<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 September 30, 2001

                         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 November 05, 2001, (the most recent practicable date), there were
15,914,311 shares of the issuer's Common Stock, $.10 par value per share,
outstanding.

Transitional Small Business Disclosure Format (check one)

Yes [_]                    No [X]


1

<PAGE>

                          IENTERTAINMENT NETWORK, Inc.

                          Form 10-QSB Quarterly Report

                                      INDEX


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

Item 2              Management's Discussion and Analysis of
                          Financial Condition and Results of
                          Operations                                       16

PART II             OTHER INFORMATION                                      20

Item 1              Legal Proceedings                                      20

Item 2              Changes in Securities and Use of Proceeds              20

Item 3              Defaults Upon Senior Securities                        20

Item 4              Submission of Matters to a Vote of Security Holders    21

Item 5              Other Information                                      21

Item 6              Exhibits and Reports on Form 8-K                       22

SIGNATURES                                                                 23
</TABLE>

2

<PAGE>

PART I.           FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

                          iEntertainment Network, Inc.
                           Consolidated Balance Sheets
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                 September 30  December 31
                                                                                     2001          2000
                                                                                 -------------------------
                                                                                  UNAUDITED       AUDITED
<S>                                                                              <C>           <C>
Assets
Current assets:
   Cash and cash equivalents                                                       $     69      $    437
   Trade receivables, net of allowances of $75 and $80 at September 30,
      2001 and December 31, 2000, respectively                                          178           814
   Prepaid expenses and other                                                           287           169
                                                                                 -------------------------
Total current assets                                                                    534         1,420

Property and equipment, net                                                             629           914
Software development costs, net                                                         676           658
Other noncurrent assets                                                                  17            18
                                                                                 -------------------------
Total assets                                                                       $  1,856      $  3,010
                                                                                 =========================

Liabilities and stockholders' equity Current liabilities:
   Accounts payable and accrued expenses                                           $  1,152      $  1,181
   Current portion of capital lease obligations                                          30            36
                                                                                 -------------------------
Total current liabilities                                                             1,182         1,217

Capital lease obligations, less current portion                                          26            43
                                                                                 -------------------------
Total liabilities                                                                     1,208         1,260

Stockholders' equity:
   Series D Convertible Preferred Stock $.10 par value; liquidation and stated
      value of $1,000 per share, plus accumulated accretion, 4,911
      shares authorized, issued and outstanding                                       5,467         5,246
   Common stock, $.10 par value; 50,000,000 shares authorized; 15,914,311 and
      15,914,311 shares issued and outstanding                                        1,591         1,591
   Additional paid-in capital                                                        38,157        38,157
   Accumulated deficit                                                              (44,512)      (43,188)
   Accumulated other comprehensive loss                                                 (55)          (56)
                                                                                 -------------------------
Total stockholders' equity                                                              648         1,750
                                                                                 -------------------------
Total liabilities and stockholders' equity                                         $  1,856      $  3,010
                                                                                 =========================
</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                  Nine months ended
                                                        September 30     September 30      September 30      September 30
                                                            2001              2000             2001                2000
                                                        ------------------------------------------------------------------
                                                                  UNAUDITED                          UNAUDITED
<S>                                                     <C>              <C>              <C>                <C>
Net revenues:
    CD-ROM product sales                                  $         -     $         60    $          -        $         70
    Online sales                                                  240              346             777               1,162
    Advertising and other                                         117            1,493             575               4,111
    Royalties and licenses                                         36                4              57                 120
                                                        ------------------------------------------------------------------
Total net revenues                                                393            1,903           1,409               5,463

Cost of revenues:
    Cost of products and services                                  61               43             157                  91
    Royalties and amortized software costs                         69               44             151                 368
                                                        ------------------------------------------------------------------
Total cost of revenues                                            130               87             308                 459
                                                        ------------------------------------------------------------------
Gross profit                                                      263            1,816           1,101               5,004

Operating expenses:
    Sales and marketing                                           122            1,494             851               3,404
    Product development                                           411              363           1,071               1,308
    General and administrative                                    310              398             815               1,430
    Goodwill amortization                                           -              400               -               1,201
    Debt Concessions                                                -             (265)              -                (265)
    Reversal of accrued liabilities for prize points                -                -            (447)                  -
                                                        ------------------------------------------------------------------
Total operating expenses                                          843            2,390           2,290               7,078
                                                        ------------------------------------------------------------------
Operating loss                                                   (580)            (574)         (1,189)             (2,074)

