparative discussion by fiscal year of the results of
operations for the three years ended December 31, 1997.  The Company believes   
that inflation has not had a material effect on its operations to date.         

YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1996    

In March 1997, the Company announced a reorganization of its executive
management personnel as described under "Recent Developments" in Item 1 of the  
Report, which information is incorporated herein by reference. Charges for      
severance and other costs associated with the management reorganization recorded
in 1996 were $5,092,000. A charge for severance and other costs associated with 
the management reorganization and other personnel changes was $4,998,000 in     
1997, including $185,000 of accreted interest expense. The Company has recorded 
the charges in 1996 and 1997 in accordance with Emerging Issues Task Force      
Issues No. 94 - 3.                                                              

    The Company incurred a net loss of $12,457,000 for the year ended December
31, 1997 compared to a net loss of $22,952,000 for the year ended December 31,  
1996.  The 1996 results include a net gain from the impact of discontinuing the 
operations of the Company's former subsidiary, New World Computing, Inc., of    
$2,902,000.  The 1997 results include charges totaling $4,998,000 related to the
Reorganization and a $2,543,000 charge related to shrinkage and obsolescence of 
equipment.                                                                      

 For the year ended December 31, 1997, total revenues increased slightly
from $25,711,000 to $25,861,000, primarily as a result of modest growth in the  
Company's primary services which offset a significant decrease in equipment     
sales and reduced advertising revenue. Since the Company no longer enters into  
sale and leaseback financing arrangements, equipment sales have become a minor  
revenue source under current operations. Total revenue for the year ended       
December 31, 1997, excluding Equipment Sales, net increased 6% over the prior   
year.                                                                           

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Network Services increased 1% from $20,029,000 to $20,245,000.  The   
increase is primarily due to a modest growth in the number of subscriber        
Locations (2,700 vs. 2,600) contracting for services partially offset by a      
revised pricing structure. Online/Internet Services increased 84% from          
$1,811,000 to $3,326,000 largely due to non-recurring revenue of $1,000,000 from
AOL related to AOL's termination of its prior contract with the Company,        
recognition of revenue for production services related to a large development   
contract of $380,000 and a modest increase in the basic services to online      
customers. Although the hours of service has remained relatively constant, the  
pricing structure has continued to evolve over the past year in a downward      
pattern. Advertising revenues decreased 51% during the current year from        
$1,590,000 to $772,000 due to a lesser number of commercial spots sold.         

  Equipment Sales, net of cost of sales, during the current year decreased
73% from $1,757,000 to $475,000.  Equipment Sales in the past have included     
large sale and leaseback transactions.  In late 1996, the Company decided to no 
longer enter into sale and leaseback financing arrangements.  Currently,        
equipment sales are predominantly due to sales to educational customers through 
the LearnStar subsidiary.  The Company has decided to sell or discontinue its   
LearnStar operations.  In either case, equipment sales to educational customers 
are expected to decline in the future.  Equipment sales in the past have also   
included sales to foreign licensees which are subject to outside influences and 
can occur unevenly throughout the year.  Equipment sales have been highly       
volatile in the past and are expected to remain so, as they are dependent on the
timing of expansion plans of the Company's foreign licensees.                   

 Operating Expenses consist of direct incremental service costs directly
related to revenue sources.  Operating Expenses increased 7% from $6,124,000 in 
the prior year to $6,565,000 in the current year.  The increase in costs is     
primarily due to a modest  expansion in the number of subscribers and online    
services contracting for services, increased field service costs, net of a      
reduction in the sales commissions.                                             

     Selling, General and Administrative Expenses increased 13% from $17,169,000
to $19,449,000.  Included in Selling, General and Administrative Expenses for   
1997 are charges for the management reorganization totaling $4,813,000 and costs
associated with the abandoned merger with GTECH Corporation of $376,000.  The   
1996 results include a charge of $840,000 related to a charge of severance and  
a change in estimate for deferred advertising costs of $222,000. Stock-based    
compensation charges made in compliance with SFAS No. 123 were $3,205,000 in    
1997 compared to $1,910,000 in 1996.  Exclusive of these charges, Selling,      
General and Administrative Expenses decreased $3,142,000 or 22%.  This decrease 
is primarily due to trimming the workforce and cost controls implemented in     
1997.  Stock-based compensation charges result from the issuance, extensions or 
modifications of warrants or options to non-employees and can vary from period  
to period.  Charges in 1997 include $1,450,000 that resulted from extension of  
the exercise period and reductions in the exercise price of warrants owned by   
certain former officers pursuant to the management reorganization.              

  Litigation, Legal and Professional expenses decreased from $6,484,000 in
1996 to $808,000 in 1997.  The 1996 amount includes charges for the settlement  
of litigation of approximately $4,400,000.  Charges for litigation in 1997 were 
approximately $1,000,000.  Included in the charges for 1996 was $2,800,000 for  
the settlement of certain litigation, for which a settlement agreement was      
executed in 1997 for $1,450,000. In the fourth quarter of 1997, the Company     
reduced the accrual for the settlement and accordingly reduced its legal expense
by $1,350,000 as a result of the change in estimate related to the settlement.  

 Depreciation and Amortization Expense increased 134% from $2,265,000 to
$5,305,000 due to depreciation charges resulting from the buyout of equipment   
lease commitments late in 1996.  The Company now owns most of its Broadcast     
equipment.  Equipment Lease Expense decreased 86% from $6,837,000 to $936,000   
also due to the buyout of equipment leases in late 1996.                        

Bad Debt expense relates to trade receivables for Network Services,   
Online/Internet services and educational customers.  Bad Debt expense decreased 
21% from $1,840,000 in 1996 to $1,462,000 in 1997.  Beginning in 1996, the      
Company began to experience reliability problems with its equipment in NTN      
Network Locations.  These problems led to an increase in bad debt expense as    
customers withheld payments.  In 1997, the equipment problems continued but     
improved, resulting in a lower bad debt expense in 1997.                        

 Equipment Charges increased 3% from $2,478,000 in 1996 to $2,543,000 in
1997. Equipment Charges consist of charges for obsolescence and shrinkage of the
Company's stock of broadcast equipment. The Company performs periodic reviews of
its broadcast equipment. In connection with these reviews, the Company          
identified equipment shrinkage and obsolescence primarily related to terminated 
sites.                                                                          

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   Other Income (Expense) increased from $1,000 in 1996 to $350,000 in 1997.
Interest Expense increased 103% from $390,000 to $793,000 largely due to        
interest charges related to the repurchase of the shares of IWN from Symphony,  
interest paid to GTECH, and accretion of interest for the settlement warrant    
liability and the liability for the management reorganization. In 1997, the     
Company sold its interest in a building and recorded a gain of $905,000. There  
was no tax expense in 1997 and 1996 primarily due to taxable losses and         
offsetting temporary differences in both years.                                 

YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1995    

    The Company incurred a net loss of $22,952,000 for the year ended December
31, 1996 compared to a net loss of $3,948,000 for the year ended December 31,   
1995.  The 1996 results include a gain on the sale of the Company's New World   
subsidiary of $4,219,000, net of taxes of $16,000, and operating losses of      
$1,317,000.  In 1996, the Company treated New World as a discontinued operation.
In the second quarter, the Company reported an estimated tax expense of         
$1,000,000.  The change in the estimated tax provision resulted from an         
analysis of the relevant tax laws and a valuation study performed to establish  
the Company's minimum tax liability which analysis was completed in the fourth  
quarter. The 1996 and 1995 results have been adjusted to reflect the sale of New
World in 1996 as a discontinued operation. The 1996 results also include other  
significant charges for the resignation and termination of officers and layoffs 
of other personnel, cancellation of notes receivable, loss on buyout of lease   
commitments, a write-down of assets associated with business activities that the
Company has determined will no longer be pursued, a write-down for obsolete     
inventory and equipment, and accrual for costs and expenses for the resolution  
of litigation. In addition, the current year's results of operations include    
charges related to the issuance of equity instruments pursuant to the guidelines
of SFAS No. 123. An analysis of revenue and operating costs follows a detailed  
discussion of the significant other charges.                                    

   On March 5, 1997, the Company announced a reorganization of its executive
management personnel in which Patrick J. Downs resigned as Chief Executive      
Officer and Chairman of the Board, and Daniel C. Downs resigned as President.   
Other personnel changes include the resignation of Mr. Ronald Hogan, as Senior  
Vice President, and the terminations of Mr. Gerald McLaughlin, formerly         
Executive Vice President, and Mr. Michael Downs, formerly President and CEO of  
LearnStar, in connection with the reorganization ("Reorganization"). The Company
has entered into separate agreements ("Agreements") with each of the former     
officers setting out the terms on which their existing employment contracts with
NTN will be settled. In compliance with the Agreements, NTN will continue to pay
the former executives their current annual salaries and other benefits for the  
remaining terms of their employment agreements with NTN, which expire on or     
before December 31, 1999. Charges for severance recorded related to terminations
in 1996 amounted to $840,000. Charges for severance to be recorded as an expense
and liability in the first quarter of 1997 will be $4,578,000. Contractual      
payments for employment contracts related to the Agreements are $1,711,000 in   
1997, $1,350,000 in 1998 and $1,269,000 in 1999. The Company expects that such  
amounts will be funded from its on-going operations. The Company has recorded   
the charges in 1996 and to be recorded in 1997 in accordance with Emerging      
Issues Task Force Issues No. 94-3.                                              

  Most of the former officers involved in the management reorganization in
1997, along with Mr. Donald Klosterman, a director of NTN, were indebted to NTN 
for certain loans that were made in previous years. By their terms these loans  
were cancelable under certain circumstances in connection with the termination  
of the officer's employment. Therefore, in conjunction with the management      
reorganization, all outstanding notes receivable were canceled, and accordingly 
a charge for $4,252,000 for principal and the related accrued interest was      
recorded in 1996. Also included in the loans canceled were personal loans made  
to Alan Magerman, a director, and Patrick J. Downs of approximately $185,000    
($145,000 of principal and $40,000 of accrued interest) and $251,000 ($227,000  
of principal and $24,000 of accrued interest), respectively.                    

   In addition to the reorganization of executive personnel, the Company had
earlier announced the planned lay-offs of non-executive personnel.  The planned 
lay-offs were not due to a contraction in the Company's core businesses, but    
rather were cost-cutting measures implemented to improve operations.  Severance 
payments for non-executive lay-offs will not affect future liquidity as the     
majority of severance and other benefit payments were made in 1996.             

    From 1993 through June 30, 1996, the Company had entered into various sale
and leaseback arrangements with independent third parties.  In the fourth       
quarter of 1996, the Company completed a plan to repurchase equipment related to
the aforementioned lease arrangements.  The Company recorded a charge of        
approximately $2,007,000 related to the termination of these lease transactions.
To the extent possible, management does not intend to use the same sale and     
leaseback arrangements as a method of financing in future periods.  In addition,
management does not intend to purchase equipment to be held as inventory for    
sale and leaseback arrangements.  Accordingly, in the fourth quarter of 1996,   
the Company reclassified all remaining inventory to Broadcast Equipment and     
began recording depreciation charges on all assets placed in service.           
Unamortized deferred revenues associated with prior sale-leaseback transactions 
were netted against the cost of repurchasing the assets.                        

The Company performs periodic reviews of its inventory and broadcast  
equipment.  In connection with such a review, it was determined that            
advancements in technology had rendered obsolete certain equipment and inventory
used by the Company.  Accordingly, a charge of $2,478,000 was recorded in the   
third quarter of 1996.  This charge was not due to a contraction in the         
Company's core businesses and will not effect future liquidity or results of    
operations.                                                                     

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   In June, 1996, the Company entered into a Settlement Agreement to resolve
litigation filed by various shareholders of the Company.  The case, originally  
filed in 1993, sought class action status to recover unspecified damages for a  
drop in the market price of the Company's Common Stock following an announcement
that an anticipated agreement under which the Company would sell certain        
equipment and services to an arm of the Mexican government may be put out to    
bid. The Company believes there is no basis for the claimant's allegations and  
does not believe that liability exists for the allegations. Nonetheless, to     
avoid the expense and disruption of protracted litigation, the Company has      
entered into the Settlement Agreement to resolve this matter out-of-court.      

To settle the case, a settlement fund was established consisting of   
$400,000 in cash plus 565,000 warrants to purchase the common stock of NTN      
("Settlement Warrants"). Each Settlement Warrant has a term of three years from 
the Date of Issuance, as that term is defined in the Agreement, and an exercise 
price equal to the average closing price per share of NTN common stock on the   
American Stock Exchange during the twenty trading days immediately preceding the
Date of Issuance. During the period from the second anniversary of the Date of  
Issuance until the expiration or exercise of a Settlement Warrant, the holder of
such Settlement Warrant shall have the right, but not the obligation, to put the
Settlement Warrant to NTN for repurchase at a price of $3.25 per Settlement     
Warrant (the "Put Right"), provided, however, that this Put Right shall expire, 
once, if ever, during the period from and after the Date of Issuance that the   
closing price per share of the NTN common stock on the American Stock Exchange  
is more that $3.25 above the exercise price of the Settlement Warrants on any   
seven trading days, whether consecutive or not. Due to regulatory constraints,  
the warrants have not yet been issued and the exercise price has not been       
established. Nevertheless, a legal obligation exists for the Company to issue   
the warrants, which will be completed as soon as the S-3 registration statement,
which includes the Settlement Warrants, becomes effective, which in turn, will  
trigger the issuance of the Settlement Warrants. Although, the Put Right may    
expire based on the closing price of the Common Stock over the next three years,
the Company has recognized the potential liability related to the Put Right.    
Accordingly, a charge of $1,291,000 for the present value (discounted at 15%)   
and related interest expense for the Put Right was recognized in 1996. The      
difference between the amount expensed and the total potential liability,       
$545,000, will be accreted as interest expense and charged to operations from   
September 1996 until the second anniversary of the Date of Issuance. Upon       
expiration of the Put Right, NTN shall have no further obligation to repurchase 
the Settlement Warrants. In no event shall NTN have any obligation to repurchase
its Common Stock.                                                               

On April 18, 1995, a class action lawsuit was filed in United States  
District Court. The complaint alleges violations of federal securities laws     
based upon the Company's projections for the fourth quarter of 1994 and for the 
1994 fiscal year, and further alleges that certain of the Company's insiders    
sold stock on information not generally known to the public. The Company, which 
has assumed the defense of this matter on behalf of all defendants, has denied  
liability based upon the allegations contained in the complaint. Plaintiffs have
claimed to be entitled to damages between $8 million to $10 million. The Company
believes, based in part on the advice of outside counsel, that the actual       
damages, if any, would be substantially less than such amount. This lawsuit has 
been scheduled for trial to commence in October, 1997. The Company believes     
there is no basis for the claimants' allegations. Nonetheless, the Company may, 
to avoid the expense and disruption of protracted litigation, attempt to settle 
the case. Due to potential settlement costs including the legal costs and       
expenses associated with litigation of this nature, including attorney fees,    
expert fees and costs, analyses which must be conducted and other costs         
necessary to prepare to defend this case at trial and perhaps through the       
appeals process, and the inherent expenditures of management time, effort and   
resources that will also be required, the Company has recorded a charge against 
its current earnings for such costs and expenses.                               

