UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

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

                   For the Fiscal Year Ended December 31, 2002

                                       or

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

         For the transition period from __________ to __________

                         Commission File Number 0-24363

                          Interplay Entertainment Corp.
           (Exact name of the registrant as specified in its charter)

           Delaware                                              33-0102707
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                16815 Von Karman Avenue, Irvine, California 92606
                    (Address of principal executive offices)

       (949) 553-6655 (Registrant's telephone number, including area code)

        Securities registered pursuant of Section 12 (b) of the Act: None

          Securities registered pursuant of Section 12 (g) of the Act:

                         Common Stock, $0.001 par value

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

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

As of June 28, 2002,  the aggregate  market value of voting common stock held by
non-affiliates was $3,056,628,  based upon the closing price of the Common Stock
on that date.

As of March 21, 2003,  93,849,176  shares of Common Stock of the Registrant were
issued and outstanding.

                       Documents Incorporated by Reference
Portions of the definitive  proxy statement for the issuer's 2003 Annual Meeting
of Stockholders are incorporated by reference into Part III of this Report.


<PAGE>


                          INTERPLAY ENTERTAINMENT CORP.

             INDEX TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002


                                                                          PAGE
                                                                          ----
PART I

   Item 1.   Business                                                       4

   Item 2.   Properties                                                    11

   Item 3.   Legal Proceedings                                             11

   Item 4.   Submission of Matters to a Vote of Security Holders           12

PART II

   Item 5.   Market for Registrant's Common Equity and Related
             Stockholder Matters                                           13

   Item 6.   Selected Financial Data                                       15

   Item 7.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations                           16

   Item 7A.  Quantitative and Qualitative Disclosure about
             Market Risk                                                   38

   Item 8.   Consolidated Financial Statements and Supplementary
             Data                                                          39

   Item 9.   Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure                           39

PART III

   Item 10.  Directors and Executive Officers of the Registrant            39

   Item 11.  Executive Compensation                                        39

   Item 12.  Security Ownership of Certain Beneficial Owners
             and Management and  Related Stockholder Matters               39


   Item 13.  Certain Relationships and Related Transactions                39

   Item 14.  Controls and Procedures                                       39

PART IV

   Item 15.  Exhibits, Financial Statement Schedules, and Reports
             on Form 8-K                                                   40

Signatures                                                                 41

Exhibit Index                                                              43


                                       2


<PAGE>


     This Form 10-K  contains  certain  forward-looking  statements  within  the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  and Exchange  Act of 1934 and such  forward-looking  statements  are
subject to the safe harbors created  thereby.  For this purpose,  any statements
contained in this Form 10-K except for historical  information  may be deemed to
be forward-looking statements. Without limiting the generality of the foregoing,
words  such as  "may,"  "will,"  "expect,"  "believe,"  "anticipate,"  "intend,"
"could," "estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking  statements.  In
addition,  any  statements  that  refer to  expectations,  projections  or other
characterizations   of  future  events  or  circumstances  are   forward-looking
statements.

     The  forward-looking  statements  included  in this  Form 10-K are based on
current  expectations that involve a number of risks and uncertainties,  as well
as certain assumptions.  For example, any statements regarding future cash flow,
financing  activities,  cost  reduction  measures,  replacement of the Company's
terminated  line of credit are  forward-looking  statements  and there can be no
assurance  that the Company will  generate  positive  cash flow in the future or
that the Company will be able to obtain  financing on satisfactory  terms, if at
all, or that any cost  reductions  effected by the Company will be sufficient to
offset any negative cash flow from operations;  or that the Company will be able
to renew or  replace  its line of  credit.  Additional  risks and  uncertainties
include  possible  delays in the  completion  of products,  the possible lack of
consumer appeal and acceptance of products released by the Company, fluctuations
in demand,  lost sales because of the  rescheduling of product launches or order
deliveries,  failure of the  Company's  markets to  continue  to grow,  that the
Company's  products will remain accepted within their respective  markets,  that
competitive  conditions  within the Company's markets will not change materially
or  adversely,  that the Company  will  retain key  development  and  management
personnel, that the Company's forecasts will accurately anticipate market demand
and that there will be no material  adverse changes in the Company's  operations
or business.  Additional  factors that may affect future  operating  results are
discussed in more detail in  "Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations--Factors  Affecting  Future  Performance".
Assumptions  relating to the foregoing  involve judgments with respect to, among
other things,  future economic,  competitive and market  conditions,  and future
business  decisions,  all of  which  are  difficult  or  impossible  to  predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking  statements
are  reasonable,  the  business  and  operations  of the  Company are subject to
substantial risks that increase the uncertainty  inherent in the forward-looking
statements,  and the inclusion of such  information  should not be regarded as a
representation  by the Company or any other person that the  objectives or plans
of  the  Company  will  be  achieved.  In  addition,  risks,  uncertainties  and
assumptions change as events or circumstances  change. The Company disclaims any
obligation   to  publicly   release  the  results  of  any  revisions  to  these
forward-looking  statements which may be made to reflect events or circumstances
occurring  subsequent  to the filing of this Form 10-K with the SEC or otherwise
to revise or update any oral or written  forward-looking  statement  that may be
made from time to time by or on behalf of the Company.

     Interplay  (R),  Interplay  Productions(R)  and  certain  of the  Company's
product  names  and  publishing  labels  referred  to in this  Form 10-K are the
Company's  trademarks.  This Annual Report on Form 10-K also contains trademarks
belonging to others.


                                       3


<PAGE>


                                     PART I

Item 1.    BUSINESS

OVERVIEW AND RECENT DEVELOPMENTS

     Interplay Entertainment Corp., which we refer to in this Form 10-K as "we,"
"us," or  "our," is a  developer  and  publisher  of  interactive  entertainment
software for both core gamers and the mass market.  We were  incorporated in the
State of California in 1982 and were  reincorporated in the State of Delaware in
May  1998.  We are  most  widely  known  for our  titles  in the  action/arcade,
adventure/role  playing  game (RPG),  and  strategy/puzzle  categories.  We have
produced titles for many of the most popular interactive  entertainment software
platforms,  and currently  balance our publishing and  distribution  business by
developing interactive  entertainment software for PCs and next generation video
game  consoles,  such as the Sony  PlayStation  2,  Microsoft  Xbox and Nintendo
GameCube.

     We seek to publish interactive  entertainment  software titles that are, or
have the potential to become,  franchise  software  titles that can be leveraged
across  several  releases  and/or  platforms,   and  have  published  many  such
successful  franchise  titles to date.  In  addition,  we hold  licenses  to use
popular brands,  such as Advanced Dungeons and Dragons,  for incorporation  into
certain of our products.

      During  2002 we  continued  to  experience  cash  flow  difficulties  from
operations,  and relied upon sales of assets to pay  liabilities,  reduce future
operational  costs  and fund our  ongoing  operations.  We have  been  operating
without a credit facility since October 2001, which has adversely  affected cash
flow. We expect these difficulties to continue during 2003.

     In February 2003 Virgin  Interactive  Entertainment  (Europe) Limited,  the
operating subsidiary of Virgin Interactive Entertainment Limited ("Virgin"), our
European  distributor,  filed for a Company  Voluntary  Arrangement  or "CVA", a
process of  reorganization  in the United  Kingdom,  which must be  approved  by
Virgin's  creditors.  Virgin owed us approximately  $1.8 million at December 31,
2002.  As of March 28,  2003,  the CVA was rejected by Virgin's  creditors,  and
Virgin is presently  negotiating  with its creditors to propose a new CVA. We do
not know what  affect  approval  of the CVA will have on our  ability to collect
amounts  Virgin  owes us. If the new CVA is not  approved,  we expect  Virgin to
cease  operations and liquidate,  in which event we will most likely not receive
any amounts presently due us by Virgin,  and will not have a distributor for our
products  in  Europe  and  the  other  territories  in  which  Virgin  presently
distributes our products.

     In February  2003, we amended our license  agreement with  Infogrames,  the
holder  of the TSR  license  which  we rely on to  publish  the  Baldur's  Gate,
Baldur's Gate: Dark Alliance,  and Icewind Dale titles,  to, among other things,
(i)  extend  the  license  term for  approximately  an  additional  two years to
December 31, 2008 (provided we make a timely extension payment required for such
extension),  and (ii) extend our rights with  respect to certain of the Advanced
Dungeons & Dragons  properties.  The amendment further  terminates our rights to
certain titles in the event  Interplay is unable to obtain  certain  third-party
waivers in accordance with the terms of the amendment.  We were unable to obtain
the required  waivers within the permitted time period and as a result have lost
rights to  publish  Baldur's  Gate 3 and its  sequels  on the PC, a  significant
product  franchise.  We are in  negotiations  with Infogrames to reinstate these
rights, but no assurance can be given that we will be successful.

     In January 2002, we settled a dispute with a developer  related to the sale
of  publishing  rights for one of our products and the  recognition  of deferred
revenue for a licensing transaction. We sold the publishing rights to this title
to the distributor in connection with a settlement  agreement  entered into with
the third  party  developer.  The  settlement  agreement  provided,  among other
things, that we assign our rights and obligations under the product agreement to
the third  party  distributor.  As a result,  we recorded  net  revenues of $5.6
million in the three months ended March 31, 2002.

     In  April  2002,  we  sold  our  product  development   subsidiary,   Shiny
Entertainment,  Inc. for $47.2  million  which was paid as follows:  we received
$13.8 million in cash  payments,  $26.1 million was paid directly to third party
creditors,  and $7.3 million was paid to Shiny's  president and Shiny Group, his
wholly-owned  subsidiary,  for Shiny  common  stock  that was  issued to them to
settle claims  relating to our original  acquisition  of Shiny.  We recognized a
gain of $28.8 million on the sale of Shiny.


                                       4


<PAGE>


     In August 2002, we entered into a new distribution arrangement with Vivendi
Universal Games, Inc. (the parent company of Universal Studios,  Inc., who as of
today owns approximately 5 percent of our common stock), or "Vivendi,"  whereby,
Vivendi will distribute substantially all of our products in North America for a
period of three  years as a whole and two years  with  respect  to each  product
giving a potential maximum term of five years.  Under the August 2002 agreement,
Vivendi will pay us sales  proceeds less amounts for  distribution  fees,  price
concessions and returns. Vivendi is responsible for all manufacturing, marketing
and  distribution  expenditures,  and bears all credit,  price  concessions  and
inventory risk, including product returns. Upon our delivery of a gold master to
Vivendi, Vivendi will pay us, as a non-refundable minimum guarantee, a specified
percent of the projected  amount due to us based on projected  initial  shipment
sales,  which are  established  by Vivendi in  accordance  with the terms of the
agreement.  The  remaining  amounts  are due  upon  shipment  of the  titles  to
Vivendi's customers. Payments for future sales that exceed the projected initial
shipment sales are paid on a monthly basis.

PRODUCTS

      We develop  and publish  interactive  entertainment  software  titles that
provide  immersive  game  experiences  by  combining  advanced  technology  with
engaging  content,  vivid graphics and rich sound. We utilize the experience and
judgment  of the avid  gamers in our  product  development  group to select  and
produce the products we publish. Our strategy is to invest in products for those
platforms,  whether PC or video game console,  that have or will have sufficient
installed  bases for the  investment  to be  economically  viable.  We currently
develop  and publish  products  for the PC platform  compatible  with  Microsoft
Windows,  and for  video  game  consoles  such as the  Sony  PlayStation  2, the
Microsoft Xbox and the Nintendo GameCube. In addition, we anticipate substantial
growth in the use of high-speed  Internet  access,  which could possibly provide
significantly expanded technical capabilities for the PC platform.

     We assess the potential  acceptance  and success of emerging  platforms and
the anticipated continued viability of existing platforms based on many factors,
including  the  number  of  competing  titles,  the ratio of  software  sales to
hardware  sales with respect to the platform,  the  platform's  installed  base,
changes  in the  rate  of the  platform's  sales  and the  cost  and  timing  of
development  for the platform.  We must  continually  anticipate  and assess the
emergence of, and market acceptance of, new interactive  entertainment  hardware
platforms  well in advance of the time the platform is  introduced to consumers.
Because product  development cycles are difficult to predict, we are required to
make  substantial  product  development  and other  investments  in a particular
platform well in advance of the platform's introduction. If a platform for which
we  develop  software  is not  released  on a timely  basis  or does not  attain
significant market  penetration,  our business,  operating results and financial
condition could be materially adversely affected.  Alternatively,  if we fail to
develop   products  for  a  platform  that  does  achieve   significant   market
penetration,  then our business, operating results and financial condition could
also be materially adversely affected.

     We  have  entered  into  license   agreements   with  Sega,  Sony  Computer
Entertainment,  Microsoft Corporation and Nintendo pursuant to which the Company
has the right to develop,  sublicense,  publish, and distribute products for the
licensor's respective platforms in specified territories.  In certain cases, the
products are manufactured for us by the licensor.  We pay the licensor a royalty
or manufacturing  fee in exchange for such license and  manufacturing  services.
Such  agreements  grant the licensor  certain  approval rights over the products
developed for their platform,  including  packaging and marketing  materials for
such  products.  There can be no assurance that we will be able to obtain future
licenses  from platform  companies on  acceptable  terms or that any existing or
future  licenses will be renewed by the licensors.  Our inability to obtain such
licenses or  approvals  could have a material  adverse  effect on our  business,
operating  results and financial  condition.  See  "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations--Factors  Affecting
Future  Performance-- We may fail to maintain existing  licenses,  or obtain new
licenses from hardware  companies on acceptable  terms or to obtain  renewals of
existing or future licenses from licensors."

     The interactive  entertainment  software industry is highly seasonal,  with
the highest  levels of consumer  demand  occurring  during the year-end  holiday
buying season. As a result, our net revenues, gross profits and operating income
have historically been highest during the second half of the year. The impact of
this  seasonality  will  increase  as we rely more  heavily on game  console net
revenues in the future.  Seasonal  fluctuations  in revenues  from game  console
products may cause material harm to our business and financial results.


                                       5


<PAGE>


PRODUCT DEVELOPMENT

     We develop or acquire our products from a variety of sources, including our
internal   development   studios  and  publishing   relationships  with  leading
independent developers.

     The Development  Process.  We develop  original  products both  internally,
using our in-house development staff, and externally, using third party software
developers  working  under  contract  with us.  Producers on our internal  staff
monitor the work of both inside and third party development teams through design
review,  progress  evaluation,   milestone  review  and  quality  assurance.  In
particular,  each  milestone  submission is thoroughly  evaluated by our product
development staff to ensure compliance with the product's design  specifications
and our quality  standards.  We enter into consulting or development  agreements
with third party developers,  generally on a flat-fee, work-for-hire basis or on
a royalty basis,  whereby we pay development  fees or royalty  advances based on
the  achievement  of  milestones.  In royalty  arrangements,  we ultimately  pay
continuation  royalties to developers  once our advances have been recouped.  In
addition,  in certain cases,  we will utilize third party  developers to convert
products for use with new platforms.

     Our products  typically have short life cycles,  and we therefore depend on
the timely introduction of successful new products, including enhancements of or
sequels to existing products and conversions of previously-released  products to
additional  platforms,  to generate  revenues to fund  operations and to replace
declining revenues from existing products. The development cycle of new products
is  difficult  to predict,  and  involves a number of risks.  See  "Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations--Factors  Affecting  Future  Performance--  If we fail to  anticipate
changes in video game platforms and technology, our business may be harmed."

     During the years ended  December  31, 2002,  2001 and 2000,  we spent $16.2
million, $20.6 million and $22.2 million,  respectively, on product research and
development activities.  Those amounts represented 37 percent, 36 percent and 21
percent, respectively, of revenue in each of those periods.

INTERNAL PRODUCT DEVELOPMENT

     U.S. Product  Development.  Our internal product  development  group in the
United States consisted of  approximately  157 people at December 31, 2002. Once
we select a design for a product,  we establish a production  team,  development
schedule and budget for the product.  Our internal  development process includes
initial design and concept layout,  computer graphic design,  2D and 3D artwork,
programming,  prototype  testing,  sound  engineering and quality  control.  The
development  process for an original,  internally  developed  product  typically
takes from 12 to 24 months, and six to 12 months for the porting of a product to
a different technology  platform.  We utilize a variety of advanced hardware and
software development tools, including animation, sound compression utilities and
video  compression  for  the  production  and  development  of  our  interactive
entertainment software titles. Our internal development  organization is divided
into separate  studios,  each  dedicated to the  production  and  development of
products  for a particular  product  category.  Within each studio,  development
teams are assigned to a particular  project.  These teams are generally led by a
producer or associate producer and include game designers, software programmers,
artists,  product managers and sound  technicians.  We believe that the separate
studios approach promotes the creative and entrepreneurial environment necessary
to develop  innovative  and  successful  titles.  In  addition,  we believe that
breaking  down the  development  function into  separate  studios  enables us to
improve our  software  design  capabilities,  to better  manage our internal and
external   development   processes  and  to  create  and  enhance  our  software
development  tools  and  techniques,  thereby  enabling  us  to  obtain  greater
efficiency and improved predictability in the software development process.

     Shiny  Entertainment.  In April 2002, we sold our former  subsidiary  Shiny
Entertainment,  Inc.,  which was  developing  a video  game  based on the motion
picture "The Matrix," to Infogrames Entertainment, Inc. for $47.2 million. After
recognizing closing costs, consideration to Warner Brothers for their consent to
transfer the Matrix license and expensing amounts previously paid for the Matrix
license, we recognized a gain of $28.8 million on this sale.

     International  Development.  During  2001,  we  reassigned  the  process of
Interplay  Productions  Limited,  our European  subsidiary  responsible  for our
product  development efforts in Europe to our corporate  headquarters.  Prior to
the reassignment,  Interplay Productions Limited engaged and managed the efforts
of third party developers  located in various European  countries.  We currently
have one original product under development in Europe,  which we now manage from
our corporate headquarters in Irvine, California.


                                       6


<PAGE>


EXTERNAL PRODUCT DEVELOPMENT

     To expand our  product  offerings  to include  hit titles  created by third
party  developers,  and to leverage our publishing  capabilities,  we enter into
publishing arrangements with third party developers. In the years ended December
31, 2002, 2001 and 2000,  approximately  67 percent,  80 percent and 70 percent,
respectively,  of new  products  we  released  and which we believe  are or will
become franchise titles were developed by third party developers. We expect that
the  proportion  of our new products  which are  developed  externally  may vary
significantly  from period to period as  different  products  are  released.  In
selecting  external  titles to publish,  we seek titles  that  combine  advanced
technologies  with  creative  game design.  Our  publishing  agreements  usually
provide us with the exclusive  right to distribute,  or license another party to
distribute,  a product on a worldwide basis (although,  in certain instances our
rights  are  limited to a  specified  territory).  We  typically  fund  external
development  through the payment of advances upon the  completion of milestones,
which advances are credited  against  royalties  based on sales of the products.
Further, our publishing  arrangements typically provide us with ownership of the
trademarks relating to the product as well as exclusive rights to sequels to the
product. We manage the production of external development projects by appointing
a producer from one of our internal product  development  studios to oversee the
development  process and work with the third party developer to design,  develop
and test the game.  At December 31, 2002,  we had six titles being  developed by
third party developers.

     We believe this strategy of cultivating  relationships  with talented third
party developers provides an excellent source of quality products,  and a number
of our commercially successful products have been developed under this strategy.
However,  our reliance on third party software developers for the development of
a significant number of our interactive software entertainment products involves
a number of risks.  See  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations--Factors  Affecting Future  Performance--Our
reliance on third party software  developers subjects us to the risks that these
developers  will not supply us with high quality  products in a timely manner or
on acceptable terms."

SEGMENT INFORMATION

     We operate primarily in one industry segment,  the development,  publishing
and  distribution  of  interactive   entertainment   software.  For  information
regarding the revenues and assets associated with our geographic  segments,  see
Note 14 of the Notes to our Consolidated Financial Statements included elsewhere
in this Report.

SALES AND DISTRIBUTION

     Our sales and  distribution  is handled by  Vivendi  in North  America  and
selected  rest-of-world  countries and by Virgin in Europe,  the Commonwealth of
Independent States,  Africa and the Middle East and through licensing strategies
elsewhere. We also distribute our software products through on line services.

     North  America.  In August 2001, we entered into a  distribution  agreement
with Vivendi  providing for Vivendi to become our  distributor  in North America
through  December  31,  2003 for  substantially  all of our  products,  with the
exception of products with pre-existing distribution agreements. OEM rights were
not among the rights granted to Vivendi under the distribution agreement.  Under
the terms of the agreement, as amended,  Vivendi earned a distribution fee based
on the net sales of the titles  distributed.  Under the  agreement,  as amended,
Vivendi  made four  advance  payments  to us  totaling  $13.5  million.  Vivendi
recouped  these  advances  from  sales of our  products  in 2002 and we repaid a
portion of the advances with the proceeds received from the sale of Shiny.

     In  August  2002,  we  entered  into a new  distribution  arrangement  with
Vivendi,  whereby,  Vivendi will distribute substantially all of our products in
North  America for a period of three years as a whole and two years with respect
to each product providing for a potential maximum term of five years.  Under the
August 2002  agreement,  Vivendi  will pay us sales  proceeds  less  amounts for
distribution fees, price concessions and returns. Vivendi is responsible for all
manufacturing,  marketing and distribution  expenditures,  and bears all credit,
price  concessions  and inventory  risk,  including  product  returns.  Upon our
delivery of a gold master to Vivendi,  Vivendi will pay us, as a  non-refundable
minimum  guarantee,  a specified percent of the projected amount due to us based
on  projected  initial  shipment  sales,  which are  established  by  Vivendi in
accordance with the terms of the agreement.  The remaining  amounts are due upon
shipment of the titles to  Vivendi's  customers.  Payments for future sales that
exceed the projected initial shipment sales are paid on a monthly basis. We also
continue to distribute products directly to end-users who can order products by


                                       7


<PAGE>


using a toll-free  number or by accessing  our web site.  Prior to entering into
our original North America distribution agreement with Vivendi, in North America
we sold our products primarily to mass merchants,  warehouse club stores,  large
computer and software  specialty retail chains and through catalogs and Internet
commerce  sites.  A majority of our North  American  retail sales were to direct
accounts,  and a  lesser  percentage  were  to  third  party  distributors.  Our
principal  direct  retail  accounts  included  CompUSA,  Best  Buy,  Electronics
Boutique,  Wal-Mart,  K-Mart,  Target,  Toys-r-us and GameStop  (Babbages).  Our
principal  distributors  in North  America  included  Navarre  and  Softek.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Factors  Affecting Future Performance--A  significant  percentage of
our  revenues  depend  on our  distributors'  diligent  sales  efforts  and  our
distributors' and retail customers' timely payments to us."

