<PAGE>

                     U.S. Securities and Exchange Commission
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2002

                         Commission file number 0-29750

                          IENTERTAINMENT NETWORK, INC.

        (Exact name of small business issuer as specified in its charter)

       North Carolina                               56-2092059
     (State of incorporation)           (I.R.S. Employer Identification Number)


                               124-126 Quade Drive
                           Cary, North Carolina 27513
                     (Address of principal executive office)

                                 (919) 678-8301
                           (Issuer's telephone number)

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

Yes [X]  No [_]

As of August 8, 2002 there were 40,566,918 shares of the issuer's Common Stock,
$.10 par value per share, outstanding.

Transitional Small Business Disclosure Format (check one)

Yes [_]  No [X]

<PAGE>

               IENTERTAINMENT NETWORK, Inc.

               Form 10-QSB Quarterly Report

                           INDEX

<TABLE>
<CAPTION>
PART I          FINANCIAL INFORMATION                                PAGE
<S>                                                                  <C>
Item 1          Financial Statements                                    3

Item 2          Management's Discussion and Analysis of
                      Financial Condition and Results of
                      Operations                                       13

PART II         OTHER INFORMATION                                      18

Item 1          Legal Proceedings                                      18

Item 2          Changes in Securities and Use of Proceeds              18

Item 3          Defaults Upon Senior Securities                        18

Item 4          Submission of Matters to a Vote of Security Holders    18

Item 5          Other Information                                      18

Item 6          Exhibits and Reports on Form 8-K                       18

SIGNATURES                                                             19
</TABLE>

<PAGE>

PART I.               FINANCIAL INFORMATION

ITEM 1.               FINANCIAL STATEMENTS

                          iEntertainment Network, Inc.
                           Consolidated Balance Sheets
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                             June 30     December 31
                                                                               2002         2001
                                                                          -----------------------------
                                                                            UNAUDITED
<S>                                                                       <C>            <C>
Assets
Current assets:
   Cash and cash equivalents                                                $      111     $      259
   Trade receivables, net of allowances of $37 and $82 at
      June 30, 2002 and December 31, 2001, respectively                            206            148
   Prepaid expenses and other                                                       45            114
                                                                          ---------------------------
Total current assets                                                               362            521

Property and equipment, net                                                        347            428
Software development costs, net                                                    470            607
Other noncurrent assets                                                             16             17
                                                                          ---------------------------
Total assets                                                                $    1,195     $    1,573
                                                                          ===========================

Liabilities and stockholders' equity
Current liabilities:
   Accounts payable and accrued expenses                                    $      843     $    1,032
   Unearned revenue                                                                127             35
   Current portion of capital lease obligations                                     26             32
                                                                          ---------------------------
Total current liabilities                                                          996          1,099

Capital lease obligations, less current portion                                      -             10
                                                                          ---------------------------
Total liabilities                                                                  996          1,109

Stockholders' equity:
   Common stock, $.10 par value; 50,000,000 shares authorized;
      40,566,918 and 29,832,329 shares issued and outstanding at
      June 30, 2002 and December 31, 2001, respectively                          4,057          2,983
   Additional paid-in capital                                                   42,053         42,612
   Accumulated deficit                                                         (45,859)       (45,077)
   Accumulated other comprehensive loss                                            (52)           (54)
                                                                          ===========================
Total stockholders' equity                                                         199            464
                                                                          ---------------------------
Total liabilities and stockholders' equity                                  $    1,195     $    1,573
                                                                          ===========================
</TABLE>

See accompanying notes.

3

<PAGE>

                          iEntertainment Network, Inc.

                            Consolidated Statements of Operations
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                             Three months ended           Six months ended
                                                           June 30       June 30       June 30       June 30
                                                            2002           2001          2002          2001
                                                        ------------------------------------------------------
                                                           Unaudited    Unaudited    Unaudited       Unaudited
<S>                                                     <C>             <C>          <C>             <C>
Net revenues:

   Online sales                                                 218          280           448             537
   Advertising and other                                        146          144           279             458
   Royalties and licenses                                         -           18             4              21
                                                        ------------------------------------------------------
Total net revenues                                              364          442           731           1,016

Cost of revenues:
   Cost of products and services                                 30           59            72              96
   Royalties and amortized software costs                       101           69           195              82
                                                        ------------------------------------------------------
Total cost of revenues                                          131          128           267             178
                                                        ------------------------------------------------------
Gross profit                                                    233          314           464             838

Operating expenses:
   Sales and marketing                                           99          191           181             729
   Product development                                          326          397           554             660
   General and administrative                                   222          233           525             505

   Reversal of accrued liabilities for
     prize points                                                 -            6             -            (447)
                                                        ------------------------------------------------------
  Total operating expenses                                      647          827         1,260           1,447
                                                        ------------------------------------------------------
 Operating loss                                                (414)        (513)         (796)           (609)