    In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based          
Compensation" ("SFAS No. 123"), effective for fiscal years beginning after      
December 31, 1995.  SFAS No. 123 establishes the fair value method of accounting
for stock-based compensation arrangements, under which compensation cost is     
determined using the fair value of the stock option at the grant date and the   
number of options vested, and is recognized over the period in which the related
services are rendered.  The Company chose to continue using the intrinsic value 
based method for issuances to employees, as allowed by SFAS No. 123. As further 
provided in SFAS No. 123, the Company has disclosed the pro forma effect of     
adopting the fair value based method.                                           

     Under SFAS No. 123, transactions involving non-employees for which issuance
of equity instruments for goods or services are to be recorded using the fair   
value method.  The fair value method states that the amount recorded is to be   
based on the fair value of the consideration received or the fair value of the  
equity instrument issued, whichever is more reliably measurable.  In 1996, the  
Company issued a total of 616,000 warrants to non-employees for the purchase of 
the Company's Common Stock and recorded a charge of $1,910,000 related to the   
issuance of those equity instruments.                                           

    In December 1995, the Company entered into an agreement ("Agreement") with
Symphony LLC ("Symphony"), an unaffiliated company, whereby Symphony agreed to  
purchase a 10% interest in IWN for $350,000 and would make capital contributions
totaling $2,650,000 to IWN L.P., a limited partnership of which IWN is the      
general partner.                                                                

   The Agreement included a provision whereby Symphony has the option to put
("IWN Put Option") its partnership interest and its shares of IWN to NTN        
commencing April 1, 1997 through December 1, 1997 for certain consideration.    
Accordingly, the Company included the accounts and results of operations of IWN 
L.P. in the Company's consolidated financial statements for the year ended      
December 31, 1996. On April 8, 1997, Symphony exercised the IWN Put Option. At  
December 31, 1996, the aggregate obligation, assuming the IWN Put Option would  
be exercised, was $3,045,000. This amount was recorded as a short-term borrowing
in the consolidated financial statements as of December 31, 1996. The IWN Put   
Option is payable in cash or common stock, or a combination thereof, at         
Symphony's election (subject to the Company's determination of sufficient funds 
available), or conversely Symphony can elect to accept a promissory note for up 
to two years bearing interest at 27.5% per annum. Operating losses for IWN L.P. 
aggregated $2,961,000 in 1996.                                                  

 For the year ended December 31, 1996, total revenues increased 28% from
$20,082,000 to $25,711,000.  This increase is the result of growth in the       
Company's principal revenue activities, Network Services and Online/Internet    
Services.                                                                       

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Network Services increased 29% from $15,559,000 to $20,029,000.  The  
increase is primarily due to an expansion in the number of subscriber locations 
contracting for services.  Online/Internet Services increased 192% from $620,000
to $1,811,000 due to an increase in services to online customers and a growth in
consumer revenue hours.  In addition, the Company has increased the number of   
programs available through this distribution platform.  Advertising revenues    
related to both Network Services and Online/Internet Services increased 41% from
$1,128,000 to $1,590,000 primarily due to an increased number of commercial     
spots sold.                                                                     

Equipment Sales decreased 3% from $1,803,000 to $1,757,000.  Equipment
sales are predominantly related to foreign licensees which are subject to       
outside influences and can occur at random times throughout the year and sale   
and leaseback arrangements.  Equipment sales have been highly volatile in the   
past and are expected to remain so, as they are dependent upon the timing of    
expansion plans of the Company's foreign licensees.  In late 1996, the Company  
decided to no longer enter into sale and leaseback transactions.                

     Operating Expenses consist of incremental service costs directly related to
revenues.  Operating Expenses rose from $3,799,000 to $6,124,000, an increase of
61%.  The increase is largely attributable to the expansion in the number of    
subscribers and on-line services contracting for services and increased service 
and freight costs.                                                              

     Selling, General and Administrative expenses increased 45% from $11,838,000
to $17,169,000.  Included in Selling, General And Administrative expenses are   
several significant charges incurred in 1996.  The significant charges include  
an accrual of $1,910,000 pursuant to SFAS No. 123 related to the issuance of    
warrants; an accrual of severance benefits to certain officers and other        
employees of $840,000; additional marketing expenses incurred during the period 
that shipments of Playmakers(R) were suspended pending approval from the FCC of 
$350,000; a charge of $222,000 related to a change in estimate for deferred     
advertising costs; and approximately $2,900,000 of costs associated with the    
development of a product at the IWN L.P. subsidiary.                            

    Litigation, Legal and Professional expenses increased 277% from $1,720,000
to $6,484,000 due to charges and legal fees associated with settling various    
litigation and on-going operations.  Included in Litigation, Legal and          
Professional services in 1996 are charges of approximately $4,400,000 for       
settlement of existing lawsuits.  Equipment lease expense increased 73% from    
$3,957,000 to $6,837,000 due to the increase in equipment under lease agreements
for the majority of the year and the buyout in late 1996 of certain lease       
obligations resulting in a charge of $2,007,000.  Depreciation and Amortization 
expense increased 110% from $1,078,000 to $2,265,000 due to the higher base of  
depreciable assets that resulted from the buyout.                               

Bad Debt expense relates to trade receivables for Network Services,   
Online/Internet services and educational customers.  Bad Debt expense increased 
185% from $645,000 in 1995 to $1,840,000 in 1996.  Beginning in 1996, the       
Company began to experience reliability problems with its equipment in NTN      
Network Locations.  These problems led to an increase in bad debt expense as    
customers withheld payments.                                                    

   Equipment Charges increased 148% from $1,000,000 in 1995 to $2,478,000 in
1996. Equipment Charges consist of charges for obsolescence and shrinkage of its
stock of broadcast equipment. The Company performs periodic reviews of its      
broadcast equipment. In connection with this review, the Company identified     
equipment shrinkage and obsolescence issues. Accordingly, a charge of $2,478,000
was recorded in 1996. The increase is associated with the growth of the number  
of customers and the amount of equipment to be replaced.                        

    In connection with the management reorganization, the Company canceled, as
of December 31, 1996, certain notes receivable due from executive officers      
resulting in a charge of $4,252,000.  Other Charges of $721,000 include a       
write-down of assets associated with business activities that the Company has   
determined will no longer be pursued.                                           

     Other Income (Expense) decreased from $1,409,000 in 1995 to $1,000 in 1996.
The 1996 results include accreted interest expense associated with the          
Settlement Warrants of $57,000. The 1995 results include reimbursement of       
previously incurred legal expenses from the Company's insurance carrier of      
approximately $1,000,000. There was no tax expense in 1996 and 1995 primarily   
due to taxable losses and offsetting temporary differences in both years.       

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LIQUIDITY AND CAPITAL RESOURCES                                                 

     Following is a discussion of the Company's recent and future sources of and
demands on liquidity, as well as an analysis of liquidity levels.  Expenditures 
have exceeded revenues from operations through most of the Company's history and
may do so in the future.  To reduce operating costs, the Company has determined 
either to sell or cease operations of its two subsidiaries, LearnStar and IWN as
of March 31, 1998.  The Company plans to fund any future operating deficiencies 
from its existing cash and, if necessary, from other sources, as discussed      
below.                                                                          

In 1997, the Company reported a loss of $12,457,000.  The 1997 results
include charges totaling $4,998,000 related to the management reorganization and
a $2,543,000 charge related to obsolete and defective equipment.                

In 1996, the Company reported a loss of $22,952,000.  The 1996 results
include substantial charges for the Reorganization and layoffs of other         
personnel, cancellation of notes receivable, loss on buyout of lease            
obligations, a write-down of assets associated with business activities that the
Company has determined will no longer be pursued, write-down for obsolete       
inventory and equipment, and accrual for legal and litigation settlements.  In  
addition, the year included charges related to the issuance of equity           
instruments as recorded under the guidelines of SFAS No. 123.  Many of these are
non-cash related charges which had little impact on future cash flow.  None of  
the non-cash charges are due to contractions in the core businesses of the      
Company, and therefore are not expected to effect future liquidity or results of
operations.                                                                     

     Charges for the management reorganization and potential liabilities related
to settlement of litigation will generally be paid over a period of time in     
excess of one year, and can, in some cases be settled with the issuance of stock
instead of using cash. The management reorganization and lay-offs of other      
employees were not due to a contraction in the Company's core businesses, but   
rather were cost-cutting measures being implemented to improve operations. These
liabilities, depending on the extent and timing, could affect future liquidity, 
but are expected to be funded from on-going operations.                         

    Total assets decreased 29% from $28,504,000 to $20,271,000 at December 31,
1996 to December 31, 1997. The decrease in assets is primarily due to operating 
losses, and repayment of debt, which was offset by net proceeds of Series B     
Preferred Stock issuances. Cash decreased from $6,579,000 to $4,764,000 at      
December 31, 1997 due primarily to $1,944,000 used for payments to former       
officers pursuant to the management reorganization, net of cash proceeds from   
the issuance of Series B Preferred Stock of $6,707,000. From the proceeds of the
Series B Preferred Stock, the Company repaid its loan to GTECH Corporation of   
$3,700,000. The Company also expended $4,720,000 to develop new software and    
purchase capital assets.                                                        

   Accounts Receivable - Trade increased 34% from $2,031,000 at December 31,
1996 to $2,724,000 at December 31, 1997. Receivables from Network Services      
customers experienced some ongoing settlement issues with customers due to the  
technical problems experienced in 1996 and 1997. In addition, unrelated to the  
technical problems, the Company has experienced reduced payments from one of the
Company's national accounts. The Company has revamped its collection function in
response to management's ongoing monitoring of credit risk. In addition, the    
Company wrote-off a substantial number of uncollectable accounts in 1997.       
Prepaid expenses and other current assets, other assets and retirement plan     
assets decreased from $5,192,000 to $1,113,000 due to termination of the        
executive retirement plan in connection with the management reorganization and  
the sale of the Company's interest in The Campus. There were no accrued benefits
due to employees under the retirement plan.                                     

Broadcast Equipment and Fixed Assets decreased from $10,103,000 to    
$7,973,000 as the result of depreciation of assets and charges for equipment    
shrinkage and obsolescence of $2,543,000, net of additions for new Network      
Services subscribers.                                                           

Total liabilities decreased 37% from $18,282,000 to $11,545,000 from  
December 31, 1996 to December 31, 1997. The 74% combined decrease in Accounts   
Payable and Accrued Expenses from $5,758,000 to $3,307,000 reflects the timing  
of payments in 1996 and the reduction in general expenses in 1997. Accrual for  
Litigation Costs (long and short-term) decreased from $2,800,000 to $1,913,000  
as the Company continued to settle legal issues in 1997. In 1996, a charge of   
$2,800,000 was recorded for the estimated settlement related to pending         
litigation. In the fourth quarter of 1997, the Company reduced the accrual for  
the settlement and accordingly reduced Accrual for Litigation Costs by          
$1,350,000 as a result of the change in estimate related to the settlement.     
Accrual for Management Severance (long and short-term) increased from $840,000  
to $2,247,000 due to charges recorded due to the management reorganization, net 
of payments to former officers. Short-term borrowings of $5,060,000 at December 
31, 1996 which consisted of the IWN Put Option and the loan associated with the 
retirement plan, were paid in full in 1997. In June 1997, the Company borrowed  
$3,700,000 from GTECH Corp, with whom it had agreed in principle to enter into a

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merger agreement. The funds were used to pay Symphony for its interest in IWN.  

     Short-term and long-term deferred revenues increased 25% from $1,254,000 to
$1,567,000.  Deferred revenues represent gains on sales and leaseback           
transactions and software development contracts for which revenue is deferred   
pending the outcome of certain events.                                          

   The Company has working capital of $17,000 at December 31, 1997, compared
to a deficit of $2,120,000 at December 31, 1996.  This is primarily the result  
of the issuance of Series B Preferred Stock, net of the use of cash to fund     
operations and charges and activity related to the management reorganization.   
Revenues from the principal business activities, Network Services,              
Online/Internet Services, and Advertising grew 4% in the year ended December 31,
1997 compared to the prior year.  The Company is expected to continue to require
additional working capital for operating expenses, new services development,    
marketing of services and purchase of the hardware components used in the       
reception of its services.  There can be no assurance that the Company's        
currently available resources will be sufficient to allow the Company to support
its operations until such time, if any, as its internally generated cash flow is
able to sustain the Company.                                                    

    As a result of the working capital ratio and other factors, the Company is
in default of certain covenants of certain leasing arrangements.  The leasing   
arrangements provide for payments from certain customers to be paid to a lockbox
maintained by an independent bank.  The Company has agreed to direct the        
payments of other customers to the lockboxes each month to provide the lessors  
with further security.  The excess funds are returned to the Company each month 
following the lease payment.  In return, the lessors have agreed not to pursue  
their contractual rights to accelerate payments and other rights in the event of
default.  There can be no assurance, however, that they will not do so in the   
future, if the Company fails to satisfy all of its obligations under the leasing
arrangements.                                                                   

The Company had $4,764,000 of cash available at December 31, 1997.  In
1996, the Company completed a plan to repurchase equipment related to certain   
lease obligations.  This transaction has resulted in improved cash flow due to  
the elimination of the lease payments.  Further, following the management       
reorganization, the Company implemented an organization and strategic           
restructuring plan aimed at reducing expenses, which included a workforce       
reduction and focusing on immediate goals designed to generate immediate        
results.                                                                        

     The Company has both short-term and long-term needs for cash outside of its
normal operating needs.  In recent years, the Company has experienced technical 
problems related to its Playmaker(R) device.  Further, the Company has also     
experienced a high rate of customers discontinuing service.  A task force has   
been assembled to review the issue and to make recommendations to improve       
Playmaker(R) performance.  Based on current data, the Company believes that any 
required changes can be affected within the next year.  The costs are estimated 
to be less than $1,000,000 and are expected to be funded through operational    
cash flow.  The Company anticipates that the number of customers discontinuing  
service due to technical problems may revert to historical levels once the      
Playmaker(R) performance has been improved, although no assurances can be given 
that a solution can be reached without undue delay or cost.  If the technical   
problems persist for an extended period of time, it may negatively impact the   
Company's cash flow from operations.                                            

    As noted earlier, the Company completed a reorganization of its management
team that requires the payment to former officers over the next three years.    
These payments include contractual amounts under Resignation Agreements and     
payment for unused vacation leave. In March 1998, the Company and three of the  
former officers agreed to an amendment of Resignation Agreements entered into   
pursuant to the management reorganization. The Agreements were modified to defer
payment of a total of approximately $627,000 of the amounts which were to have  
been paid in 1998 and 1999. The deferred amounts will be paid monthly during    
2000, with an aggregate balloon payment of $102,800 payable on December 31,     
2000. All obligations owing to former officers are expected to be funded through
operations. The modification also provides an option to the Company to settle   
all amounts due pursuant to the Resignation Agreements in shares of Common      
Stock. The option period commenced March 9, 1998 and extends to June 27, 1998.  
The number of shares of Common Stock to be issued will be 66% of the number of  
shares determined by dividing the present value of the amount then owing using a
discount rate of 5% by the average closing price of the Common Stock for the ten
trading days prior to the third business day before the notice of the exercise  
of the option. Should the conversion option be exercised, the                   

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Company agrees to file a Registration Statement on behalf of the former officers
to register the shares to be issued within 20 days of providing notice of its   
intent to exercise its option. The number of shares of Common Stock to be issued
shall be 66% of the number of shares determined by dividing the present value of
the amount then owing using a discount rate of 5% by the average closing price  
of the Common Stock for the ten trading days prior to the third business day    
before the notice of the exercise of the option.                                