Other (income) expense:
    Interest (income)/expense                                       1               (8)              1                  (3)
    Other                                                         (14)              (3)            (85)                (61)
                                                        ------------------------------------------------------------------
Total other income                                                (13)             (11)            (84)                (64)
                                                        ------------------------------------------------------------------
Loss before income taxes                                         (567)            (563)         (1,105)             (2,010)
Income tax expense                                                  -                1               -                  16
                                                        ------------------------------------------------------------------
Net loss                                                         (567)            (564)         (1,105)             (2,026)
 Accretion of Series D Convertible Preferred  Stock               (74)             (74)           (221)               (221)

                                                        ------------------------------------------------------------------
Net loss available to common stockholders                 $      (641)    $       (638)   $     (1,326)       $     (2,247)
                                                        ==================================================================

Basic and diluted loss per share:
    Net loss per share                                    $     (0.04)    $      (0.04)   $      (0.08)       $      (0.15)
Weighted average shares used in computing basic
    and diluted loss per share                             15,914,311       15,747,188      15,914,311          15,256,235
</TABLE>




<PAGE>

                          iEntertainment Network, Inc.


                      Consolidated Statements of Cash Flows
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                  Nine months ended September 30
                                                                                      2001              2000
                                                                                --------------------------------
                                                                                             UNAUDITED
<S>                                                                             <C>                   <C>
Operating activities
Net loss                                                                         $      (1,105)       $   (2,026)
Adjustments to reconcile net loss to net cash used in operating
   activities:
     Depreciation and amortization                                                         428             1,440
     Amortization of capitalized software development costs                                149                 -
     Noncash compensation expense                                                            -                79
     Issuance of common stock for services                                                   -               132
     Write-off of accrued liability for prize points                                      (447)                -
     Changes in operating assets and liabilities:
       Trade receivables                                                                   636            (1,046)
       Prepaid expenses and other assets                                                  (118)              (29)
       Accounts payable and accrued expenses                                               420              (657)
       Royalties and commissions payable                                                     -               (94)
                                                                                --------------------------------
Net cash used in operating activities                                                      (37)           (2,201)

Investing activities

Purchase of property and equipment                                                        (142)             (354)
Capitalized software development costs                                                    (167)             (420)
                                                                                --------------------------------
Net cash used in investing activities                                                     (309)             (774)

Financing activities

Proceeds from issuance of common and preferred stock                                         -               836
Stock registration costs                                                                     -               (53)
Payments on capital lease obligations                                                      (23)              (51)
                                                                                --------------------------------
Net cash (used in) provided by financing activities                                        (23)              732

Effect of currency exchange rate changes on cash and cash equivalents                        1                45
                                                                                --------------------------------
Net decrease in cash and cash equivalents                                                 (368)           (2,198)
Cash and cash equivalents at beginning of period                                           437             3,092
                                                                                --------------------------------
Cash and cash equivalents at end of period                                       $          69        $      894
                                                                                ================================
</TABLE>




<PAGE>

                          iEntertainment Network, Inc.

                Consolidated Statements of Cash Flows (continued)
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                  Nine months ended September
                                                                                    2001               2000
                                                                                ------------------------------
                                                                                            UNAUDITED

<S>                                                                             <C>                <C>
Noncash investing and financing activities
Issuance of common stock in connection with development agreement                $        -        $       49
Issuance of common stock in connection with employee severance                   $                 $      136
Issuance of common stock in settlement of liabilities                            $        -        $      300
Fixed assets acquired under capital lease                                        $        -        $       47
</TABLE>

See accompanying notes.


<PAGE>

                          iEntertainment Network, Inc.

                   Notes to Consolidated Financial Statements
     (INFORMATION AS OF September 30, 2001 AND FOR THE NINE AND THREE MONTHS
                 ENDED September 30, 2001 AND 2000 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-Q 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, 2000 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, 2000.

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-per-play games and services, including simulation, parlor,
strategy, role playing and action games.

Disposition of CD-ROM Assets

In connection with the Company's September 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 September 30, 2001 and
December 31, 2000 was $195,000 and is reflected as accounts payable and accrued
expenses in the consolidated balance sheets. In the first quarter of 2000, the
Company settled with its two largest distributors by paying $250,000 in cash and
issuing common stock valued at $300,000.

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.

Cash and Cash Equivalents

Cash and cash equivalents include amounts in demand deposit accounts and
investments with an original maturity date of three months or less when
purchased.

<PAGE>

                          iEntertainment Network, Inc.


             Notes to Consolidated Financial Statements (continued)



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

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.