Other (income) expense:
   Interest expense                                               1            -             2               -
   Other income                                                 (15)         (52)          (16)            (71)
                                                        ------------------------------------------------------
Total other income                                              (14)         (52)          (14)            (71)
                                                        ------------------------------------------------------
 Loss before income taxes                                      (400)        (461)         (782)           (538)
Income tax expense                                                -            -             -               -
                                                        ------------------------------------------------------
 Net loss                                                      (400)        (461)         (782)           (538)
Accretion of Series D Convertible
     Preferred Stock                                              -          (73)            -            (147)
                                                        ------------------------------------------------------
 Net loss available to common stockholders              $      (400) $      (534)  $      (782)    $      (685)
                                                        ======================================================

Basic and diluted loss per share:
   Net loss per share                                   $     (0.01) $     (0.03)  $     (0.02)    $     (0.04)
Weighted average shares used in
    computing basic and diluted loss per                 40,489,045   15,914,311    35,925,462      15,914,311
    share
</TABLE>

                                                                               4

<PAGE>

                          iEntertainment Network, Inc.

                      Consolidated Statements of Cash Flows
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                      Six months ended June 30
                                                                        2002            2001
                                                                  ------------------------------
                                                                     Unaudited        Unaudited
<S>                                                               <C>               <C>
Operating activities

Net loss                                                           $      (782)     $      (538)
Adjustments to reconcile net loss to net cash
   provided by operating activities:
     Depreciation and amortization                                         131              270
     Amortization of capitalized software development costs                137               81
     Write-off of accrued liability for prize points                         -             (447)
     Changes in operating assets and liabilities:
       Trade receivables                                                   (58)             642
       Prepaid expenses net and other assets                                69                5
       Accounts payable and accrued expenses                              (189)             225
       Unearned revenue                                                     92                -
                                                                  ------------------------------
Net cash (used in) provided by operating activities                       (600)             238

Investing activities
Purchase of property and equipment                                         (49)            (142)
Capitalized software development costs                                       -             (167)
                                                                  ------------------------------
Net cash used in investing activities                                      (49)            (309)

Financing activities
Proceeds from issuance of common stock                                     515                -

Payments on capital lease obligations                                      (16)             (18)
                                                                  ------------------------------
Net cash provided by (used in) financing activities                        499              (18)

Effect of currency exchange rate changes on cash and cash
  equivalents                                                                2                4
                                                                  ------------------------------
Net decrease in cash and cash equivalents                                 (148)             (85)
Cash at beginning of period                                                259              437
                                                                  ------------------------------
Cash at end of period                                              $       111      $       352
                                                                  ==============================
</TABLE>

                                                                               5

<PAGE>

                          iEntertainment Network, Inc.

                   Notes to Consolidated Financial Statements

(INFORMATION AS OF JUNE 30, 2002 AND FOR THE SIX AND THREE MONTHS ENDED JUNE 30,
2002 AND 2001 IS UNAUDITED)

1. Description of Business and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) considered necessary for a fair
presentation of the statements have been included. The interim operating results
are not necessarily indicative of the results that may be expected for a full
fiscal year. The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. For further information,
refer to the financial statements and accompanying footnotes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001.

Description of Business

iEntertainment Network, Inc. (the "Company") is a developer and publisher of
Internet games and an operator of online game services. The Company develops and
publishes proprietary online multi-player games and has built an Internet
distribution infrastructure which offers online gamers a variety of free,
subscription and pay-for-play games and services, including simulation, parlor,
strategy, role playing and action games.

Disposition of CD-ROM Assets

In connection with the Company's June 1999 disposition of its CD-ROM assets,
management decided to terminate certain CD-ROM distribution agreements and began
negotiations to mutually release each partner from any obligation under the
terms of these agreements. In the second quarter of 1999, the Company estimated
a liability of $850,000 for potential settlements upon termination of these
agreements. The balance of this liability at June 30, 2002 and December 31, 2001
was $114,000 and $124,000, respectively, and is reflected as accounts payable
and accrued expenses in the consolidated balance sheets.

Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, iMagicOnline Corporation, Interactive Magic Ltd.
and Interactive Magic GmbH. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Software Development Costs

The Company capitalizes costs incurred in the development of its gaming
software. Capitalization of such costs is discontinued when a product is
available for general release to customers. Capitalized software development
costs are capitalized at the lower of cost or net realizable value and amortized
using the greater of the revenue curve method or the straight-line method over
the estimated economic life of the related product. Amortization begins when a
product is ready for general release to customers.