The Company has conducted an analysis of its external and internal    
operating systems in conjunction with the "Year 2000" issue.  The Year 2000     
issue relates to the ability of computer software programs to recognize the     
arrival of the year 2000 because of a common software design feature that       
describes the current year by only its last two digits.  The Company has        
determined that its operations will handle Year 2000 compliance correctly       
assuming that the operating systems upon which they run have been updated to    
comply.  Many of the Company's programs obtain date information directly from   
the computer's operating systems.  Thus the current versions of the Company's   
programs are as "compliant" as the operating systems upon which they run.       
Microsoft Corporation, which provides the basic operating system on which the   
Company operates, has stated that their products will continue to operate       
properly into the twenty-first century.  Although the Company does not believe  
there are any material operational issues or costs associated with preparing its
internal systems for the year 2000, there can be no assurances that the Company 
will not experience serious unanticipated negative consequences and/or material 
costs caused by undetected errors or defects in the technology used in its      
internal systems.                                                               

The Company has several lawsuits pending.  In early 1998, the Company 
completed one settlement by establishing a settlement fund consisting of        
$400,000 in cash and 565,000 warrants to purchase the Common Stock of the       
Company and received Court approval to settle a second for $250,000 in cash and 
either cash or stock valued at $1,200,000.  These settlements minimize the      
amount of cash used and provide for possible future inflow of cash if the       
warrants are exercised.                                                         

     In January 1998, the Board of Directors concluded that the interests of the
Company's shareholders are best served by concentrating Company resources and   
efforts on its two core businesses, the NTN Network and Online/Internet         
services. Accordingly, the Board resolved either to sell or cease the operations
of its two subsidiaries, LearnStar and IWN.                                     

    In March 1998, the Company entered into a letter of intent ("LOI") to sell
85% of its interest in LearnStar to NewStar Learning Systems ("NewStar"), a     
company in which Sally A. Zoll, President of LearnStar, is a shareholder. Under 
the LOI, NewStar would pay $1,200,000 for 85% of the Common Stock of LearnStar  
and the Company would retain the LearnStar accounts receivable of approximately 
$800,000 as of February 28, 1998. Pending a closing of the transaction, which   
might occur as late as September 30, 1998, NewStar would be responsible for     
providing operating funds to LearnStar. The Company is currently negotiating a  
definitive agreement, however the terms of the sale have not been finalized.    
There can no assurance that a definitive agreement will be executed or that     
LearnStar will be sold on similar terms should the proposed transaction not     
close.                                                                          

On April 1, 1998, the Company reached an agreement in principle with  
Omnigon, a California corporation, to sell 90% of the equity of IWN to Omnigon  
on or before May 31, 1998. It is intended that Omnigon pay $2,400,000 at closing
for the 90% IWN equity interest. At Omnigon's option, however, it will have the 
right to pay $1,200,000 at closing and deliver its promissory note, secured by  
the purchased IWN common shares, for $1,600,000 payable with interest in three  
installments over a five-month term. If Omnigon elects the latter option, it    
will acquire a lesser amount of the IWN equity. The parties are currently       
negotiating the terms of a definitive agreement for this transaction and no     
assurance can be given that the proposed transaction will be completed. Omnigon 
paid $100,000 in April 1998 and has agreed to pay $100,000 in May 1998 for the  
option to acquire IWN on the foregoing terms. Any such payment made will be non-
refundable and will not be applied to the purchase price of the IWN shares. The 
Company has agreed that IWN shall use any such payment from Omnigon to pay its  
operating expenses prior to a closing or cancellation of the proposed           
transaction.                                                                    

The Company believes that its existing cash balances, cash flow from  
operations, changes in payment terms for long-term contracts and the            
concentration of its efforts on its key business activities in the coming year  
will be adequate to cover its capital and other needs for 1998.  In the past,   
the Company has been able to augment its cash flow from operations by periodic  
sales of Common Stock and other equity instruments, upon exercise of warrants   
and options, by leasing transactions for equipment in use at subscriber         
locations, and by licensing its technology to foreign licensees.  The Company is
exploring alternative capital financing possibilities which may include (i)     
licensing and related royalties of the Company's technology and products; (ii)  
borrowing arrangements under fixed and revolving credit agreements; or (iii)    
sale of additional equity securities.  The Company may negotiate for additional 
lease and debt financing and                                                    

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additional foreign licensing, however, the extent to which any of the foregoing 
may be accomplished, if at all, cannot be predicted at this time.               

    The Company has certain lawsuits pending as previously described in "Legal
Proceedings."  The Company intends to vigorously defend against claimants       
allegations, but to avoid the expense and disruption of protracted litigation   
has settled certain cases and may continue to attempt to settle others.  There  
can be no assurances that the Company will be successful in settling or         
defending such actions or that any or all actions would be decided in favor of  
the Company or that the continued cost of defending and prosecuting these       
actions will not have a material adverse effect on the Company's financial      
position or results of operations.                                              

MARKETING AND EXPANSION PLAN                                                    

    The Company's plan to reach profitability includes the following elements:
(i) reorganizing and expanding the  sales staff; (ii) increasing advertising    
sales; (iii) reducing operating expenses and streamlining its operations; (iv)  
and upgrading and enhancing information systems.                                

   Throughout the Company's history, the principal component of its revenues
has been derived from Network Services to Locations in the hospitality industry 
(restaurants, taverns and hotels).  Management believes that this component will
continue to grow in total revenues within the next year, but may decline as a   
percentage of the Company's total revenues as other revenue streams increase at 
a higher rate.  To increase the number of Locations, the Company has taken      
several steps.  It reorganized its sales staff in late 1997 in order to provide 
for growth in 1998.  The Company has terminated many of the agreements with     
independent representatives and will utilize its own staff in the major markets 
for sales and marketing efforts.  In March 1998, the Company entered into an    
agreement with Datatec Systems, Inc. to provide installation and repair services
to its NTN Network customers throughout the United States.  In 1998, the Company
will continue to attend national and regional hospitality industry trade shows  
and has maintained its budget for advertising in trade publications.            

    A source of growth in 1997 was from Online/Internet Services revenue.  The
Company will continue to provide additional programs to current customers in an 
effort to increase consumer revenue hours.  In addition, the Company will       
continue to seek new outlets for its programs and also provide production       
services for a fee.                                                             

In 1997, the Company enhanced its graphics capabilities but failed to 
obtain additional advertising revenues from national advertisers.  The Company  
has hired an independent consultant to sell commercial spots on the NTN Network 
as well for the Company's Online/Internet programs.                             

  Management believes that another market segment with potential for long-
term growth is the market for interactive television services in the home.  The 
Company expects to remain a provider of specialized programming to networks     
operated by other organizations, such as cable networks, computer on-line       
systems and wireless or telephone-based communication networks.  The Company    
expects to deliver the video portion of its programming directly to cable       
television systems, with viewer responses processed using equipment developed by
others.  In light of this, the Company expects that any significant revenues    
from home use of the Company's services will be dependent upon an expansion in  
the overall home viewer market for home interactive information and             
entertainment services.  The Company maintains working relationships with major 
providers of home interactive information and entertainment services.  As the   
market for home interactive information and entertainment services expands, the 
Company will seek to capitalize on this market.  Revenues to date from in-home  
programming have not been significant.  No assurance can be given that plans to 
expand into the interactive television market will be successful.               

Although there can be no assurance that the Company will prove to be  
successful in implementing its marketing and expansion plan, management believes
that the Company's prospects have improved as a result of recent growth of its  
core business activities, changes in its sales and marketing programs and       
increased customer service programs.                                            

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OTHER                                                                           

In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive   
Income."  This Statement sets standards for reporting and display of            
comprehensive income and its components (revenues, expenses, gains and losses)  
in a full set of general-purposes financial statements.  This Statement shall be
effective for fiscal years beginning after December 15, 1997.  Reclassification 
of financial statements for earlier periods provided for comparative purposes is
required.  This Statement requires only additional informational disclosures and
is effective for the Company's fiscal year ending December 31, 1998.            

   In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes standards for
the way that public business enterprises report information about operating     
segments in annual financial statements and require that enterprises report     
selected information about operating segments in interim financial reports      
issued to stockholders.  This Statement will be effective for fiscal years      
beginning after December 15, 1997.  In the initial year of application,         
comparative information for earlier years is to be restated.  This Statement    
requires only additional informational disclosures and is effective for the     
Company's fiscal year ending December 31, 1998.                                 

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ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA     
    --------------------------------------------------------

  See Index to Consolidated Financial Statements and Schedule on page F-1,
for a listing of the Consolidated Financial Statements and Schedule filed with  
this report, which are incorporated herein by reference.                        

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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS              
----------------------------------------------    

     During 1996, the Company had outstanding loans to a director and certain of
its officers.  The loans represent withholding amounts paid by the Company on   
behalf of the director and officers to taxing authorities in order to obtain a  
tax deduction for federal and state income tax purposes relating to compensation
to these officers and directors for                                             

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prior years. The loans were evidenced by individual promissory notes in favor of
the Company which bore interest at annual rates of between 6% and 8%, were      
unsecured and were due on demand.                                               

In April 1996, the Company restructured the loans to the director and 
officers as described in the preceding paragraph.  Pursuant to the              
restructuring, each director and officer executed a three-year promissory note  
in favor of the Company in a principal amount equal to the aggregate outstanding
principal balance and accrued interest on the loans as follows: Donald C.       
Klosterman - $1,179,043; Patrick J. Downs - $680,429; Daniel C. Downs -$629,141;
Gerald P. McLaughlin - $492,691; Ronald E. Hogan - $445,384; and Robert         
Klosterman - $237,383. The terms of the notes were as follows: 10% of the       
principal amount was due at the end of 12 months from the date of the note; an  
additional 30% of the principal amount was due at the end of 24 months; and the 
balance of the principal amount (i.e., 60%) was due at the end of 36 months.    
The notes were pre-payable at any time without penalty and bore interest at the 
rate of 6% per annum, which was payable annually in arrears.                    

    The maker of each note had the option to satisfy amounts outstanding under
his note by relinquishing to the Company for cancellation either (i) shares of  
the Company's Common Stock (valued for this purpose at the closing market price 
on the date of transfer), or (ii) warrants to purchase the Company's Common     
Stock (valued for this purpose at the fair market value on the date of transfer 
as determined in good faith by the Board of Directors of the Company).  To the  
extent the maker of a note surrendered to the Company shares of Common Stock in 
satisfaction of all or part of his note or interest thereon, the executive was  
to be granted a 10-year nontransferable option (an incentive stock option to the
extent permissible) to purchase the same number of shares of Common Stock as    
were being surrendered, which would be immediately exercisable at an exercise   
price equal to the value at which the Common Stock was surrendered to the       
Company in satisfaction of the note, subject to shareholder approval if required
by law or stock exchange rules.                                                 

    Under the terms of the notes, if any officer was terminated by the Company
for any reason other than for "cause" at any time within the three-year term of 
his note (or in the case of Donald C. Klosterman, if the stockholders failed to 
reelect him to the Board of Directors), the balance of the note and any interest
accrued thereon were to be canceled.  "Cause" for this purpose was defined as   
personal dishonesty or willful misconduct which materially and adversely affects
the Company.                                                                    

    In March 1997, Patrick J. Downs, Daniel C. Downs, and Gerald P. McLaughlin
resigned or were terminated. In September 1996, Ronald E. Hogan resigned.       
Pursuant to Resignation and General Release Agreements between the Company and  
each resigning officer, and in accordance with the terms of the foregoing notes,
effective December 31, 1996, the Company canceled the obligations of Patrick J. 
Downs, Daniel C. Downs, Gerald P. McLaughlin and Ronald E. Hogan under the      
foregoing notes, the principal and accrued interest of which totaled $953,710,  
$657,265, $514,715 and $463,526, respectively. See "Executive Compensation -    
Employment Agreements and Termination of Employment and Change in Control       
Arrangements."                                                                  

ADVANCE TO MR. SOKOL                                                            

    In March 1997, as a consequence of the reorganization of NTN's management,
an advance of $150,000 provided to Mr. Sokol in 1996 was forgiven.  The advance,
originally provided in August 1996, in connection with his agreeing to join NTN 
was for use in purchasing a residence in California.  The advance was to be     
forgiven over four years as a bonus or upon the occurrence of a change in       
control of NTN.  Such a change of control occurred in March 1997.               

CONSULTING ARRANGEMENTS                                                         

In December 1996, NTN retained Frazier/King Media Holding Co.         
("Frazier/King"), a media consulting firm of which Edward C. Frazier is a       
principal and a 50% owner, to provide consulting services to NTN relating to the
development of a local advertising sales program.  Under the terms of the one-  
year engagement, NTN paid Frazier/King $100,000 plus reimbursement of expenses  
incurred by Frazier/King of approximately $35,000.                              