     Our distributor seeks to extend the life cycle and financial return of many
of our  products by  marketing  those  products  differently  during the various
stages of the  product's  sales cycle.  Although  the product  sales cycle for a
title varies based on a number of factors,  including  the quality of the title,
the  number  and  quality  of  competing   titles,   and  in  certain  instances
seasonality,  we typically  consider a title to be a "back catalog" item once it
incurs its first price drop after its initial release.  Our distributor utilizes
marketing  programs  appropriate  for each  particular  title,  which  generally
include  progressive  price  reductions  over  time to  increase  the  product's
longevity in the retail channel as they shift their advertising support to newer
releases.

     Our  distributor  provides  terms of sale  comparable to competitors in our
industry.  In addition,  we provide  technical support for our products in North
America through our customer support and we provide a 90-day limited warranty to
end-users that our products will be free from  manufacturing  defects.  While to
date we have not  experienced  any  material  warranty  claims,  there can be no
assurance that we will not experience  material  warranty  claims in the future.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations--Factors  Affecting Future Performance--A  significant  percentage of
our  revenues  depend  on our  distributors'  diligent  sales  efforts  and  our
distributors' and retail customers' timely payments to us."

     International.  In February 1999, we entered into a distribution  agreement
with Virgin,  pursuant to which Virgin commenced distributing  substantially all
of our titles in Europe, the Commonwealth of Independent States,  Africa and the
Middle East for a seven year period.  Under the  agreement,  as amended,  Virgin
earns a distribution fee for its marketing and distribution of our products, and
we reimburse  Virgin for certain  direct costs and expenses.  In February  2003,
Virgin's operating subsidiary filed for a Company Voluntary Agreement, or CVA, a
process of reorganization  in the United Kingdom.  As of March 28, 2003, the CVA
was rejected by Virgin's creditors, and Virgin is presently negotiating with its
creditors to propose a new CVA. If a new CVA is not  approved,  we expect Virgin
to cease operations and liquidate, in which event we will not have a distributor
for our products in Europe and the other  territories in which Virgin  presently
distributes our products. See "Management's Discussion and Analysis of Financial
Condition and Results of  Operations--Factors  Affecting  Future  Performance--A
significant  percentage  of our revenues  depend on our  distributors'  diligent
sales efforts and our  distributors'  and retail  customers'  timely payments to
us."

     In January  2003,  we entered into an agreement  with Vivendi to distribute
substantially all of our products in select rest-of-world countries.

     Interplay OEM. Our wholly owned subsidiary,  Interplay OEM, distributes our
interactive  entertainment  software titles,  as well as those of other software
publishers,  to computer and peripheral device manufacturers for use in bundling
arrangements.  As  a  result  of  changes  in  market  conditions  for  bundling
arrangements and the limited amount of resources we have available, we no longer
have any personnel  applying their efforts  towards  bundling  arrangements.  In
December  2002,  we  assigned  our OEM  distribution  rights to Vivendi and will
utilize Vivendi's resources in our future OEM business.  Under OEM arrangements,
one or more software titles,  which are either  limited-feature  versions or the
retail  version of a game,  are bundled with computer or peripheral  devices and
are sold by an original  equipment  manufacturer  so that the  purchaser  of the
hardware device obtains the software as part of the hardware purchase.  Although
it is customary for OEM customers to pay a lower per unit price on sales through
OEM bundling contracts, such arrangements involve a high unit volume commitment.
Interplay  OEM net revenues  generally are  incremental  net revenues and do not
have significant additional product development or sales and marketing costs.

     Our North American and  International  ultimate  distribution  channels are
characterized  by  continuous   change,   including   consolidation,   financial
difficulties of certain retailers, and the emergence of new distributors and new
retail


                                       8


<PAGE>


     channels such as warehouse chains, mass merchants, computer superstores and
Internet commerce sites. Under the terms of some of our distribution agreements,
we are exposed to the risk of product  returns and  markdown  allowances  by our
distributors.  Under the same distribution agreements, we allow our distributors
to  return  defective,  shelf-worn  and  damaged  products  in  accordance  with
negotiated  terms. We also offer a 90-day limited warranty to our end users that
our  products  will  be  free  from  manufacturing  defects.  In  addition,  our
distributors  provide  markdown  allowances,  which  consist of credits given to
resellers  to induce  them to lower the  retail  sales  price of  certain of our
products to increase sell through and to help the reseller  manage its inventory
levels. Although we maintain a reserve for returns and markdown allowances,  and
although we manage our returns and markdown  allowances through an authorization
procedure,  we could be forced to accept substantial product returns and provide
markdown allowances to maintain our access to certain distribution channels. Our
reserve for estimated returns,  exchanges,  markdowns,  price  concessions,  and
warranty  costs was $1.1 million and $7.5 million at December 31, 2002 and 2001,
respectively.  Product returns and markdown allowances that exceed our reserves,
if any, could have a material adverse effect on our business,  operating results
and financial condition.  See "Management's Discussion and Analysis of Financial
Condition and Results of  Operations--Factors  Affecting  Future  Performance--A
significant  percentage  of our revenues  depend on our  distributors'  diligent
sales efforts and our  distributors'  and retail  customers'  timely payments to
us."

MARKETING

     Our marketing  department  assists our  distributors in the development and
implementation  of marketing  programs and  campaigns for each of our titles and
product  groups.  Our  distributors'  marketing  activities in preparation for a
product  launch  include print  advertising,  game reviews in consumer and trade
publications,  retail in-store promotions,  attendance at trade shows and public
relations.  Our  distributors  also send direct and electronic mail  promotional
materials  to our  database  of  gamers,  and  may  selectively  use  radio  and
television  advertisements in connection with the introduction of certain of our
products.  Our  distributors  budget  a  portion  of each  product's  sales  for
cooperative advertising and market development funds with retailers. Every title
and brand is launched with a multi-tiered  marketing  campaign that is developed
on an individual basis to promote product awareness and customer pre-orders.

     Our distributors  engage in on-line marketing through Internet  advertising
and the maintenance of several Internet web sites.  These web sites provide news
and information of interest to our customers through free demonstration versions
of games,  contests,  games,  tournaments  and  promotions.  Also,  to  generate
interest in new product introductions, we provide free demonstration versions of
upcoming  titles through  magazines and game samples that consumers can download
from our web site.  In  addition,  through  our  marketing  department,  we host
on-line  events  and  maintain  a vast  collection  of  message  boards  to keep
customers informed on shipped and upcoming titles.

COMPETITION

     The interactive  entertainment  software industry is intensely  competitive
and is  characterized  by the frequent  introduction of new hardware systems and
software  products.  Our  competitors  vary in size from small companies to very
large corporations with significantly  greater financial,  marketing and product
development resources than ours. Due to these greater resources,  certain of our
competitors are able to undertake more extensive marketing campaigns, adopt more
aggressive  pricing  policies,  pay higher fees to licensors of desirable motion
picture, television, sports and character properties and pay more to third party
software  developers than us. We believe that the principal  competitive factors
in the interactive  entertainment  software  industry include product  features,
brand name recognition,  access to distribution channels,  quality, ease of use,
price, marketing support and quality of customer service.

     We compete  primarily  with other  publishers  of PC and video game console
interactive  entertainment software.  Significant competitors include Electronic
Arts Inc., Take Two Interactive  Software Inc, THQ Inc., The 3DO Company,  Eidos
PLC,  Infogrames   Entertainment,   Activision,   Inc.,  Microsoft  Corporation,
LucasArts Entertainment Company, Midway Games Inc., Acclaim Entertainment, Inc.,
Vivendi  Universal  Games,  Inc.  and Ubi Soft  Entertainment  Inc. In addition,
integrated video game console hardware/software  companies such as Sony Computer
Entertainment, Microsoft Corporation, Nintendo and Sega compete directly with us
in the  development of software  titles for their  respective  platforms.  Large
diversified  entertainment  companies,  such as The Walt Disney Company, many of
which own  substantial  libraries  of available  content and have  substantially
greater  financial  resources than us, may decide to compete directly with us or
to enter into exclusive relationships with our competitors. We also believe that
the overall growth in the use of the Internet and on-line  services by consumers
may pose a competitive threat if customers and potential


                                       9


<PAGE>


customers  spend less of their  available time using  interactive  entertainment
software and more time on the Internet and on-line services.

     Retailers of our products  typically  have a limited  amount of shelf space
and promotional  resources.  Consequently,  there is intense  competition  among
consumer  software  producers,  and  in  particular  interactive   entertainment
software producers,  for high quality retail shelf space and promotional support
from  retailers.  If the  number of  consumer  software  products  and  computer
platforms increase, competition for shelf space will intensify which may require
us to increase our marketing  expenditures.  This  increased  demand for limited
shelf  space,  places  retailers  and  distributors  in an  increasingly  better
position to negotiate favorable terms of sale, including price discounts,  price
protection,  marketing  and display  fees and product  return  policies.  As our
products  constitute a  relatively  small  percentage  of any  retailer's  sales
volume,  there can be no assurance  that retailers will continue to purchase our
products or provide  our  products  with  adequate  shelf space and  promotional
support. A prolonged failure by retailers to provide shelf space and promotional
support would have a material adverse effect on our business,  operating results
and financial condition.

MANUFACTURING

     Our PC-based products consist primarily of CD-ROMs and DVDs,  manuals,  and
packaging  materials.  Substantially  all of our CD-ROM and DVD  duplication  is
performed  by  unaffiliated  third  parties.  Printing of manuals and  packaging
materials, manufacturing of related materials and assembly of completed packages
are performed to our specifications by unaffiliated  third parties.  To date, we
have not experienced any material  difficulties or delays in the manufacture and
assembly  of our  CD-ROM  and DVD based  products,  and we have not  experienced
significant returns due to manufacturing defects.

     Sony Computer Entertainment, Microsoft Corporation and Nintendo manufacture
and ship finished products that are compatible with their video game consoles to
our distributors  for  distribution.  PlayStation 2, Xbox and GameCube  products
consist of the game disks and include  manuals and  packaging  and are typically
delivered within a relatively short lead-time.

     If we  experience  unanticipated  delays in the  delivery  of  manufactured
software products by our third party  manufactures,  our net sales and operating
results could be materially adversely affected. See "Management's Discussion and
Analysis of Financial  Condition  and Results of  Operations--Factors  Affecting
Future  Performance--Our  sales volume and the success of our products depend in
part upon the number of product titles distributed by hardware companies for use
with their video game platforms."

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     We hold copyrights on our products,  product literature and advertising and
other  materials,  and hold  trademark  rights  in our name and  certain  of our
product names and publishing  labels. We have licensed certain products to third
parties for  distribution  in particular  geographic  markets or for  particular
platforms, and receive royalties on such licenses. We also outsource some of our
product  development   activities  to  third  party  developers,   contractually
retaining all  intellectual  property  rights related to such projects.  We also
license  certain  products  developed by third parties and pay royalties on such
products.  See "Management's  Discussion and Analysis of Financial Condition and
Results of Operations--Our  reliance on third party software developers subjects
us to the risks  that  these  developers  will not  supply us with high  quality
products in a timely manner or on acceptable terms."

     We regard our software as  proprietary  and rely primarily on a combination
of patent, copyright,  trademark and trade secret laws, employee and third party
nondisclosure agreements and other methods to protect our proprietary rights. We
own or license various copyrights and trademarks.  While we provide "shrinkwrap"
license  agreements or limitations on use with our software,  the enforceability
of such agreements or limitations is uncertain.  We are aware that  unauthorized
copying occurs within the computer  software  industry,  and if a  significantly
greater amount of unauthorized copying of our interactive entertainment software
products  were to occur,  our operating  results  could be materially  adversely
affected.  We use copy protection on selected products and do not provide source
code to third parties unless they have signed nondisclosure agreements.


                                       10


<PAGE>


     We rely on existing copyright laws to prevent the unauthorized distribution
of our  software.  Existing  copyright  laws  afford  only  limited  protection.
Policing  unauthorized use of our products is difficult,  and we expect software
piracy to be a persistent problem,  especially in certain international markets.
Further,  the laws of  certain  countries  in which our  products  are or may be
distributed either do not protect our products and intellectual  property rights
to the same  extent  as the  laws of the  U.S.  or are  weakly  enforced.  Legal
protection  of our  rights  may be  ineffective  in  such  countries,  and as we
leverage our software products using emerging technologies, such as the Internet
and on-line services,  our ability to protect our intellectual  property rights,
and to avoid infringing the intellectual property rights of others, becomes more
difficult.  In  addition,  the  intellectual  property  laws are less clear with
respect to such emerging  technologies.  There can be no assurance that existing
intellectual property laws will provide our products with adequate protection in
connection with such emerging technologies.

     As  the  number  of  software  products  in the  interactive  entertainment
software  industry  increases  and the  features  and content of these  products
further overlap,  interactive entertainment software developers may increasingly
become subject to infringement  claims.  Although we take reasonable  efforts to
ensure that our  products do not violate  the  intellectual  property  rights of
others,  there can be no assurance that claims of infringement will not be made.
Any such claims,  with or without merit,  can be time consuming and expensive to
defend.  From time to time, we have received  communications  from third parties
asserting  that features or content of certain of our products may infringe upon
such  party's  intellectual  property  rights.  There can be no  assurance  that
existing  or future  infringement  claims  against  us will not result in costly
litigation or require that we license the intellectual  property rights of third
parties,  either of which could have a material  adverse effect on our business,
operating  results and financial  condition.  See  "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations--Factors  Affecting
Future Performance--We may unintentionally infringe on the intellectual property
rights of others,  which could expose us to substantial  damages or restrict our
operations."

EMPLOYEES

     As of December 31, 2002,  we had 207  employees,  including  157 in product
development,  11  in  sales  and  marketing  and  36  in  finance,  general  and
administrative.  Included in these counts are 2 employees of Interplay OEM and 1
employee of  Interplay  UK. We also retain  independent  contractors  to provide
certain  services,   primarily  in  connection  with  our  product   development
activities. Neither we nor our full time employees are subject to any collective
bargaining  agreements  and we believe that our relations with our employees are
good.

     From time to time,  we have  retained  actors and/or "voice over" talent to
perform in certain of our  products,  and we expect to continue this practice in
the future. These performers are typically members of the Screen Actors Guild or
other performers' guilds,  which guilds have established  collective  bargaining
agreements governing their members' participation in interactive media projects.
We may be  required  to  become  subject  to one or  more  of  these  collective
bargaining  agreements  in order to engage the services of these  performers  in
connection with future development projects.

Item 2.    PROPERTIES

     Our  headquarters  are  located  in  Irvine,  California,  where  we  lease
approximately  81,000  square feet of office  space.  This lease expires in June
2006 and  provides  us with one five year option to extend the term of the lease
and expansion rights,  on an "as available  basis," to approximately  double the
size of the office space. In addition,  we rent approximately 800 square feet of
office space in Central  London,  England from  Virgin.  This  agreement is on a
quarter by quarter  basis.  We believe that our  facilities are adequate for our
current needs and that suitable additional or substitute space will be available
in the future to accommodate potential expansion of our operations.

Item 3.    LEGAL PROCEEDINGS

     We are  occasionally  involved  in various  legal  proceedings,  claims and
litigation  arising  in the  ordinary  course of  business,  including  disputes
arising  over the  ownership  of  intellectual  property  rights and  collection
matters.  We do not  believe  the  outcome of such  routine  claims  will have a
material  adverse  effect on the  Company's  business,  financial  condition  or
results of operations.


                                       11


<PAGE>


     On September 16, 2002, Knight Bridging Korea Co., Ltd ("KBK") filed a $98.8
million  complaint for damages against both Infogrames,  Inc. and our subsidiary
GamesOnline.com,  Inc.,  alleging,  among  other  things,  breach  of  contract,
misappropriation  of trade  secrets,  breach of  fiduciary  duties and breach of
implied  covenant of good faith in connection  with an  electronic  distribution
agreement  dated  November  2001 between KBK and  GamesOnline.com,  Inc. KBK has
alleged  that  GamesOnline.com  failed  to  timely  deliver  to KBK  assets to a
product, and that it improperly disclosed confidential  information about KBK to
Infogrames.  We believe  this  complaint  is without  merit and will  vigorously
defend our position.

     On November 25,  2002,  Special  Situations  Fund III,  Special  Situations
Cayman Fund,  L.P.,  Special  Situations  Private Equity Fund, L.P., and Special
Situations  Technology Fund, L.P.  (collectively,  "Special Situations") filed a
motion for  summary  judgment in lieu of  complaint  against us in the amount of
$1.3 million,  alleging,  among other things,  that we are liable to pay Special
Situations  $1.3 million for our failure to timely  register for resale with the
Securities  and  Exchange  Commission  certain  shares of our common  stock that
Special Situations purchased from us in April 2001. We dispute the amount of the
claim and will vigorously defend our position.

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

     On October 10,  2002,  the Company held its annual  stockholders'  meeting.
There were 93,138,176 shares of Common Stock outstanding  entitled to vote and a
total of 82,350,413  shares (88.4%) were represented at the meeting in person or
by proxy.  The following  summarizes vote results of proposals  submitted to the
Company's stockholders.

1. Proposal to elect directors,  each for a term extending until the next annual
   meeting of  Stockholders  or until  their  successors  are duly  elected  and
   qualified.

                                                         For            Withheld
                                                     ----------         --------
    Herve Caen................................       81,982,528          367,885
    Nathan Peck...............................       81,548,426          801,987
    Michel Welter.............................       82,121,096          229,317
    R. Parker Jones...........................       82,124,012          226,401
    Eric Caen.................................       81,987,528          326,885
    Michel H. Vulpillat.......................       82,019,427          330,986
    Maren Stenseth............................       81,627,672          772,801

2.  Proposal to amend the Company's  1997 Stock  Incentive  Plan to increase the
    number of authorized shares by 6,000,000 shares.

        For            Against        Abstain       Broker Non-Votes
        ---            -------        -------       ----------------
     57,523,156      1,966,938        179,769         22,680,550


                                       12


<PAGE>


3.   Proposal  to amend  the  Company's  Amended  and  Restated  Certificate  of
     Incorporation to effect a one-for-ten  reverse stock split of shares of the
     Company's Common Stock.

        For            Against        Abstain       Broker Non-Votes
        ---            -------        -------       ----------------
    81,599,812         573,226        177,375             -0-

    Although this proposal was approved by the stockholders, the Company has not
taken action on the proposal.


                                     PART II

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

     On May 16, 2002,  the listing of our common stock was moved from the Nasdaq
National Market System to the Nasdaq SmallCap Market System. We had until August
13, 2002 to comply with the requirements of the SmallCap market.  As a result of
our inability to maintain  certain minimum listing  requirements of the SmallCap
market,  on October 9, 2002,  our common stock was delisted and began trading on
the NASD-operated Over-the-Counter Bulletin Board. Our common stock is currently
traded on the  NASD-operated  Over-the-Counter  Bulletin  Board under the symbol
"IPLY.OB." At December 31, 2002,  there were 110 holders of record of our common
stock.

     The  following  table sets forth the range of high and low sales prices for
our common stock for the periods indicated.


For the Year ended December 31, 2002                    High            Low
------------------------------------                  --------        --------
     First Quarter ........................           $   0.61        $   0.18
     Second Quarter .......................               0.59            0.24
     Third Quarter ........................               0.41            0.12
     Fourth Quarter .......................               0.13            0.06


For the Year ended December 31, 2001                    High            Low
------------------------------------                  --------        --------

     First Quarter ........................           $   3.25        $   1.50
     Second Quarter .......................               3.11            1.33
     Third Quarter ........................               2.20            0.33
     Fourth Quarter .......................               0.96            0.31


DIVIDEND POLICY

     We have never paid any dividends on our common  stock.  We intend to retain
any earnings for use in our business and do not intend to pay any cash dividends
on our common stock in the foreseeable future.


                                       13


<PAGE>


EQUITY COMPENSATION PLANS INFORMATION

     The following table sets forth certain information  regarding the Company's
equity compensation plans as of December 31, 2002.