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

<TABLE>
<CAPTION>
                                                           September 30           December 31
                                                               2001                  2000
                                                         ----------------------------------------
        <S>                                              <C>                      <C>
        Balance at beginning of year                       $     658              $      92
        Capitalized                                              167                    658
        Amortized                                               (149)                   (92)
                                                         ---------------------------------------
        Balance at end of year                             $     676              $     658
                                                         =======================================
</TABLE>


Revenue Recognition

Revenue from online sales is recognized at the time the game is played and is
based either upon actual usage by the customer on an hourly basis or on an
unlimited use subscription basis. 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.

<PAGE>

                           iEntertainment Network, Inc.

                 Notes to Consolidated Financial Statements (continued)



Description of Business and Significant Accounting Policies (continued)

Revenue Recognition (continued)

Revenue from CD-ROM product sales was recognized at the time of product
shipment. Revenue from royalties and licenses is recognized when earned under
the terms of the relevant agreements with original equipment manufacturers
("OEMs"), international distributors and other third parties. With respect to
license agreements that provide customers the right to multiple copies in
exchange for guaranteed amounts, net revenue is recognized upon delivery of the
product master or the first copy provided collectibility is probable. Per copy
royalties on sales that exceed the guarantee are recognized as earned. The
Company accepts product returns and provides price protection on certain unsold
merchandise. Revenue is recorded net of an allowance for estimated future
returns, markdowns, price protection and warranty costs. Such reserves are based
upon management's evaluation of historical experience, current industry trends
and estimated costs.

In October 1997, the Accounting Standards Executive Committee "(AcSEC)" issued
Statement of Position "(SOP)" 97-2, "Software Revenue Recognition" as amended in
March 1998 by SOP 98-4 and October 1998 by SOP 98-9. These SOPs provide guidance
on applying generally accepted accounting principles in recognizing revenue on
software transactions. The Company adopted SOP 97-2 for software transactions
entered into beginning January 1, 1998. Based on the current requirements of the
SOPs, application of these statements did not have a material impact on the
Company's revenue recognition policies. However, AcSEC is currently reviewing
further modifications to the SOP with the objective of providing more
definitive, detailed implementation guidelines. This guidance could lead to
unanticipated changes in the Company's operations and revenue recognition
practices.

Revenue from certain software development contracts with fixed price components
is recognized on the percentage of completion basis in accordance with the
American Institute of Certified Public Accountants' SOP 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts." In
accordance with SOP 81-1, the Company recognizes percentage of completion
revenue based upon the ratio of accumulated incurred costs to the total
estimated costs to complete each contract.

The accounts receivable allowance at September 30, 2001 and December 31, 2000
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.

Reclassifications

The Company reclassified Software Development Costs in the balance sheet as of
December 31, 2000 from a current asset to a non-current asset to conform with
the presentation in the September 30, 2001 balance sheet. The reclassification
did not affect stockholders' equity or net loss as previously reported.

<PAGE>

                          iEntertainment Network, Inc.

             Notes to Consolidated Financial Statements (continued)

Description of Business and Significant Accounting Policies (continued)

Comprehensive Loss

The following chart details the Company's comprehensive loss for the periods
presented (in thousands):

<TABLE>
<CAPTION>
                                            Three months ended        Nine months ended
                                                 September 30            September 30
                                               2001        2000         2001        2000
                                            ----------- ------------ ------------ ---------
<S>                                         <C>             <C>       <C>         <C>
  Net Loss                                      $(567)       $(564)     $(1,105)  $(2,026)
  Other comprehensive income - foreign
  currency translation adjustment                  (3)            6           1        44
                                            ----------- ------------ ------------ ---------
  Comprehensive loss                            $(570)       $(558)     $(1,104)  $(1,982)
                                            =========== ============ ============ =========
</TABLE>

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, warranty provisions, and estimates
regarding the recoverability of capitalized software development costs. Actual
results could differ from those estimates.

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 antidilutive.

Impact of Recently Issued Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which was later amended by SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" and by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities ? an Amendment of FASB Statement No.
133." SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statements
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. If the derivative is determined to be a
hedge, depending on the nature of the hedge, changes in the fair value of

<PAGE>

                          iEntertainment Network, Inc.

             Notes to Consolidated Financial Statements (continued)

Description of Business and Significant Accounting Policies (continued)

Impact of Recently Issued Accounting Pronouncements (continued)

derivatives are offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through the statements of operations or
recognized in other comprehensive income until the hedged item is recognized in
the statements of operations. The ineffective portion of a derivative's change
in fair value is immediately recognized in earnings. We were required to adopt
SFAS 133 as of January 1, 2001. The adoption of SFAS 133 did not have a
significant impact on our results of operations, financial position, or cash
flows.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. SFAS No. 141 also specifies criteria
that intangible assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for separately.
SFAS No. 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will
also require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".