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  In March 1997, NTN entered into a separate Consulting Agreement with Mr.
Frazier, under which he agreed to spend on average seven days a month consulting
with management of NTN regarding NTN's operations and serving as a consultant to
NTN's President and as a member of NTN's Executive Advisory Board, which had    
just been created by NTN's Board of Directors.  The Executive Advisory Board was
subsequently disbanded.  The Consulting Agreement was to expire in March 1999,  
unless sooner terminated.  In consideration for his services under the foregoing
Consulting Agreement, Mr. Frazier was granted a five-year, nonqualified stock   
option to purchase 250,000 shares of Common Stock at an exercise price of $4.50 
per share, which was to vest in 24 monthly installments of approximately 10,416 
shares each, subject to Mr. Frazier remaining as a consultant, and was to become
exercisable on and after February 28, 1999.  NTN also agreed to reimburse Mr.   
Frazier for certain expenses relating to his consulting services.  In May 1997, 
Mr. Frazier's option was amended to reduce the exercise price to $2.81 and to   
provide that it would become immediately exercisable in full in the event of a  
"Change of Control" (as defined) of NTN.  In January 1998, the Board of         
Directors cancelled the Consulting Agreement and reduced the compensation to    
104,167 options, which are 100% vested at March 31, 1998.  In connection with   
the option granted to Mr. Frazier under the Consulting Agreement, NTN recorded a
charge pursuant to SFAS No. 123 of $224,000 in 1997.  An additional charge of   
$58,000 will be recorded in 1998.                                               

In April 1997, NTN entered into another Consulting Agreement with     
Frazier/King, under which Frazier/King was engaged to review and consult with   
management of NTN regarding NTN's strategic business plan, current operations   
and future development and to devise and structure an appropriate plan to secure
future financing for NTN.  The Consulting Agreement was terminable by NTN any   
time upon ten days notice to Frazier/King in the event the Board of Directors as
a whole determined in good faith that Frazier/King had failed materially to     
perform, or had breached its duties, under the Consulting Agreement.            

   For Frazier/King's services under the foregoing Consulting Agreement, NTN
granted Frazier/King a warrant to purchase 1,000,000 shares of Common Stock at  
an exercise price of $2.81, the approximate market value of the Common Stock on 
the date of the Consulting Agreement, and agreed to reimburse Frazier/King for  
expenses (other than normal operating expenses) incurred by it in performing its
consulting services.  Frazier/King's warrant was immediately vested and         
exercisable as to 200,000 shares of Common Stock covered thereby and was to     
become vested and exercisable as to the balance of 800,000 covered shares in    
quarterly installments of 100,000 shares each as of the 15th day of each July,  
October, January and April commencing July 15, 1997 and ending April 15, 1999,  
provided that the Board of Directors of NTN has determined that Frazier/King was
performing satisfactorily under the Consulting Agreement.  In January, 1998, the
Board and Frazier/King agreed to terminate this consulting agreement and the    
number of warrants granted was reduced to 500,000, which were immediately       
vested.  In connection with the warrant granted to Frazier/King, NTN recorded a 
charge pursuant to SFAS No. 123 of $1,401,000, in 1997.                         

 In March, 1997, the Company announced a reorganization of its executive
management personnel as described under "Recent Developments" in Item 1 of the  
Report, which information is incorporated herein by reference.                  

INDEMNITY AGREEMENTS                                                            

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

PROPOSED SALE OF LEARNSTAR                                                      

  See the discussion under "Recent Developments-Recent Decision Concerning
Subsidiaries", which information is incorporated herein by reference, relating  
to the Company's proposed sale of LearnStar to NewStar, a company in which Sally
A. Zoll, President of LearnStar, is a shareholder.                              

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PART IV 

   ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE, AND
            --------------------------------------------------------
REPORTS ON FORM 8-K                         
-------------------                         

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

1,2.  Consolidated Financial Statements and Schedule.         

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

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

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                                                                [Download Table]
                                             

23      Consent of KPMG Peat Marwick LLP. (1)

27      Financial Data Schedule. (1)         

(1)     Filed herewith.                                                         

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(b)  Reports on Form 8-K.                                       

None.                                                           

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SIGNATURES

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

DATED:  May 14, 1998                                                            

NTN COMMUNICATIONS, INC.                                                        

By:    /s/ GERALD SOKOL, JR                                                     
--------------------                                              
Gerald Sokol, Jr., President and Chief Executive Officer              

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE 

                                                        [Enlarge/Download Table]

                                                                                         Page      
                                                                                   ----------------
                                                                                                   
Independent Auditors' Report                                                              F-2      

Consolidated Financial Statements:                                                                 

     Consolidated Balance Sheets as December 31, 1997 and 1996                            F-3      

     Consolidated Statements of Operations for the years ended December 31, 1997,         F-4      
      1996 and 1995                                                                                

     Consolidated Statements of Shareholders' Equity for the years ended                  F-5      
      December 31, 1997, 1996 and 1995                                                             

     Consolidated Statements of Cash Flows for the years ended December 31,               F-7      
      1997, 1996 and 1995                                                                          

Notes to Consolidated Financial Statements                                                F-9      

Financial Statement Schedule II - Valuation and Qualifying Accounts                       F-25     

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Independent Auditors' Report  
----------------------------  

The Board of Directors                                                          
NTN Communications, Inc.:                                                       

We have audited the consolidated financial statements of NTN Communications,    
Inc. and subsidiaries as listed in the accompanying index.  In connection with  
our audits of the consolidated financial statements, we also have audited the   
financial statement schedule as listed in the accompanying index.  These        
consolidated financial statements and financial statement schedule are the      
responsibility of the Company's management. Our responsibility is to express an 
opinion on these consolidated financial statements based on our audits.         

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

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of NTN Communications, 
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period  
ended December 31, 1997, in conformity with generally accepted accounting       
principles.  Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth     
therein.                                                                        

                                                           KPMG Peat Marwick LLP

San Diego, California                                                           
April 10, 1998                                                                  

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Consolidated Balance Sheets 

December 31, 1997 and 1996  

                                                        [Enlarge/Download Table]

                                       ASSETS                                     1997           1996     
                                                                              ------------   ------------ 
                                                                                                          
Current assets:                                                                                           
   Cash and cash equivalents                                                  $  4,764,000      6,579,000 
   Accounts receivable - trade, net of allowance for doubtful                                             
    accounts of $1,313,000 in 1997 and $1,563,000 in 1996                        2,724,000      2,031,000 
   Accounts receivable - officers and employees                                         --        199,000 
   Prepaid expenses and other current assets                                       902,000      1,846,000 
                                                                              ------------   ------------ 
              Total current assets                                               8,390,000     10,655,000 

Broadcast equipment and fixed assets, net (note 4)                               7,973,000     10,103,000 
Software development costs, net of accumulated amortization                                               
   of $3,710,000 in 1997 and $1,829,000 in 1996                                  3,697,000      4,400,000 
Retirement plan assets (note 9)                                                         --      2,527,000 
Other assets                                                                       211,000        819,000 
                                                                              ------------   ------------ 

              Total assets                                                    $ 20,271,000     28,504,000 
                                                                              ============   ============ 

                         LIABILITIES AND SHAREHOLDERS' EQUITY                                             

Current liabilities:                                                                                      
   Accounts payable                                                                914,000      2,193,000 
   Accrued expenses (note 9)                                                     2,393,000      3,565,000 
   Accrual for litigation costs (note 11)                                        1,613,000              - 
   Accrual for management severance (note 3)                                     1,154,000        424,000 
   Short-term borrowings (note 5)                                                       --      5,060,000 
   Obligations under capital lease (note 10)                                        46,000             -- 
   Deferred revenue                                                              1,483,000        254,000 
   Customer deposits                                                               770,000      1,279,000 
                                                                              ------------   ------------ 
              Total current liabilities                                          8,373,000     12,775,000 

Deferred revenue                                                                    84,000      1,000,000 
Obligations under capital lease (note 10)                                          179,000             -- 
Accrual for settlement warrants (note 11)                                        1,516,000      1,291,000 
Accrual for litigation costs (note 11)                                             300,000      2,800,000 
Accrual for management severance (note 3)                                        1,093,000        416,000 
                                                                              ------------   ------------ 
              Total liabilities                                                 11,545,000     18,282,000 
                                                                              ------------   ------------ 
Shareholders' equity (notes 7 and 8):                                                                     
   Series A 10% cumulative convertible preferred stock, $.005 par value,                                  
      10,000,000 shares authorized;  shares issued and outstanding 161,000                                
      in 1997 and 1996                                                               1,000          1,000 
   Series B 4% cumulative convertible preferred stock, $.005 par value,                                   
      85,000 shares authorized; shares issued and outstanding 70,000 in 1997                              
      and none in 1996                                                               1,000             -- 
   Common stock, $.005 par value, 50,000,000 shares authorized; shares issued                             
      and outstanding 23,677,000 in 1997 and 23,177,000 in 1996                    118,000        116,000 
   Additional paid-in capital                                                   70,541,000     59,583,000 
   Accumulated deficit                                                         (58,596,000)   (46,139,000)
                                                                              ------------   ------------ 
                                                                                12,065,000     13,561,000 
   Less treasury stock, at cost, 782,000 shares in 1997 and 1996                (3,339,000)    (3,339,000)
                                                                              ------------   ------------ 
              Total shareholders' equity                                         8,726,000     10,222,000 
                                                                              ------------   ------------ 
Commitments and contingencies (notes 3, 10 and 11)                                                        

              Total liabilities and shareholders' equity                      $ 20,271,000     28,504,000 
                                                                              ============   ============ 

See accompanying notes to consolidated financial statements.                    

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Consolidated Statements of Operations 

For the years ended December 31, 1997, 1996 and 1995  

                                                        [Enlarge/Download Table]

                                                                      1997           1996           1995      
                                                                   ------------   ------------   ------------ 
                                                                                                              
Revenue:                                                                                                      
   Network services                                                $ 20,245,000     20,029,000     15,559,000 
   Online/Internet services                                           3,326,000      1,811,000        620,000 
   Advertising revenue                                                  772,000      1,590,000      1,128,000 
   Equipment sales, net of cost of sales of $231,000, $3,801,000,                                             
      and $4,981,000 in 1997, 1996 and 1995, respectively               475,000      1,757,000      1,803,000 
   License and royalty fees and other revenue                         1,043,000        524,000        972,000 
                                                                   ------------   ------------   ------------ 

             Total revenue                                           25,861,000     25,711,000     20,082,000 
                                                                   ------------   ------------   ------------ 
Operating expenses:                                                                                           
   Operating expenses                                                 6,565,000      6,124,000      3,799,000 
   Selling, general and administrative                               19,449,000     17,169,000     11,838,000 
   Litigation, legal and professional expenses (note 11)                808,000      6,484,000      1,720,000 
   Equipment lease expense                                              936,000      6,837,000      3,957,000 
   Depreciation and amortization                                      5,305,000      2,265,000      1,078,000 
   Bad debt expense                                                   1,462,000      1,840,000        645,000 
   Equipment charges                                                  2,543,000      2,478,000      1,000,000 
   Research and development                                           1,600,000      3,396,000      1,471,000 
   Cancellation of notes receivable - related parties (note 3)               --      4,252,000             -- 
   Other charges                                                             --        721,000             -- 
                                                                   ------------   ------------   ------------ 
             Total operating expenses                                38,668,000     51,566,000     25,508,000 
                                                                   ------------   ------------   ------------ 
 Operating loss                                                     (12,807,000)   (25,855,000)    (5,426,000)

 Other income (expense):                                                                                      
   Interest income                                                      238,000        391,000        478,000 
   Interest expense                                                    (793,000)      (390,000)      (112,000)
   Equity in loss of affiliate                                               --             --       (286,000)
   Other (note 10)                                                      905,000             --      1,329,000 
                                                                   ------------   ------------   ------------ 
             Total other income                                         350,000          1,000      1,409,000 

Loss from continuing operations before                                                                        
 income taxes                                                       (12,457,000)   (25,854,000)    (4,017,000)
Income taxes (note 6)                                                        --             --             -- 
                                                                   ============   ============   ============ 

Loss from continuing operations                                     (12,457,000)   (25,854,000)    (4,017,000)
Earnings (loss) from discontinued operations (note 2)                        --     (1,317,000)        69,000 
Gain on sale of discontinued operations, net of tax (note 2)                 --      4,219,000             -- 
                                                                   ------------   ------------   ------------ 
             Net loss                                              $(12,457,000)   (22,952,000)    (3,948,000)
                                                                   ============   ============   ============ 
Basic and diluted net loss per share:                                                                         
 Continuing operations                                             $      (0.55)         (1.15)         (0.19)
 Discontinued operations                                                     --           0.13             -- 
                                                                   ------------   ------------   ------------ 
 Net loss                                                          $      (0.55)         (1.02)         (0.19)
                                                                   ============   ============   ============ 
Weighted-average  shares outstanding                                 22,696,000     22,568,000     20,301,000 
                                                                   ============   ============   ============ 

See accompanying notes to consolidated financial statements.                    

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Consolidated Statements of Shareholders' Equity 

For the years ended December 31, 1997, 1996 and 1995  

                                                        [Enlarge/Download Table]

                                   SERIES A AND B                                                                               
                                     CUMULATIVE                                                                                 
                                     CONVERTIBLE                                                                                
                                   PREFERRED STOCK       COMMON STOCK       ADDITIONAL                                          
                                   ----------------  ---------------------   PAID-IN    ACCUMULATED     TREASURY                
                                   SHARES    AMOUNT    SHARES      AMOUNT    CAPITAL      DEFICIT        STOCK         TOTAL    
                                   -------   ------  ----------   --------  ----------  -----------   -----------   ----------- 
                                                                                                                                
Balance, December 31, 1994         198,000   $1,000  19,178,000   $ 96,000  44,599,000  (19,239,000)           --    25,457,000 

Issuance of stock for exercise of                                                                                               
 warrants and options                   --       --     312,000      1,000     679,000           --            --       680,000 
Conversion of preferred stock to                                                                                                
 common stock                      (35,000)      --      10,000         --          --           --            --            -- 
Issuance of stock in lieu of                                                                                                    
 dividends                              --       --       3,000         --          --           --            --            -- 
Issuance of stock in private                                                                                                    
 offerings, net of issuance costs       --       --   3,000,000     15,000  11,469,000           --            --    11,484,000 
Treasury shares purchased               --       --          --         --          --           --      (222,000)     (222,000)
Net loss                                --       --          --         --          --   (3,948,000)           --    (3,948,000)
                                   -------   ------  ----------   --------  ----------  -----------   -----------   ----------- 

Balance, December 31, 1995         163,000   $1,000  22,503,000   $112,000  56,747,000  (23,187,000)     (222,000)   33,451,000 

Issuance of stock for exercise of                                                                                               
 warrants and options                   --       --     251,000      1,000     316,000           --            --       317,000 
Issuance of stock in lieu of                                                                                                    
 dividends                              --       --       3,000         --          --           --            --            -- 
Conversion of preferred stock to                                                                                                
 common stock                       (2,000)      --          --         --          --           --            --            -- 
Issuance of stock in private                                                                                                    
 offerings, net of issuance costs       --       --     420,000      3,000     610,000           --            --       613,000 
Treasury shares purchased               --       --          --         --          --           --    (3,117,000)   (3,117,000)
Warrants granted to non-employees       --       --          --         --   1,910,000           --            --     1,910,000 

Net loss                                --       --          --         --          --  (22,952,000)           --   (22,952,000)
                                   -------   ------  ----------   --------  ----------  -----------   -----------   ----------- 
Balance, December 31, 1996         161,000   $1,000  23,177,000   $116,000  59,583,000  (46,139,000)   (3,339,000)   10,222,000 
                                   -------   ------  ----------   --------  ----------  -----------   -----------   ----------- 

See accompanying notes to consolidated financial statements.                    