<TABLE>
<CAPTION>

      Plan Category         Number of securities to     Weighted-average        Number of securities
                            be issued upon exercise    exercise price of       remaining available for
                            of outstanding options,   outstanding options,  future issuance under equity
                              warrants and rights     warrants and rights        compensation plans
                                                                                (excluding securities
                                                                              reflected in column (a))
--------------------------------------------------------------------------------------------------------
<S>                                <C>                         <C>                    <C>
                                      (a)                      (b)                       (c)
Equity compensation plans          1,091,697                   3.10                   3,209,735
   approved by security
         holders
Equity compensation plans                  -                      -                           -
 not approved by security
         holders
                           -----------------------------------------------------------------------------
Total                              1,091,697                   3.10                   3,209,735
                           =============================================================================
</TABLE>


                                       14


<PAGE>


Item 6.    SELECTED FINANCIAL DATA

     The selected consolidated statements of operations data for the years ended
December 31, 2002,  2001 and 2000 and the selected  consolidated  balance sheets
data as of December 31, 2002 and 2001 are derived from our audited  consolidated
financial  statements  included  elsewhere  in  this  Form  10-K.  The  selected
consolidated statements of operations data for the years ended December 31, 1999
and 1998 and the selected  consolidated  balance  sheets data as of December 31,
2000,  1999  and 1998  are  derived  from  our  audited  consolidated  financial
statements  not  included  in this Form 10-K.  Our  historical  results  are not
necessarily indicative of the results that may be achieved for any other period.
The following data should be read in conjunction with  "Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations"  and  the
Consolidated Financial Statements included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>

                                                            Years Ended December 31,
                                         -------------------------------------------------------------
                                            2002        2001         2000         1999         1998
                                         ---------    ---------    ---------    ---------    ---------
                                                 (Dollars in thousands, except per share amounts)
<S>                                      <C>          <C>          <C>          <C>          <C>
Statements of Operations Data:
Net revenues .........................   $  43,999    $  56,448    $ 101,426    $ 101,930    $ 126,862
Cost of goods sold ...................      26,706       45,816       54,061       61,103       71,928
                                         ---------    ---------    ---------    ---------    ---------
Gross profit .........................      17,293       10,632       47,365       40,827       54,934
Operating expenses:
     Marketing and sales .............       5,814       18,697       23,326       32,432       39,471
     General and administrative ......       7,655       12,622       10,249       18,155       12,841
     Product development .............      16,184       20,603       22,176       20,629       24,472
     Other ...........................        --           --           --          2,415         --
                                         ---------    ---------    ---------    ---------    ---------
     Total operating expenses ........      29,653       51,922       55,751       73,631       76,784
                                         ---------    ---------    ---------    ---------    ---------
Operating loss .......................     (12,360)     (41,290)      (8,386)     (32,804)     (21,850)
Sale of Shiny ........................      28,813         --           --           --           --
Other income (expense) ...............      (1,531)      (4,526)      (3,689)      (3,471)      (4,933)
                                         ---------    ---------    ---------    ---------    ---------
Income (loss) before income taxes ....      14,922      (45,816)     (12,075)     (36,275)     (26,783)
Provision (benefit) for income taxes .        (225)         500         --          5,410        1,437
                                         ---------    ---------    ---------    ---------    ---------
Net income (loss) ....................   $  15,147    $ (46,316)   $ (12,075)   $ (41,685)   $ (28,220)
                                         =========    =========    =========    =========    =========

Cumulative dividend on participating
     preferred stock .................   $     133    $     966    $     870    $    --      $    --
Accretion of warrant .................        --            266          532         --           --
                                         ---------    ---------    ---------    ---------    ---------
Net income (loss) available to common
     stockholders ....................   $  15,014    $ (47,548)   $ (13,477)   $ (41,685)   $ (28,220)
                                         =========    =========    =========    =========    =========
Net income (loss) per common share:
     Basic ...........................   $    0.18    $   (1.23)   $   (0.45)   $   (1.86)   $   (1.91)
     Diluted .........................   $    0.16    $   (1.23)   $   (0.45)   $   (1.86)   $   (1.91)
Shares used in calculating net income
     (loss) per common share - basic .      83,585       38,670       30,047       22,418       14,763
Shares used in calculating net income
     (loss) per common share - diluted      96,070       38,670       30,047       22,418       14,763
Selected Operating Data:
Net revenues by geographic region:
     North America ...................   $  26,184    $  34,998    $  53,298    $  49,443    $  73,865
     International ...................       5,674       15,451       35,077       30,310       35,793
     OEM, royalty and licensing ......      12,141        5,999       13,051       22,177       17,204
Net revenues by platform:
     Personal computer ...............   $  15,802    $  34,912    $  73,730    $  65,397    $  67,406
     Video game console ..............      16,056       15,537       14,645       14,356       42,252
     OEM, royalty and licensing ......      12,141        5,999       13,051       22,177       17,204
</TABLE>

<TABLE>
<CAPTION>
                                                                   December 31,
                                         -------------------------------------------------------------
                                            2002         2001         2000        1999         1998
                                         ---------    ---------    ---------    ---------    ---------
Balance Sheets Data:                                         (Dollars in thousands)
<S>                                      <C>          <C>          <C>           <C>         <C>
Working capital (deficiency) .........   $ (17,060)   $ (34,169)   $     123     $ (7,622)   $  (3,135)
Total assets .........................      14,298       31,106       59,081       56,936       74,944
Total debt ...........................       2,082        4,794       25,433       19,630       24,651
Stockholders' equity  (deficit) ......     (13,930)     (28,150)       6,398       (2,071)       4,193
</TABLE>



                                       15


<PAGE>


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

     You should read the following  discussion and analysis in conjunction  with
the Consolidated  Financial  Statements and notes thereto and other  information
included or incorporated by reference herein.

GENERAL

     We derive  net  revenues  primarily  from  sales of  software  products  to
distributors  in North America and  internationally,  and from sales of software
products to  end-users  through our catalogs  and the  Internet.  We also derive
royalty-based  revenues from licensing  arrangements and from original equipment
manufacturing, or OEM bundling transactions.

     During  2002  we  continued  to  experience  cash  flow  difficulties  from
operations,  and relied upon sales of assets to pay  liabilities,  reduce future
operational costs and und our ongoing operations. We have been operating without
a credit facility since October 2001, which has adersely  affected cash flow. We
continue to face difficulties in paying our vendors and have pending lawsuits as
a result of our continuing cash flow difficulties.  We expect these difficulties
to continue during 2003.

     In February 2003, Virgin Interactive  Entertainment  (Europe) Limited,, the
operating subsidiary of Virgin Interactive Entertainment Limited ("Virgin"), our
European  distributor,  filed for a Company  Voluntary  Arrangement,  or CVA,  a
process of  reorganization  in the United  Kingdom  which  must be  approved  by
Virgin's  creditors.  Virgin owed us approximately  $1.8 million at December 31,
2002.  As of March 28,  2003,  the CVA was rejected by Virgin's  creditors,  and
Virgin is presently  negotiating  with its creditors to propose a new CVA. We do
not know what  affect  approval  of the CVA will have on our  ability to collect
amounts  Virgin  owes us. If the new CVA is not  approved,  we expect  Virgin to
cease  operations and liquidate,  in which event we will most likely not receive
any amounts presently due us by Virgin,  and will not have a distributor for our
products  in  Europe  and  the  other  territories  in  which  Virgin  presently
distributes our products.

     In February  2003, we amended our license  agreement with  Infogrames,  the
holder  of the TSR  license  which  we rely on to  publish  the  Baldur's  Gate,
Baldur's Gate: Dark Alliance,  and Icewind Dale titles,  to, among other things,
(i)  extend  the  license  term for  approximately  an  additional  two years to
December 31, 2008 (provided we make a timely extension payment required for such
extension),  and (ii) extend our rights with  respect to certain of the Advanced
Dungeons & Dragons  properties.  The amendment further  terminates our rights to
certain titles in the event  Interplay is unable to obtain  certain  third-party
waivers in accordance with the terms of the amendment.  We were unable to obtain
the required  waivers within the permitted time period and as a result have lost
rights to  publish  Baldur's  Gate 3 and its  sequels  on the PC, a  significant
product  franchise.  We are in  negotiations  with Infogrames to reinstate these
rights, but no assurance can be given that we will be successful.

     We have been able to retain our third party  developers to date, but if our
current  liquidity  issues  continue,  our  future  title  development  could be
adversely affected.

     In August  2001,  we entered  into a  distribution  agreement  with Vivendi
Universal Games, Inc. (an affiliate company of Universal  Studios,  Inc., who as
of today owns approximately 5 percent of our common stock) providing for Vivendi
to become  our  distributor  in North  America  through  December  31,  2003 for
substantially  all  of  our  products,  with  the  exception  of  products  with
pre-existing  distribution  agreements.  OEM  rights  were not among the  rights
granted  to Vivendi  under the  distribution  agreement.  Under the terms of the
agreement, as amended,  Vivendi earned a distribution fee based on the net sales
of the titles distributed.  Under the agreement,  as amended,  Vivendi made four
advance  payments to us totaling $13.5 million.  Vivendi recouped these advances
from sales of our products in 2002 and we repaid a portion of the advances  with
the  proceeds  received  from the sale of Shiny.  In an effort to  minimize  the
number  of  product  returns  following  the  transition  of our  North  America
distribution  to Vivendi,  we granted  large price  concessions  to resellers on
products in their  inventory.  As we continue to conclude  our  relations  these
resellers,  we have decreased our sales  allowances from 44 percent of our total
accounts  receivable in 2001 to 29 percent of our total  accounts  receivable in
2002.


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<PAGE>


     In August 2002, we entered into a new distribution arrangement with Vivendi
whereby  Vivendi  will  distribute  substantially  all of our  products in North
America  for a period of three  years as a whole and two years  with  respect to
each product  providing  for a potential  maximum term of five years.  Under the
August 2002  agreement,  Vivendi  will pay us sales  proceeds  less  amounts for
distribution fees, price concessions and returns. Vivendi is responsible for all
manufacturing,  marketing and distribution  expenditures,  and bears all credit,
price  concessions  and inventory  risk,  including  product  returns.  Upon our
delivery of a gold master to Vivendi,  Vivendi will pay us, as a  non-refundable
minimum  guarantee,  a specified percent of the projected amount due to us based
on  projected  initial  shipment  sales,  which are  established  by  Vivendi in
accordance with the terms of the agreement.  The remaining  amounts are due upon
shipment of the titles to  Vivendi's  customers.  Payments for future sales that
exceed the projected  initial  shipment  sales are paid on a monthly  basis.  We
expect this new arrangement to improve our short-term liquidity,  but should not
impact our overall liquidity. Under this new distribution arrangement, we expect
our net  revenues  to  decrease  as a result of  incurring  a higher  commission
expense,  however, we expect our operating margins to remain comparable to prior
periods  as  we  are  no  longer  incurring  any  manufacturing,   marketing  or
distribution expenditures.

     Our  wholly-owned  subsidiary,  Interplay OEM,  distributed our interactive
entertainment software titles, as well as those of other software publishers, to
computer and peripheral device  manufacturers for use in bundling  arrangements.
As a result of changes in the market  conditions for bundling  arrangements  and
the  limited  amount of  resources  we have  available,  we no  longer  have any
personnel  applying their efforts  towards  bundling  arrangements.  In December
2002,  we  licensed  our OEM  distribution  rights to Vivendi  and will  utilize
Vivendi's resources in our future OEM business. We also derive net revenues from
the  licensing  of  intellectual  property  and  products  to third  parties for
distribution  in markets  and through  channels  that are outside of our primary
focus.  OEM,  royalty and licensing net revenues  collectively  accounted for 27
percent of net revenues for the year ended December 31, 2002, 11 percent for the
year ended  December  31, 2001,  and 13 percent for the year ended  December 31,
2000.  OEM,  royalty and licensing net revenues  generally are  incremental  net
revenues and do not have significant additional product development or sales and
marketing costs.

     Cost of goods  sold  related  to PC and video  game  console  net  revenues
represents  the  manufacturing  and related costs of  interactive  entertainment
software products,  including costs of media,  manuals,  duplication,  packaging
materials,  assembly,  freight and royalties paid to  developers,  licensors and
hardware  manufacturers.   For  sales  of  titles  under  the  new  distribution
arrangement  with  Vivendi,  our cost of goods  consists  of  royalties  paid to
developers.  Cost of goods sold related to royalty-based net revenues  primarily
represents third party licensing fees and royalties paid by us. Typically,  cost
of goods sold as a percentage  of net  revenues for video game console  products
are higher than cost of goods sold as a percentage  of net revenues for PC based
products due to the relatively higher manufacturing and royalty costs associated
with video game console and  affiliate  label  products.  We also include in the
cost of goods sold the  amortization  of prepaid royalty and license fees we pay
to third party software  developers.  We expense prepaid royalties over a period
of six months  commencing with the initial shipment of the title at a rate based
upon the  numbers  of units  shipped.  We  evaluate  the  likelihood  of  future
realization   of  prepaid   royalties   and  license   fees   quarterly,   on  a
product-by-product basis, and charge the cost of goods sold for any amounts that
we deem unlikely to realize through future product sales.

     Our operating results have fluctuated  significantly in the past and likely
will fluctuate  significantly  in the future,  both on a quarterly and an annual
basis.  A number of factors may cause or  contribute to such  fluctuations,  and
many of such factors are beyond our control.  We cannot  assure you that we will
be profitable in any particular  period. It is likely that our operating results
in one or more future  periods will fail to meet or exceed the  expectations  of
securities analysts or investors.  See "Management's  Discussion and Analysis of
Financial  Condition  and  Results  of  Operations  - Factors  Affecting  Future
Performance -The unpredictability of future results may cause our stock price to
remain depressed or to decline further."

     Our operating  results will  continue to be impacted by economic,  industry
and business  trends  affecting  the  interactive  entertainment  industry.  Our
industry  is  highly  seasonal,  with the  highest  levels  of  consumer  demand
occurring  during the year-end  holiday buying season.  With the release of next
generation  console  systems by Sony,  Nintendo and Microsoft,  our industry has
entered  into a growth  period  that could be  sustained  for the next couple of
years.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming  that we will  continue  as a going  concern,  which  contemplates  the
realization of assets and the  satisfaction  of liabilities in the normal course
of business.  The carrying  amounts of assets and  liabilities  presented in the
financial statements do not purport to represent realizable


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<PAGE>


or settlement  values.  The Report of our Independent  Auditors for the December
31, 2002 consolidated  financial  statements  includes an explanatory  paragraph
expressing substantial doubt about our ability to continue as a going concern.

MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES

     Our  discussion  and  analysis of our  financial  condition  and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities.  On an on-going basis,  we evaluate our estimates,  including those
related to revenue  recognition,  prepaid  licenses and  royalties  and software
development costs. We base our estimates on historical experience and on various
other  assumptions that are believed to be reasonable  under the  circumstances,
the  results  of which form the basis for making  judgments  about the  carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Actual  results  may  differ  from  these  estimates  under  different
assumptions or conditions. We believe the following critical accounting policies
affect our more  significant  judgments and estimates used in preparation of our
consolidated financial statements.

Revenue Recognition

     We record revenues when we deliver products to customers in accordance with
Statement of Position  ("SOP") 97-2,  "Software  Revenue  Recognition."  and SEC
Staff  Accounting  Bulletin No. 101, Revenue  Recognition.  Commencing in August
2001, substantially all of our sales are made by two related party distributors,
Vivendi  Universal  Games,  Inc. and Virgin  Interactive  Entertainment  Ltd. We
recognize revenue from sales by distributors,  net of sales commissions, only as
the distributor  recognizes sales of our products to unaffiliated third parties.
For those  agreements that provide the customers the right to multiple copies of
a product in  exchange  for  guaranteed  amounts,  we  recognize  revenue at the
delivery and acceptance of the product  master.  We recognize per copy royalties
on sales that exceed the guarantee as copies are duplicated.

     We generally are not contractually  obligated to accept returns, except for
defective,   shelf-worn  and  damaged  products.   However,  on  a  case-by-case
negotiated  basis,  we permit  customers  to return or exchange  product and may
provide price concessions to our retail distribution customers on unsold or slow
moving products.  In accordance with Statement of Financial Accounting Standards
("SFAS") No. 48,  "Revenue  Recognition  when Right of Return Exists," we record
revenue net of a provision for estimated returns,  exchanges,  markdowns,  price
concessions, and warranty costs. We record such reserves based upon management's
evaluation  of  historical  experience,  current  industry  trends and estimated
costs. During 2001, we substantially  increased our sales allowances as a result
of the  granting  of  price  concessions  to  resellers  on  products  in  their
inventory,  in an effort to minimize product returns following the transition of
our North American distribution rights to Vivendi. As a result, sales allowances
as a  percentage  of our total  accounts  receivable  increased to 44 percent at
December 31, 2001 from 19 percent at December 31, 2000.  With the  transition to
Vivendi  complete,  sales  allowances as a percentage  of sales  decreased to 29
percent at December 31, 2002. The amount of reserves  ultimately  required could
differ materially in the near term from the amounts provided in the accompanying
consolidated financial statements.

     We provide customer  support only via telephone and the Internet.  Customer
support  costs are not  significant  and we charge  such costs to expenses as we
incur them.

     We also engage in the sale of  licensing  rights on certain  products.  The
terms of the licensing rights differ,  but normally include the right to develop
and  distribute  a  product  on a  specific  video  game  platform.  Revenue  is
recognized when the rights have been transferred and no other obligations exist.


Prepaid Licenses and Royalties

     Prepaid licenses and royalties consist of license fees paid to intellectual
property rights holders for use of their trademarks or copyrights. Also included
in prepaid  royalties are prepayments  made to independent  software  developers
under developer  arrangements that have alternative  future uses. These payments
are contingent upon the successful


                                       18


<PAGE>


completion of  milestones,  which  generally  represent  specific  deliverables.
Royalty advances are recoupable  against future sales based upon the contractual
royalty  rate.  We amortize the cost of licenses,  prepaid  royalties  and other
outside  production costs to cost of goods sold over six months  commencing with
the initial  shipment in each region of the  related  title.  We amortize  these
amounts at a rate based upon the actual  number of units  shipped with a minimum
amortization  of 75  percent in the first  month of  release  and a minimum of 5
percent  for  each  of  the  next  five  months  after  release.   This  minimum
amortization rate reflects our typical product life cycle.  Management evaluates
the future realization of such costs quarterly and charges to cost of goods sold
any amounts that management  deems unlikely to be fully realized  through future
sales.  Such costs are  classified as current and  noncurrent  assets based upon
estimated product release date.

Software Development Costs

     Our internal  research and development  costs,  which consist  primarily of
software  development  costs,  are expensed as incurred.  Statement of Financial
Accounting  Standards  ("SFAS")  No. 86,  "Accounting  for the Cost of  Computer
Software  to  be  Sold,  Leased,  or  Otherwise  Marketed",   provides  for  the
capitalization   of  certain   software   development   costs   incurred   after
technological  feasibility  of the software is  established  or for  development
costs  that  have  alternative  future  uses.  Under  our  current  practice  of
developing  new  products,  the  technological  feasibility  of  the  underlying
software is not established until  substantially all of the product  development
is complete. As a result, we have not capitalized any software development costs
on internal  development  projects,  as the eligible costs were determined to be
insignificant.

Other Significant Accounting Policies

     Other  significant  accounting  policies  not  involving  the same level of
measurement  uncertainties as those discussed above, are nevertheless  important
to an  understanding  of the  financial  statements.  The  policies  related  to
consolidation  and loss  contingencies  require  difficult  judgments on complex
matters that are often subject to multiple  sources of  authoritative  guidance.
Certain of these  matters are among  topics  currently  under  reexamination  by
accounting  standards setters and regulators.  Although no specific  conclusions
reached by these standard  setters  appear likely to cause a material  change in
our accounting policies,  outcomes cannot be predicted with confidence. Also see
Note 2 of Notes to  Consolidated  Financial  Statements,  Summary of Significant
Accounting  Policies,  which discusses accounting policies that must be selected
by management when there are acceptable alternatives.


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<PAGE>


RESULTS OF OPERATIONS

     The  following  table  sets  forth  certain   consolidated   statements  of
operations  data  and  segment  and  platform  data  for the  periods  indicated
expressed as a percentage of net revenues:

                                                      Years Ended December 31,
                                                   2002        2001        2000
                                                   ----        ----        ----

Statements of Operations Data:
Net revenues ...............................       100%        100%        100%
Cost of goods sold .........................        61          81          53
                                                   ----        ----        ----
Gross margin ...............................        39          19          47
Operating expenses:
     Marketing and sales ...................        13          33          23
     General and administrative ............        17          22          10
     Product development ...................        37          37          22
                                                   ----        ----        ----
     Total operating expenses ..............        67          92          55
                                                   ----        ----        ----

Operating loss .............................       (28)        (73)         (8)
Other income (expense) .....................        62          (8)         (4)
                                                   ----        ----        ----
Income (loss) before provision
   for income taxes ........................        34         (81)        (12)
Provision for income taxes .................        --           1          --
                                                   ----        ----        ----
Net income (loss) ..........................        34%        (82)%       (12)%
                                                   ====        ====        ====
Selected Operating Data:
Net revenues by segment:
     North America .........................        60%         62%         52%
     International .........................        13          27          35
     OEM, royalty and licensing ............        27          11          13
                                                   ----        ----        ----
                                                   100%        100%        100%
                                                   ====        ====        ====
Net revenues by platform:
     Personal computer .....................        36%         62%         73%
     Video game console ....................        37          27          14
     OEM, royalty and licensing ............        27          11          13
                                                   ----        ----        ----
                                                   100%        100%        100%
                                                   ====        ====        ====

North American, International and OEM, Royalty and Licensing Net Revenues

      Net revenues for the year ended  December 31, 2002 were $44.0  million,  a
decrease  of 22  percent  compared  to the same  period in 2001.  This  decrease
resulted from a 25 percent decrease in North American net revenues, a 63 percent
decrease in International net revenues, offset by a 102 percent increase in OEM,
royalties and licensing  revenues.  Net revenues for the year ended December 31,
2001 were $56.4 million, a decrease of 44 percent compared to the same period in
2000.  This decrease  resulted from a 34 percent  decrease in North American net
revenues,  a 56 percent decrease in International  net revenues and a 54 percent
decrease in OEM, royalties and licensing revenues.

     North American net revenues for the year ended December 31, 2002 were $26.2
million.  The decrease in North  American net revenues in 2002 was mainly due to
lower total units sales as a result of releasing 6 titles in 2002  compared to 8
titles in 2001.  Furthermore,  five of the titles were released by Vivendi under
the terms of the new distribution agreement, whereby Vivendi pays us a lower per
unit rate and in return assumes all credit,  product return and price concession
risks,  as well  as  being  responsible  for all  manufacturing,  marketing  and
distribution expenditures.  These resulted in a decrease in North American sales
of $18.3 million,  partially  offset by a decrease in product  returns and price
concessions  of $9.5  million as compared to the 2001  period.  The  decrease in
title  releases  across  all  platforms  is a result of our  continued  focus on
product planning and the releasing of fewer,  higher quality titles. Our returns
were  lower in 2002 due  primarily  to price  concessions  we granted in 2001 in
connection with the North American  Distribution  Agreement we entered into with
Vivendi in 2001.