The Company is required to adopt the provisions of SFAS No. 141 immediately,
except with regard to business combinations initiated prior to July 1, 2001, and
SFAS No. 142 will become effective January 1, 2002. We are currently assessing
the impacts of adoption of SFAS No. 141 and SFAS No. 142 on goodwill and other
intangible assets and the respective impact on the results of operations,
financial position and cash flows.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." We
will adopt SFAS No. 144 in fiscal year 2002. We do not expect the provisions of
SFAS No. 144 to have any significant impact on its financial condition or
results of operations. We do not expect the adoption of other recently issued
accounting pronouncements to have a significant impact on our results of
operations, financial position, or cash flows.

<PAGE>

                          iEntertainment Network, Inc.

             Notes to Consolidated Financial Statements (continued)

2. Stockholders' Equity

Series D Redeemable Convertible Preferred Stock

The following is a summary of the terms of the Series D Redeemable Convertible
Preferred Stock ("Series D Preferred"):

Dividends

There are no dividends automatically payable on the Series D Preferred. No
dividends may be paid to the common stockholders while any Series D Preferred
shares are outstanding.

Liquidation Preferences

Upon any liquidation, dissolution or winding up of the Company, before anything
can be paid to the holders of common stock, the holders of the Series D
Preferred will be entitled to receive $1,000 per share, plus an amount equal to
a 6% annual return on that amount since the November 1999 issuance date and any
penalty amounts due thereunder, if any.

Redemption

The Series D Preferred must be redeemed by the Company if it is requested to do
so by the holders of a majority of the outstanding Series D Preferred shares
upon: (1) failure by the Company to comply with certain terms of the Articles of
Incorporation, the Securities Purchase and Exchange Agreement or the related
Registration Rights Agreement with respect to the Series D Preferred; (2)
bankruptcy of the Company; or (3) certain changes in control of the Company.

In any such event, the redemption price per share would be equal to the greater
of (1) $1,200 per share, plus an amount equal to a 6% annual return since
November 1999 on the $1,000 paid for each share and any penalty amounts due
under the terms of the Series D Preferred (including, but not limited to, as a
result of the failure to convert or deliver shares on a timely basis), and (2)
the "Parity Value" of the shares, which equals the product of (a) the number of
shares of the Company's common stock into which the Series D Preferred could
have been converted multiplied by (b) the highest reported closing price per
share of the common stock between the event triggering the right to request
redemption and the payment of the redemption price.

A registration statement was filed and became effective in March 2000, which
removed the redemption feature that was outside the control of the Company.
Accordingly, the Company classified the Series D preferred stock as permanent
equity during the first quarter of 2000.

The Series D preferred stockholders are entitled to a 6% annual return on the
stated value of the preferred stock, upon liquidation, conversion, and
redemption within control of the Company. Accordingly, the Company has recorded
this return as accretion to the stated value of the preferred stock and a charge
to accumulated deficit. For the three and nine months ended September 30, 2001
and 2000, the recorded accretion was $74,000 and $221,000 respectively.
Accumulated accretion at September 30, 2001 and December 31, 2000 was $556,000
and $335,000, respectively.

<PAGE>

                          iEntertainment Network, Inc.

             Notes to Consolidated Financial Statements (continued)

2. Stockholders' Equity (continued)

Conversion

Following shareholder approval of the Series D Preferred Stock financing in
December 1999, the Series D Preferred shares were convertible at $1 per share of
common stock. At any time, a holder of Series D Preferred Stock may convert all
of those shares into common stock. Each share of Series D Preferred was
initially convertible into 1,000 shares of common stock. The number of shares of
common stock issuable upon conversion of a share of Series D Preferred increases
over time to provide the holder additional common stock equal to a 6% annual
return since November 1999 and any penalty amounts otherwise due thereunder.
Subject to certain conditions, the Series D Preferred Stock will automatically
convert into common stock in November 2002.

Voting

The Series D Preferred has no voting rights other than as provided by law and
except that the approval of the holders of a majority of the outstanding Series
D Preferred is required for: (1) any adverse change to the rights of the Series
D Preferred; (2) the creation of securities having senior or equal rights; (3)
an increase in the authorized number of shares of Series D Preferred; (4) an
increase in the par value of the common stock; or (5) any action that would
result in certain taxes being imposed on the Series D Preferred.