                                                                               6

<PAGE>

                          iEntertainment Network, Inc.
             Notes to Consolidated Financial Statements (continued)

1. Description of Business and Significant Accounting Policies (continued)

Software Development Costs (continued)

Information related to net capitalized software development costs is as follows
(in thousands):

                                                  June 30        December 31
                                                   2002             2001
                                                ----------       -----------

     Balance at beginning of period              $     607         $     658
      Capitalized                                        -               167
      Amortized                                       (137)             (218)
                                                ----------       -----------

     Balance at end of period                    $     470         $     607
                                                ==========       ===========

Revenue Recognition

Revenue from online sales is recognized monthly as earned and is based either
upon actual usage by the customer on an hourly basis or on an unlimited use
subscription basis. Certain payments are received in advance. The Company
records advertising revenues in the period the advertising impressions are
delivered to customers. The Company records advertising revenues net of related
administrative fees as reported by its outside advertising vendor. The Company's
advertising contracts do not guarantee a minimum number of impressions to be
delivered.

In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. SAB No. 101 provides guidance on
a variety of revenue recognition issues, including gross versus net income
statement presentation. Based on the criteria of SAB No. 101, the Company
presents its advertising revenues net of these administrative fees.

The accounts receivable allowance at June 30, 2002 and December 31, 2001
includes a reserve for doubtful accounts which management records based on
historical experience and current evaluation of potential collectibility issues.
The Company does not require collateral for unpaid balances. Credit losses have
historically been within management's expectations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include provisions for doubtful
accounts, sales returns and allowances and estimates regarding the
recoverability of capitalized software development costs. Actual results could
differ from those estimates.

                                                                               7

<PAGE>

                          iEntertainment Network, Inc.
             Notes to Consolidated Financial Statements (continued)

1. Description of Business and Significant Accounting Policies (continued)

Foreign Currency Translation

The Company follows the principles of the Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation," using the local currency of its operating subsidiaries as
the functional currency. Accordingly, all assets and liabilities outside the
United States are translated into U.S. dollars at the rate of exchange in effect
at the balance sheet date. Income and expense items are translated at the
weighted average exchange rate prevailing during the period. Adjustments
resulting from translation of financial statements are reflected as a component
of accumulated other comprehensive loss.

The following chart details the Company's comprehensive loss for the periods
presented:

<TABLE>
<CAPTION>
                                                  Three months ended      Six months ended
                                                       June 30                June 30
                                                  2002         2001       2002       2001
                                                ------------------------------------------
   <S>                                          <C>           <C>        <C>        <C>
   Net Loss                                      $(400)       $(461)     $(782)     $(538)
  Other comprehensive income - foreign
  currency translation adjustment                    1            1          2          4
                                                ------------------------------------------
  Comprehensive loss                             $(399)       $(460)     $(780)     $(534)
                                                ==========================================
</TABLE>

Basic Net Loss Per Share

Basic net loss per share has been calculated in accordance with SFAS No. 128,
"Earnings Per Share." Basic net loss per share is calculated by dividing net
loss available to common stockholders by the weighted average shares of common
stock outstanding during the period.

Had the Company been in a net income position, diluted earnings per share would
have been presented and would have included potential common shares related to
outstanding options and warrants. The diluted earnings per share computation is
not included, as all potential common shares are anti-dilutive.

2. Stockholders' Equity

Recapitalization - 2001

During December 2001, the Company completed several financing transactions to
eliminate certain obligations and to improve its financial position:

  The Company and its then Chairman of the Board of Directors agreed to
  terminate the consulting agreement between the parties in exchange for newly
  issued shares of the Company's common stock. The Company was released from
  $46,875 of its debt under the consulting agreement in exchange for 937,500
  shares of its common stock. The $46,875 balance of the liability is to be
  settled on the one-year anniversary of the termination agreement through a
  further issuance of common stock valued at the trading price of the Company's
  common stock on that date.

  The Company issued 10,000,000 shares of common stock to certain stockholders
  under the terms of the Securities Purchase and Exchange Agreement in exchange
  for $300,000 in cash and 3,910.844 shares of the Company's Series D Preferred
  Stock. The Series D Preferred Stock repurchased was immediately retired.

                                                                               8

<PAGE>

                          iEntertainment Network, Inc.

             Notes to Consolidated Financial Statements (continued)


2. Stockholders' Equity (continued)

Recapitalization - 2001 (continued)

  The Company issued 2,980,518 shares of common stock to certain stockholders
  under the terms of the Series D Preferred Stock Exchange Agreement in exchange
  for 1,000 shares outstanding of its Series D Preferred Stock. The Series D
  Preferred Stock was immediately retired. The agreement contains certain
  anti-dilution rights for the shareholders in the repurchase transaction. Terms
  of the antidilution provision include rights related to the issuance of the
  first $203,125 of common stock following the execution of the Stock Exchange
  Agreement.

The Company incurred approximately $30,000 of legal fees related to these
transactions. These fees were recorded as a reduction to additional paid-in
capital.

During the six months ended June 30, 2002, the Company issued 10,284,000 shares
of its common stock in exchange for approximately $515,000 in cash to new
investors pursuant to the exercise of the option terms of the Securities
Purchase and Exchange Agreement dated December 18, 2001. Pursuant to the
Company's anti-dilution obligations under the Series D Preferred Stock Exchange
Agreement, the Company issued approximately 451,000shares of its common stock to
certain shareholders.