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     We expect that our North American  publishing net revenues will decrease in
2003 compared to 2002,  mainly due to decreased unit sales and releasing all new
titles under the terms of the August 2002 distribution agreement with Vivendi.

     North American net revenues for the year ended December 31, 2001 were $35.0
million.  The decrease in North  American net revenues in 2001 was mainly due to
our release of only 8 titles in 2001 compared to 26 titles in 2000  resulting in
a decrease  in North  American  sales of $21.6  million,  partially  offset by a
decrease in product returns and price concessions of $2.8 million as compared to
the 2000 period. The decrease in title releases across all platforms is a result
of our  continued  focus on product  planning  and the release of fewer,  higher
quality titles.  Our returns were a higher  percentage of sales due primarily to
price concessions we granted in connection with the North American  distribution
agreement we entered into with Vivendi.

     International  net revenues for the year ended  December 31, 2002 were $5.7
million.  The decrease in International net revenues for the year ended December
31, 2002 was mainly due to the reduction in title releases during the year which
resulted in a $12.2 million decrease in revenue,  partially offset by a decrease
in product  returns and price  concessions of $2.4 million  compared to the 2001
period.  Our  product  planning  efforts  during  2002 also  contributed  to the
reduction of titles  released in the  International  markets.  Furthermore,  our
returns as a percentage  of revenue,  continued to increase as we  experienced a
high level of product  returns and price  concessions  due to certain titles not
gaining broad market acceptance.

     We expect that our  International  publishing net revenues will increase in
2003 as compared to 2002, mainly due to increased unit sales. However, if Virgin
Europe is not able to  reorganize  and  liquidates,  we may need to obtain a new
European  distributor  in a short amount of time. If we are not able to engage a
new distributor, it could have a material negative impact on our European sales.

     International  net revenues for the year ended December 31, 2001 were $15.5
million.  The decrease in International net revenues for the year ended December
31, 2001 was mainly due to the reduction in title releases during the year which
resulted  in a $17.4  million  decrease  in revenue  and an  increase in product
returns and price  concessions of $1.8 million compared to the 2000 period.  Our
product planning efforts during 2001 also contributed to the reduction of titles
released in the International markets.  Furthermore, our returns as a percentage
of revenue,  increased  as we  experienced  a high level of product  returns and
price concessions due to certain titles not gaining broad market acceptance.

     OEM,  royalty and  licensing  net revenues for the year ended  December 31,
2002 were $12.1  million,  an increase  of $6.1  million as compared to the same
period in 2001.  The OEM  business  decreased  $1.3  million  as a result of our
efforts to focus on our core business of developing  and  publishing  video game
titles for  distribution  directly to the end users and our  continued  focus on
video game console titles,  which typically are not bundled with other products.
The year ended December 31, 2002 also included  revenues  related to the sale of
publishing  rights  for one of our  products  and the  recognition  of  deferred
revenue for a licensing  transaction.  In January 2002,  we sold the  publishing
rights  to  this  title  to the  distributor  in  connection  with a  settlement
agreement entered into with the third party developer.  The settlement agreement
provided,  among other things,  that we assign our rights and obligations  under
the product agreement to the third party  distributor.  As a result, we recorded
net  revenues  of $5.6  million in the three  months  ended March 31,  2002.  In
February  2002, a licensing  transaction  we entered into in 1999 expired and we
recognized  revenue  of  $1.2  million,  the  unearned  portion  of the  minimum
guarantee.  We expect that OEM,  royalty and licensing net revenues in 2003 will
increase  compared to 2002 primarily  related to the recording of $15 million in
revenue  resulting  from the sale of the Hunter video game franchise in February
2003.

     OEM,  royalty and  licensing  net revenues for the year ended  December 31,
2001 were $6.0  million,  a decrease  of $7.1  million as  compared  to the same
period in 2000.  The OEM business  decreased $3.9 million as a result of general
market  decreases in personal  computer sales.  The year ended December 31, 2000
also  included  $3 million of  revenues  related  to a  multi-product  licensing
transaction with Titus Interactive S.A., our majority stockholder, which did not
recur in 2001.

Platform Net Revenues

     PC net revenues for the year ended December 31, 2002 were $15.8 million,  a
decrease of 55 percent  compared to the same period in 2001.  The decrease in PC
net revenues in 2002 was primarily due to the release of one major hit title in


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<PAGE>


2002 (Icewind Dale II), which was released under the new distribution  agreement
with Vivendi in North America, as compared to three major hit titles released in
2001. The decrease in PC net revenues were further  affected by releasing only 1
title in 2002  compared  to a total of 7 titles in 2001.  We  expect  our PC net
revenues to  decrease  in 2003 as compared to 2002 as we expect to release  only
one to two new titles and as we continue to focus on video game console  titles.
Video game console net revenues  increased 3 percent for the year ended December
31, 2002 compared to the same period in 2001,  due to sales  generated  from the
release of Hunter:  The Reckoning (Xbox),  and continued sales of Baldur's Gate:
Dark Alliance  (PlayStation 2), which was released in 2001. Our other video game
releases in 2002 included RLH  (PlayStation  2),  Baldur's  Gate:  Dark Alliance
(Xbox),  Baldur's Gate:  Dark Alliance  (Gamecube) and Hunter  (Gamecube).  Even
though we released 5 titles in 2002 as compared to 3 in 2001,  net  revenues did
not  increase  substantially  mainly  due to  releasing  titles  under  the  new
distribution  agreement with Vivendi,  whereby,  we record a lower per unit rate
and in return  Vivendi is  responsible  for all  manufacturing,  marketing,  and
distribution  expenditures.  We anticipate  releasing four to five new titles in
2003 and expect net  revenues to increase in 2003 partly due to the fact that we
anticipate  releasing the sequel to the major title release  Baldur's Gate: Dark
Alliance on PlayStation 2 and Xbox in the latter half of 2003.

     PC net revenues for the year ended December 31, 2001 were $34.9 million,  a
decrease of 53 percent  compared to the same period in 2000.  The decrease in PC
net revenues in 2001 was  primarily due to the release of three major hit titles
in 2001 (Icewind Dale:  Heart of Winter,  Fallout  Tactics and Baldur's Gate II:
Throne of Bhaal),  as compared to seven major hit titles  released in 2000.  The
decrease in PC net revenues was further  affected by releasing only a total of 7
titles in 2001 compared to a total of 18 titles in 2000.  Video game console net
revenues  increased 6 percent for the year ended  December 31, 2001  compared to
the same  period in 2000,  due to sales  generated  from the release of Baldur's
Gate: Dark Alliance  (PlayStation  2). Our other video game releases include MDK
2: Armageddon  (PlayStation 2) and Giants  (PlayStation 2). In 2001, our 3 title
releases were developed for next generation  video game consoles and as a result
price  points for the 2001  releases  were higher  than the 4 title  releases in
2000.

Cost of Goods Sold; Gross Margin

     Our cost of goods sold  decreased  42 percent to $26.7  million in the year
ended  December 31, 2002  compared to the same period in 2001.  Furthermore,  we
incurred  $4.1  million of  non-recurring  charges  related to the  write-off of
prepaid  royalties on titles that were not  expected to meet our desired  profit
requirements  as compared to $8.1 million in the 2001 period.  In addition,  the
decrease was a result of distributing  five titles through Vivendi under the new
distribution  agreement,  in which  the only cost of goods  element  we incur is
royalty expense. Under this new agreement, Vivendi pays us a lower per unit rate
and in return is responsible for all  manufacturing,  marketing and distribution
expenditures.  We expect our cost of goods sold to  decrease in 2003 as compared
to 2002 due to the  continuation of our  distributing all of our new releases in
North  America  through  this new  agreement  with  Vivendi.  Our  gross  margin
increased  to 39  percent  in 2002 from 19  percent  in 2001.  This was due to a
decrease  in our royalty  expense as a result of a decrease  of $4.0  million in
write-off  of prepaid  royalties,  a decrease in our product cost of goods and a
decrease in product returns and price concessions as compared to the 2001 period
due to distributing  the majority of our new releases in North America under the
new agreement  with Vivendi.  We expect our gross profit margin and gross profit
to  increase  in 2003 as  compared  to 2002 mainly due to the sale of the Hunter
franchise  in  February  2003,  and the fact that we do not  expect to incur any
unusual  product  returns and price  concessions  or any  write-offs  of prepaid
royalties in 2003.

     Our cost of goods sold  decreased  15 percent to $45.8  million in the year
ended  December 31, 2001  compared to the same period in 2000.  Furthermore,  we
incurred  $8.1  million of  non-recurring  charges  related to the  write-off of
prepaid  royalties on titles that we decided to cancel because these titles were
not expected to meet our desired profit requirements. Our gross margin decreased
to 19 percent  for 2001 from 47 percent in 2000.  This was due to an increase in
our  royalty  expense  as a result  of the $8.1  million  write-off  of  prepaid
royalties, an increase in our product cost of goods due to our increase in video
game console title sales,  which  typically  have a higher per unit cost, and an
increase in our product returns and price concessions as compared to 2000.

Marketing and Sales

     Marketing and sales expenses  primarily  consist of advertising  and retail
marketing support,  sales commissions,  marketing and sales personnel,  customer
support  services and other  related  operating  expenses.  Marketing  and sales
expenses for the year ended  December 31, 2002 were $5.8  million,  a 69 percent
decrease as compared to the 2001


                                       22


<PAGE>


period.  The decrease in marketing  and sales  expenses is due to a $7.9 million
reduction  in  advertising  and  retail  marketing  support  expenditures  and a
decrease of $4.5  million in personnel  costs and general  expenses due to fewer
product  releases  in 2002 and our  shift  from a direct  sales  force for North
America to a  distribution  arrangement  with  Vivendi.  Also,  the  decrease in
marketing  and sales  expenses  was a result of a  decrease  of $0.5  million in
overhead  fees paid to Virgin under our April 2001  settlement  with Virgin (See
Activities with Related Parties).  We expect our marketing and sales expenses to
decrease in 2003 compared to 2002, due to lower personnel costs from our reduced
headcount,  a reduction  in overhead  fees paid to Virgin  pursuant to the April
2001  settlement  and releasing  titles under the terms of the new  distribution
agreement  whereby  Vivendi pays us a lower per unit rate and in return  assumes
all marketing expenditures.

     Marketing  and sales  expenses  for the year ended  December  31, 2001 were
$18.7  million,  a 20 percent  decrease  as  compared  to the 2000  period.  The
decrease in marketing and sales expenses was due to a $3.9 million  reduction in
advertising  and retail  marketing  support  expenditures  due to fewer  product
releases  in 2001 and a $2.0  million  decrease in  personnel  costs and general
expenses due in part to our shift from a direct sales force for North America to
a  distribution  arrangement  with Vivendi.  The decrease in marketing and sales
expenses was  partially  offset by $1.3 million in overhead  fees paid to Virgin
under our April  2001  settlement  with  Virgin  (See  Activities  with  Related
Parties).

General and Administrative

     General and  administrative  expenses  primarily  consist of administrative
personnel expenses,  facilities costs,  professional fees, bad debt expenses and
other related operating  expenses.  General and administrative  expenses for the
year  ended  December  31,  2002 were $7.7  million,  a 39 percent  decrease  as
compared  to the same  period in 2001.  The  decrease  is due to a $4.9  million
decrease  in  personnel  costs and  general  expenses.  In the 2002  period,  we
incurred significant charges of $0.4 million in loan termination fees associated
with the  termination  of our line of  credit  and $0.5  million  in  consulting
expenses payable to our investment bankers,  Europlay 1, LLC, incurred to assist
us with the  restructuring  of the  company.  In the 2001  period,  we  incurred
significant  charges of $0.7 million provision for the termination of a building
lease in the United  Kingdom  and $0.5  million in legal,  audit and  investment
banking fees and expenses incurred principally in connection with the efforts of
a proposed sale of the Company which was  terminated.  We expect our general and
administrative expenses to remain relatively constant in 2003 compared to 2002.

     General and  administrative  expenses for the year ended  December 31, 2001
were $12.6  million,  a 23 percent  increase  as  compared to the same period in
2000.  The  increase  is due  in  part  to a  $0.7  million  provision  for  the
termination of a building lease in the United Kingdom,  a $0.1 million  increase
in the provision for bad debt, $0.5 million in legal,  accounting and investment
banking fees and expenses  incurred  principally  in connection  with efforts to
sell the company  which was  terminated,  $0.5  million in  consulting  expenses
payable to Titus,  incurred to assist us with the  restructuring  of the company
and a $0.6 million increase in personnel costs and general expenses.

Product Development

     We charge internal product development expenses, which consist primarily of
personnel  and support  costs,  to operations  in the period  incurred.  Product
development  expenses for the year ended December 31, 2002 were $16.2 million, a
21 percent  decrease as compared to the same period in 2001.  This  decrease was
due to a $4.4 million  decrease in personnel costs as a result of a reduction in
headcount and the sale of Shiny Entertainment, Inc. in April 2002. We expect our
product development  expenses to increase in 2003 compared to 2002 as we plan on
releasing more internally developed titles in 2003.

     Product  development  expenses  for the year ended  December  31, 2001 were
$20.6 million, a 7 percent decrease as compared to the same period in 2000. This
decrease  was due to a $1.7 million  decrease in  expenditures  associated  with
resources dedicated to completing four major internally  developed titles in the
2000  period,  which did not recur in the 2001 period as well as a reduction  in
headcount.

Sale of Shiny Entertainment, Inc.

     In April 2002, we sold our former subsidiary Shiny  Entertainment,  Inc. to
Infogrames Entertainment,  Inc. for $47.2 million. We recognized a gain of $28.8
million on this sale. See Note 3 of Notes to Consolidated Financial Statements.


                                       23


<PAGE>


Other Expense, Net

     Other expense consists primarily of interest expense on our lines of credit
and foreign currency exchange  transaction  losses.  Other expenses for the year
ended December 31, 2002 were $1.5 million,  a 66 percent decrease as compared to
the same  period in 2001.  The  decreases  were due to a  reduction  in interest
expense  related  to  lower  net  borrowings  and a  $0.9  million  gain  in the
settlement and termination of a building lease in the United Kingdom.

     Other expenses for the year ended December 31, 2001 were $4.5 million, a 23
percent  increase as  compared to the same period in 2000 due to a $0.2  million
expense associated with foreign tax withholdings, $0.4 million in loan fees paid
to our former bank associated with the transition of our line of credit to a new
bank,  $0.7 million in expense  related to the issuance of a warrant to a former
officer in connection with his personal  guarantee on our new line of credit and
a $1.8 million  penalty due to a delay in the  effectiveness  of a  registration
statement in connection with our private placement of 8,126,770 shares of Common
Stock,  offset by a $1.6 million  decrease in interest  expense related to lower
net  borrowings  on our line of credit  and a $0.7  million  decrease  in losses
associated with foreign currency exchanges.

Provision (Benefit) for Income Taxes

     We recorded a tax benefit of $0.2  million for the year ended  December 31,
2002,  compared with a tax provision of $0.5 million for the year ended December
31, 2001. In June 2002, the Internal Revenue Service concluded their examination
of our  consolidated  federal  income tax  returns for the years ended April 30,
1992  through  1997.  In fiscal  2001,  we  established  a reserve of  $500,000,
representing  management's  best estimate of amounts to be paid in settlement of
the IRS claims.  With the executed  settlement,  the actual amount owed was only
$275,000,  accordingly,  we adjusted our reserve and, as a result, recognized an
income tax benefit of $225,000.  We have a deferred  tax asset of  approximately
$54 million that has been fully  reserved at December  31, 2002.  This tax asset
would reduce future provisions for income taxes and related tax liabilities when
realized, subject to limitations.

LIQUIDITY AND CAPITAL RESOURCES

     We have funded our operations to date primarily through the use of lines of
credit,  royalty and  distribution  fee advances,  cash generated by the private
sale of securities,  proceeds of our initial public offering, the sale of assets
and from results of  operations.  Since  October  2001,  we have been  operating
without a line of  credit,  which has  materially  and  adversely  affected  our
ability to finance our ongoing operations.

     As of December 31, 2002, we had a working capital deficit of $17.1 million,
and our cash balance was approximately  $134,000. We anticipate our current cash
reserves,  proceeds  from the sale of the Hunter  franchise,  plus our  expected
generation of cash from existing operations, will only be sufficient to fund our
anticipated  expenditures into the second quarter of fiscal 2003.  Consequently,
we expect that we will need to  substantially  reduce our working  capital needs
and/or raise additional financing. Along these lines, we have entered into a new
distribution  agreement with Vivendi, which accelerates cash collections through
non-refundable minimum guarantees.  If we do not receive sufficient financing we
may (i) liquidate  assets,  (ii) sell the company (iii) seek protection from our
creditors,  and/or (iv)  continue  operations,  but incur  material  harm to our
business, operations or financial conditions.

     Our primary  capital needs have  historically  been to fund working capital
requirements  necessary to fund our net losses, the development and introduction
of products and related  technologies  and the acquisition or lease of equipment
and  other  assets  used  in the  product  development  process.  Our  operating
activities  used cash of $28.2 million  during the year ended December 31, 2002,
primarily attributable to payments for accounts payable and royalty liabilities,
recoupment of advances received by distributors, and refund of advances received
from Vivendi and a console  hardware  manufacturer for the development of titles
for its console  platform in  connection  with the sale of Shiny.  These uses of
cash in operating  activities  were partially  offset by collections of accounts
receivable  and accounts  receivable  from  related  parties and  reductions  of
inventory.

     Net cash used by  financing  activities  of $4.7 million for the year ended
December 31, 2002, consisted primarily of repayments of our working capital line
of credit and  repayments  to our former  Chairman.  Cash  provided by investing
activities  of $32.9 million for the year ended  December 31, 2002  consisted of
proceeds  from  the  sale of  Shiny,  offset  by


                                       24


<PAGE>


normal capital expenditures, primarily for office and computer equipment used in
our operations.  We do not currently have any material  commitments with respect
to any future capital expenditures.

     The following  summarizes our contractual  obligations under non-cancelable
operating  leases and other borrowings at December 31, 2002, and the effect such
obligations  are  expected  to have on our  liquidity  and cash  flow in  future
periods.

                                               Less Than   1 - 3      After
December 31, 2002                     Total      1 Year    Years     3 Years
                                    ---------  ---------  -------   --------
                                                   (In thousands)
Contractual cash obligations -
   Non-cancelable operating
      lease obligations              $ 5,215    $ 1,386   $ 3,065    $  764
                                    =========  =========  =======   ========

     In April 2002, we entered into a settlement  agreement with the landlord of
an office facility in the United Kingdom,  whereby we returned the property back
to the landlord  and were  released  from any further  lease  obligations.  This
settlement  reduced  our total  contractual  cash  obligations  by $1.3  million
through fiscal 2005.

     Our main source of capital is from the release of new titles. Historically,
we have had some delays in the release of new titles and we  anticipate  that we
may continue to incur delays in the release of future  titles.  These delays can
have a negative  impact on our short-term  liquidity,  but should not affect our
overall liquidity.

     To reduce our working capital needs, we have  implemented  various measures
including a reduction of personnel,  a reduction of fixed overhead  commitments,
cancellation  or suspension  of  development  on future titles which  management
believes do not meet sufficient  projected profit margins,  and the scaling back
of certain marketing programs associated with the cancelled projects. Management
will continue to pursue various alternatives to improve future operating results
and  further  expense  reductions,  some of which may have a  long-term  adverse
impact on our ability to generate  successful  future  business  activities.  In
addition,  we continue to seek  external  sources of funding,  including but not
limited to, a sale or merger of the company,  a private placement of our capital
stock, the sale of selected  assets,  the licensing of certain product rights in
selected territories,  selected distribution agreements,  and/or other strategic
transactions  sufficient to provide short-term funding,  and potentially achieve
our long-term  strategic  objectives.  In this regard,  we completed the sale of
Shiny in April 2002, for approximately  $47.2 million.  Additionally,  in August
2002,  our Board of  Directors  established  a Special  Committee  comprised  of
directors that are  independent of our largest  stockholder,  Titus  Interactive
S.A., to investigate strategic options,  including raising capital from the sale
of debt or equity securities and a sale of the company.

     In order to improve our cash flow,  in August  2002,  we entered into a new
distribution   arrangement  with  Vivendi,   whereby,  Vivendi  will  distribute
substantially  all of our products in North  America for a period of three years
as a whole and two years with respect to each product  providing for a potential
maximum term of five years. Under the August 2002 agreement, Vivendi will pay us
sales  proceeds  less  amounts for  distribution  fees,  price  concessions  and
returns.   Vivendi  is  responsible   for  all   manufacturing,   marketing  and
distribution expenditures, and bears all credit, price concessions and inventory
risk, including product returns.  Upon our delivery of a gold master to Vivendi,
Vivendi will pay us, as a non-refundable  minimum guarantee, a specified percent
of the projected  amount due to us based on projected  initial  shipment  sales,
which are  established by Vivendi in accordance with the terms of the agreement.
The  remaining  amounts  are  due  upon  shipment  of the  titles  to  Vivendi's
customers.  Payments for future sales that exceed the projected initial shipment
sales are paid on a monthly basis. We expect this new arrangement to improve our
short-term liquidity, but should not impact our overall liquidity.

     If operating  revenues from product releases are not sufficient to fund our
operations,  no assurance can be given that alternative sources of funding could
be obtained on acceptable terms, or at all. These conditions,  combined with our
historical  operating  losses and deficits in  stockholders'  equity and working
capital,  raise  substantial  doubt  about our  ability to  continue  as a going
concern. The accompanying  consolidated  financial statements do not include any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets and  liabilities  that may result  from the outcome of
this uncertainty.