3. Stock Options and Warrants

The following summarizes the Company's stock option and warrant activity:

<TABLE>
<CAPTION>
                                         Shares         Shares                         Weighted-
                                        Available     Available                         Average
                                       for Grant -   for Grant -      Outstanding    Exercise Price
                                       1995 Plans     1998 Plans                       Per Share
                                      --------------------------------------------------------------
<S>                                   <C>            <C>             <C>             <C>
Balances at December 31, 2000             331,985       309,815      3,410,142           $1.84
   Options granted                        (90,000)             -        90,000           $0.25
   Options canceled                       443,238        57,000       (500,238)          $2.10
                                      --------------------------------------------------------------
Balances at September 30, 2001            685,223       366,815      2,999,904           $1.75
                                      ==============================================================
</TABLE>


At September 30, 2001, the Company had 2,286,059 options exercisable at exercise
prices ranging from $0.25 - $6.00 per share.

The Company had 1,131,905 and 1,210,903 warrants outstanding at September 30,
2001 and December 31, 2000, respectively, all of which were exercisable at
prices ranging from $1.00 to $9.60 per share.

<PAGE>

                          iEntertainment Network, Inc.

             Notes to Consolidated Financial Statements (continued)

4.  Accrued Liability for Prize Points

The Company has operated a prize point system for the users of its online games.
In 2000, prize points were redeemable for cash and other prizes. The Company had
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 and may
now 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 sheet.
Accordingly, the accrued liability of $343,000 and the payable of $112,000 have
been reversed and were netted against operating expenses in the Consolidated
Statements of Operation for the quarter ending 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 wanted 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 a settlement regarding these claims. Settlement was
reached in the fourth quarter of 2001. A reserve has been accrued on the balance
sheet at September 30, 2001 in the amount of $25,000. This settlement does not
bar individual consumer claims or claims of violations of other states' gaming
regulations. Consequently, there can be no assurance that future claims will not
be made against the Company.

The Company has changed the operations of its "Bingo" game in order to help
resolve its dispute with the Office of the Attorney General of North Carolina.
As a result of anticipated reductions in "Bingo's" prize point eligibility
necessary to effect these changes, the Company may experience a substantial
decrease in the amount of traffic on the Company's "Bingo" website. If the
amount of traffic on the Company's "Bingo" website does substantially decrease,
the Company's advertising revenues will also substantially decrease.

5.  Accrued Liability for Consulting Agreement

In August 2001, the Company executed an agreement with Jacob Agam, Chairman of
the Company's Board of Directors, for Mr. Agam to provide consulting services
to the Company. In recognition of past services to the Company by Mr. Agam,
including services provided throughout 2001, the agreement has an effective date
of January 01, 2001. The agreement has an initial term expiring on January 01,
2002 and automatically renews for successive one year terms unless terminated
under terms of the agreement. The agreement provides for a base compensation
that is payable in monthly installments subject to the Company meeting certain
contractually defined liquidity events. The amount accrued on the Company's
balance sheet at September 30, 2001 regarding this liability was $93,750. The
agreement also provides for bonus compensation based on fulfilling certain
contractually defined objectives. The payment of either the base or bonus
compensation may be in cash or the Company's common stock at the election of Mr
Agam.

<PAGE>

                           iEntertainment Network, Inc.

             Notes to Consolidated Financial Statements (continued)

6.   Contingencies

Responsys, Inc. ("Responsys") filed a complaint with the North Carolina General
Court of Justice, Superior Court Division, Wake County, on June 26, 2001,
alleging breach of contract with respect to payments claimed for software
Responsys licensed to iEntertainment in the amount of $288,102.61, or in the
alternative, a quantum meruit award of $102,852.61, plus interest and attorneys'
fees. The Company first learned of Responsys' claims when it was served with
Responsys' complaint in August 2001. The deadline by which the Company must
respond to these claims has been extended to November 21, 2001. The Company is
currently evaluating its options with respect to these claims with its counsel,
but the Company's management believes Responsys' claims to be without merit and
does not believe payment to Responsys is appropriate because the subject
software did not perform as described to the Company by Responsys. Because
discovery is ongoing, and due to the uncertainties inherent in the complaint
process, the Company is unable to predict the outcome of this complaint.

<PAGE>

IENTERTAINMENT NETWORK, Inc.


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

RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED
TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000

OVERVIEW

During the fourth quarter of fiscal 2000, the Company, reacting to an adverse
pricing environment for online advertising, restructured its operations, thereby
significantly reducing personnel and overhead costs.

NET REVENUES

Net revenues decreased by 79% to $.4 million for the three months ended
September 30, 2001 from $1.9 million for the three months ended September 30,
2000. Net revenues decreased by 74% to $ 1.4 million for the nine months ended
September 30, 2001 from $5.5 million for the nine months ended September 30,
2000.