3. Property and Equipment

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                      June 30   December 31
                                                                       2002         2001
                                                                  --------------------------
                                                                     Unaudited
           <S>                                                     <C>            <C>
           Equipment                                               $    745       $    737
           Furniture and fixtures                                        46             46
           Software                                                     518            477
                                                                   -------------------------
                                                                      1,309          1,260
           Less accumulated depreciation and amortization              (962)          (832)
                                                                   -------------------------
                                                                    $   347       $    428
                                                                   =========================
</TABLE>

Depreciation expense for the three-month periods ended June 30, 2002 and 2001,
respectively, was $67,000 and $152,000, including amortization of equipment
leased under capital leases of $7,000 and $12,000, respectively. Depreciation
expense for the six-month periods ended June 30, 2002 and 2001, respectively,
was $130,000 and $270,000, including amortization of equipment leased under
capital leases of $14,000 and $26,000, respectively.

4. Stock Options and Warrants

           The following summarizes the Company's stock option activity:

<TABLE>
<CAPTION>
                                                                                                      Weighted-
                                                          Shares         Shares                       Average
                                                         Available      Available                    Exercise
                                                        for Grant -    for Grant -      Options      Price Per
                                                        1995 Plans     1998 Plans     Outstanding      Share
                                                      -------------- --------------  -------------  ------------
               <S>                                    <C>            <C>             <C>            <C>
               Balances at December 31, 2001             1,295,998        246,249      2,509,695         $0.89
                  Options granted                       (1,285,000)       (50,000)     1,335,000         $0.08
                  Options canceled                               -        538,333       (538,333)        $1.10
                                                      -------------- -------------- --------------  ------------
               Balances at June 30, 2002                    10,998        734,582      3,306,362         $0.53
                                                      ============== ============== ==============  ============
</TABLE>

                                                                               9

<PAGE>

                          iEntertainment Network, Inc.

             Notes to Consolidated Financial Statements (continued)

4. Stock Options and Warrants  (continued)

At June 30, 2002, the Company had 1,372,603 vested options outstanding
exercisable at exercise prices ranging from $0.05 - $6.00 per share.

Warrants issued in connection with certain notes payable were recorded at their
estimated fair value and an increase to additional paid in capital. The
resulting debt discount was amortized to interest expense over the term of the
related debt. Warrants issued to consultants and financial advisors are recorded
at their estimated fair value and the related general and administrative expense
is charged when the warrants are issued.

The Company had 1,131,905 common stock warrants outstanding at June 30, 2002 and
December 31, 2001, all of which were exercisable at prices ranging from $1.00 to
$9.60 per share. Terms of the Warrants range from three to ten years.

5. Accrued Liability for Prize Points

The Company operates a prize point system for the users of its online games. In
2000, prize points were redeemable for cash and other prizes. The Company
recorded an accrued liability of $343,000 in accounts payable and accrued
expenses on its December 31, 2000 balance sheet based on management's best
estimate of prize points that have not been redeemed. At December 31, 2000, the
Company also recorded a liability in accounts payable for redeemed but unpaid
prize points of $112,000. In 2001, the Company revised its prize point
redemption policy such that prize points are no longer directly redeemable for
cash or merchandise. Prize points have been converted to chance points to be
used by customers to enter prize drawings. Due to the change in its prize point
system, Management has determined that the Company no longer has prize point
obligations as previously recorded in the December 31, 2000 balance sheets.
Accordingly, the accrued liability of $343,000 and the payable of $112,000 have
been reversed and were netted against Sales and Marketing operating expenses in
the Consolidated Statements of Operations for the quarter ended March 31, 2001.

Following the Company's restructuring of its prize point system in early 2001,
three individuals filed complaints with the Consumer Protection Division of the
Office of the Attorney General for the State of North Carolina with respect to
prize points that they intended to redeem for cash prizes. The Attorney
General's office also has asserted that the Company's operation of the game of
"Bingo," which the Company allows users to play for free, violates North
Carolina's gambling statutes. Management, after consultation with counsel, does
not believe that the Company has violated such statutes, which, as interpreted
by North Carolina's Attorney General's office, would cause free Bingo games
operated by many companies to be in violation. In order to avoid costly
litigation, however, the Company negotiated and paid a settlement in the amount
of $25,000 regarding these claims. This settlement does not bar individual
consumer claims or claims of violations of other states' gaming regulations.
Consequently, there can be no assurance that similar claims will not be made
against the Company in the future.