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Consolidated Statements of Shareholders' Equity, Continued

For the years ended December 31, 1997, 1996 and 1995  

                                                        [Enlarge/Download Table]

                                   SERIES A AND B                                                                               
                                     CUMULATIVE                                                                                 
                                     CONVERTIBLE                                                                                
                                   PREFERRED STOCK       COMMON STOCK       ADDITIONAL                                          
                                   ----------------  --------------------    PAID-IN    ACCUMULATED     TREASURY                
                                   SHARES    AMOUNT    SHARES      AMOUNT    CAPITAL      DEFICIT        STOCK         TOTAL    
                                   -------   ------  ----------   -------   ----------  -----------   -----------   ----------- 
                                                                                                                                
Balance, forward December 31,                                                                                                   
 1996                              161,000   $1,000  23,177,000   $116,000  59,583,000  (46,139,000)   (3,339,000)   10,222,000 

Issuance of stock for exercise of                                                                                               
 warrants and options                   --       --     419,000      2,000     888,000           --            --       890,000 
Issuance of Series B Preferred                                                                                                  
 Stock in private offering, net of                                                                                              
 issuance costs                     70,000    1,000          --         --   6,706,000           --            --     6,707,000 
Issuance of stock in lieu of                                                                                                    
 dividends                              --       --       8,000         --          --           --            --            -- 
Issuance and modifications of                                                                                                   
 warrants granted to non-employees      --       --          --         --   3,205,000           --            --     3,205,000 
Issuance of shares for settlement                                                                                               
 of litigation                          --       --      73,000         --     159,000           --            --       159,000 
Net loss                                --       --          --         --          --  (12,457,000)           --   (12,457,000)
                                   -------   ------  ----------   --------  ----------  -----------   -----------   ----------- 
Balance, December 31, 1997         231,000   $2,000  23,677,000   $118,000  70,541,000  (58,596,000)   (3,339,000)    8,726,000 
                                   =======   ======  ==========   ========  ==========  ===========   ===========   =========== 

See accompanying notes to consolidated financial statements.                    

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Consolidated Statements of Cash Flows 

For the years ended December 31, 1997, 1996 and 1995  

                                                        [Enlarge/Download Table]

                                                            1997          1996          1995    
                                                        ------------   -----------   ---------- 
                                                                                                
Cash flows from operating activities:                                                           
   Net loss                                             $(12,457,000)  (22,952,000)  (3,948,000)
   Adjustments:                                                                                 
    Gain on sale of discontinued operations                       --    (4,219,000)          -- 
    Gain on sale of interest in building                    (905,000)           --           -- 
    Depreciation and amortization                          5,305,000     2,265,000    1,078,000 
    Bad debt expense                                       1,462,000     1,840,000      645,000 
    Loss from discontinued operations                             --     1,317,000           -- 
    Loss from cancellation of notes receivable                    --     4,252,000           -- 
    Loss on buyout of lease commitments                           --     2,007,000           -- 
    Loss from disposition of broadcast equipment           2,543,000     2,478,000    1,000,000 
    Non-cash stock compensation charges                    3,205,000     1,910,000           -- 
    Charge for settlement warrants                                --     1,234,000           -- 
    Accreted interest expense                                410,000        57,000              
    Amortization of deferred revenue                        (719,000)     (898,000)  (1,316,000)
    Stock issued in settlement of litigation                 159,000            --           -- 
    Change in discontinued operations                             --    (2,761,000)    (942,000)
    Loss on sale of marketable securities - available                                           
       for sale                                                   --            --       70,000 
    Change in assets and liabilities:                                                           
       Accounts receivable - trade                        (1,956,000)      448,000      486,000 
       Inventory, net                                             --            --   (1,670,000)
       Prepaid expenses and other assets                   3,542,000     1,430,000   (1,659,000)
       Accounts payable, accrued expenses and                                                   
          other accrued liabilities                       (2,116,000)    6,521,000      886,000 
       Deferred revenue                                    1,032,000    (1,101,000)          -- 
       Customer deposits                                    (509,000)       (5,000)     278,000 
                                                        ------------   -----------   ---------- 

   Net cash used in operating activities                  (1,004,000)   (6,177,000)  (5,092,000)
                                                        ------------   -----------   ---------- 

Cash flows from investing activities:                                                           
   Capital expenditures                                   (3,700,000)   (4,411,000)  (2,167,000)
   Proceeds from sale of interest in building              1,405,000            --           -- 
   Proceeds from sale of discontinued operations                  --    10,223,000           -- 
   Notes receivable                                               --       216,000   (2,163,000)
   Software development costs                             (1,020,000)   (2,274,000)  (2,070,000)
   Purchases of other investments                                 --            --     (103,000)
   Proceeds from sales of marketable securities -                                               
       available for sale                                         --            --      930,000 
   Proceeds from sale and leaseback transactions                  --     3,553,000    4,500,000 
   Deposits related to sale and leaseback transactions            --            --     (575,000)
                                                        ------------   -----------   ---------- 

 Net cash provided by (used in) investing activities      (3,315,000)    7,307,000   (1,648,000)
                                                        ------------   -----------   ---------- 

See accompanying notes to consolidated financial statements.                    

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Consolidated Statements of Cash Flows, Continued  

For the years ended December 31, 1997, 1996 and 1995  

                                                        [Enlarge/Download Table]

                                                            1997         1996         1995    
                                                        -----------   ----------   ---------- 
                                                                                              
Cash flows from financing activities:                                                         
   Principal payments on debt                           $(9,563,000)          --      (20,000)
   Proceeds from issuance of debt                         4,470,000    3,704,000    1,368,000 
   Purchase of equipment related to sale and leaseback                                        
      transactions                                               --   (2,553,000)  (2,470,000)
   Proceeds from issuance of common and preferred                                             
      stock, less issuance costs paid in cash             7,597,000      930,000   12,164,000 

   Repurchase of common stock                                    --   (3,117,000)    (222,000)
                                                        -----------   ----------   ---------- 

Net cash provided by (used in) financing activities       2,504,000   (1,036,000)  10,820,000 
                                                        -----------   ----------   ---------- 

Net increase (decrease) in cash and cash equivalents     (1,815,000)      94,000    4,080,000 

Cash and cash equivalents at beginning of year            6,579,000    6,485,000    2,405,000 
                                                        -----------   ----------   ---------- 

Cash and cash equivalents at end of year                $ 4,764,000    6,579,000    6,485,000 
                                                        ===========   ==========   ========== 

Supplemental disclosures of cash flow information:                                            

   Cash paid during the year for:                                                             

      Interest                                          $   367,000           --           -- 
                                                        ===========   ==========   ========== 

                                                        $        --           --           -- 
                                                        ===========   ==========   ========== 

Non-cash investing and financing activities:                                    

In 1997, the Company acquired equipment of $258,000 under a capital lease.      

In 1996, the Company transferred $5,618,000 of assets previously categorized as 
Inventory, a current asset, to Broadcast Equipment, a non-current asset         
(note 4).                                                                       

See accompanying notes to consolidated financial statements.                    

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements  

For the years ended December 31, 1997, 1996 and 1995  

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                 

ORGANIZATION                                                            

    NTN Communications, Inc. ("The Company") was organized under the laws of the
  state of Delaware in 1984 for the purpose of investing in various business
ventures. The Company, through its business units and subsidiaries,     
  develops, produces and distributes individual and multi-player interactive
entertainment and education programs to a variety of media platforms.   

BASIS OF ACCOUNTING PRESENTATION                                        

 The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, LearnStar Inc., (LearnStar), IWN Inc.
("IWN") and IWN L.P., a limited partnership.                            

LIQUIDITY                                                               

   The Company has experienced significant losses from operations and utilized
cash flows from operating activities in each of the three years ended   
December 31, 1997. Management has implemented an organizational and     
   strategic restructuring aimed at reducing overhead expenses and focusing on
the Company's core business units. This process involved a workforce    
  reduction, including five senior officers, the buyout of certain high-rate
lease commitments, and restructuring its management personnel and       
responsibilities. Management believes that these steps will contribute  
   toward achieving profitability and improving cash flow. Management believes
it can raise additional funds through further equity and debt issuances.

In addition, the Company has committed to concentrate its resources and 
efforts on its two core businesses, the NTN Network and Online/Internet 
services. Accordingly, the Board resolved either to sell or cease the   
operations of its two subsidiaries, LearnStar and IWN (note 12).        

CASH AND CASH EQUIVALENTS                                               

  For the purpose of financial statement presentation, the Company considers
  all highly liquid investment instruments with original maturities of three
    months or less to be cash equivalents. Cash and cash equivalents at December
31, 1997 and 1996, consist of operational cash accounts and money market
accounts with original maturities of three months or less.              

MARKETABLE SECURITIES - AVAILABLE FOR SALE                              

Securities available for sale are carried at fair value with unrealized 
gains and losses, net of tax, reported as a separate component of       
  shareholders' equity. The cost of securities sold is based on the specific
identification method.                                                  

Proceeds from the sale of investment securities available for sale was  
 $930,000 in 1995 and gross realized losses included in income in 1995 was
    $70,000. There were no purchases or sales of investment securities available
for sale in 1997 or 1996.                                               

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

BROADCAST EQUIPMENT AND FIXED ASSETS                                      

  Depreciation of fixed assets is computed using the straight-line method over
  the estimated useful lives of the assets (three to five years). Depreciation
of broadcast equipment is computed using the straight-line method over the
estimated useful lives of the assets (two to four years).                 

REVENUE RECOGNITION                                                       

 Network and Online/Internet Services:  Revenue is recognized as the service
is provided by the Company.                                               

   Advertising:  Revenue for advertising is recognized ratably over the contract
period as advertisements are broadcast or displayed.                      

Equipment Sales:  Revenue is recognized when equipment is shipped or      
transferred to the purchaser.                                             

  License Fee and Royalties:  Revenue is recognized when all material services
or conditions relating to the sale have been performed or satisfied.      

INCOME TAXES                                                              

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

SOFTWARE DEVELOPMENT COSTS                                                

  The Company capitalizes costs related to the development of certain software
products. In accordance with Statement of Financial Accounting Standards  
 ("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed" capitalization of costs begins when        
 technological feasibility has been established and ends when the product is
  available for general release to customers. Amortization of costs related to
   interactive programs is recognized on a straight line basis over three years.

STOCK-BASED COMPENSATION                                                  

   Prior to January 1, 1996, the Company accounted for its stock option plans in
   accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees", and related           
  interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, 
"Accounting for Stock-Based Compensation", which permits entities to      
recognize as expense over the vesting period, the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB No. 25 and provide pro
forma net income and pro forma earnings per share disclosures for employee
   stock options grants made in 1996 and future years as if the fair-value-based
 method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB No. 25 and provide the pro forma  
disclosure provisions of SFAS No. 123.                                    

 Under SFAS No. 123, options or warrants issued to non-employees in exchange
for goods or services received are recorded at the fair value of the      
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.                                    

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF         

Long-lived assets and certain identifiable intangibles are reviewed for         
impairment whenever events or changes in circumstances indicate that the        
carrying amount of an asset may not be recoverable. Recoverability of assets to 
be held and used is measured by a comparison of the carrying amount of an asset 
to future net cash flows expected to be generated by the asset. If such assets  
are considered to be impaired, the impairment to be recognized is measured by   
the amount by which the carrying amount of the assets exceeds the fair value of 
the assets. Assets to be disposed of are reported at the lower of the carrying  
amount or fair value less costs to sell.                                        

FAIR VALUE OF FINANCIAL INSTRUMENTS                                             

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines  
the fair value of a financial instrument as the amount at which the instrument  
could be exchanged in a current transaction between willing parties. The Company
believes that the fair value of financial instrument assets and financial       
instrument liabilities approximate their carrying value. The following methods  
and assumptions were used to estimate the fair value of financial instruments:  

The carrying values of cash and cash equivalents, accounts receivable, accounts 
payable and accrued liabilities approximates fair value because of the short    
maturity of these instruments. The fair value of the accrual for settlement     
warrants and other long-term liabilities are determined using the present value 
of expected future cash flows discounted at the interest rate currently offered 
by the Company which approximates rates currently offered by local lending      
institutions for instruments of similar terms and risks.                        

USE OF ESTIMATES                                                                

Management of the Company has made a number of estimates and assumptions        
relating to the reporting of assets and liabilities and the disclosure of       
contingent assets and liabilities at the date of the financial statements and   
the reported amounts of revenue and expenses during the reporting period to     
prepare these financial statements in conformity with generally accepted        
accounting principles. Actual results could differ from those estimates.        

BASIC AND DILUTED EARNINGS PER COMMON SHARE                                     

In December 1997, the Company adopted the provisions of SFAS No. 128, "Earnings 
per Share". SFAS No. 128 supercedes APB No. 15 and replaces "primary" and "fully
diluted" earnings per share ("EPS") under APB No. 15 with "basic" and "diluted" 
EPS. Unlike primary EPS, basic EPS excludes the dilutive effects of options,    
warrants and other convertible securities. Diluted EPS reflects the potential   
dilution of securities that could share in the earnings of the Company, similar 
to fully diluted EPS. Options, warrants and convertible preferred stock,        
representing approximately 17,630,000, 1,078,000, and 1,511,000 shares were     
excluded from the computations of net loss per common share for the years ended 
December 31, 1997, 1996 and 1995, respectively, as their effect is anti-        
dilutive. The adoption of SFAS No. 128 did not have a material effect on the    
Company's net loss per common share.                                            

RECLASSIFICATIONS                                                               

Certain items in the 1996 and 1995 consolidated financial statements have been  
reclassified to conform to the 1997 presentation.                               