The following table summarizes the changes in the components of revenue from
2000 to 2001:

<TABLE>
<CAPTION>
                                                              Three months      Nine months
                                                                  ended       ended September
                                                              September 30           30
                                                                 ($000)            ($000)
                                                             ---------------- -----------------
<S>                                                          <C>              <C>
  Revenue for the period in 2000                                  $  1,903         $  5,463
  Increase / (Decrease) in Advertising and Other Revenue            (1,376)          (3,536)
  Increase / (Decrease) in Pay for Play Revenue                       (106)            (385)
  Increase / (Decrease) in Royalty & Licensing                          32              (63)
  Increase / (Decrease) in CD-ROM revenue                              (60)             (70)
                                                             ---------------- -----------------
  Revenue for the period in 2001                                  $    393         $  1,409
                                                             ================ =================
</TABLE>


Advertising revenues decreased 92% to $0.1 million for the three months ended
September 30, 2001 from $1.5 million for the three months ended September 30,
2000. Advertising revenues decreased 86% to $0.6 million for the nine months
ended September 30, 2001 from $4.1 million for the nine months ended September
30, 2000. All increases in advertising impressions served over the periods were
more than offset by a precipitous drop in advertising pricing across the
Internet.

Pay-for-Play revenue decreased 31% to $0.2 million for the three months ended
September 30, 2001 from $0.3 million for the three months ended September 30,
2000 and decreased 33% to $0.8 million for the nine months ended September 30,
2001 from $1.2 million for the nine months ended September 30, 2000 primarily
due to changes in the pricing model that management implemented in order to
stimulate user growth and increase revenues. During the fourth quarter of fiscal
2000, the Company introduced a flat fee, unlimited play option into its pricing
matrix. Previously, players paid for each hour played. The new plan drew a
significant portion of existing players, but failed to attract a sufficient
number of new players to offset the loss of revenues generated by high usage
players.

<PAGE>

                          IENTERTAINMENT NETWORK, Inc.

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

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 in the three month period ending September 30, 2001 increased 49%
compared to the comparable period in 2000 due primarily to a duplication of
internet access charges necessitated by a facilities move. Cost of revenues
decreased 33% to $0.3 million in the nine month period ending September 30, 2001
from $0.5 million in the nine month period ended September 30, 2000. This
decrease was due primarily to the elimination of royalties associated with
operating third-party software.

OPERATING EXPENSES
Operating expenses decreased by 65% to $0.8 million for the three months ended
September 30, 2001 from $2.4 million for the three months ended September 30,
2000. Operating expenses decreased by 68% to $2.3 million for the nine months
ended September 30, 2001 from $7.1 million for the nine months ended September
30, 2000.

The following table summarizes the changes in the components of operating
expenses from 2000 to 2001:

<TABLE>
<CAPTION>
                                                                        Three months       Nine months
                                                                      ended September    ended September
                                                                             30                30
                                                                           ($000)            ($000)
                                                                      ----------------- ------------------
<S>                                                                   <C>                <C>
Operating Expenses for the period in 2000                                  $  2,390          $  7,078
Increase/ (Decrease) in Sales and Marketing                                  (1,372)           (2,553)
Increase/ (Decrease) in Product Development                                      48              (237)
Increase/ (Decrease) in General and Administrative                              (88)             (615)
Increase/ (Decrease) in Goodwill Amortization                                  (400)           (1,201)
Increase/ (Decrease) in Debt Concessions                                        265               265
Increase/ (Decrease) in Reversal of liabilities for prize points                  -              (447)
                                                                      ----------------- ------------------
Operating Expenses for the period in 2001                                  $    843          $  2,290
                                                                      ================= ==================
</TABLE>


SALES AND MARKETING

Sales and marketing expenses decreased by 92% to $0.1 million for the three
months ended September 30, 2001 from $1.5 million for the three months ended
September 30, 2000, and decreased by 75% to $0.9 million for the nine months
ended September 30, 2001 from $3.4 million for the nine months ended September
30, 2000. These decreases were due primarily to the reduction of costs
associated with customer incentives and personnel cost savings arising from the
Company's restructuring in late 2000. Beginning with the first quarter of 2001,
the Company revised its prize point redemption policy such that prize points
were no longer directly redeemable for cash or merchandise. Prize points were
converted to chance points and were used to enter fixed-value prize drawings,
resulting in decreases of $0.5 million and $1.1 million for the three and nine
months ended September 30, 2001, respectively, compared to the corresponding
periods in 2000. Accordingly, the associated accrued liability related to
unredeemed prize points of $0.3 million and the payable of $0.1 million related
to redeemed, but unpaid, prize points were reversed against operating expenses
in the quarter ended March 31, 2001.

<PAGE>

IENTERTAINMENT NETWORK, Inc.