In order to aide in the resolution of its dispute with the Office of the
Attorney General of North Carolina, the Company changed the operations of its
"Bingo" game to again allow prize points to be directly redeemable for cash. The
total value of any single award is statutorily limited. Players are notified of
their eligibility to redeem accumulated prize points for cash awards. Unredeemed
awards expire after one month. The Company recorded an accrued liability of
$7,000 in accounts payable and accrued expenses on its June 30, 2002 and
December 31, 2001 balance sheets based on management's best estimate of prize
points that have not been redeemed.

                                                                              10

<PAGE>

                          iEntertainment Network, Inc.
             Notes to Consolidated Financial Statements (continued)

6. Leases

The Company rents its facilities and certain office equipment under
noncancelable operating leases which expire at various times through 2004. The
monthly rent under certain facility leases are periodically adjusted based on
changes in the Consumer Price Index.

Property and equipment includes the following amounts for capital leases (in
thousands):

<TABLE>
<CAPTION>
                                                               June 30     December 31
                                                                2002           2001
                                                            ----------------------------
   <S>                                                      <C>            <C>
   Leased equipment                                           $    186       $    188
   Leased furniture and fixtures                                     -              -
                                                            ----------------------------
                                                                   186            188
   Less:  accumulated amortization                                (153)          (139)
                                                            ----------------------------
                                                              $     33       $     49
                                                            ============================
</TABLE>

   The following is a schedule of future minimum lease payments for capital and
     operating leases for the years ending December 31 (in thousands):

<TABLE>
<CAPTION>
                                                               Capital        Operating
                                                               Leases           Leases
                                                            -----------------------------
     <S>                                                    <C>              <C>
     2002                                                     $    35          $    51
     2003                                                          11               51
     2004                                                           -               13
                                                            -----------------------------
     Total future minimum lease payments                           46          $   115
                                                                             ============
      Less: amounts representing interest                          (4)
                                                            --------------
     Present value of future minimum lease payments                42
     Less: current portion                                        (32)
                                                            --------------
                                                               $   10
                                                            ==============
</TABLE>

Total rent expense incurred was approximately $19,000 and $0 for the three month
periods ended June 30, 2002 and 2001, respectively, and approximately $39,000
and $49,000 for the six month periods then ended.

7. Related Party Transactions

In January 2002, the Company entered into a licensing arrangement with IamGame,
Inc. (the "related entity"), a company owned by the Chief Executive Officer of
iEntertainment Network, Inc. for the right to utilize a gaming system developed
by that related entity. Under the terms of the arrangement, the Company has
agreed to manage the related entity's gaming website for a fee. The costs
associated with operating the website are the responsibility of the Company. The
Company has agreed to pay certain set fees and monthly royalties to the related
entity under the license to use its gaming system and on advertising revenue
generated from the related entity's website. During the six months ended June
30, 2002, the Company recognized $109,000 in advertising and subscription
revenues, $63,000 in direct costs associated with operating the IamGame website
and $73,000 in set-up fees and royalty expense under the agreement. The Company
does not have the right to transfer the license, but it can terminate the
arrangement at any time.

                                                                              11

<PAGE>

                          iEntertainment Network, Inc.
             Notes to Consolidated Financial Statements (continued)


8. Significant Customers

Three customers comprised 72% of accounts receivable at June 30, 2002 and one
customer comprised 60% of accounts receivable at December 31, 2001.

                                                                              12

<PAGE>

                          IENTERTAINMENT NETWORK, Inc.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO
THREE AND SIX MONTHS ENDED JUNE 30, 2001

This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from historical results or
anticipated results, including those set forth under "Cautionary Statement"
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere in this report. The following discussion should be
read in conjunction with the Company's Consolidated Financial Statements and
notes thereto included elsewhere in this report.

OVERVIEW

The Company is a developer and publisher of Internet and online games, and an
operator of online game services. The Company develops and publishes proprietary
online multi-player games, and through its Internet distribution infrastructure
offers online gamers a variety of free, subscription and pay-for-play games and
services, including simulation, parlor, strategy, role playing and action games.

The percentages and dollar amounts in the following discussions have generally
been rounded to aid presentation. As a result, all such figures are
approximations.

NET REVENUES

The advertising revenue is generally based on:

(1) the revenue we received from the number of times an advertisement is
displayed on our site, commonly referred to as "cost per thousand impressions,"
or "CPMs"; and

(2) the number of times users click on an advertisement displayed on our sites,
commonly referred to as "cost per click," or "CPCs."

CPM advertising revenue is recognized during the period that the campaign runs,
as is CPC revenue, which is recognized as users click on the ads.

The Company recognizes Internet advertising revenue generated through
third-party agency representation on a net basis, after deduction of agency
commission expense. The recognition of revenue in this manner is consistent with
the actual cash received. The Company derived 17% and 20% of its advertising
revenue from reciprocal advertising arrangements, or "barter" during the three-
and six-month periods ended June 30, 2001, respectively, and none during the
three- and six-month respective periods ended June 30, 2002. The Company does
not expect that barter will account for any significant portion of its revenues
in the foreseeable future.