                                       25


<PAGE>


ACTIVITIES WITH RELATED PARTIES

     Our operations  involve  significant  transactions with Titus, our majority
stockholder,  Virgin, a wholly-owned  subsidiary of Titus, and Vivendi, an owner
of 5 percent of our common stock.  In addition,  we obtained  financing from the
former Chairman of the company.

Transactions with Titus

     In March 2002,  Titus  converted its remaining  383,354  shares of Series A
preferred  stock into  approximately  47.5 million  shares of our common  stock.
Titus now owns approximately 67 million shares of common stock, which represents
approximately  71 percent  of our  outstanding  common  stock,  our only  voting
security, immediately following the conversion.

     Titus retained  Europlay as consultants to assist with the restructuring of
the company. This arrangement with Europlay is with Titus, however, we agreed to
reimburse Titus for consulting  expenses  incurred on our behalf.  In connection
with the sale of Shiny,  we agreed to pay Europlay  directly for their  services
with the proceeds received from the sale, which Europlay received.  We have also
entered into a  commission-based  agreement  with Europlay  where  Europlay will
assist us with strategic  transactions,  such as debt or equity  financing,  the
sale of  assets  or an  acquisition  of the  company.  Under  this  arrangement,
Europlay assisted us with the sale of Shiny.

     In connection with the equity investments by Titus, we perform distribution
services  on behalf of Titus for a fee.  In  connection  with such  distribution
services,  we  recognized  fee income of $22,000,  $21,000 and  $435,000 for the
years ended December 31, 2002, 2001 and 2000, respectively.

     In March 2003, we entered into a note receivable with Titus Software Corp.,
or "TSC",  a subsidiary  of Titus,  for $226,000.  The note earns  interest at 8
percent  per annum and is due in  February  2004.  The note is  secured by (i) 4
million  shares of our common  stock held by Titus (ii) TSC's rights in and to a
note  receivable  due from the President of Interplay and (iii) rights in and to
TSC's most current video game title releases during 2003 and 2004.

     In March 2003,  our Board of Directors  further  authorized  an  additional
$500,000 loan to Titus, with interest at 8 percent per annum and a maturity date
in February  2004,  on the  condition  that Titus is able to provide  sufficient
security  that  is  acceptable  to  the  Board,  which  shall  include,  without
limitation, 9.3 million shares of our common stock held by Titus and (ii) rights
in and to Titus' most current video game title releases during 2003 and 2004.

     In April 2002, we entered into an agreement with Titus,  pursuant to which,
among other things, we sold to Titus all right,  title and interest in the games
"EarthWorm Jim", "Messiah",  "Wild 9", "R/C Stunt Copter",  "Sacrifice",  "MDK",
"MDK II",  and  "Kingpin",  and  Titus  licensed  from us the right to  develop,
publish,  manufacture and distribute the games "Hunter I", "Hunter II", "Icewind
Dale I",  "Icewind  Dale II",  and "BG:  Dark  Alliance  II" solely on  Nintendo
Advance  GameBoy  game system for the life of the games.  As  consideration  for
these rights,  Titus issued to us a promissory  note in the principal  amount of
$3.5 million,  which note bears interest at 6 percent per annum.  The promissory
note was due on August 31, 2002, and may be paid, at Titus'  option,  in cash or
in shares of Titus  common  stock with a per share  value equal to 90 percent of
the average  trading  price of Titus'  common stock over the 5 days  immediately
preceding the payment date. Pursuant to our April 26, 2002 agreement with Titus,
on or  before  July 25,  2002,  we had the  right  to  solicit  offers  from and
negotiate  with third parties to sell the rights and licenses  granted under the
April 26, 2002  agreement.  If we had entered  into a binding  agreement  with a
third  party to sell these  rights  and  licenses  for an amount in excess  $3.5
million,  we would have  rescinded the April 26, 2002  agreement  with Titus and
recovered all rights granted and released Titus from all obligations thereunder.
The Company's  efforts to enter into a binding agreement with a third party were
unsuccessful.  Moreover,  we have  provided  Titus with a  guarantee  under this
agreement,  which  provides that in the event Titus does not achieve gross sales
of at least $3.5 million by June 25, 2003,  and the  shortfall is not the result
of  Titus'  failure  to use best  commercial  efforts,  we will pay to Titus the
difference  between $3.5  million and the actual gross sales  achieved by Titus,
not to exceed $2 million.  We are in the later stages of negotiations with Titus
to  repurchase  these assets for a purchase  price payable by canceling the $3.5
million promissory note, and any unpaid accrued interest thereon.  Concurrently,
Titus and us would terminate any executory  obligations relating to the original
sale,  including our  obligation to pay Titus up to $2 million if Titus does not
achieve gross sales of at least $3.5 million by


                                       26


<PAGE>


June 25, 2003. As Titus is our majority  stockholder  and the probability of the
agreement  being  terminated,  we have offset the related note receivable in the
amount of $3.5  million  against  the  deferred  revenue  in the  amount of $3.5
million.

     In March 2002, we entered into a distribution agreement with Titus pursuant
to which we  granted  to Titus  the  exclusive  right to  distribute  one of our
products for the Sony  Playstation  console in North America,  South America and
Central  America in exchange  for a minimum  guarantee of $100,000 for the first
71,942 units of the product  sold,  plus $.69 per unit on any product sold above
the 71,942 units.

     During  the year ended  December  31,  2000,  we  recognized  $3 million in
licensing  revenue under a  multi-product  license  agreement with Titus for the
technology  underlying  one title and the content of three  titles for  multiple
game  platforms,  extended for a maximum  period of twelve years,  with variable
royalties  payable to us from five to ten  percent,  as defined.  We earned a $3
million non-refundable  fully-recoupable  advance against royalties upon signing
and completing all of our obligations under the agreement. During the year ended
December  31,  1999,  we  executed  publishing  agreements  with Titus for three
titles. As a result of these agreements,  we recognized  revenue of $2.6 million
for delivery of these titles to Titus.

     As of December  31, 2002 and 2001,  Titus owed us  $200,000  and  $260,000,
respectively, and we owed Titus $321,000 and $1.3 million, respectively. Amounts
due to Titus at December 31, 2002 consisted primarily of trade payables. Amounts
due to Titus at December  31, 2001  include  dividends  payable of $740,000  and
$450,000 for services rendered by Europlay.

Transactions with Virgin, a wholly owned subsidiary of Titus

     In February 1999, we entered into an International  Distribution  Agreement
with Virgin, which provides for the exclusive  distribution of substantially all
of our products in Europe,  Commonwealth of Independent  States,  Africa and the
Middle  East for a  seven-year  period,  cancelable  under  certain  conditions,
subject to termination penalties and costs. Under this agreement, as amended, we
pay Virgin a distribution  fee based on net sales,  and Virgin provides  certain
market preparation, warehousing, sales and fulfillment services on our behalf.

     Under an April 2001  settlement,  we paid Virgin a monthly  overhead fee of
$83,000  per month for the six month  period  beginning  January  2002,  with no
further overhead  commitment for the remainder of the term of the  International
Distribution Agreement.

     In  January  2003,  we and  Virgin  entered  into a waiver  related  to the
distribution  of a video game title in which we sold the  European  distribution
rights to Vivendi.  In consideration  for Virgin  relinquishing  its rights,  we
agreed to pay Virgin  $650,000 and will pay Virgin 50 percent of all proceeds in
excess of the advance received from Vivendi. As of December 31, 2002 the Company
had paid Virgin $220,000 of the $650,000 due under the waiver agreement.

     In February 2003, Virgin Interactive  Entertainment  (Europe) Limited,, the
operating  subsidiary of filed for a Company  Voluntary  Arrangement,  or CVA, a
process of  reorganization  in the United  Kingdom  which  must be  approved  by
Virgin's  creditors.  Virgin owed us approximately  $1.8 million at December 31,
2002.  As of March 28,  2003,  the CVA was rejected by Virgin's  creditors,  and
Virgin is presently  negotiating  with its creditors to propose a new CVA. We do
not know what  affect  approval  of the CVA will have on our  ability to collect
amounts  Virgin  owes us. If the new CVA is not  approved,  we expect  Virgin to
cease  operations and liquidate,  in which event we will most likely not receive
any amounts presently due us by Virgin,  and will not have a distributor for our
products  in  Europe  and  the  other  territories  in  which  Virgin  presently
distributes our products.

     In connection with the International  Distribution  Agreement,  we incurred
distribution  commission expense of $0.9 million,  $2.3 million and $4.6 million
for the years ended December 31, 2002, 2001 and 2000, respectively. In addition,
we recognized  overhead fees of $0.5 million,  $1.0 million and zero and certain
minimum  operating  charges to Virgin of zero,  $333,000  and zero for the years
ended December 31, 2002, 2001 and 2000, respectively.

     We have also entered into a Product Publishing Agreement with Virgin, which
provides us with an exclusive  license to publish and  distribute  substantially
all of Virgin's  products within North America,  Latin America and South America
for a royalty based on net sales.  As part of terms of an April 2001  settlement
between Virgin and us, the Product  Publishing  Agreement was amended to provide
for us to publish only one future title developed by Virgin. In connection


                                       27


<PAGE>


with the Product  Publishing  Agreement with Virgin, we earned $66,000,  $36,000
and $63,000 for  performing  publishing and  distribution  services on behalf of
Virgin for the years ended December 31, 2002, 2001 and 2000, respectively.

     In connection with the International  Distribution  Agreement,  we sublease
office space from Virgin. Rent expense paid to Virgin was $104,000, $104,000 and
$101,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Transactions with Vivendi

     In August 2001, we entered into a  distribution  agreement with Vivendi (an
affiliate company of Universal Studios, Inc., which currently owns approximately
5  percent  of our  common  stock  at  December  31,  2002  but  does  not  have
representation  on our Board of  Directors)  providing for Vivendi to become our
distributor in North America through December 31, 2003 for  substantially all of
our  products,  with the exception of products  with  pre-existing  distribution
agreements.  OEM rights were not among the rights  granted to Vivendi  under the
distribution agreement.  Under the terms of the agreement,  as amended,  Vivendi
earns a distribution fee based on the net sales of the titles distributed. Under
the  agreement,  Vivendi  made four  advance  payments to us $10.0  million.  In
amendments to the  agreement,  Vivendi  agreed to advance us an additional  $3.5
million. The distribution agreement,  as amended,  provides for the acceleration
of the  recoupment  of the  advances  made to us, as  defined.  During the three
months  ended March 31, 2002,  Vivendi  advanced us an  additional  $3.0 million
bringing the total amounts advanced to us under the distribution  agreement with
Vivendi to $16.5 million. In April 2002, the distribution  agreement was further
amended to provide for Vivendi to distribute  substantially  all of our products
through December 31, 2002,  except certain future products,  which Vivendi would
have the right to distribute for one year from the date of release. As of August
1, 2002, all  distribution  advances  relating to the August 2001 agreement from
Vivendi were fully recouped or repaid.

     In August 2002, we entered into a new  distribution  agreement with Vivendi
whereby  Vivendi  will  distribute  substantially  all of our  products in North
America  for a period of three  years as a whole and two years  with  respect to
each product  giving a potential  maximum  term of five years.  Under the August
2002 agreement, Vivendi will pay us sales proceeds less amounts for distribution
fees,   price   concessions   and  returns.   Vivendi  is  responsible  for  all
manufacturing,  marketing and distribution  expenditures,  and bears all credit,
price  concessions  and inventory  risk,  including  product  returns.  Upon our
delivery  of a  gold  master  to  Vivendi,  Vivendi  will  pay  us as a  minimum
guarantee, a specified percent of the projected amount due us based on projected
initial shipment sales,  which are established by Vivendi in accordance with the
terms of the  agreement.  The  remaining  amounts  are due upon  shipment of the
titles to  Vivendi's  customers.  Payments  for  future  sales  that  exceed the
projected initial shipment sales are paid on a monthly basis. As of December 31,
2002,  Vivendi had advanced us $3.6 million related to future minimum guarantees
on undelivered products.

Transactions with Brian Fargo, a former officer of the Company

     In  connection  with our working  capital line of credit  obtained in April
2001, we obtained a $2 million personal  guarantee in favor of the bank, secured
by $1.0 million in cash,  from Brian Fargo,  the former Chairman of the company.
In addition,  Mr. Fargo  provided us with a $3.0  million  loan,  payable in May
2002,  with interest at 10 percent.  In connection  with the guarantee and loan,
Mr. Fargo  received  warrants to purchase  500,000 shares of our common stock at
$1.75 per share,  expiring in April 2011. In January 2002, the bank redeemed the
$1.0  million  in cash  pledged by Mr.  Fargo in  connection  with his  personal
guarantee,  and subsequently we agreed to pay that amount back to Mr. Fargo. The
amount was fully paid in April 2002 in connection with the sale of Shiny.

     We had amounts due from a business  controlled  by Mr.  Fargo.  Net amounts
due, prior to reserves,  at December 31, 2000 were $2.5 million. Such amounts at
December 31, 2000 are fully reserved. In 2001, we wrote off this receivable.

RECENT ACCOUNTING PRONOUNCEMENTS

     In April 2001, the Emerging  Issues Task Force reached a consensus on Issue
No. 00-25  ("EITF  00-25"),  "Accounting  for  Consideration  from a Vendor to a
Retailer in Connection with the Purchase or Promotion of the Vendor's Products",
which  requires  that  amounts  paid by a vendor to a reseller  of the  vendor's
products is presumed to be a  reduction  of the selling  prices of the  vendor's
products and, therefore,  should be characterized as a reduction of revenue when
recognized in the vendor's income  statement.  That  presumption is overcome and
the consideration can be


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<PAGE>


categorized  as a cost incurred if, and to the extent that, a benefit is or will
be received  from the  recipient  of the  consideration.  That benefit must meet
certain  conditions  described in EITF 00-25.  We adopted the  provisions of the
consensus on January 1, 2002 resulting in a reduction of revenue and a reduction
of  marketing  and sales of $1.3  million  and $3.2  million for the years ended
December  31, 2001 and 2000,  respectively.  The  adoption of EITF 00-25 did not
impact our net loss.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities." SFAS No. 146 addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a  Restructuring)".  The provisions of SFAS
No. 146 are effective for exit or disposal  activities  that are initiated after
December  31,  2002,  with early  application  encouraged.  We do not expect the
adoption of SFAS No. 146 to have a material impact on our consolidated financial
position or results of operations.

     In  November  2002,  the FASB  issued  Interpretation  No. 45,  ("FIN 45"),
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of Indebtedness  of Others.  FIN 45 requires a guarantor to
(i) include disclosure of certain  obligations,  and (ii) if applicable,  at the
inception of the  guarantee,  recognize a liability  for the fair value of other
certain obligations undertaken in issuing a guarantee. The disclosure provisions
of the  Interpretation  are  effective  for  financial  statements of interim or
annual  reports  that end after  December  15,  2002 and we have  adopted  these
requirements.  However,  the provisions for initial  recognition and measurement
are effective on a prospective  basis for guarantees that are issued or modified
after  December 31,  2002,  irrespective.  As of December 31, 2002,  we have not
guaranteed the indebtedness of our subsidiaries or any related parties.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure - an Amendment of FASB Statement No.
123".  SFAS No. 148 amends FASB Statement No. 123,  "Accounting  for Stock-Based
Compensation",  to provide  alternative methods of transition for an entity that
voluntarily changes to the fair-value-based method of accounting for stock-based
employee  compensation.  It  also  amends  the  disclosure  provisions  of  that
statement  to require  prominent  disclosure  about the effects on reported  net
income and earnings per share and the entity's  accounting policy decisions with
respect  to  stock-based  employee  compensation.   Certain  of  the  disclosure
requirements  are required  for all  companies,  regardless  of whether the fair
value  method or  intrinsic  value  method is used to  account  for  stock-based
employee  compensation  arrangements.  We continue  to account for its  employee
incentive stock option plans using the intrinsic value method in accordance with
the  recognition  and  measurement  principles  of Accounting  Principles  Board
Opinion No. 25,  "Accounting  for Stock Issued to Employees."  The amendments to
SFAS 123 will be effective for financial statements for fiscal years ended after
December 15, 2002 and for interim periods  beginning after December 15, 2002. We
have adopted the disclosure  provisions of this statement  during the year ended
December 31, 2002.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
Variable  Interest  Entities"  ("FIN 46").  This  interpretation  of  Accounting
Research  Bulletin  No.  51,  "Consolidated   Financial  Statements,"  addresses
consolidation  by business  enterprises  of variable  interest  entities.  Under
current practice,  two enterprises  generally have been included in consolidated
financial  statements  because one enterprise  controls the other through voting
interests.  FIN 46 defines  the concept of  "variable  interests"  and  requires
existing  unconsolidated  variable interest entities to be consolidated by their
primary  beneficiaries  if the entities do not effectively  disperse risks among
the  parties  involved.  This  interpretation  applies  immediately  to variable
interest entities created after January 31, 2003. It applies in the first fiscal
year or interim  period  beginning  after June 15,  2003,  to variable  interest
entities  in which an  enterprise  holds a variable  interest  that it  acquired
before  February 1, 2003. If it is reasonably  possible that an enterprise  will
consolidate or disclose information about a variable interest entity when FIN 46
becomes  effective,  the  enterprise  shall  disclose  information  about  those
entities  in all  financial  statements  issued  after  January  31,  2003.  The
interpretation may be applied prospectively with a cumulative-effect  adjustment
as of the date on which it is first  applied or by restating  previously  issued
financial  statements for one or more years with a cumulative-effect  adjustment
as of the beginning of the first year  restated.  Based on the recent release of
FIN 46, we have not completed  our  assessment as to whether or not the adoption
of FIN 46 will have a material impact on our consolidated financial statements.


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<PAGE>


FACTORS THAT MAY AFFECT FINANCIAL CONDITION AND FUTURE RESULTS

     Our future  operating  results  depend upon many factors and are subject to
various risks and uncertainties.  Some of the risks and uncertainties  which may
cause our  operating  results  to vary  from  anticipated  results  or which may
materially and adversely affect our operating results are as follows:

WE  CURRENTLY  HAVE A NUMBER OF  OBLIGATIONS  THAT WE ARE UNABLE TO MEET WITHOUT
GENERATING  ADDITIONAL  REVENUES  OR RAISING  ADDITIONAL  CAPITAL.  IF WE CANNOT
GENERATE  ADDITIONAL REVENUES OR RAISE ADDITIONAL CAPITAL IN THE NEAR FUTURE, WE
MAY BECOME INSOLVENT AND OUR STOCK WOULD BECOME ILLIQUID OR WORTHLESS.

     As of December 31, 2002,  our cash balance was  approximately  $134,000 and
our outstanding  accounts payable and current liabilities totaled  approximately
$28.2 million.  If we do not receive  sufficient  financing we may (i) liquidate
assets, (ii) seek or be forced into bankruptcy and/or (iii) continue operations,
but incur  material  harm to our business,  operations  or financial  condition.
These measures  could have a material  adverse effect on our ability to continue
as a going concern. Additionally,  because of our financial condition, our Board
of Directors has a duty to our creditors that may conflict with the interests of
our  stockholders.  When a Delaware  corporation is operating in the vicinity of
insolvency,  the Delaware courts have imposed upon the corporation's directors a
fiduciary duty to the  corporation's  creditors.  If we cannot obtain additional
capital  and become  unable to pay our debts as they  become  due,  our Board of
Directors  may be  required  to make  decisions  that  favor  the  interests  of
creditors at the expense of our  stockholders to fulfill its fiduciary duty. For
instance, we may be required to preserve our assets to maximize the repayment of
debts  versus  employing  the assets to further  grow our  business and increase
shareholder value.

WE HAVE A  HISTORY  OF  LOSSES,  MAY  NEVER  GENERATE  POSITIVE  CASH  FLOW FROM
OPERATIONS  AND MAY  HAVE TO  FURTHER  REDUCE  OUR  COSTS BY  CURTAILING  FUTURE
OPERATIONS.

     For the year ended  December 31,  2002,  our net loss from  operations  was
$12.4 million and for the year ended  December 31, 2001,  our net loss was $46.3
million. Since inception,  we have incurred significant losses and negative cash
flow,  and as of  December  31,  2002 we had an  accumulated  deficit  of  $13.9
million.  Our ability to fund our capital requirements out of our available cash
and cash generated from our operations  depends on a number of factors.  Some of
these factors include the progress of our product development programs, the rate
of growth of our business,  and our products'  commercial  success. If we cannot
generate positive cash flow from operations,  we will have to continue to reduce
our costs and raise working  capital from other  sources.  These  measures could
include selling or consolidating certain operations, and delaying,  canceling or
scaling back product  development and marketing  programs.  These measures could
materially and adversely affect our ability to publish  successful  titles,  and
may not be enough to permit us to operate profitability, or at all.

WE DEPEND,  IN PART, ON EXTERNAL  FINANCING TO FUND OUR CAPITAL NEEDS. IF WE ARE
UNABLE TO OBTAIN SUFFICIENT  FINANCING ON FAVORABLE TERMS, WE MAY NOT BE ABLE TO
CONTINUE TO OPERATE OUR BUSINESS.

     Historically,  our business has not generated revenues sufficient to create
operating  profits.  To  supplement  our  revenues,  we have  funded our capital
requirements  with debt and equity  financing.  Our ability to obtain additional
equity or debt financing  depends on a number of factors including our financial
performance,  the overall conditions in our industry,  and our credit rating. If
we cannot raise  additional  capital on favorable  terms, we will have to reduce
our costs and sell or consolidate operations.

TITUS  INTERACTIVE  SA CONTROLS A MAJORITY  OF OUR VOTING  STOCK AND CAN ELECT A
MAJORITY OF OUR BOARD OF DIRECTORS AND PREVENT AN  ACQUISITION OF INTERPLAY THAT
IS FAVORABLE TO OUR OTHER STOCKHOLDERS.