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

SALES AND MARKETING (CONTINUED)

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 wanted to redeem for cash prizes. The Attorney General's
Office 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 a settlement regarding these claims. Settlement was reached
in the fourth quarter of 2001. A reserve for the full settlement has been
accrued on the balance sheet at September 30, 2001 in the amount of $25,000.
This settlement does not bar individual consumer claims or claims of violations
of other states' gaming regulations. Consequently, there can be no assurance
that future claims will not be made against the Company.

The Company has changed the operations of its "Bingo" game in order to help
resolve its dispute with the Office of the Attorney General of North Carolina.
As a result of anticipated reductions in "Bingo's" prize point eligibility
necessary to effect these changes, the Company may experience a substantial
decrease in the amount of traffic on the Company's "Bingo" website. If the
amount of traffic on the Company's "Bingo" website does substantially decrease,
the Company's advertising revenues will also substantially decrease.

PRODUCT DEVELOPMENT

Product development expenses increased 13% in the three month period ended
September 30, 2001 from the prior year's comparable period and decreased 18% to
$1.1 million for the nine months ended September 30, 2001 from $1.3 million for
the nine months ended September 30, 2000. The Company's restructuring in
December 2000 resulted in decreases in staffing costs and overhead in each of
the first three quarters of 2001. The quarter over quarter increase reflects the
decrease in amounts capitalized for software development.

GENERAL AND ADMINISTRATIVE

General and administrative expenses decreased by 22% to $0.3 million for the
three months ended September 30, 2001 from $0.4 million for the three months
ended September 30, 2000. General and administrative expenses decreased by 43%
to $0.8 million for the nine months ended September 30, 2001 from $1.4 million
for the nine months ended September 30, 2000, primarily due to savings
associated with the closure of the Company's European operations and savings in
staffing costs effected by the Company's restructuring in December 2000. Savings
in the third quarter of 2001 were partially offset by the accrual of
compensation expense related to the consulting agreement between the Company and
it's Chairman of the Board of Directors.

GOODWILL AMORTIZATION

Goodwill from the MPG-Net acquisition, acquired in mid-first quarter 1999, was
previously being amortized to expense over 36 months. Goodwill from the Gamers
Net acquisition, acquired in third quarter 1999, was previously being amortized
to expense over 24 months. During the second-half of fiscal 2000, the Company
experienced a significant revenue stream reduction as a result of a downturn in
the online advertising market, which indicated potential impairment of its
recorded goodwill values. The Company determined that unamortized goodwill
relating to both MPG-Net and The Gamers Net had become fully and permanently

<PAGE>

IENTERTAINMENT NETWORK, Inc.

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

GOODWILL AMORTIZATION  (CONTINUED)

impaired. Accordingly, the balance of goodwill at December 31, 2000 was written
down to $0.


LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2001, the Company had cash and cash equivalents of $.1
million. The following table summarizes cash and cash equivalents on hand and
major cash flow items:

       Cash and cash equivalents on hand, December 31, 2000           $  437
                                                                   ---------
       Net loss                                                       (1,105)
       Add: non-cash charges and expenses                                130
       Changes in working capital                                        938
                                                                   ---------
       Net Cash Used In Operations                                       (37)
       Net investing and financing activities                           (332)
       Effect of exchange rates on cash and cash equivalents               1
                                                                   ---------
       Net change in cash and cash equivalents                          (368)
                                                                   ---------
       Cash and cash equivalents on hand, September 30, 2001           $  69
                                                                   =========


The Company used $2.2 million less net cash in operating activities during the
first nine months of 2001 compared with the same period in 2000. This decrease
was primarily due to the contraction of the business as effected by the
Company's restructuring during the fourth quarter of fiscal 2000, resulting in
reduced cash operating requirements.

Certain claims have been made against the Company, as described in Part II, Item
1 of this report under the heading "Legal Matters." The costs of defending or
settling these claims may exacerbate the Company's financial position.

The Company's success is 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 is seeking to attract additional capital for its online operations.
However, there can be no assurance that management's plans will be executed as
anticipated.

As of the balance sheet date, the Company believes that it may not have
sufficient cash resources to fund its operations through the next twelve months.
There is no assurance that the Company will be able to close on any financing
transaction. The Company does not have any current arrangements or commitments
for any future financing. The Company may not be able to obtain sufficient
additional financing to satisfy its cash requirements or may be required to
obtain financing on terms that are not favorable to it and its shareholders. The
Company's auditors' opinion issued in conjunction with the Company's audited
financial statements for the period ended December 31, 2000 raised substantial
doubt about the Company's ability to continue as a going concern.