The online revenues are generated primarily from pay-for-play usage for
WarBirds(TM), the Company's award winning World War II air combat simulation
game. Revenue from online sales is recognized monthly as earned and is based
either upon actual usage by the customer on an hourly basis or on an unlimited
use subscription basis. Certain payments are received in advance. Additionally,
in the first quarter of 2002 the Company began offering subscription-based Bingo
which accounted for 11% and 10% of online revenues in the three and six month
periods ended June 30, 2002, respectively. Revenue from subscription-based Bingo
is recognized when earned. Payments are received in advance.

Net revenues decreased by 18% to $364,000 for the three months ended June 30,
2002 from $442,000 for the three months ended June 30, 2001. Net revenues
decreased by 28% to $731,000 for the six months ended June 30, 2002 from
$1,016,000 for the six months ended June 30, 2001.

                                                                              13

<PAGE>

                          IENTERTAINMENT NETWORK, Inc.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

The following table summarizes the changes in the components of revenue from
2001 to 2002:

<TABLE>
<CAPTION>
                                                                                  Three months         Six months
                                                                                  ended June 30       ended June 30
                                                                                      ($000)             ($000)
                                                                                 -----------------------------------
         <S>                                                                     <C>                  <C>
         Revenue for the period in 2001                                              $   442             $  1,016
         Increase / (Decrease) in Advertising and Other Revenue                            2                 (178)
         Increase / (Decrease) in Pay for Play Revenue                                   (62)                 (89)
         Increase / (Decrease) in Royalty & Licensing                                    (18)                 (18)
                                                                                 -----------------------------------
         Revenue for the period in 2002                                              $   364             $    731
                                                                                 ===================================
</TABLE>

Advertising revenues decreased 39% from the six-month period ended June 30, 2001
to the six-month period ended June 30, 2002. The decrease is due primarily to a
50% decline in advertising impressions served over the periods. Advertising
revenues increased 1% from the three-month period ended June 30, 2001 to the
three-month period ended June 30, 2002. The increase is due primarily to the
Company's use of more aggressive, higher-value advertising formats and to a
general improvement in advertising rates.

Pay-for-Play revenue decreased 22% to $218,000 for the three months ended June
30, 2002 from $280,000 for the three months ended June 30, 2001 and decreased
17% to $448,000 for the six months ended June 30, 2002 from $537,000 for the six
months ended June 30, 2001. Pay-for-Play revenue related to the Company's
WarBirds(TM) product decreased 27% for the three months ended June 30, 2002 from
the prior year's comparable period and decreased 22% for the six months ended
June 30, 2002 from the prior year's comparable period, primarily due to a
decrease in the Game's player base. The balance of the change in both the three-
and six-month periods is primarily attributable to the introduction during the
first quarter of 2002 of subscription-based Bingo.

COST OF REVENUES

Cost of revenues consists of costs of products sold (including cost of Internet
access) and royalties and amortization of software development costs. Cost of
revenues remained constant between the three-month period ended June 30, 2002
and the comparable period in 2001. Decreases in the cost of internet access was
offset by additional costs associated with the royalties due to a related party.
Cost of revenues increased 50% to $267,000 in the six-month period ended June
30, 2002 from $178,000 in the six-month period ended June 30, 2001. This
increase was due primarily to an additional quarter of amortized software
development costs in 2002 and to the additional costs associated with the
royalties due to the agreement between the Company and IamGame.

OPERATING EXPENSES

Operating expenses decreased by 22% to $647,000 for the three months ended June
30, 2002 from $827,000 for the three months ended June 30, 2001 and decreased by
13% to $1,260,000 for the six months ended June 30, 2002 from $1,447,000 for the
six months ended June 30, 2001.

The following table summarizes the changes in the components of operating
expenses from 2001 to 2002:

<TABLE>
<CAPTION>
                                                                        Three months       Six months
                                                                       ended June 30      ended June 30
                                                                           ($000)            ($000)
                                                                      ----------------------------------
<S>                                                                   <C>                 <C>
Operating Expenses for the period in 2001                                   $  827          $  1,447
Increase/ (Decrease) in Sales and Marketing                                    (92)             (548)
Increase/ (Decrease) in Product Development                                    (71)             (106)
Increase/ (Decrease) in General and Administrative                             (11)               20
Increase/ (Decrease) in Reversal of accrued liabilities for prize
points                                                                          (6)              447
                                                                      ----------------------------------
Operating Expenses for the period in 2002                                   $  647          $  1,260
                                                                      ==================================
</TABLE>

                                                                              14

<PAGE>

                          IENTERTAINMENT NETWORK, Inc.