     Titus  owns   approximately  67  million  shares  of  common  stock,  which
represents  approximately  71 percent of our outstanding  common stock, our only
voting security.  As a consequence,  Titus can control substantially all matters
requiring stockholder approval,  including the election of directors, subject to
our stockholders' cumulative voting rights, and the approval of mergers or other
business  combination  transactions.  At our 2001 and 2002  annual  stockholders
meetings,  Titus  exercised its voting power to elect a majority of our Board of
Directors.  Currently,  three of the seven members of our Board are employees or
directors of Titus, and Titus' Chief Executive Officer serves as our Chief


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<PAGE>


Executive  Officer and interim Chief Financial  Officer.  This  concentration of
voting  power could  discourage  or prevent a change in control  that  otherwise
could result in a premium in the price of our common stock.

A SIGNIFICANT  PERCENTAGE OF OUR REVENUES DEPEND ON OUR  DISTRIBUTORS'  DILIGENT
SALES EFFORTS AND OUR DISTRIBUTORS' AND RETAIL CUSTOMERS' TIMELY PAYMENTS TO US.

     Since February 1999, Virgin has been the exclusive  distributor for most of
our products in Europe, the Commonwealth of Independent  States,  Africa and the
Middle East. Our agreement with Virgin expires in February 2006. In August 2002,
we entered into a new  Distribution  Agreement  with  Vivendi  pursuant to which
Vivendi distributes  substantially all our products in North America, as well as
in South America, South Africa, Korea, Taiwan and Australia.  Our agreement with
Vivendi expires in August 2005.

     Virgin and Vivendi each have exclusive rights to distribute our products in
substantial  portions of the world.  As a consequence,  the  distribution of our
products  by Virgin and  Vivendi  will  generate a  substantial  majority of our
revenues,  and  proceeds  from Virgin and Vivendi from the  distribution  of our
products  will  constitute a substantial  majority of our operating  cash flows.
Therefore, our revenues and cash flows could fall significantly and our business
and financial results could suffer material harm if:

     o    either Virgin or Vivendi fails to deliver to us the full proceeds owed
          us from distribution of our products;

     o    either Virgin or Vivendi fails to effectively  distribute our products
          in their respective territories; or

     o    either  Virgin or  Vivendi  otherwise  fails to  perform  under  their
          respective distribution agreement.

     We typically sell to distributors and retailers on unsecured  credit,  with
terms that vary  depending  upon the customer and the nature of the product.  We
confront  the risk of  non-payment  from  our  customers,  whether  due to their
financial  inability to pay us, or otherwise.  In addition,  while we maintain a
reserve for  uncollectible  receivables,  the reserve may not be  sufficient  in
every  circumstance.  As a result,  a payment default by a significant  customer
could cause material harm to our business.

     In February 2003, Virgin Interactive  Entertainment  (Europe) Limited,, the
operating  subsidiary of Virgin filed for a Company  Voluntary  Arrangement,  or
CVA, a process of reorganization in the United Kingdom which must be approved by
Virgin's  creditors.  Virgin owed us approximately  $1.8 million at December 31,
2002.  As of March 28,  2003,  the CVA was rejected by Virgin's  creditors,  and
Virgin is presently  negotiating  with its creditors to propose a new CVA. We do
not know what  affect  approval  of the CVA will have on our  ability to collect
amounts  Virgin  owes us. If the new CVA is not  approved,  we expect  Virgin to
cease  operations and liquidate,  in which event we will most likely not receive
any amounts presently due us by Virgin,  and will not have a distributor for our
products  in  Europe  and  the  other  territories  in  which  Virgin  presently
distributes our products.

THE TERMINATION OF OUR EXISTING  CREDIT  AGREEMENT HAS RESULTED IN A SUBSTANTIAL
REDUCTION IN THE CASH AVAILABLE TO FINANCE OUR OPERATIONS.

     We have been operating  without a credit  facility since October 2001, when
LaSalle  Business Credit Inc., or "LaSalle",  notified us that our then existing
credit  agreement was being terminated as a result of our failure to comply with
some of the  agreement's  operating  covenants and we would no longer be able to
continue to draw on the credit  facility to fund future  operations.  Because we
depend  on a  credit  agreement  to fund  our  operations,  the lack of a credit
agreement has  significantly  impeded our ability to fund our operations and has
caused  material harm to our  business.  We will need to enter into a new credit
agreement to help fund our operations. There can be no assurance that we will be
able to enter  into a new  credit  agreement  or that if we do enter  into a new
credit agreement, it will be on terms favorable to us.


                                       31


<PAGE>


THE  UNPREDICTABILITY  OF FUTURE  RESULTS  MAY  CAUSE OUR STOCK  PRICE TO REMAIN
DEPRESSED OR TO DECLINE FURTHER.

     Our operating  results have fluctuated in the past and may fluctuate in the
future due to several  factors,  some of which are  beyond  our  control.  These
factors include:

     o    demand for our products and our competitors' products;

     o    the  size  and  rate  of  growth  of  the   market   for   interactive
          entertainment software;

     o    changes in personal computer and video game console platforms;

     o    the timing of  announcements of new products by us and our competitors
          and the number of new products and product enhancements released by us
          and our competitors;

     o    changes in our product mix;

     o    the number of our products that are returned; and

     o    the level of our  international  and original  equipment  manufacturer
          royalty and licensing net revenues.


     Many factors make it difficult to  accurately  predict the quarter in which
we will ship our products. Some of these factors include:

     o    the  uncertainties  associated  with  the  interactive   entertainment
          software development process;

     o    approvals required from content and technology licensors; and

     o    the timing of the release and market  penetration of new game hardware
          platforms.


     It is likely that in some future  periods our  operating  results  will not
meet  the  expectations  of  the  public  or  of  public  market  analysts.  Any
unanticipated  change in  revenues or  operating  results is likely to cause our
stock price to fluctuate since such changes reflect new information available to
investors  and  analysts.  New  information  may cause  securities  analysts and
investors  to  revalue  our stock and this may cause  fluctuations  in our stock
price.

THERE ARE HIGH FIXED COSTS TO DEVELOPING OUR PRODUCTS.  IF OUR REVENUES  DECLINE
BECAUSE  OF  DELAYS  IN  THE  INTRODUCTION  OF OUR  PRODUCTS,  OR IF  THERE  ARE
SIGNIFICANT DEFECTS OR DISSATISFACTION WITH OUR PRODUCTS,  OUR BUSINESS COULD BE
HARMED.

     For the year ended  December 31,  2002,  our net loss from  operations  was
$12.4  million.  We have  incurred  significant  net  losses in recent  periods,
including a net loss of $46.3 million for the year ended  December 31, 2001. Our
losses  stem  partly  from  the  significant  costs  we  incur  to  develop  our
entertainment  software  products.   Moreover,  a  significant  portion  of  our
operating expenses is relatively fixed, with planned  expenditures based largely
on sales  forecasts.  At the same time,  most of our products  have a relatively
short  life  cycle and sell for a limited  period of time  after  their  initial
release, usually less than one year.

     Relatively  fixed costs and short  windows in which to earn  revenues  mean
that  sales  of new  products  are  important  in  enabling  us to  recover  our
development costs, to fund operations and to replace declining net revenues from
older products.  Our failure to accurately assess the commercial  success of our
new products,  and our delays in releasing  new  products,  could reduce our net
revenues and our ability to recoup development and operational costs.

IF OUR PRODUCTS DO NOT ACHIEVE BROAD MARKET  ACCEPTANCE,  OUR BUSINESS  COULD BE
HARMED SIGNIFICANTLY.

     Consumer  preferences  for  interactive  entertainment  software are always
changing and are extremely difficult to predict.  Historically,  few interactive
entertainment  software  products have  achieved  continued  market  acceptance.
Instead,  a limited number of releases have become "hits" and have accounted for
a substantial  portion of revenues in our industry.  Further,  publishers with a
history of producing hit titles have enjoyed a significant marketing advantage


                                       32


<PAGE>


because of their heightened brand  recognition and consumer  loyalty.  We expect
the  importance of introducing  hit titles to increase in the future.  We cannot
assure you that our new products will achieve significant market acceptance,  or
that we will be able to sustain this acceptance for a significant length of time
if we achieve it.

     We  believe  that  our  future  revenue  will  continue  to  depend  on the
successful  production of hit titles on a continuous basis. Because we introduce
a relatively  limited  number of new products in a given period,  the failure of
one or more of these products to achieve market  acceptance could cause material
harm to our business. Further, if our products do not achieve market acceptance,
we could be forced to accept  substantial  product returns or grant  significant
pricing  concessions to maintain our relationship  with retailers and our access
to distribution channels. If we are forced to accept significant product returns
or grant  significant  pricing  concessions,  our business and financial results
could suffer material harm.

OUR RELIANCE ON THIRD PARTY  SOFTWARE  DEVELOPERS  SUBJECTS US TO THE RISKS THAT
THESE  DEVELOPERS  WILL NOT  SUPPLY US WITH HIGH  QUALITY  PRODUCTS  IN A TIMELY
MANNER OR ON ACCEPTABLE TERMS.

     Third party interactive  entertainment  software developers develop many of
our software products.  Since we depend on these developers in the aggregate, we
remain subject to the following risks:

     o    limited financial resources may force developers out of business prior
          to  their  completion  of  projects  for  us or  require  us  to  fund
          additional costs; and

     o    the possibility  that developers  could demand that we renegotiate our
          arrangements with them to include new terms less favorable to us.


     Increased  competition for skilled third party software developers also has
compelled  us to agree to make advance  payments on  royalties  and to guarantee
minimum royalty payments to intellectual property licensors and game developers.
Moreover,  if the  products  subject to these  arrangements,  are not  delivered
timely, or with acceptable  quality, or do not generate sufficient sales volumes
to recover  these royalty  advances and  guaranteed  payments,  we would have to
write-off  unrecovered  portions of these  payments,  which could cause material
harm to our business and financial results.

IF WE FAIL TO ANTICIPATE  CHANGES IN VIDEO GAME  PLATFORMS AND  TECHNOLOGY,  OUR
BUSINESS MAY BE HARMED.

     The  interactive  entertainment  software  industry  is  subject  to  rapid
technological  change.  New  technologies  could render our current  products or
products in development obsolete or unmarketable. Some of these new technologies
include:

     o    operating systems such as Microsoft Windows XP;

     o    technologies that support games with multi-player and online features;

     o    new media formats such as online  delivery and digital video disks, or
          DVDs; and

     o    recent   releases  of  new  video  game  consoles  such  as  the  Sony
          Playstation 2, the Nintendo Gamecube and the Microsoft Xbox.

     We must  continually  anticipate  and assess the  emergence  of, and market
acceptance of, new interactive  entertainment software platforms well in advance
of the time the platform is introduced to consumers. Because product development
cycles are difficult to predict,  we must make substantial  product  development
and other  investments in a particular  platform well in advance of introduction
of the platform.  If the platforms for which we develop new software products or
modify  existing  products  are not  released on a timely basis or do not attain
significant  market  penetration,  or if we  develop  products  for a delayed or
unsuccessful  platform, our business and financial results could suffer material
harm.

     New interactive  entertainment software platforms and technologies also may
undermine  demand for  products  based on older  technologies.  Our success will
depend in part on our  ability  to adapt our  products  to those  emerging  game
platforms that gain widespread consumer  acceptance.  Our business and financial
results may suffer material harm if we fail to:


                                       33


<PAGE>


     o    anticipate  future  technologies  and platforms and the rate of market
          penetration of those technologies and platforms;

     o    obtain  licenses to develop  products for those platforms on favorable
          terms; or

     o    create software for those new platforms on a timely basis.


WE COMPETE WITH A NUMBER OF COMPANIES THAT HAVE SUBSTANTIALLY GREATER FINANCIAL,
MARKETING AND PRODUCT DEVELOPMENT RESOURCES THAN WE DO.

     The greater  resources  of our  competitors  permit them to pay higher fees
than we can to licensors of desirable  motion  picture,  television,  sports and
character properties and to third party software developers.

     We compete  primarily with other publishers of personal  computer and video
game console interactive entertainment software. Significant competitors include
Electronic  Arts  Inc.  and  Activision,  Inc.  Many of these  competitors  have
substantially  greater financial,  technical  resources,  larger customer bases,
longer  operating  histories,  greater  name  recognition  and more  established
relationships in the industry than we do.

     In addition, integrated video game console hardware/software companies such
as Sony Computer  Entertainment,  Nintendo,  and Microsoft  Corporation  compete
directly  with us in the  development  of software  titles for their  respective
platforms and they have  generally  discretionary  approval  authority  over the
products  we  develop  for  their  platforms.  Large  diversified  entertainment
companies,  such as The  Walt  Disney  Company,  many of which  own  substantial
libraries  of  available  content  and  have  substantially   greater  financial
resources,  may decide to compete  directly  with us or to enter into  exclusive
relationships  with our competitors.  We also believe that the overall growth in
the use of the Internet and online  services by consumers may pose a competitive
threat if customers and potential  customers  spend less of their available home
personal computing time using interactive  entertainment  software and more time
using the Internet and online services.

OUR  CUSTOMERS  HAVE THE ABILITY TO RETURN OUR  PRODUCTS  OR TO RECEIVE  PRICING
CONCESSIONS AND SUCH RETURNS AND  CONCESSIONS  COULD REDUCE OUR NET REVENUES AND
RESULTS OF OPERATIONS.

     We are exposed to the risk of product returns and pricing  concessions with
respect to our distributors and retailers.  We allow  distributors and retailers
to  return  defective,  shelf-worn  and  damaged  products  in  accordance  with
negotiated terms, and also offer a 90-day limited warranty to our end users that
our products will be free from manufacturing  defects.  In addition,  we provide
pricing  concessions to our customers to manage our customers'  inventory levels
in the distribution  channel.  We could be forced to accept substantial  product
returns and provide  pricing  concessions  to maintain  our  relationships  with
retailers and our access to  distribution  channels.  Product return and pricing
concessions that exceed our reserves have caused material harm to our results of
operations  in the  recent  past  and may do so  again  in the  future.  We have
mitigated this risk in North America under the new distribution arrangement with
Vivendi, as sales will be guaranteed with no offset against returns.

WE HAVE RELIED ON LOANS FROM TITUS  INTERACTIVE S.A. IN THE PAST TO ENABLE US TO
MEET OUR SHORT-TERM  CASH NEEDS.  TITUS  INTERACTIVE  S.A.'S  CURRENT  FINANCIAL
CONDITION  MAY RESULT IN OUR  INABILITY TO SECURE CASH TO FUND  OPERATIONS,  MAY
LEAD TO A SALE BY TITUS OF SHARES IT HOLDS IN US, AND MAY MAKE A SALE OF US MORE
DIFFICULT.

     On March 21, 2003, due to Titus' lack of sufficient  operating  capital and
need for immediate cash, we agreed to loan Titus Software Corp., a subsidiary of
Titus,  the sum of $226,000,  with this amount  secured by a  percentage  of our
shares held by Titus  pursuant to a stock  pledge  agreement  and certain  other
collateral  pursuant to a security  agreement.  Our Board of  Directors  further
authorized an additional  $500,000 loan to Titus, on the condition that Titus is
able to provide  sufficient  security that is  acceptable  to the Board.  In the
past, Titus, our majority shareholder,  has loaned us money to enable us to meet
our short-term cash needs. Now it appears that, at least in the near term, Titus
will  not  have  the  ability  to  support  us  should  we find  ourselves  with
insufficient  cash to fund operations.  Further,  should Titus ever be forced to
cease operations due to lack of capital,  that situation could lead to a sale by
Titus, or its  administrator or other  representative  in bankruptcy,  of shares
Titus  holds in us,  thereby  potentially  reducing  the value of our shares and
market


                                       34


<PAGE>


capitalization.  Such a sale and  dispersion of shares to multiple  stockholders
further could have the effect of making any business  combination,  or a sale of
all of our shares as a whole, more difficult.

WE CONTINUE TO OPERATE WITHOUT A CHIEF FINANCIAL  OFFICER,  WHICH MAY AFFECT OUR
ABILITY TO MANAGE OUR FINANCIAL OPERATIONS.

     Our former  Chief  Financial  Officer  ("CFO")  Jeff  Gonzalez  resigned in
October 2002. Following Mr. Gonzalez'  resignation,  CEO Herve Caen also assumed
the position of  interim-CFO  for a period of 5 months  until March 3, 2003,  at
which time we hired a replacement  CFO. On March 21, 2003,  our new CFO resigned
effectively immediately.  We are presently without a CFO, and Mr. Caen has again
assumed the position of interim-CFO.

WE DEPEND UPON THIRD PARTY LICENSES OF CONTENT FOR MANY OF OUR PRODUCTS.

     Many of our current and planned products, such as our Advanced Dungeons and
Dragons  titles,  are lines based on original ideas or  intellectual  properties
licensed from other parties.  From time to time we may not be in compliance with
certain terms of these license  agreements,  and our ability to market  products
based on these licenses may be negatively impacted. Moreover, disputes regarding
these  license  agreements  may also  negatively  impact  our  ability to market
products based on these licenses. Additionally, we may not be able to obtain new
licenses,  or maintain or renew existing  licenses,  on commercially  reasonable
terms,  if at all. If we are unable to maintain  current  licenses or obtain new
licenses for the underlying content that we believe offers the greatest consumer
appeal,  we would either have to seek  alternative,  potentially  less appealing
licenses, or release products without the desired underlying content,  either of
which  could  limit  our  commercial  success  and  cause  material  harm to our
business.

WE MAY FAIL TO MAINTAIN EXISTING LICENSES,  OR OBTAIN NEW LICENSES FROM HARDWARE
COMPANIES  ON  ACCEPTABLE  TERMS OR TO OBTAIN  RENEWALS  OF  EXISTING  OR FUTURE
LICENSES FROM LICENSORS.

     We are required to obtain a license to develop and distribute  software for
each of the  video  game  console  platforms  for  which  we  develop  products,
including a separate  license for each of North  America,  Japan and Europe.  We
have  obtained  licenses  to  develop  software  for the  Sony  PlayStation  and
PlayStation 2, as well as video game  platforms from Nintendo and Microsoft.  In
addition,  each of these  companies  has the  right  to  approve  the  technical
functionality  and  content  of  our  products  for  their  platforms  prior  to
distribution.  Due to the competitive  nature of the approval  process,  we must
make significant product development  expenditures on a particular product prior
to the time we seek these  approvals.  Our  inability to obtain these  approvals
could cause material harm to our business.

OUR SALES VOLUME AND THE SUCCESS OF OUR PRODUCTS  DEPEND IN PART UPON THE NUMBER
OF PRODUCT  TITLES  DISTRIBUTED  BY HARDWARE  COMPANIES FOR USE WITH THEIR VIDEO
GAME PLATFORMS.

     Even after we have obtained licenses to develop and distribute software, we
depend upon hardware companies such as Sony Computer Entertainment, Nintendo and
Microsoft,  or their designated licensees,  to manufacture the CD-ROM or DVD-ROM
media  discs  that  contain  our  software.  These  discs  are  then  run on the
companies' video game consoles. This process subjects us to the following risks:

     o    we are required to submit and pay for minimum numbers of discs we want
          produced  containing  our software,  regardless of whether these discs
          are sold,  shifting onto us the financial  risk  associated  with poor
          sales of the software developed by us; and

     o    reorders of discs are expensive,  reducing the gross margin we receive
          from  software  releases  that  have  stronger  sales  than  initially
          anticipated and that require the production of additional discs.

     As a result,  video game console  hardware  licensors can shift onto us the
risk  that  if  actual   retailer  and  consumer   demand  for  our  interactive
entertainment software differs from our forecasts,  we must either bear the loss
from  overproduction  or the lower per-unit  revenues  associated with producing
additional discs.  Either situation could lead to material reductions in our net
revenues.

WE HAVE A LIMITED NUMBER OF KEY PERSONNEL.  THE LOSS OF ANY SINGLE KEY PERSON OR
THE  FAILURE TO HIRE AND  INTEGRATE  CAPABLE  NEW KEY  PERSONNEL  COULD HARM OUR
BUSINESS.


                                       35


<PAGE>


     Our interactive entertainment software requires extensive time and creative
effort to produce and market. The production of this software is closely tied to
the continued service of our key product design,  development,  sales, marketing
and management  personnel.  Our future success also will depend upon our ability
to  attract,   motivate  and  retain   qualified   employees  and   contractors,
particularly software design and development  personnel.  Competition for highly
skilled  employees  is  intense,  and we may fail to  attract  and  retain  such
personnel.  Alternatively,  we may incur increased costs in order to attract and
retain skilled  employees.  Our failure to retain the services of key personnel,
including  competent executive  management,  or to attract and retain additional
qualified employees could cause material harm to our business.

     Our international  sales expose us to risks of unstable foreign  economies,
difficulties  in  collection  of  revenues,  increased  costs  of  administering
international business transactions and fluctuations in exchange rates.

     Our net revenues from  international  sales accounted for  approximately 13
percent and 27 percent of our total net  revenues  for years ended  December 31,
2002 and 2001,  respectively.  Most of these revenues come from our distribution
relationship  with  Virgin,  pursuant  to  which  Virgin  became  the  exclusive
distributor for most of our products in Europe,  the Commonwealth of Independent
States, Africa and the Middle East. To the extent our resources allow, we intend
to  continue  to expand our direct and  indirect  sales,  marketing  and product
localization activities worldwide.

     Our international  sales and operations are subject to a number of inherent
risks, including the following:

     o    recessions in foreign economies may reduce purchases of our products;

     o    translating and localizing products for international markets is time-
          consuming and expensive;

     o    accounts  receivable  are more  difficult to collect and when they are
          collectible, they may take longer to collect;

     o    regulatory requirements may change unexpectedly;

     o    it is difficult and costly to staff and manage foreign operations;

     o    fluctuations in foreign currency exchange rates;

     o    political and economic instability;

     o    our dependence on Virgin as our exclusive  distributor in Europe,  the
          Commonwealth of Independent States, Africa and the Middle East; and

     o    delays in market penetration of new platforms in foreign territories.