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Notes to Consolidated Financial Statements, Continued 

(2)  DISCONTINUED OPERATIONS - NEW WORLD COMPUTING                              

  On June 30, 1996, the Company sold all of the assets and business of its
     New World Computing subsidiary ("New World") to the 3DO Company ("3DO") for
    approximately $13,600,000. In consideration of the sale, 3DO issued to the
Company approximately 1,018,000 shares of its common stock and assumed
   approximately $1,600,000 of liabilities of New World. 3DO guaranteed that
     the cash value realized by the Company upon sale of the shares would not be
less than $10.04 per share, notwithstanding the market price of such  
     shares. The Company sold all of the 3DO shares in 1996 and obtained payment
of $3,877,000 from 3DO pursuant to the guarantee.                     

     The disposal of New World has been classified as discontinued operations in
the accompanying consolidated financial statements. Accordingly, the  
consolidated financial statements for all prior periods have been     
   reclassified to report separately the net assets and operating results of
the discontinued business.                                            

    The Company recorded a gain on the sale of New World of $4,219,000, net of
   tax of $16,000. New World's revenue through the sale date was $2,085,000.
For 1995 New World revenues were $5,379,000.                          

(3)  MANAGEMENT REORGANIZATION                                                  

   On March 5, 1997, the Company announced a reorganization of its executive
    management personnel in which Patrick J. Downs resigned as Chief Executive
Officer and Chairman of the Board and Daniel C. Downs resigned as     
     President. In addition, three other officers resigned or were terminated in
    connection with the reorganization ("Reorganization"). The Company entered
  into separate agreements ("Agreements") with each of the former officers
     setting out the terms on which their existing employment contracts with the
 Company will be settled. In compliance with the Agreements, the Company
    will continue to pay the former officers their current annual salaries and
    other benefits for the remaining terms of their employment agreements with
the Company, which expire on or before December 31, 1999.             

In March 1998, the Company and three of the former officers agreed to 
modify the respective Resignation Agreements of the former officers to
 defer payment of a total of approximately $627,000 of the amounts which
    were to have been paid in 1998 and 1999. The deferred amounts will be paid
    monthly during 2000, with an aggregate balloon payment of $102,800 payable
on December 31, 2000. Medical and life insurance benefits to the three
   former executives were also extended to December 31, 2000 pursuant to the
modified Resignation Agreements. The modifications also provides the  
 Company an option to settle all amounts due pursuant to the Resignation
    Agreements in shares of Common Stock. The option period commenced March 9,
    1998 and extends to June 27, 1998. The number of shares of Common Stock to
  be issued will be 66% of the number of shares determined by dividing the
   present value of the amount then owing using a discount rate of 5% by the
     average closing price of the Common Stock for the ten trading days prior to
 the third business day before the notice of the exercise of the option.
 Should the conversion option be exercised, the Company agrees to file a
 Registration Statement on behalf of the former officers to register the
 shares to be issued within 20 days of providing notice of its intent to
exercise its option. If the Company fails to have the Registration    
 Statement declared effective within 120 days of the notice, the Company
    will be obligated to pay a one-time fee of $135,000 to the former officers
as additional compensation.                                           

  Pursuant to the Agreements, in 1997 the Company canceled an aggregate of
   2,325,000 of outstanding warrants and options to purchase Common Stock of
the Company previously issued to the former officers. In addition, the
    Company agreed to extend the exercise period and reduce the exercise price
of certain other warrants and options retained by the former officers.

     Total charges related to the Reorganization are comprised of the following:

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Notes to Consolidated Financial Statements, Continued 

                                                        [Enlarge/Download Table]

                                                                         1997          1996    
                                                                     ------------  ------------
                                                                                               
Contractual payments for Agreements,                                                           
 net of discount                                                     $  3,128,000       840,000
Cancellation of notes receivable and related accrued interest of                               
 $216,000 from former officers (note 5)                                        --     4,252,000
Cancellation of note receivable from President                            150,000           -- 
Bonus granted to President                                                 85,000           -- 
Charge related to extension of the exercise period and reduction in                            
 the exercise price of certain warrants and options                     1,450,000           -- 
                                                                     ------------  ------------
Total charges                                                        $  4,813,000     5,092,000
                                                                     ============  ============

 In 1997, interest expense totaling $185,000 was incurred related to the
Agreements.                                                           

    Effective December 31, 1996, as a result of the Reorganization, a total of
$4,252,000 of loans to former officers and the related interest were  
     cancelled including personal loans made to Alan Magerman, a former director
and Patrick J. Downs of $185,000 and $251,000, respectively.          

Upon joining the Company as Chief Financial Officer, Gerald Sokol, Jr.
  (currently President and Chief Executive Officer) was granted a total of
  700,000 options to purchase Common Stock at prices ranging from $5.00 to
$5.08 per share. The options were exercisable as follows: 100,000 upon
   grant, 200,000 in three equal annual installments and 400,000 exercisable
  only if the closing price of the Common Stock was at least $11 per share
    for ten consecutive days prior to August 15, 1998. All of the options were
subject to acceleration in the event of a "Change in Control Event" as
defined. Such a Change of Control Event occurred in March 1997 as a   
 consequence of the Reorganization and all the options became vested and
     exercisable in full at that time. Also as a result of the Reorganization in
1997, the Board of Directors granted to Gerald Sokol Jr. an additional
600,000 options to purchase the Common Stock of the Company.          

(4)  BROADCAST EQUIPMENT AND FIXED ASSETS                                       

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

                                                                [Download Table]

                                                     1997              1996     
                                                 ------------      ------------ 
                                                                                
Broadcast equipment                              $  8,602,000         8,230,000 
Furniture and fixtures                                832,000           917,000 
Other equipment                                     3,838,000         3,729,000 
                                                 ------------      ------------ 
                                                   13,272,000        12,876,000 
Accumulated depreciation                           (5,299,000)       (2,773,000)
                                                 ------------      ------------ 
                                                 $  7,973,000        10,103,000 
                                                 ============      ============ 

Beginning in 1993 through June 30, 1996, the Company had entered into 
     various sale and leaseback arrangements. In the fourth quarter of 1996, the
Company completed a plan to repurchase equipment related to the prior 
   years' lease arrangements. The Company recorded a charge of approximately
 $2,007,000 related to the termination of these lease arrangements. This
charge is included in equipment lease expense in 1996. To the extent  
 possible, management does not intend to use the same sale and leaseback
arrangements as a method of financing in future periods. In           

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Notes to Consolidated Financial Statements, Continued 

  addition, management does not intend to purchase equipment to be held as
     inventory for sale and sale and leaseback arrangements. Accordingly, in the
     fourth quarter of 1996, the Company reclassified all remaining inventory to
    broadcast equipment and began recording depreciation charges on all assets
placed in service.                                                    

(5)  SHORT-TERM BORROWINGS                                                      

Short-term borrowings at December 31, 1997 and 1996 are as follows:   

                                                                [Download Table]

                                                     1997              1996     
                                                 ------------      ------------ 
                                                                                
Variable rate loan, paid in 1997                 $        --          2,015,000 

Short-term debt related to the IWN Put                                          
 Option, paid in 1997                                     --          3,045,000 
                                                 ------------      ------------ 

Total                                                     --          5,060,000 

Less current portion                                      --         (5,060,000)
                                                 ------------      ------------ 

Long term portion                                $        --                --  
                                                 ============      ============ 

     In December 1995, the Company entered into a sale, purchase, and investment
 agreement ("Agreement") with Symphony LLC ("Symphony"), an unaffiliated
company whereby Symphony agreed to purchase a 10% interest in IWN for 
  $350,000 and would make capital contributions totaling $2,650,000 to IWN
L.P., a limited partnership of which IWN is the general partner. In   
    accordance with the Agreement, the Company issued to Symphony a warrant to
purchase 400,000 shares of the Company's Common Stock, exercisable at 
$4.125 per share.                                                     

   The Agreement included a provision whereby Symphony had the option to put
   ("Put Option") its partnership interest in IWN L.P. and its shares of IWN
 to the Company during the period from April 1, 1997 through December 1,
1997 for certain consideration. Accordingly, the amount contributed by
  Symphony was recorded as a short-term borrowing and has consolidated the
accounts and results of operations of IWN L.P. in the financial       
statements.                                                           

On April 8, 1997, Symphony exercised the Put Option. In June 1997, the
Company paid Symphony $3,556,000 in full payment of the Put Option.   
    Included in this amount was accrued interest of $261,000 and an additional
     capital contribution made in 1997 by Symphony of $400,000. In addition, the
warrant to purchase 400,000 shares of the Company's Common Stock was  
cancelled.                                                            

   In June 1997, the Company borrowed $3,700,000 from GTECH Corp. ("GTECH"),
   with whom it had agreed in principle to enter into a merger agreement. Of
     this amount, $3,556,000 was used to pay Symphony as noted above. The merger
     agreement was terminated in August 1997. The loan bore interest at the rate
    of 13% per year and was secured by a pledge of all of the capital stock of
    IWN Inc. and a collateral assignment of the Company's partnership interest
    in IWN L.P. On November 3, 1997, the Company repaid the entire outstanding
     principal and accrued interest of $3,883,000 to GTECH with a portion of the
proceeds of a private placement of preferred stock (note 8).          

(6)  INCOME TAXES                                                               

    For each of the years ended December 31, 1997, 1996 and 1995, there was no
provision for current or deferred income taxes. The components that   
comprise deferred tax assets and liabilities at                       

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

December 31, 1997 and 1996 are as follows:                            

                                                                [Download Table]

                                                1997                  1996        
                                        --------------------  --------------------
                                                                                  
Deferred tax assets:                                                              
  NOL carryforwards                     $    14,527,000            12,292,000     
  Legal and litigation accruals               1,465,000             1,711,000     
  Allowance for doubtful accounts               549,000               696,000     
  Compensation and vacation accrual           1,021,000               580,000     
  Operating accruals                            240,000               695,000     
  Sale and leaseback transactions               119,000               208,000     
  Allowance for equipment obsolescence          333,000                --         
  Deferred revenue                              396,000               199,000     
  Research and experimentation credit           247,000               175,000     
  Other                                          73,000                86,000     
                                        --------------------  --------------------
Total gross deferred tax assets              18,970,000            16,642,000     
Valuation allowance                         (17,572,000)          (14,804,000)    
                                        --------------------  --------------------

Net deferred tax assets                       1,398,000             1,838,000     
                                        --------------------  --------------------
Deferred tax liabilities:                                                         
  Capitalized software                        1,263,000             1,513,000     
  Depreciation                                  135,000               129,000     
  Other                                          --                   196,000     
                                        --------------------  --------------------
Total gross deferred liabilities                                                  
                                              1,398,000             1,838,000     
                                        --------------------  --------------------

Net deferred taxes                      $        --                    --         
                                        ====================  ====================

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

                                                        [Enlarge/Download Table]

                                                  1997                    1996                    1995          
                                          ---------------------  ----------------------  -----------------------

                                                                                                                
Tax at federal income tax rate            $    (4,235,000)             (7,804,000)              (1,342,000)     
State taxes, net of federal benefit              (142,000)                139,000                   --          
Settlement warrants and SFAS 123 charges        1,109,000                 650,000                   --          
Change in valuation allowance                   2,768,000               3,077,000                1,342,000      
Adjustments of net operating loss                                                                               
 carryforwards                                    563,000               3,694,000                   --          
Other                                             (63,000)                244,000                   --          
                                          ---------------------  ----------------------  -----------------------

Effective income taxes                    $        --                      --                       --          
                                          =====================  ======================  =======================

The net change in the total valuation allowance for the years ended   
    December 31, 1997, 1996 and 1995 was an increase of $2,768,000, $3,077,000
  and $1,797,000, respectively. In assessing the realizability of deferred
  tax assets, management considers whether it is more likely than not that

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Notes to Consolidated Financial Statements, Continued 

  some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the     
generation of future taxable income during the periods in which those 
     temporary differences become deductible. Management considers the scheduled
    reversal of deferred tax liabilities, projected future taxable income, and
  tax planning strategies in making this assessment. Based on the level of
     historical operating results and projections for the taxable income for the
    future, management has determined that it is more likely than not that the
portion of deferred tax assets not utilized through the reversal of   
     deferred tax liabilities will not be realized. Accordingly, the Company has
    recorded a valuation allowance to reduce deferred tax assets to the amount
that is more likely than not to be realized.                          

At December 31, 1997, the Company has available net operating loss    
     carryforwards of approximately $39,000,000 for federal income tax purposes,
 which begin to expire in 2006. The net operating loss carryforwards for
state purposes, which begin to expire in 1998 are approximately       
$13,500,000.                                                          

(7)  COMMON STOCK OPTIONS AND WARRANTS                                          

The Company has two active stock option plans. The 1995 Employee Stock
  Option Plan (the "Option Plan") was approved by the shareholders in 1995
and was subsequently amended. Under the Option Plan, options for the  
purchase of the Company's common stock may be granted to officers,    
directors and employees. Options may be designated as incentive stock 
options or as nonqualified stock options and generally vest over three
 years, except, the Board of Directors, at its discretion, can authorize
    acceleration of vesting periods. Options under the Option Plan, which have
  a term of up to ten years, are exercisable at a price per share not less
  than the fair market value on the date of grant. The aggregate number of
shares authorized for issuance under the Option Plan is 7,000,000.    

 In addition, the Company has issued options pursuant to a Special Stock
 Option Plan ("Special Plan"). Options issued under the Special Plan are
     made at the discretion of the Board of Directors and are designated only as
     nonqualified options. The options generally have a term of up to ten years,
     are exercisable at a price per share not less than the fair market value on
the date of grant and vest over various terms.                        