SALES AND MARKETING

Sales and marketing expenses decreased by 48% to $99,000 for the three months
ended June 30, 2002 from $191,000 for the three months ended June 30, 2001, and
decreased by 75% to $181,000 for the six months ended June 30, 2002 from
$729,000 for the six months ended June 30, 2001. Beginning with the first
quarter of 2001, the Company revised its prize point redemption policy such that
prize points are no longer directly redeemable for cash or merchandise. Prize
points were converted to chance points to be used to enter fixed-value prize
drawings. Accordingly, the associated accrued liability related to unredeemed
prize points and the payable related to redeemed, but unpaid, prize points were
reversed against operating expenses in the quarter ended March 31, 2001. These
decreases in the six months ended June 30, 2002 were due primarily to the
reduction of costs associated with customer incentives ($0.2 million), the
elimination of expenses related to marketing agreements with Internet Service
Providers ($0.2 million) and those expenses related to barter advertising ($0.1
million).

PRODUCT DEVELOPMENT

Product development expenses decreased 18% to $326,000 for the three-month
period ended June 30, 2002 from $397,000 for the three months ended June 30,
2001 and decreased 16% to $554,000 for the six-month period ended June 30, 2002
from $660,000 for the six months ended June 30, 2001due to a combination of
factors including the decrease in staffing costs and the decrease in corporate
overhead related to the department.

GENERAL AND ADMINISTRATIVE

General and administrative expenses decreased 5% to $222,000 for the three month
period ended June 30, 2002 from $233,000 for the three months ended June 30,
2001 but increased 4% to $525,000 for the six-month period ended June 30, 2002
from $505,000 for the six months ended June 30, 2001. Savings in personnel and
facilities costs were offset by increases in insurance costs and the absence of
any bad debt recoveries during 2002.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2002, the Company had cash of $111,000. The following is a
condensed table of cash on hand and major cash flow items:

           Cash on hand, December 31, 2001                             $  259
           Net loss                                                      (782)
           Add: non-cash charges and expenses                             268
           Changes in working capital                                     (86)
                                                                       ------

           Net Cash Used in Operation                                    (600)
           Net Cash provided by investing and financing activities        450
           Effect of exchange rates on cash and cash equivalents            2
                                                                       ------
           Net change in cash and cash equivalents                       (148)
                                                                       ------

           Cash on hand, June 30, 2002                                 $  111
                                                                       ======

The Company used $0.8 million more net cash in operating activities during the
first six months of 2002 compared with the six-month period ended June 30, 2001.
This increase was primarily due to the increase in the net loss during that
period, which net losses have increased since the change of the business
following the Company's restructuring during the fourth quarter of fiscal 2000.
The Company has also experienced a substantial decrease in revenues and a
corresponding decrease in accounts receivable available for collection during
the periods. Cash generated from the collection of receivables declined $0.7
million during the first six months of 2002 compared with the same period in
2001.

                                                                              15

<PAGE>

IENTERTAINMENT NETWORK, Inc.


LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The Company's success is highly dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to obtain
additional financing or refinancing as may be required, and ultimately to attain
profitability. Management expects to need and be able to attract additional
capital for its online operations. However, there can be no assurance that
management's plans will be executed as anticipated. In April 2002, the Company
raised gross proceeds of $350,000 through the private placement of 7,000,000
shares of common stock to one accredited investor at $0.05 per share.

Unless and until its online revenue stream matures, the Company recognizes that
it will likely not have sufficient cash resources to fund its operations through
the end of 2002. The Company might not be able to close on any financing
transaction necessary to fund ongoing operations. The Company does not have any
current arrangements or commitments for any future financing. The Company might
be required to obtain financing on terms that are not favorable to it and its
shareholders. The Company received a going concern qualification on its December
31, 2001 audited financial statements.

If the Company is unable to obtain additional financing when needed, it may be
required to shutdown, delay or scale back product development and marketing
programs in order to meet its short-term cash requirements, which could have a
material adverse effect on its business, financial condition and results of
operations.

The Company operates in a highly competitive environment that involves a number
of risks, some of which are beyond the Company's control. The following
statement highlights some of these risks.

Statements contained in "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" which are not historical facts are or
might constitute forward-looking statements under the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Although the Company
believes the expectations reflected in such forward-looking statements are based
on reasonable assumptions, its expectations might not be attained.
Forward-looking statements involve known and unknown risks that could cause the
Company's actual results to differ materially from expected results. Factors
that could cause actual results to differ materially from the Company's
expectations include, among others: we have incurred significant operating
losses and we cannot predict whether we will become profitable; we have changed
our business focus and we may not be successful operating a new business; we
have significant capital requirements, and if we do not obtain sufficient
additional funds our ability to grow may be limited; our growth strategy,
including acquisitions, may not succeed and may adversely effect our financial
condition, results of operations and cash flows; if we are unable to introduce
new products and incorporate rapidly developing technologies into our products,
our business may be adversely affected; we depend on the continued growth in use
of the Internet; intense competition may adversely affect our operating results;
and other risks. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained in
this report to reflect any change in our expectations or any changes in events,
conditions or circumstances upon which any forward-looking statement is based.