     These factors may cause material  declines in our future  international net
revenues and, consequently, could cause material harm to our business.

     A significant,  continuing  risk we face from our  international  sales and
operations  stems from currency  exchange rate  fluctuations.  Because we do not
engage in currency hedging  activities,  fluctuations in currency exchange rates
have caused significant  reductions in our net revenues from international sales
and licensing due to the loss in value upon conversion into U.S. Dollars. We may
suffer similar losses in the future.

INADEQUATE  INTELLECTUAL PROPERTY PROTECTIONS COULD PREVENT US FROM ENFORCING OR
DEFENDING OUR PROPRIETARY TECHNOLOGY.

     We regard our software as proprietary  and rely on a combination of patent,
copyright,   trademark   and  trade  secret  laws,   employee  and  third  party
nondisclosure agreements and other methods to protect our proprietary rights. We
own or license  various  copyrights and  trademarks,  and hold the rights to one
patent application related to one of our titles.  While we provide  "shrinkwrap"
license  agreements or limitations on use with our software,  it is uncertain to
what extent these agreements and limitations are enforceable.  We are aware that
some unauthorized copying occurs within the computer software industry, and if a
significantly   greater  amount  of  unauthorized  copying  of  our  interactive
entertainment  software  products were to occur, it could cause material harm to
our business and financial results.


                                       36


<PAGE>


     Policing unauthorized use of our products is difficult, and software piracy
can be a persistent problem,  especially in some international markets. Further,
the laws of some countries  where our products are or may be distributed  either
do not protect our products and intellectual  property rights to the same extent
as the laws of the United States,  or are weakly  enforced.  Legal protection of
our rights may be ineffective in such countries, and as we leverage our software
products using emerging  technologies  such as the Internet and online services,
our ability to protect our intellectual  property rights and to avoid infringing
others'  intellectual  property  rights may diminish.  We cannot assure you that
existing  intellectual  property laws will provide  adequate  protection for our
products in connection with these emerging technologies.

WE MAY UNINTENTIONALLY  INFRINGE ON THE INTELLECTUAL  PROPERTY RIGHTS OF OTHERS,
WHICH COULD EXPOSE US TO SUBSTANTIAL DAMAGES OR RESTRICT OUR OPERATIONS.

     As the number of interactive  entertainment software products increases and
the  features  and  content of these  products  continue  to  overlap,  software
developers  increasingly may become subject to infringement claims.  Although we
believe  that we make  reasonable  efforts to ensure  that our  products  do not
violate the  intellectual  property rights of others,  it is possible that third
parties   still  may  claim   infringement.   From  time  to  time,  we  receive
communications  from third  parties  regarding  such claims.  Existing or future
infringement  claims against us, whether valid or not, may be time consuming and
expensive to defend.  Intellectual  property litigation or claims could force us
to do one or more of the following:

     o    cease  selling,  incorporating  or using  products  or  services  that
          incorporate the challenged intellectual property;

     o    obtain  a  license  from  the  holder  of the  infringed  intellectual
          property,  which license, if available at all, may not be available on
          commercially favorable terms; or

     o    redesign our interactive entertainment software products,  possibly in
          a manner that reduces their commercial appeal.

     Any of these actions may cause  material harm to our business and financial
results.

OUR SOFTWARE MAY BE SUBJECT TO GOVERNMENTAL RESTRICTIONS OR RATING SYSTEMS.

     Legislation is  periodically  introduced at the state and federal levels in
the United  States and in foreign  countries to establish a system for providing
consumers with information about graphic violence and sexually explicit material
contained in interactive  entertainment  software  products.  In addition,  many
foreign  countries  have laws that  permit  governmental  entities to censor the
content  of  interactive  entertainment  software.  We  believe  that  mandatory
government-run  rating systems eventually will be adopted in many countries that
are  significant  markets  or  potential  markets  for our  products.  We may be
required  to modify our  products to comply  with new  regulations,  which could
delay the release of our products in those countries.

     Due to the  uncertainties  regarding such rating systems,  confusion in the
marketplace  may occur,  and we are unable to predict what effect,  if any, such
rating  systems  would have on our  business.  In addition to such  regulations,
certain  retailers  have in the  past  declined  to stock  some of our  products
because they believed that the content of the packaging  artwork or the products
would be offensive to the retailer's  customer base. While to date these actions
have not caused material harm to our business, we cannot assure you that similar
actions by our  distributors or retailers in the future would not cause material
harm to our business.

SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY MAKE TAKEOVER  ATTEMPTS  DIFFICULT,
WHICH COULD  DEPRESS THE PRICE OF OUR STOCK AND INHIBIT OUR ABILITY TO RECEIVE A
PREMIUM PRICE FOR YOUR SHARES.

     Our  Board of  Directors  has the  authority,  without  any  action  by the
stockholders,  to issue up to 5,000,000 shares of preferred stock and to fix the
rights  and  preferences  of  such  shares.  In  addition,  our  certificate  of
incorporation and bylaws contain provisions that:


                                       37


<PAGE>


     o    eliminate the ability of stockholders to act by written consent and to
          call a special meeting of stockholders; and

     o    require  stockholders  to give advance notice if they wish to nominate
          directors or submit proposals for stockholder approval.

     These provisions may have the effect of delaying, deferring or preventing a
change in control,  may  discourage  bids for our common stock at a premium over
its market price and may adversely  affect the market price,  and the voting and
other rights of the holders, of our common stock.

OUR STOCK PRICE IS VOLATILE.

     The trading price of our common stock has  previously  fluctuated and could
continue  to  fluctuate  in  response  to factors  that are  largely  beyond our
control,  and  which  may  not  be  directly  related  to the  actual  operating
performance of our business, including:

     o    general conditions in the computer, software, entertainment,  media or
          electronics industries;

     o    changes in earnings estimates or buy/sell recommendations by analysts;

     o    investor  perceptions and expectations  regarding our products,  plans
          and strategic position and those of our competitors and customers; and

     o    price and trading  volume  volatility of the broader  public  markets,
          particularly the high technology sections of the market.

WE DO NOT PAY DIVIDENDS ON OUR COMMON STOCK.

     We have  not  paid  any  cash  dividends  on our  common  stock  and do not
anticipate paying dividends in the foreseeable future.


Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not have any  derivative  financial  instruments  as of December  31,
2002.  However, we are exposed to certain market risks arising from transactions
in the normal course of business,  principally the risk associated with interest
rate fluctuations on any revolving line of credit agreement we maintain, and the
risk associated with foreign currency fluctuations. We do not hedge our interest
rate risk, or our risk associated with foreign currency fluctuations.

     Interest Rate Risk

     Our  interest  rate  risk is due to our  working  capital  lines of  credit
typically  having an  interest  rate based on either  the  bank's  prime rate or
LIBOR.  Currently,  we  do  not  have  a  line  of  credit,  but  we  anticipate
establishing  a line of credit in the future.  A change in interest  rates would
not have an effect on our interest expense on the Secured Convertible Promissory
Note because this instrument bears a fixed rate of interest.

     Foreign Currency Risk

     Our  earnings  are  affected  by  fluctuations  in the value of our foreign
subsidiary's  functional  currency,  and by  fluctuations  in the  value  of the
functional  currency of our  foreign  receivables,  primarily  from  Virgin.  We
recognized  losses of $104,000,  $237,000  and  $935,000  during the years ended
December 31, 2002,  2001 and 2000,  respectively,  primarily in connection  with
foreign  exchange  fluctuations  in the timing of payments  received on accounts
receivable from Virgin.


                                       38


<PAGE>


Item 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Company's  Consolidated  Financial Statements begin on page F-1 of this
report.


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

     None.


                                    PART III


Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information required by this Item 10 will appear in our proxy statement for
the  2003  Annual  Meeting  of  Stockholders,  and  is  incorporated  herein  by
reference.

Item 11.   EXECUTIVE COMPENSATION

     Information required by this Item 11 will appear in our proxy statement for
the  2003  Annual  Meeting  of  Stockholders,  and  is  incorporated  herein  by
reference.

Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information required by this Item 12 will appear in our proxy statement for
  the 2003  Annual  Meeting  of  Stockholders,  and is  incorporated  herein  by
  reference.

Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information required by this Item 13 will appear in our proxy statement for
the  2003  Annual  Meeting  of  Stockholders,  and  is  incorporated  herein  by
reference.

Item 14.   CONTROLS AND PROCEDURES

     Within  the 90 days  prior to the  filing  date of this  report,  our Chief
Executive  Officer and interim Chief  Financial  Officer,  Herve Caen,  with the
participation of our management,  carried out an evaluation of the effectiveness
of our disclosure  controls and procedures pursuant to Exchange Act Rule 13a-14.
Based  upon that  evaluation,  Mr.  Caen  believes  that,  as of the date of the
evaluation, our disclosure controls and procedures are effective in making known
to  him  material   information  relating  to  us  (including  our  consolidated
subsidiaries) required to be included in this report.

     Disclosure  controls  and  procedures,  no  matter  how well  designed  and
implemented,  can provide  only  reasonable  assurance  of achieving an entity's
disclosure  objectives.  The likelihood of achieving such objectives is affected
by limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision-making can be faulty and that breakdowns in
internal  control can occur  because of human  failures such as simple errors or
mistakes or intentional circumvention of the established process.

     There were no  significant  changes in our  internal  controls  or in other
factors that could  significantly  affect internal controls,  known to Mr. Caen,
subsequent to the date of the evaluation.


                                       39


<PAGE>


                                     PART IV

Item 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


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

     (1) Financial Statements

         The list of financial statements contained in the accompanying Index to
Consolidated Financial Statements covered by the Reports of Independent Auditors
is herein incorporated by reference.

     (2) Financial Statement Schedules

         The list of financial statement schedules contained in the accompanying
Index to Consolidated Financial Statements covered by the Reports of Independent
Auditors is herein incorporated by reference.

         All other  schedules are omitted because they are not applicable or the
required information is included in the Consolidated Financial Statements or the
Notes thereto.

     (3) Exhibits

         The list of  exhibits  on the  accompanying  Exhibit  Index  is  herein
incorporated by reference.

(b) Reports on Form 8-K.

         None.


                                       40


<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereto duly authorized,  at Irvine,  California
this 30th day of March 2003.

                                    INTERPLAY ENTERTAINMENT CORP.


                                              /s/ Herve Caen
                                    By:___________________________________
                                              Herve Caen
                                              Its:  Chief Executive Officer and
                                              Interim Chief Financial Officer
                                              (Principal Executive and
                                              Financial and Accounting Officer)

                                POWER OF ATTORNEY

     The undersigned directors and officers of Interplay  Entertainment Corp. do
hereby  constitute  and appoint Herve Caen with full power of  substitution  and
resubstitution, as their true and lawful attorneys and agents, to do any and all
acts and  things  in our name and  behalf in our  capacities  as  directors  and
officers and to execute any and all  instruments  for us and in our names in the
capacities indicated below, which said attorney and agent, may deem necessary or
advisable to enable said corporation to comply with the Securities  Exchange Act
of  1934,  as  amended  and  any  rules,  regulations  and  requirements  of the
Securities  and Exchange  Commission,  in connection  with this Annual Report on
Form 10-K, including specifically but without limitation, power and authority to
sign for us or any of us in our names in the capacities indicated below, any and
all amendments  (including  post-effective  amendments) hereto, and we do hereby
ratify and confirm all that said attorneys and agents,  or either of them, shall
do or cause to be done by virtue hereof.

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this Annual Report and Form 10-K has been signed below by the following
persons  on  behalf of the  Registrant  and in the  capacities  and on the dates
indicated.

Signature                      Title                              Date
---------                      -----                              ----


  /s/ Herve Caen
_________________________      Chief Executive Officer,           March 30, 2003
Herve Caen                     Interim Chief Financial Officer
                               and Director (Principal
                               Executive and Financial and
                               Accounting Officer)

  /s/ Nathan Peck
_________________________      Director                           March 30, 2003
Nathan Peck


  /s/ Eric Caen
_________________________      Director                           March 30, 2003
Eric Caen


                                       41


<PAGE>



  /s/ R. Parker Jones, Jr.
_________________________      Director                           March 30, 2003
R. Parker Jones, Jr.


  /s/ Maren Stenseth
_________________________      Director                           March 30, 2003
Maren Stenseth


  /s/ Michel H. Vulpillat
_________________________      Director                           March 30, 2003
Michel H. Vulpillat


  /s/ Michel Welter
_________________________      Director                           March 30, 2003
Michel Welter


                                       42


<PAGE>


                                  EXHIBIT INDEX

EXHIBIT
  NO.                                 DESCRIPTION
-------  -----------------------------------------------------------------------
2.1      Agreement and Plan of  Reorganization  and Merger,  dated May 29, 1998,
         between the Company and Interplay Productions.  (incorporated herein by
         reference  to Exhibit 2.1 to the  Company's  Registration  Statement on
         Form S-1, No. 333-48473 (the "Form S-1"))
2.2      Stock  Purchase  Agreement  by  and  between  Infogrames,  Inc.,  Shiny
         Entertainment  Inc.,  David Perry,  Shiny Group,  Inc.,  and  Interplay
         Entertainment  Corp.  dated  April  23,  2002;  incorporated  herein by
         reference to Exhibit 2.1 to the Company's Form 8-K filed May 6, 2002.
2.3      Amendment  Number 1 to the  Stock  Purchase  Agreement  by and  between
         Interplay Entertainment Corp.,  Infogrames,  Inc., Shiny Entertainment,
         Inc.,  David  Perry,  and Shiny  Group,  Inc.  dated  April  30,  2002;
         incorporated  herein by reference to Exhibit 2.2 to the Company's  Form
         8-K filed May 6, 2002.
3.1      Amended and  Restated  Certificate  of  Incorporation  of the  Company.
         (incorporated herein by reference to Exhibit 3.1 to the Form S-1)
3.2      Certificate of Designation of Preferences of Series A Preferred  Stock,
         as filed  with the  Delaware  Secretary  of  State on April  14,  2000.
         (incorporated  herein by  reference  to Exhibit  10.32 to  Registrant's
         Annual Report on Form 10-K for the year ended December 31, 1999.)
3.3      Amended and  Restated  Bylaws of the Company.  (incorporated  herein by
         reference to Exhibit 3.2 to the Form S-1)
4.1      Specimen  form of stock  certificate  for Common  Stock.  (incorporated
         herein by reference to Exhibit 4.1 to the Form S-1)
4.2      Shareholders'  Agreement among MCA Inc., the Company,  and Brian Fargo,
         dated March 30, 1994, as amended.  (incorporated herein by reference to
         Exhibit 4.2 to the Form S-1)
4.3      Investors'  Rights Agreement dated October 10, 1996, as amended,  among
         the Company and holders of its  Subordinated  Secured  Promissory Notes
         and  Warrants  to  purchase  Common  Stock.   (incorporated  herein  by
         reference to Exhibit 4.3 to the Form S-1)
10.1     Amended  and  Restated  1997 Stock  Incentive  Plan (the "1997  Plan").
         (incorporated herein by reference to Exhibit 10.1 to the Form S-1)
10.2     Form  of  Stock  Option   Agreement   pertaining   to  the  1997  Plan.
         (incorporated herein by reference to Exhibit 10.2 to the Form S-1)
10.3     Form of  Restricted  Stock  Purchase  Agreement  pertaining to the 1997
         Plan.  (incorporated  herein by  reference  to Exhibit 10.3 to the Form
         S-1)
10.4     Incentive Stock Option and  Nonqualified  Stock Option  Plan--1994,  as
         amended (the "1994 Plan"). (incorporated herein by reference to Exhibit
         10.4 to the Form S-1)
10.5     Form of  Nonqualified  Stock Option  Agreement  pertaining  to the 1994
         Plan.  (incorporated  herein by  reference  to Exhibit 10.5 to the Form
         S-1)
10.6     Incentive Stock Option,  Nonqualified Stock Option and Restricted Stock
         Purchase Plan--1991, as amended (the "1991 Plan"). (incorporated herein
         by rference to Exhibit 10.6 to the Form S-1)
10.7     Form of Incentive Stock Option  Agreement  pertaining to the 1991 Plan.
         (incorporated herein by reference to Exhibit 10.7 to the Form S-1)
10.8     Form of  Nonqualified  Stock Option  Agreement  pertaining  to the 1991
         Plan.  (incorporated  herein by  reference  to Exhibit 10.8 to the Form
         S-1)
10.9     Employee  Stock  Purchase  Plan.  (incorporated  herein by reference to
         Exhibit 10.10 to the Form S-1)
10.10    Form of  Indemnification  Agreement  for Officers and  Directors of the
         Company. (incorporated herein by reference to Exhibit 10.11 to the Form
         S-1)
10.11    Von Karman  Corporate  Center Office Building Lease between the Company
         and Aetna Life Insurance Company of Illinois,  dated September 8, 1995,
         together with amendments thereto.  (incorporated herein by reference to
         Exhibit 10.14 to the Form S-1)
10.12    Loan and Security  Agreement among Greyrock Business Credit, a Division
         of NationsCredit Commercial Corporation ("Greyrock"),  the Company, and
         Interplay OEM, Inc. ("Interplay OEM"), dated June 16, 1997, as amended,
         with Schedules.  (incorporated  herein by reference to Exhibit 10.15 to
         the Form S-1)
10.13    Letter of Credit  Agreement among  Greyrock,  the Company and Interplay
         OEM,  dated  September 10, 1997.  (incorporated  herein by reference to
         Exhibit 10.18 to the Form S-1)


                                       43


<PAGE>


10.14    Letter of Credit  Agreement among  Greyrock,  the Company and Interplay
         OEM,  dated  September 24, 1997.  (incorporated  herein by reference to
         Exhibit 10.19 to the Form S-1)
10.15    Master  Equipment Lease between  Brentwood  Credit  Corporation and the
         Company, dated March 28, 1996, with Schedules.  (incorporated herein by
         reference to Exhibit 10.20 to the Form S-1)
10.16    Master  Equipment Lease  Agreement  between  General  Electric  Capital
         Computer Leasing Corporation and the Company,  dated December 14, 1994,
         as  amended,  with  Schedules.  (incorporated  herein by  reference  to
         Exhibit 10.22 to the Form S-1)
10.17    Confidential  License  Agreement  for  Nintendo  64 Video Game  System,
         between the Company and  Nintendo of America,  Inc.,  dated  October 7,
         1997.  (Portions  omitted and filed  separately with the Securities and
         Exchange Commission pursuant to a request for confidential  treatment.)
         (incorporated herein by reference to Exhibit 10.23 to the Form S-1)
10.18    PlayStation License Agreement,  between Sony Computer  Entertainment of
         America and the Company, dated February 16, 1995. (Portions omitted and
         filed separately with the Securities and Exchange  Commission  pursuant
         to a  request  for  confidential  treatment.)  (incorporated  herein by
         reference to Exhibit 10.24 to the Form S-1)
10.19    Master  Merchandising  License  Agreement  between  Paramount  Pictures
         Corporation  and the  Company,  dated  as of June 16,  1992.  (Portions
         omitted  and  filed   separately   with  the  Securities  and  Exchange
         Commission   pursuant  to  a  request  for   confidential   treatment.)
         (incorporated herein by reference to Exhibit 10.25 to the Form S-1)
10.20    Heads of  Agreement  concerning  Sales  and  Distribution  between  the
         Company and  Activision,  Inc.,  dated  November 19,  1998,  as amended
         (incorporated  herein by  reference  to Exhibit  10.23 to  Registrant's
         Annual  Report  on Form 10-K for the year  ended  December  31,  1998.)
         (Portions omitted and filed separately with the Securities and Exchange
         Commission pursuant to a request for confidential treatment.)
10.21    Stock Purchase  Agreement between the Company and Titus Interactive SA,
         dated March 18, 1999 (incorporated herein by reference to Exhibit 10.24
         to Registrant's  Annual Report on Form 10-K for the year ended December
         1998.)
10.22    International  Distribution  Agreement  between  the Company and Virgin
         Interactive    Entertainment   Limited,   dated   February   10,   1999
         (incorporated  herein by  reference  to Exhibit  10.26 to  Registrant's
         Annual  Report  on Form 10-K for the year  ended  December  31,  1998.)
         (Portions omitted and filed separately with the Securities and Exchange
         Commission pursuant to a request for confidential treatment.)
10.23    Termination   Agreement   among   the   Company,   Virgin   Interactive
         Entertainment  Limited,  VIE Acquisition Group, LLC and VIE Acquisition
         Holdings,   LLC,  dated  February  10,  1999  (incorporated  herein  by
         reference to Exhibit 10.27 to  Registrant's  Annual Report on Form 10-K
         for the year ended  December  31,  1998.)  (Portions  omitted and filed
         separately  with the Securities and Exchange  Commission  pursuant to a
         request for confidential treatment.)
10.24    Amendment to Loan Documents among the Company,  Interplay OEM, Inc. and
         Greyrock,  dated March 18, 1999  (incorporated  herein by  reference to
         Exhibit 10.28 to  Registrant's  Annual Report on Form 10-K for the year
         ended December 31, 1998.)
10.25    Fifth  Amendment  to  Lease  for Von  Karman  Corporate  Center  Office
         Building between the Company and Arden Realty Finance IV, L.L.C., dated
         December 4, 1998 (incorporated  herein by reference to Exhibit 10.29 to
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1998.)
10.26    Stock Purchase Agreement dated July 20, 1999, by and among the Company,
         Titus  Interactive  S.A.,  and  Brian  Fargo  (incorporated  herein  by
         reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q
         for the quarter ended June 30, 1999.)
10.27    Exchange  Agreement dated July 20, 1999, by and among Titus Interactive
         S.A.,  Brian Fargo,  Herve Caen and Eric Caen  (incorporated  herein by
         reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q
         for the quarter ended June 30, 1999.)
10.28    Employment  Agreement between the Company and Herve Caen dated November
         9,  1999   (incorporated   herein  by  reference  to  Exhibit  10.3  to
         Registrant's  Quarterly  Report  on Form  10-Q  for the  quarter  ended
         September 30, 1999.)
10.29    Employment Agreement between the Company and Brian Fargo dated November
         9,  1999   (incorporated   herein  by  reference  to  Exhibit  10.2  to
         Registrant's  Quarterly  Report  on Form  10-Q  for the  quarter  ended
         September 30, 1999.)
10.30    Stockholder  Agreement among the Company,  Titus  Interactive  S.A. and
         Brian Fargo dated November 9, 1999 (incorporated herein by reference to
         Exhibit  10.1 to  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter ended September 30, 1999.)