If the Company is unable to obtain additional financing, it may be required to
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's forecast for the period of time through which its financial
resources will be adequate to support its operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary.
The factors described in the preceding paragraphs will impact the Company's
future capital requirements and the adequacy of its available funds as well as
it's ability to continue as a going concern.

<PAGE>

IENTERTAINMENT NETWORK, Inc.

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

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.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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 wanted 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 a settlement regarding these claims. Settlement was
reached in the fourth quarter of 2001. A reserve for the full settlement has
been accrued on the balance sheet at September 30, 2001 in the amount of
$25,000. This settlement does not bar individual consumer claims or claims of
violations of other states' gaming regulations. Consequently, there can be no
assurance that future claims will not be made against the Company.

Responsys, Inc. ("Responsys") filed a complaint with the North Carolina General
Court of Justice, Superior Court Division, Wake County, on June 26, 2001,
alleging breach of contract with respect to payments claimed for software
Responsys licensed to iEntertainment in the amount of $288,102.61, or in the
alternative, a quantum meruit award of $102,852.61, plus interest and attorneys'
fees. The Company first learned of Responsys' claims when it was served with
Responsys' complaint in August 2001. The deadline by which the Company must
respond to these claims has been extended to November 21, 2001. The Company is
currently evaluating its options with respect to these claims with its counsel,
but the Company's management believes Responsys' claims to be without merit and
does not believe payment to Responsys is appropriate because the subject
software did not perform as described to the Company by Responsys.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

From January 1, 2001 through September 30, 2001, the Company (1) granted options
to purchase 12,500 shares of common stock to two contractors for services priced
at market value on the date of issuance; (2) granted options to purchase 77,500
shares of common stock to 10 employees priced at market value on the date of
grant.

Items (1) and (2) 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 of the Securities and Exchange Commission.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

<PAGE>

IENTERTAINMENT NETWORK, Inc.

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

At an annual shareholders meeting held on June 5, 2001, the following matters
were approved:

         .  approval and ratification of an amendment to the Company's Articles
            of Incorporation reducing the minimum number of directors from five
            to three.

         .  election of three directors;

         .  approval and ratification of an amendment to the Company's 1998
            Stock Option Plan to increase the number of shares of common stock
            reserved for issuance under the plan from 1,800,000 to 2,300,000
            shares;

         .  approval and ratification of the appointment of Ernst & Young LLP.

The respective vote tabulations are detailed below:

Proposal 1                     For                 Against            Abstain
----------                     ----------          -------            -------
Amendment to the               12,164,985           83,465             17,205
Articles of Incorporation

Proposal 2                     For                 Withhold
----------                     ---------           --------
Jacob Agam                     8,719,558          3,546,097
Marc S. Goldfarb               8,719,558          3,546,097
Michael Pearce                 8,719,558          3,546,097


Proposal 3                     For                 Against            Abstain
----------                     ---------           -------            -------

Amendment to the 1998          12,053,904          189,046             22,705
Stock Option Plan

Proposal 4                     For                 Against            Abstain
----------                     ---------           -------            -------

Appointment of Ernst &         12,241,851           11,459             12,345
Young, LLC


ITEM 5. OTHER INFORMATION

Forward Looking Statements

In connection with the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this document are advised that this
document contains both statements of historical facts and forward-looking
statements. Our forward-looking statements include statements related to capital
needs, ability to raise capital, and the market for our common stock. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Our forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated by the forward-looking statements.

Our forward-looking statements are based on current expectations, estimates and
projections about our industry, management's beliefs, and certain assumptions
made by management. These statements are not guarantees of future performance
and actual actions or results may differ materially. These statements are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. We undertake no obligation to update publicly any forward-looking
statements as a result of new information, future events or otherwise, unless
required by law.

<PAGE>

IENTERTAINMENT NETWORK, Inc.

ITEM 5. OTHER INFORMATION (continued)

You should carefully consider the risks described in the Company's Form 10-KSB,
together with all of the other information included in this Form 10-QSB, before
making an investment decision. The risks and uncertainties described are not the
only ones we face. If any of the these risks actually occur, it is likely that
our business, financial condition or operating results would be harmed. In such
case, the trading price of our common stock could decline, and you could lose
all or part of your investment.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS

99.1 Consulting Agreement between the Company and Jacob Agam

(B)   REPORTS ON FORM 8-K

None

                                       20

<PAGE>

IENTERTAINMENT NETWORK, Inc.




                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

 IENTERTAINMENT NETWORK, INC.

                   By: /s/ Michael C. Pearce

                   ----------------------
                   Michael C. Pearce
                   Chief Executive Officer

                   By: /s/ Allan Kalbarczyk

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