   A summary of the status of the Company's two active stock option plans as
   of December 31, 1997, 1996 and 1995 and changes during the years ended on
those dates is presented below.                                       

                                                        [Enlarge/Download Table]

                                              Special Plan                                   Option Plan                 
                               --------------------------------------------  --------------------------------------------
                                                        Weighted Average                               Weighted Average  
                                      Shares             Exercise Price(a)           Shares             Exercise Price   
                               --------------------------------------------  --------------------------------------------
                                                                                                                         
Outstanding December 31, 1994                --                      --             2,846,000                   $6.22    
Granted                                      --                      --             1,767,000                    5.24    
Exercised                                    --                      --               (10,000)                   3.06    
Canceled                                     --                      --               (63,000)                   6.22    
                               --------------------------------------------  --------------------------------------------

Outstanding December 31, 1995                --                      --             4,540,000                    5.84    
Granted                                 600,000                   $5.00             2,398,000                    3.69    
Exercised                                    --                      --               (29,000)                   3.07    
Canceled                                     --                      --              (220,000)                   5.52    
                               --------------------------------------------  --------------------------------------------

Outstanding December 31, 1996           600,000                    5.00             6,689,000                    5.09    
Granted                                 430,000                    3.30             1,947,000                    2.66    
Exercised                                    --                      --               (45,000)                   2.08    
Canceled                                     --                      --            (3,503,000)                   5.58    
                               --------------------------------------------  --------------------------------------------

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

                                                        [Enlarge/Download Table]
                                                                                                                         
Outstanding December 31, 1997         1,030,000                   $3.01             5,088,000                   $3.47    
                               ============================================  ============================================

(a) In May 1997, the Board of Directors approved a modification to    
   previously issued options whereby the exercise price of 1,612,000 options
issued to certain members of the Board of Directors, management and   
  employees was reduced to $2.81. The previous exercise prices ranged from
 $3.50 to $5.08. No compensation expense was recorded as a result of the
modification.                                                         

    In January 1998, the Company issued approximately 759,000 shares of Common
    Stock in exchange for the surrender and cancellation of certain previously
     outstanding warrants and options to purchase approximately 2,578,000 shares
   of Common Stock at exercise prices ranging from $2.00 to $5.75 per share.
The fair market value of the shares issued was approximately $900,000,
    which was less than the fair value of the warrants and options received in
the exchange.                                                         

    In March 1998, the Company agreed to issue approximately 277,000 shares of
    Common Stock and to pay withholding taxes of approximately $107,000 to two
   former officers in exchange for the surrender and cancellation of certain
     previously outstanding warrants and options to purchase 1,500,000 shares of
    Common Stock at exercise prices ranging from $2.00 to $4.75 per share. The
 fair market value of the shares to be issued is approximately $200,000,
    which was less than the fair value of the warrants and options received in
the exchange.                                                         

    The following summarizes options and warrants issued and outstanding as of
    December 31, 1997 and March 31, 1998 following completion of the exchanges
noted above:                                                          

                                                                [Download Table]
                                                                        
Outstanding December 31, 1997:                                          
  Options                                                     6,118,000 
  Warrants                                                    4,194,000 
Exchanged for Common Stock                                   (4,078,000)
                                                    ------------------- 

Outstanding March 31, 1998                                    6,234,000 
                                                    =================== 

 A summary of options exercisable and the weighted average fair value of
options issued in 1997 and 1996 are as follows:                       

                                                                [Download Table]

                                                  1997                1996      
                                         ---------------------------------------
                                                                                
Special Plan:                                                                   
Options exercisable at end of year                740,000                     --
                                         =======================================

Weighted average fair value of options                                          
 granted during the year                            $3.74                  $4.34
                                         =======================================

Option Plan:                                                                    
Options exercisable at end of year              3,080,000              3,534,000
                                         =======================================

Weighted average fair value of options                                          
 granted during the year                            $2.58                  $3.24
                                         =======================================

   The following table summarizes information about the Special Plan and the
Option Plan as of December 31, 1997.                                  

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Notes to Consolidated Financial Statements, Continued 

                                                        [Enlarge/Download Table]

                                        Options Outstanding                                    Options Exercisable             
                     -----------------------------------------------------------  ---------------------------------------------

                                          Weighted Average                                                                     
 Range of Average         Number             Remaining         Weighted Average           Number           Weighted Average    
 Exercise Prices        Outstanding       Contractual Life      Exercise Price          Exercisable         Exercise Price     
--------------------------------------------------------------------------------  ---------------------------------------------
                                                                                                                               

Special Plan:                                                                                                                  
$2.81 - $4.50            1,030,000            6 years               $3.01                 740,000                $3.09         

Option Plan:                                                                                                                   
$1.88 - $3.00            2,190,000            9 years               $2.58                 785,000                $2.77         
$3.01 - $4.50            2,310,000            8 years               $3.65               1,707,000                $4.01         
$4.51 - $6.50              588,000            5 years               $5.27                 588,000                $5.40         

     The Company has issued various options pursuant to the Special Plan to non-
   employees to purchase common stock, the majority of which are exercisable
as of December 31, 1997. In compliance with SFAS No. 123, the Company 
     expensed $354,000 in 1997 associated with the grant of 134,000 options. The
   fair value of each grant in 1997 was estimated on the date of grant using
    the Black-Scholes option-pricing model with the following weighted-average
     assumptions: dividend yield of 0% percent, risk-free interest rate of 6.5%,
expected volatility of 179%, and an expected option life of 5 years.  

The Company applies APB Opinion No. 25 and related interpretations in 
  accounting for its stock option plans. Accordingly, no compensation cost
has been recognized in the consolidated financial statements for the  
issuance of options to employees pursuant to the Special Plan and the 
   Option Plan. Had compensation cost related to employees for the Company's
 stock-based compensation plans been determined consistent with SFAS No.
     123, the Company's net loss per share applicable to common stock would have
been increased to the pro forma amounts indicated below.              

                                                                [Download Table]

                                        1997            1996            1995   
                                    -------------------------------------------
                                                                               
Net loss            As reported  $    12,457,000     22,952,000       3,948,000
                      Pro forma  $    16,733,000     27,823,000       7,686,000

Net loss per share  As reported  $          0.55           1.02            0.19
                      Pro forma  $          0.74           1.23            0.38

Pro forma net loss reflects only options granted in 1997 and 1996.    
 Therefore, the full impact of calculating compensation cost for options
under SFAS No. 123 is not reflected in the pro forma net loss amounts 
presented above since compensation cost is reflected over the option  
vesting periods and compensation cost for options and granted prior to
    January 1, 1996 are not considered. The fair value of each option grant in
1997, 1996 and 1995 is estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted-average      
   assumptions: 1997 - dividend yield of 0% percent, risk-free interest rate
 of 6.5%, expected volatility of 179%, and expected option lives ranging
  from 5 years to 10 years; 1996 - dividend yield of 0% percent, risk-free
   interest rates ranging from 6.5% to 6.8%, expected volatility of 90%, and
 expected option lives ranging from 5 years to 10 years; 1995 - dividend
   yield of 0% percent, risk-free interest rate of 6.6%, expected volatility
of 90%, and expected option lives ranging from 5 years to 8 years.    

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

     The Company has issued various warrants to non-employees to purchase common
   stock, all of which are exercisable as of December 31, 1997. The weighted
average fair value of warrants granted during 1997, 1996 and 1995 was 
    $1.83, $3.11 and $3.28, respectively. In compliance with SFAS No. 123, the
    Company expensed $1,401,000 in 1997 and $1,910,000 in 1996 associated with
the grant of 1,065,000 warrants in 1997 and 616,000 warrants in 1996, 
respectively.                                                         

     At December 31, 1997, 1996 and 1995, the weighted average exercise price of
exercisable warrants was $3.31, $4.10 and $3.95 respectively. The fair
  value of each warrant grant in 1997 and 1996 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following 
  weighted-average assumptions: 1997 - dividend yield of 0% percent, risk-
  free interest rate of 6.5%, expected volatility of 179%, and an expected
  warrant life of 10 years; 1996 - dividend yield of 0% percent, risk-free
   interest rates ranging from 5.3% to 6.5%, expected volatility of 90%, and
   an expected warrant life of 5 years; 1995 - dividend yield of 0% percent,
risk-free interest rate of 6.5%, expected volatility of 90%, and an   
    expected warrant live of 5 years. The following summarizes warrants issued
and outstanding:                                                      

                                                                [Download Table]

                                  OUTSTANDING 
                                   WARRANTS   
                                  ----------- 
                                              
December 31, 1994                   3,382,000 
Granted                             1,033,000 
Exercised                            (226,000)
Canceled                               --     
                                  ----------- 

December 31, 1995                   4,189,000 
Granted                               616,000 
Exercised                            (224,000)
Canceled                               --     
                                  ----------- 

December 31, 1996                   4,581,000 
Granted                             1,065,000 
Exercised                            (374,000)
Canceled                           (1,078,000)
                                  ----------- 

December 31, 1997                   4,194,000 
                                  =========== 

(8)  CUMULATIVE CONVERTIBLE PREFERRED STOCK                                     

Series A                                                              
--------                                                              

The Company has authorized 10,000,000 shares of Series A Cumulative   
   Convertible Preferred Stock ("Series A Preferred Stock"). At December 31,
     1997 and 1996, there were 161,000 shares of Series A Preferred Stock issued
 and outstanding. The Series A Preferred Stock provides for a cumulative
 annual dividend of 10%, payable in semi-annual installments in June and
    December. Dividends may be paid in cash or with shares of common stock. In
1997 and 1996, the Company issued approximately 8,000 and 3,000 common
   shares, respectively, for payment of dividends. At December 31, 1997, the
cumulative unpaid dividends for the Series A Preferred Stock was      
approximately $1,000.                                                 

     The Series A Preferred Stock has no voting rights and has a $1.00 per share
    liquidation preference over common stock. At December 31, 1997, each share
   is convertible to Common Stock, at the option of the holders, into 60,690
     shares of Common Stock at an adjusted conversion price of $2.65. The number
of shares into which the Series A Preferred Stock can be converted is 
subject to adjustment in certain events. During 1997, there were no   
  conversions. There are no mandatory conversion terms or dates associated
with the Series A Preferred Stock.                                    

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Notes to Consolidated Financial Statements, Continued 

Series B                                                              
--------                                                              

     The Company has authorized 85,000 shares of Series B Cumulative Convertible
Preferred Stock ("Series B Preferred Stock"). On October 31, 1997, the
  Company completed a private placement in which it issued and sold to two
    institutional investors a total of 70,000 shares of the Company's Series B
Preferred Stock, $100 stated value per share for an aggregate purchase
    price of $7,000,000. In connection with the private placement, the Company
paid a brokerage fee of $210,000 and incurred certain other offering  
expenses in the amount of approximately $84,000. A portion of the net 
proceeds from the private placement was used to repay indebtedness and
accrued interest to GTECH totaling $3,883,000. The balance of the net 
  proceeds has been and will be used for general working capital purposes.

   The Series B Preferred Stock provides for a cumulative annual dividend of
     $4 per share, payable in quarterly installments of $1 per share on the last
  day of January, April, July and October of each year, commencing January
31, 1998. Dividends may be paid in cash or with shares of Series B    
Preferred Stock, or by increasing the stated value of the Series B    
    Preferred Stock. At December 31, 1997, the cumulative unpaid dividends for
the Series B Preferred Stock were approximately $47,000.              

The Series B Preferred Stock has no voting rights and has a per-share 
   liquidation preference over common stock equal to the sum of $100 and all
   accrued and unpaid dividends. Holders of the Series B Preferred Stock are
     entitled to convert 25% of their shares into shares of the Company's Common
  Stock ("Conversion Shares"), subject to certain limitations, on or after
 February 12, 1998 ("Initial Conversion Date"). An additional 25% of the
     Series B Preferred Stock will become convertible on each of April 13, 1998,
May 13, 1998 and June 12, 1998. Any outstanding shares of the Series B
 Preferred Stock not converted by October 31, 2000 will automatically be
converted as of such date.                                            

   The number of Conversion Shares issuable upon conversion of each share of
    Series B Preferred Stock ("Conversion Rate") is determined by dividing the
     sum of $100 plus any accrued and unpaid dividends on the Series B Preferred
     Stock by the Conversion Price then in effect. The Conversion Price is equal
   to the lesser of (a) 140% of the average of the closing bid prices of the
Company's Common Stock on the five trading days immediately preceding 
     February 12, 1998, but in no event higher than $3.50 per share, and (b) 85%
 of the lowest average of the closing bid prices of the Company's Common
Stock on any three trading days during the 20 trading days immediately
     preceding any conversion date. The Conversion Rate is subject to adjustment
in certain events.                                                    

As of December 31, 1997, no shares of Series B Preferred Stock were   
   convertible into Common Stock. Following the determination of the Initial
     Conversion Date and the Conversion Rate in February 1998, 25% of the Series
  B Preferred Stock, or 17,500 shares, were convertible into approximately
 2,940,000 shares of common stock at the option of the holders. In March
    1998, 2,000 shares of Series B Preferred Stock plus accrued dividends were
converted into 336,658 shares of Common Stock at a conversion price of
$0.60 per share.                                                      

(9)  RETIREMENT AND SAVINGS PLANS                                               

DEFINED BENEFIT PENSION PLAN                                          

 In connection with the Reorganization in 1997, the Company terminated a
  non-qualified, non-contributory pension plan that covered certain former
officers. There were no accrued pension benefits payable to any       
   participants upon termination of the plan. The plan was secured by whole-
life insurance policies for certain former officers. The Company had  
     previously borrowed funds against these assets. Upon termination, the loans
were paid and the net assets were liquidated.                         

DEFERRED COMPENSATION PLAN                                            

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

    In connection with the Reorganization, the Company terminated an unfunded,
non-qualified deferred compensation plan that covered certain former  
officers. The accrued plan benefits of $580,000 included in accrued   
     expenses as of December 31, 1996 were substantially paid to participants in
    1997. Unpaid benefits at December 31, 1997 were $58,000, which are payable
in two equal installments on January 1, 1998 and 1999.                