EURO CONVERSION

On January 1, 1999, the European Community began denominating significant
financial transactions in a new monetary unit, the Euro. The Euro is intended to
replace the traditional currencies of the individual EU member countries. During
the fourth quarter of 1999, the Company decided to close its European operations
and therefore is not converting internal financial systems to the Euro as a
functional currency during this closure period.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission (SEC) recently released Financial
Reporting Release No. 60, which requires all companies to include a discussion
of critical accounting policies or methods used in the preparation of financial
statements. In addition, Financial Reporting Release No. 61 was recently
released by the SEC to require all companies to include a discussion to address,
among other matters, liquidity, off-balance sheet arrangements and contractual
obligations and commercial commitments. The following is a listing of our
critical accounting policies and a brief discussion of each:

.. Allowance for doubtful accounts
.. Deferred software costs
.. Income taxes
.. Revenue recognition

                                                                              16

<PAGE>

IENTERTAINMENT NETWORK, Inc.


CRITICAL ACCOUNTING POLICIES (continued)

Allowance for Doubtful Accounts.

Our allowance for doubtful accounts relate to customer accounts receivable. The
allowance for doubtful accounts is an estimate prepared by management based on
identification of the collectibility of specific accounts and the overall
condition of the receivable portfolios. We specifically analyze customer
receivables, as well as analyze historical bad debts, customer credits, customer
concentrations, customer credit-worthiness, current economic trends, and changes
in customer payment terms, when evaluating the adequacy of the allowance for
doubtful accounts. If the financial condition of the our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Likewise, should we determine that we
would be able to realize more of our receivables in the future than previously
estimated, an adjustment to the allowance would increase income in the period
such determination was made. The allowance for doubtful accounts is reviewed on
a quarterly basis and adjustments are recorded as deemed necessary.

Software Development Costs

We capitalize costs incurred in the development of its gaming software.
Capitalization of such costs is discontinued when a product is available for
general release to customers. Capitalized software development costs are
capitalized at the lower of cost or net realizable value and amortized using the
straight-line method over the estimated economic life of the related product.
Amortization begins when a product is ready for general release to customers.

Income Taxes

We are required to estimate income taxes in each of the jurisdictions in which
we operate. This process involves estimating our actual current tax exposure
together with assessing temporary differences resulting from differing treatment
of items for tax and accounting purposes. These differences result in deferred
tax assets and liabilities. We must assess the likelihood that the deferred tax
assets will be recovered from future taxable income and to the extent that we
believe recovery is not likely, we must establish a valuation allowance. To the
extent we establish a valuation allowance in a period, we must include an
expense within the tax provision in the Statements of Operations. We have
recorded a valuation allowance against our entire net deferred tax assets given
the losses we have incurred and the uncertainties regarding our future operating
profitability and taxable income.

Revenue Recognition

Revenue from online sales is recognized monthly as earned and is based either
upon actual usage by the customer on an hourly basis or on an unlimited use
subscription basis. Certain payments are received in advance. We record
advertising revenues in the period the advertising impressions are delivered to
customers. We record advertising revenues net of related administrative fees as
reported by its outside advertising vendors. We recorded barter revenue and
expense under the criteria established by the Emerging Issues Task Force Issue
No. 99-17 "Accounting for Advertising Barter Transactions."

                                                                              17

<PAGE>

IENTERTAINMENT NETWORK, Inc.

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

From January 1, 2002 through June 30, 2002, the Company had the following
changes in its unregistered securities: (1) options to purchase 50,000 shares of
common stock to a contractor for services priced at market value on the date of
issuance; (2) 450,589 shares of common stock to one accredited investor pursuant
to the anti-dilution obligations under the Series D Preferred Stock Exchange
Agreement; and (3) 10,284,000 shares of common stock for total cash of $514,200
at $0.05 per share to a total of eight accredited investors. The Company used
the proceeds of the sale for general working capital requirements.

The issuances described in items (1) through (3) above were exempt from
registration under Section 5 of the Securities Act of 1933, as amended, by
reason of Section 4(2) of the Act and Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering. Recipient of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates issued in the transactions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

None

(B) REPORTS ON FORM 8-K

None

                                                                              18

<PAGE>

                          IENTERTAINMENT NETWORK, Inc.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by each of the
undersigned thereunto duly authorized, who certify to their knowledge that this
report fully complies with the requirements of Section 13(a) or 15(d) of that
Act and that the information contained in this report fairly presents, in all
material respects, the financial condition and results of operations of the
registrant as of and for the period ended June 30, 2002.

                          IENTERTAINMENT NETWORK, INC.

                            By: /s/ J. W. Stealey

                            ----------------------
                            J. W. Stealey
                            Chief Executive Officer

                            By: /s/ Allan Kalbarczyk

                            ----------------------
                            Allan Kalbarczyk
                            Chief Accounting Officer


Date: August 14, 2002

                                                                              19