DEFINED CONTRIBUTION PLAN                                             

   During 1994, the Company established a defined contribution plan which is
   organized under Section 401(k) of the Internal Revenue Code, which allows
    employees who have completed at least six months of service or reached age
     21, whichever is later, to defer up to 15% of their pay on a pre-tax basis.
   The Company, at its discretion, may contribute to the plan. For the years
ended December 31, 1997, 1996 and 1995, the Company made no such      
contributions.                                                        

10.  COMMITMENTS AND CONTINGENCIES                                              

OPERATING LEASES                                                      

 The Company leases office and production facilities and equipment under
  agreements which expire at various dates. Certain leases contain renewal
   provisions and generally require the Company to pay utilities, insurance,
   taxes and other operating expenses. Additionally, the Company has entered
   into lease agreements for certain equipment used in broadcast operations,
   some of which involve sale and leaseback transactions. Any deferred gains
    on sale and leaseback transactions are amortized over the three year lease
terms. Each lease provides an option to the Company to repurchase the 
    equipment at the estimated fair market value at the end of the lease term.
Included in other assets at December 31, 1997 are security deposits   
totaling $184,000 relating to these agreements. Lease expense under   
   operating leases totaled $1,299,000, $5,648,000, and $4,763,000, in 1997,
1996 and 1995, respectively. (note 11)                                

In November 1997, the Company sold its interest in a LLC that owns the
    building containing the Company's corporate office. A gain of $905,000 was
recognized in 1997.                                                   

  Future minimum lease obligations under noncancelable operating leases at
December 31, 1997 are as follows:                                     

                                                                [Download Table]

   YEARS ENDING                TOTAL       
------------------      -------------------
                                           
       1998             $    1,329,000     
       1999                    913,000     
       2000                    412,000     
       2001                    177,000     
                        -------------------
      Total             $    2,831,000     
                        ===================

CAPITAL LEASE                                                         

  The Company entered into a capital lease in 1997 for the purchase of new
   equipment. Future minimum lease payments under the capital lease together
     with the present value of the net minimum lease payments as of December 31,
1997 are as follows:                                                  

                                                                [Download Table]

                                                      1997   
                                                  -----------
                                                             
1998                                              $    67,000
1999                                                   67,000

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

                                                                [Download Table]
                                                              
2000                                                   67,000 
2001                                                   75,000 
                                                  ----------- 
Total minimum lease payments                          276,000 
Less: Amount representing interest (10.7%)            (51,000)
                                                  ----------- 
Present value of net minimum lease payments           225,000 
Less current portion                                  (46,000)
                                                  ----------- 
Long term portion                                 $   179,000 
                                                  =========== 

CREDIT RISK                                                           

  The Company provides services to group viewing locations, generally bars
and lounges, and to third party distributors, primarily throughout the
United States. In addition, the Company licenses its technology and   
     products to licensees outside of the United States. Concentration of credit
    risk with respect to trade receivables are limited due to the large number
   of customers comprising the Company's customer base, and their dispersion
across many different industries and geographies. The Company performs
ongoing credit evaluations of its customer's financial condition. At  
   December 31, 1997, the Company had no significant concentration of credit
risk.                                                                 

(11) LEGAL ACTIONS                                                              

    The Company is involved in various claims and legal actions arising in the
 ordinary course of business. In the opinion of management, the ultimate
     disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or  
liquidity.                                                            

     In February 1998, the Company completed its previously announced settlement
     of a class-action lawsuit pending against the Company since 1993. The terms
of the settlement were as follows: A settlement fund was established  
     consisting of $400,000 in cash plus 565,000 warrants to purchase the Common
     Stock of the Company ("Settlement Warrants"). Each Settlement Warrant has a
  term of three years from February 18, 1998. The Settlement Warrants were
    issued on February 18, 1998 and entitle the holder of a Settlement Warrant
 to purchase a share of common stock of the Company at a price of $0.96.
    During the period from February 18, 2000 to February 18, 2001, the holders
   of Settlement Warrants have the right, but not the obligation, to put the
   Settlement Warrants to the Company for repurchase at a price of $3.25 per
Settlement Warrant (the "Put Right"), provided, however, that this Put
Right shall expire, if at any time after February 18, 1998 the closing
price per share of the Company's Common Stock on the American Stock   
    Exchange is more than $4.21 on any seven trading days, whether consecutive
     or not. Upon expiration of the Put Right, the Company shall have no further
 obligation to repurchase the Settlement Warrants. In no event shall the
Company have any obligation to repurchase its Common Stock.           

    Although the Put Right may expire based on the closing price of the Common
   Stock over the next three years, the Company has recognized the potential
     liability related to the Put Right. Accordingly, a charge of $1,291,000 for
    the present value (discounted at 15%) and related interest expense for the
Put Right was recognized in 1996. The difference between the amount   
   expensed and the total potential liability, $545,000, will be accreted as
interest expense and charged over the period from September 1996 until
 February 18, 2000. In 1997, a total of $225,000 was charged to interest
expense.                                                              

On April 18, 1995, a class action lawsuit was filed in United States  
District Court for the Southern District of California entitled Lenora
                                                                ------
Isaacs, on behalf of herself and all others similarly situated vs. NTN
----------------------------------------------------------------------
  Communications and Patrick J. Downs. The complaint alleges violations of
-----------------------------------                                   
     federal securities laws based upon the Company's projections for the fourth
quarter of 1994 and for the 1994 fiscal year, and further alleges that
   certain of the Company's insiders sold stock on information not generally
known to the public. As previously reported, the Company has agreed   

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

   to a settlement having a total value of $1,450,000. The settlement, which
 was approved by the Court in January 1998, consists of $250,000 in cash
   with the remaining balance of $1,200,000 being payable with the Company's
    common stock or in cash, at the Company's election. It is anticipated that
 the claims process will be completed by the summer of 1998 and that the
    common stock will be issued shortly thereafter. A charge of $2,800,000 was
 recorded in 1996 for the estimated settlement. In the fourth quarter of
  1997, the Company reduced the accrual for the settlement and accordingly
reduced its legal expense by $1,350,000 as a result of the change in  
estimate related to the settlement.                                   

   In May 1997, a shareholder derivative complaint was filed in the Superior
   Court of California, San Diego, North County Branch. The complaint, which
    sought injunctive relief and an unspecified amount of damages, was brought
by a current shareholder against the Company and certain officers and 
  directors. More specifically, the plaintiff alleged that the Company was
     injured by a lack of independence and breach of business judgment by virtue
     of certain agreements entered into in connection with the recent management
     reorganization. The Company believed that the lawsuit was without merit and
 conveyed its position to the plaintiffs' counsel. On June 10, 1997, the
  plaintiff voluntarily dismissed the lawsuit without any payment from the
Company.                                                              

 On June 11, 1997, the Company was included as a defendant in litigation
  entitled Eliot Miller and Jay Iyer, shareholders on behalf of themselves
           ---------------------------------------------------------------
    and all others similarly situated vs. NTN Communications, Inc., Patrick J.
    --------------------------------------------------------------------------
  Downs, Daniel C. Downs, Donald C. Klosterman, Ronald E. Hogan, Gerald P.
  ------------------------------------------------------------------------
     McLaughlin and KPMG Peat Marwick LLP, which complaint was filed by the same
------------------------------------                                  
     lead plaintiff and lead attorneys as in the previously dismissed derivative
action. The new complaint alleges violations of state and federal     
   securities laws based upon purported omissions from the Company's filings
with the Securities and Exchange Commission. More particularly, the   
   complaint alleges that the directors and former officers devised an "exit
strategy" to provide themselves with undue compensation upon their    
 resignation from the Company. Plaintiffs further allege that defendants
     made false statements about, and failed to disclose, contingent liabilities
    (guaranteed compensation to management and the right of an investor in IWN
to require the Company to repurchase its investment during 1997) and  
    phantom assets (loans to management) in the Company's financial statements
     and KPMG Peat Marwick LLP's audit reports, all of which served allegedly to
     inflate the trading price of the Company's Common Stock. In 1997, KPMG Peat
   Marwick LLP was dismissed from the suit after filing a motion to dismiss.
In November 1997, the Court dismissed all of the plaintiff's state law
   causes of action against the Company but retained the plaintiff's federal
law causes of action. In February 1998, the attorneys representing the
plaintiffs in this litigation filed an action entitled Dorman vs. NTN 
                                                      --------------
    Communications, Inc. in the Superior Court of San Diego County, California
-------------------                                                   
    in which they essentially replead the state law causes of action dismissed
   in the federal lawsuit. In the Company's opinion, the claims in these two
lawsuits are covered by directors and officers liability insurance    
   providing $10,000,000 of coverage. The Company has submitted these claims
  to its directors and officers liability insurance underwriters, who have
accepted such claims subject to reservation of rights. The Company's  
deductible under the insurance policy is $250,000 per claim.          

Until recently the Company was involved as a plaintiff or defendant in
   various previously reported lawsuits in both the United States and Canada
     involving Interactive Network, Inc. ("IN"). With the courts assistance, the
     Company and IN have been able to reach a resolution of all pending disputes
   in the United States and have agreed to private arbitration regarding any
    future licensing, copyright or infringement issues which may arise between
the parties. There remain two lawsuits involving the Company, its     
    unaffiliated Canadian licensee and IN, which were filed in Canada in 1992.
     No substantive action has been taken in furtherance of either action. These
     actions affect only the Canadian operations of the Company and its Canadian
    licensee and do not extend to the Company's financial position, results of
   operations and liquidity in the United States or elsewhere. Although they
     cannot be estimated with certainty, any damages the Company might incur are
not expected to be material.                                          

  The Company is a defendant in two other lawsuits. In November, 1997, the
   Company's former advertising manager brought a suit alleging breach of an
    alleged employment contract and age discrimination. The Company has denied
    any liability in this case and does not believe its resolution will have a
  material adverse effect on the financial position, results of operations
and liquidity of the Company.                                         

In March, 1998, the Company's former independent representative in the
State of Georgia filed suit against the Company in Atlanta, Georgia   
alleging wrongful termination of its distributor agreement            

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NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Notes to Consolidated Financial Statements, Continued 

   and other breaches of such agreement. The Company denied these claims and
intends to defend itself vigorously in this litigation. It is not     
    anticipated at the present time that the outcome of this lawsuit will have
    a material adverse effect on the financial position, results of operations
and liquidity of the Company.                                         

Recently the Company was informed that it was in default of certain   
  covenants contained in two leases for equipment installed at various NTN
Network locations. The Company has made all payments pursuant to these
    leases when and as due and expects to do so for the remaining terms of the
leases, which expire in June and October, 1999, respectively. The     
respective covenants provide for a minimum working capital ratio, for 
 customer payments to be directed to a specific account maintained by an
    independent bank, and for a minimum collection to lease payment ratio. The
  Company has agreed to direct the payments of additional customers to the
specific bank accounts each month to provide the lessors with further 
  security. Excess account balances are returned to the Company each month
    following the monthly lease payments. The Company has reached an agreement
to cure the alleged lease defaults with one lessor and such lessor has
  rescinded its default notice to the Company subject to the execution and
delivery of a lease amendment and an additional collateral assignment 
agreement on or before April 30, 1998. The other lessor has agreed to 
accept the Company's offer to cure the default if it is paid an       
   administrative fee. The Company believes that it will eventually reach an
    agreement to cure the alleged default on the second lease transaction. The
Company's only other sale-leaseback transaction also contains similar 
     covenant provisions and the Company is in default for the same reasons. The
   third lessor has not declared a default. If it does, the Company believes
    it may be able to enter into a similar arrangement to direct payments from
   additional customers to the individual collateral bank account. The third
lease also expires in 1999.                                           

   There can be no assurance that any or all of the foregoing claims will be
  decided in favor of the Company, which is not insured against all claims
made. During the pendency of such claims, the Company will continue to
     incur the costs of defense of same. Other than set forth above, there is no
material litigation pending or threatened against the Company.        

(12) SUBSEQUENT EVENT                                                           

     In January 1998, the Board of Directors concluded that the interests of the
   Company's shareholders are best served by concentrating Company resources
     and efforts on its two core businesses, the NTN Network and Online/Internet
services. Accordingly, the Board resolved either to sell or cease the 
operations of its two subsidiaries, LearnStar and IWN.                

   In March 1998, the Company entered into a letter of intent to sell 85% of
    its interest in LearnStar to NewStar Corporation, a company in which Sally
     A. Zoll, President of LearnStar, is a shareholder. The Company is currently
    negotiating a definitive agreement, however the terms of the sale have not
  been finalized. Effective March 31, 1998, the Company has ceased funding
the LearnStar operations.                                             

On April 1, 1998, the Company reached an agreement in principle with  
Omnigon, a California corporation, to sell 90% of the equity of IWN to
   Omnigon on or before May 31, 1998. The Company is currently negotiating a
definitive agreement, however the terms of the sale have not been     
  finalized. Notwithstanding, effective March 31, 1998, the Company ceased
 funding the IWN operations. Omnigon paid $100,000 in April 1998 and has
 agreed to pay $100,000 in May 1998 for the option to acquire IWN on the
    foregoing terms. Any such payment made will be non-refundable and will not
    be applied to the purchase price of the IWN shares. The Company has agreed
that IWN shall use any such payment from Omnigon to pay its operating 
  expenses prior to a closing or cancellation of the proposed transaction.

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                                                                     Schedule II
                                                                     -----------

NTN COMMUNICATIONS, INC. AND SUBSIDIARIES 

Valuation and Qualifying Accounts (a) 

Years ended December 31, 1997, 1996 and 1995

                                                                [Download Table]

                                ADDITIONS                   BALANCE  
  ALLOWANCE FOR    BALANCE AT  CHARGED TO                    AT END  
DOUBTFUL ACCOUNTS   BEGINNING    EXPENSE   DEDUCTIONS (b)  OF PERIOD 
-----------------  ----------  ----------  --------------  --------- 
                                                                     
      1995         $  362,000     645,000      449,000     $  558,000

      1996         $  558,000   1,840,000      835,000     $1,563,000

      1997         $1,563,000   1,462,000    1,712,000     $1,313,000

(a)  On June 30, 1996, the Company sold all of the assets and business of its   
New World Computing subsidiary.  The disposal of New World has been   
 classified as a discontinued operation in the accompanying consolidated
financial statements and the consolidated financial statement schedule
above for all prior periods.                                          

(b)  Reflects trade accounts receivable written off during the year.            

See accompanying independent auditors report. 

F-25

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K/A’ Filing		Date		First		Last			Other Filings
		2/18/01		19		61
		12/31/00		4		51			10-K405
		10/31/00		59
		2/18/00		19		61
		12/31/99		24		51			10-K,  10-K/A
		4/15/99		35
		2/28/99		35
		1/1/99		60
		12/31/98		31					10-K
		9/30/98		5		29			10-Q
		8/15/98		52
		6/27/98		4		51
		6/12/98		59
		5/31/98		6		63
Filed on:		5/15/98							10-Q
		5/14/98		39
		5/13/98		59
		4/30/98		21		63
		4/13/98		59
		4/10/98		1		41
		4/1/98		6		63
		3/31/98		27		63			10-Q,  10-Q/A,  NT 10-K
		3/9/98		4		51
		2/28/98		5		29
		2/18/98		19		61
		2/12/98		5		59
		1/31/98		59
		1/1/98		60
For Period End:		12/31/97		1		64			10-K,  NT 10-K
		12/15/97		31
		12/1/97		25		53
		11/3/97		53					DEF 14A
		10/31/97		5		59			8-K
		7/15/97		35
		6/11/97		20		62
		6/10/97		20		62
		4/8/97		25		53
		4/1/97		25		53
		3/5/97		22		51			8-K
		1/15/97		18					S-3/A
		12/31/96		14		64			10-K,  10-K/A,  NT 10-K
		10/25/96		18					8-K
		6/30/96		24		64			10-Q,  10-Q/A,  8-K
		1/1/96		49		57
		12/31/95		14		64			10-K,  10-K/A,  NT 10-K
		4/18/95		19		61
		12/31/94		55
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