                                       44


<PAGE>


10.31    Stock  Purchase  Agreement  between the  Company and Titus  Interactive
         S.A.,  dated  April 14,  2000.  (incorporated  herein by  reference  to
         Exhibit 10.31 to  Registrant's  Annual Report on Form 10-K for the year
         ended December 31, 1999.)
10.32    Warrant (350,000 shares) for Common Stock between the Company and Titus
         Interactive  S.A.,  dated  April  14,  2000.  (incorporated  herein  by
         reference to Exhibit 10.33 to  Registrant's  Annual Report on Form 10-K
         for the year ended December 31, 1999.)
10.33    Warrant  (50,000 shares) for Common Stock between the Company and Titus
         Interactive  S.A.,  dated  April  14,  2000.  (incorporated  herein  by
         reference to Exhibit 10.34 to  Registrant's  Annual Report on Form 10-K
         for the year ended December 31, 1999.)
10.34    Warrant (100,000 shares) for Common Stock between the Company and Titus
         Interactive  S.A.,  dated  April  14,  2000.  (incorporated  herein  by
         reference to Exhibit 10.35 to  Registrant's  Annual Report on Form 10-K
         for the year ended December 31, 1999.)
10.35    Amendment to Loan Documents among the Company,  Interplay OEM, Inc. and
         Greyrock,  dated April 14, 2000.  (incorporated  herein by reference to
         Exhibit 10.36 to  Registrant's  Annual Report on Form 10-K for the year
         ended December 31, 1999.)
10.36    Revolving Note between the Company and Titus  Interactive  S.A.,  dated
         April 14, 2000.  (incorporated  herein by reference to Exhibit 10.37 to
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1999.)
10.37    Reimbursement  and  Security  Agreement  between  the Company and Titus
         Interactive  S.A.,  dated  April  14,  2000.  (incorporated  herein  by
         reference to Exhibit 10.38 to  Registrant's  Annual Report on Form 10-K
         for the year ended December 31, 1999.)
10.38    Amendment Number 1 to International  Distribution Agreement between the
         Company and Virgin  Interactive  Entertainment  Limited,  dated July 1,
         1999.   (incorporated   herein  by  reference   to  Exhibit   10.39  to
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1999.)
10.39    Interplay  Entertainment  Corp.  Common Stock  Subscription  Agreement,
         dated March 29, 2001.  (incorporated herein by reference to Exhibit 4.1
         to the Form S-3 filed on April 17, 2001.)
10.40    Common Stock  Purchase  Warrant.  (incorporated  herein by reference to
         Exhibit 4.2 to the Form S-3 filed on April 17, 2001)
10.41    Microsoft  Corporation Xbox Publisher License Agreement,  dated October
         12, 2000.  (incorporated  herein by reference to Exhibit  10.39 to Form
         10-K/A for the year ended December 31, 2000.)
10.42    Warrant to Purchase  Common  Stock of  Interplay  Entertainment  Corp.,
         dated April 25, 2001. (incorporated herein by reference to Exhibit 10.4
         to the Form S-3 filed on May 4, 2001.)
10.43    Financial   Public   Relations   Agreement,   dated   August  7,  2000.
         (incorporated herein by reference to Exhibit 10.5 of the Form S-3 filed
         on May 4, 2001.)
10.44    Agreement between Interplay  Entertainment  Corp.,  Brian Fargo,  Titus
         Interactive  S.A.,  and Herve Caen,  dated May 15, 2001.  (incorporated
         herein by reference to Exhibit 99 to Form SCD 13D/A.)
10.45    Distribution  Agreement,  dated August 23, 2001.  (Portions omitted and
         filed separately with the Securities and Exchange  Commission  pursuant
         to a  request  for  confidential  treatment.)  (incorporated  herein by
         reference  to  Exhibit  10.1 to the Form  10-Q for the  quarter  ending
         September 30, 2001.)
10.46    Letter  Agreement  re:  Amendment #1 to  Distribution  Agreement  dated
         August 23, 2001, dated September 14, 2001.  (Portions omitted and filed
         separately  with the Securities and Exchange  Commission  pursuant to a
         request for confidential treatment.)  (incorporated herein by reference
         to Exhibit 10.2 to the Form 10-Q for the quarter  ending  September 30,
         2001.)
10.47    Letter  Agreement re: Secured  Advance and Amendment #2 to Distribution
         Agreement,   dated   November   20,  2001  by  and  between   Interplay
         Entertainment Corp. and Vivendi Universal Interactive  Publishing North
         America, Inc. (incorporated herein by reference to Exhibit 10.47 to the
         Form 10-K for the year ended December 31, 2001)
10.48    Letter  Agreement re: Secured  Advance and Amendment #3 to Distribution
         Agreement,   dated   December   13,  2001  by  and  between   Interplay
         Entertainment Corp. and Vivendi Universal Interactive  Publishing North
         America, Inc. (incorporated herein by reference to Exhibit 10.48 to the
         Form 10-K for the year ended December 31, 2001)
10.49    Third Amendment to Computer License  Agreement,  dated July 25, 2001 by
         and  between  Interplay   Entertainment  Corp.  and  Infogrames,   Inc.
         (incorporated herein by reference to Exhibit 10.49 to the Form 10-K for
         the year ended December 31, 2001)


                                       45


<PAGE>


10.50    Letter  Agreement and Amendment  Number 4 to Distribution  Agreement by
         and between Vivendi Universal Games,  Inc. and Interplay  Entertainment
         Corp.  dated  January 18,  2002.  (incorporated  herein by reference to
         Exhibit 10.1 to Form 10-Q filed on May 15, 2002)
10.51    Fourth Amendment To Computer License Agreement by and between Interplay
         Entertainment Corp. and Infogrames Interactive,  Inc. dated January 23,
         2002.  (Portions  omitted and filed  separately with the Securities and
         Exchange  Commission  pursuant to request for confidential  treatment.)
         (incorporated herein by reference to Exhibit 10.2 to Form 10-Q filed on
         May 15, 2002)
10.52    Amendment Number Four to the Product Agreement by and between Interplay
         Entertainment Corp.,  Infogrames  Interactive,  Inc., and Bioware Corp.
         dated  January 24, 2002.  (incorporated  herein by reference to Exhibit
         10.3 to Form 10-Q filed on May 15, 2002)
10.53    Amended and  Restated  Amendment  Number 1 to Product  Agreement by and
         between Interplay  Entertainment Corp. and High Voltage Software,  Inc.
         dated March 5, 2002.  (Portions  omitted and filed  separately with the
         Securities and Exchange Commission pursuant to request for confidential
         treatment.)  (incorporated  herein by reference to Exhibit 10.4 to Form
         10-Q filed on May 15, 2002)
10.54    Forbearance  Agreement by and between LaSalle  Business  Credit,  Inc.,
         Brian Fargo, Shiny Entertainment,  Inc., Interplay Entertainment Corp.,
         Interplay OEM, Inc.,  and  Gamesonline.com,  Inc. dated March 13, 2002.
         (incorporated herein by reference to Exhibit 10.5 to Form 10-Q filed on
         May 15, 2002)
10.55    Settlement Agreement and Release by and between Brian Fargo,  Interplay
         Entertainment Corp., Interplay OEM, Inc., Gamesonline.com,  Inc., Shiny
         Entertainment,  Inc., and Titus  Interactive S.A. dated March 13, 2002.
         (incorporated herein by reference to Exhibit 10.6 to Form 10-Q filed on
         May 15, 2002)
10.56    Agreement  by and  between  Vivendi  Universal  Games  Inc.,  Interplay
         Entertainment Corp., and Shiny Entertainment, Inc. dated April of 2002.
         (incorporated herein by reference to Exhibit 10.7 to Form 10-Q filed on
         May 15, 2002)
10.57    Term  Sheet  by and  between  Titus  Interactive  S.A.,  and  Interplay
         Entertainment  Corp.  dated  April 26,  2002.  (incorporated  herein by
         reference to Exhibit 10.8 to Form 10-Q filed on May 15, 2002)
10.58    Promissory  Note by  Titus  Interactive  S.A.  in  favor  of  Interplay
         Entertainment  Corp.  dated  April 26,  2002.  (incorporated  herein by
         reference to Exhibit 10.9 to Form 10-Q filed on May 15, 2002)
10.59    Amended and Restated Secured  Convertible  Promissory Note, dated April
         30,  2002,  in  favor  of  Warner  Bros.,  a  division  of Time  Warner
         Entertainment  Company,  L.P.  (incorporated  herein  by  reference  to
         Exhibit 10.10 to Form 10-Q filed on May 15, 2002)
10.60    Video Game  Distribution  Agreement  by and between  Vivendi  Universal
         Games,  Inc. and Interplay  Entertainment  Corp.  dated August 9, 2002.
         (Portions omitted and filed separately with the Securities and Exchange
         Commission   pursuant  to  a  request  for   confidential   treatment.)
         (incorporated herein by reference to Exhibit 10.1 to Form 10-Q filed on
         November 19, 2002)
10.61    Letter of Intent by and  between  Vivendi  Universal  Games,  Inc.  and
         Interplay  Entertainment Corp. dated August 9, 2002.  (Portions omitted
         and  filed  separately  with the  Securities  and  Exchange  Commission
         pursuant to a request for confidential treatment.) (incorporated herein
         by reference to Exhibit 10.2 to Form 10-Q filed on November 19, 2002)
10.62    Letter  Agreement  and  Amendment #2 by and between  Vivendi  Universal
         Games,  Inc. and Interplay  Entertainment  Corp. dated August 29, 2002.
         (Portions omitted and filed separately with the Securities and Exchange
         Commission   pursuant  to  a  request  for   confidential   treatment.)
         (incorporated herein by reference to Exhibit 10.3 to Form 10-Q filed on
         November 19, 2002)
10.63    Letter  Agreement  and  Amendment #3 by and between  Vivendi  Universal
         Games, Inc. and Interplay Entertainment Corp. dated September 12, 2002.
         (Portions omitted and filed separately with the Securities and Exchange
         Commission   pursuant  to  a  request  for   confidential   treatment.)
         (incorporated herein by reference to Exhibit 10.4 to Form 10-Q filed on
         November 19, 2002)
10.64    Letter  Agreement and Amendment # 4 (OEM & Back-Catalog)  to Video Game
         Distribution  Agreement  dated  August 9, 2002 by and  between  Vivendi
         Universal Games, Inc. and Interplay  Entertainment Corp. dated December
         20, 2002.  (Portions  omitted and filed  separately with the Securities
         and  Exchange   Commission  pursuant  to  a  request  for  confidential
         treatment.)
10.65    Letter  Agreement and Amendment # 5 (Asia Pacific & Australia) to Video
         Game Distribution Agreement dated August 9, 2002 by and between Vivendi
         Universal Games, Inc. and Interplay  Entertainment  Corp. dated January
         13, 2003.  (Portions  omitted and filed  separately with the Securities
         and  Exchange   Commission  pursuant  to  a  request  for  confidential
         treatment.)
21.1     Subsidiaries  of the  Company.  (incorporated  herein by  reference  to
         Exhibit 21.1. to the Form S-1)


                                       46


<PAGE>


23.1     Consent of Squar Milner, Independent Auditors.
23.2     Consent of Ernst & Young LLP, Independent Auditors.
24.1     Power of Attorney (included as page 41 to this Form 10-K).
99.1     Certification  of  our  Chief  Executive   Officer  and  interim  Chief
         Financial  Officer,  pursuant  to 18  U.S.C.  Section  1350 as  Adopted
         Pursuant  to  Section  906 of the  Sarbanes-Oxley  Act of 2002 by Herve
         Caen.
99.2     Press Release, dated August 15, 2002. (incorporated herein by reference
         to Exhibit 99.2 to Form 10-Q filed August 19, 2002).


                                       47


<PAGE>


                        Certification of CEO Pursuant to
                 Securities Exchange Act Rules 13a-14 and 15d-14
                             as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

I, Herve Caen, certify that:

         1. I have  reviewed  this  annual  report  on Form  10-K  of  Interplay
Entertainment Corp.;

         2. Based on my  knowledge,  this  annual  report  does not  contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure  controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
controls and  procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

                  c) presented in this annual report our  conclusions  about the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

                  a) all significant  deficiencies in the design or operation of
internal  controls  which could  adversely  affect the  registrant's  ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  b)  any  fraud,   whether  or  not  material,   that  involves
management or other  employees who have a significant  role in the  registrant's
internal controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this annual  report  whether or not there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    March 30, 2003

                                   /s/ Herve Caen
                                   -----------------------
                                   Herve Caen
                                   Chief Executive Officer


                                       48


<PAGE>


                    Certification of Interim CFO Pursuant to
                 Securities Exchange Act Rules 13a-14 and 15d-14
                             as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

I, Herve Caen, certify that:

         1. I have  reviewed  this  annual  report  on Form  10-K  of  Interplay
Entertainment Corp.;

         2. Based on my  knowledge,  this  annual  report  does not  contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure  controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

                  b) evaluated the effectiveness of the registrant's  disclosure
controls and  procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

                  c) presented in this annual report our  conclusions  about the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

                  a) all significant  deficiencies in the design or operation of
internal  controls  which could  adversely  affect the  registrant's  ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

                  b)  any  fraud,   whether  or  not  material,   that  involves
management or other  employees who have a significant  role in the  registrant's
internal controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this annual  report  whether or not there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    March 30, 2003

                                   /s/ Herve Caen
                                   -------------------------------
                                   Herve Caen
                                   Interim Chief Financial Officer


                                       49


<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                       AND REPORTS OF INDEPENDENT AUDITORS





                                                                         PAGE
                                                                         ----

Reports of Independent Auditors                                           F-2
Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 2002 and 2001                 F-5
Consolidated Statements of Operations for the years ended
   December 31, 2002, 2001 and 2000                                       F-6
Consolidated Statements of Stockholders' Equity (Deficit)
   for the years ended December 31, 2002, 2001 and 2000                   F-7
Consolidated Statements of Cash Flows for the years ended
   December 31, 2002, 2001 and 2000                                       F-8
Notes to Consolidated Financial Statements                               F-10
Schedule II - Valuation and Qualifying Accounts                           S-1


                                      F-1


<PAGE>


                          INDEPENDENT AUDITORS' REPORT







To the Board of Directors and Shareholders
Interplay Entertainment Corp.

     We have audited the  accompanying  consolidated  balance sheet of Interplay
Entertainment Corp. (a majority-owned  subsidiary of Titus Interactive S.A., and
subsidiaries  (the  "Company"),  as  of  December  31,  2002,  and  the  related
consolidated statements of operations,  shareholders' equity (deficit) and other
comprehensive  income  and cash  flows for the year then  ended.  Our audit also
included the financial  statement schedule listed in the Index at Item 15(a) (2)
for the year ended December 31, 2002. These  consolidated  financial  statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and schedule based on our audit.  The December 31, 2000  consolidated
financial  statements of the Company were audited by other auditors whose report
dated April 16, 2001/August 23, 2001,  expressed an unqualified opinion on those
financial statements.  This  predecessor  auditors'  report included a paragraph
stating that there was substantial doubt about the Company's ability to continue
as a going  concern.  For  reasons  explained  in  Note  18 to the  consolidated
financial statements, this predecessor auditor was unable to reissue their audit
report.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial  position of Interplay
Entertainment Corp. and subsidiaries as of December 31, 2002, and the results of
their  operations  and their cash flows for year then ended in  conformity  with
accounting principles generally accepted in the United States of America.  Also,
in our  opinion,  the related  financial  statement  schedule for the year ended
December  31,  2002,   when  considered  in  relation  to  the  basic  financial
statements,  taken as a whole,  presents  fairly in all  material  respects  the
information se forth therein.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming that the Company will continue as a going concern. As discussed in Note
1, the Company has negative working capital of $17.1 million and a stockholders'
deficit of $13.9 million at December 31, 2002,  losses from  operations  through
December  31,  2002 and  negative  operating  cash flow for the year then ended.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going  concern.  Management's  plans in regard to these matters
are described in Note 1. The  consolidated  financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ Squar Milner Reehl & Williamson, LLP
----------------------------------------

Newport Beach, California
March 7, 2003


                                      F-2


<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS



The Board of Directors and Shareholders
Interplay Entertainment Corp.

We have  audited  the  accompanying  consolidated  balance  sheet  of  Interplay
Entertainment Corp. (a majority-owned  subsidiary of Titus Interactive S.A.) and
subsidiaries   (the  Company),   as  of  December  31,  2001,  and  the  related
consolidated  statements  of  operations,  stockholders'  equity  (deficit)  and
comprehensive  income (loss),  and cash flows for the year then ended. Our audit
also  included  the  financial  statement  schedule  listed in the Index at Item
15(a)(2) for the year ended December 31, 2001.  These  financial  statements and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule based on our
audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated  financial  position  of  Interplay
Entertainment Corp. and subsidiaries, at December 31, 2001, and the consolidated
results of their  operations  and their cash flows for the year then  ended,  in
conformity with accounting  principles  generally accepted in the United States.
Also,  in our opinion,  the related  financial  statement  schedule for the year
ended  December 31, 2001,  when  considered  in relation to the basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

The  accompanying  financial  statements have been prepared  assuming  Interplay
Entertainment Corp. will continue as a going concern. As more fully described in
Note 1, the Company's recurring losses from operations and its stockholders' and
working capital deficits at December 31, 2001 raise  substantial doubt about its
ability to continue  as a going  concern.  Management's  plans  regarding  these
matters are also described in Note 1. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.


                                                          /s/ ERNST & YOUNG LLP
                                                          ----------------------

Orange County, California
March 18, 2002


                                      F-3


<PAGE>


     The following  report of Arthur Andersen LLP  ("Andersen") is a copy of the
original  report  dated April 16, 2001,  rendered on the prior years'  financial
statements.  The SEC has recently  provided  regulatory relief designed to allow
public  companies to dispense with the  requirement  that they file a consent of
Andersen in certain  circumstances.  After  reasonable  efforts we have not been
able to obtain a re-issued report or consent from Andersen.


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Interplay Entertainment Corp.:

     We have audited the  accompanying  consolidated  statements of  operations,
stockholders'  equity (deficit) and cash flows of Interplay  Entertainment Corp.
(a Delaware corporation) and subsidiaries for the one year period ended December
31, 2000.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the  financial  position of Interplay  Entertainment
Corp.  and  subsidiaries  as of  December  31,  2000  and the  results  of their
operations and their cash flows for the one year period ended December 31, 2000,
in  conformity  with  accounting  principles  generally  accepted  in the United
States.

     As discussed  further in Notes 1 and 15,  subsequent to April 16, 2001, the
date of our original report, the Company incurred losses of $20.8 million during
the six months  ended June 30,  2001,  and as of that date,  based on  unaudited
financial  statements,  the Company's current  liabilities  exceeded its current
assets by $9.2 million and the Company has experienced,  and expects to continue
to  experience,  negative  operating  cash flows which will require the need for
additional  financing.  Additionally,  the Company is in  violation  of its debt
covenants. These factors, among others, as described in Notes 1 and 15, create a
substantial doubt about the Company's ability to continue as a going concern and
an uncertainty as to the  recoverability  and  classification  of recorded asset
amounts and the amounts and  classification  of  liabilities.  The  accompanying
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of asset carrying amounts or the amount and
classification  of liabilities that might result should the Company be unable to
continue as a going concern.

    Our  audits  were  made  for  the  purpose  of  forming  an  opinion  on the
accompanying financial statements taken as a whole. The supplemental Schedule II
as shown on page S-1 is the  responsibility  of the Company's  management and is
presented  for  purposes  of  complying   with  the   Securities   and  Exchange
Commission's  rules  and  is  not  part  of  the  basic  consolidated  financial
statements.  This schedule has been subjected to the auditing procedures applied
in the  audits  of the  basic  consolidated  financial  statements  and,  in our
opinion,  fairly states in all material  respects the financial data required to
be set forth therein in relation to the basic consolidated  financial statements
taken as a whole.




 Arthur Andersen LLP*
------------------------
ARTHUR ANDERSEN LLP
Orange County, California
April 16, 2001, except for the matters discussed in Note 15 as to which the date
is August 23, 2001.**

*  See Note 18 to the accompanying financial statements.
** Note 15 which was included in the Company's December 31,  2001 Form 10-K, has
   been deleted for the accompanying consolidated financial statements.


                                      F-4


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                               DECEMBER 31,
                                                        -----------------------
                                                           2002          2001
                                                        ---------     ---------
                   ASSETS
                   ------
Current Assets:
     Cash ..........................................    $     134     $     119
     Trade receivables from related parties,
         net of allowances of $231 and $4,025,
         respectively ..............................        2,506         6,175
     Trade receivables, net of allowances
         of $855 and $3,516, respectively ..........          170         3,312
     Inventories ...................................        2,029         3,978
     Prepaid licenses and royalties ................        5,129        10,341
     Other current assets ..........................        1,200         1,162
                                                        ---------     ---------
         Total current assets ......................       11,168        25,087

Property and equipment, net ........................        3,130         5,038
Other assets .......................................         --             981
                                                        ---------     ---------
                                                        $  14,298     $  31,106
                                                        =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------

Current Liabilities:
     Current debt ..................................    $   2,082     $   1,576
     Accounts payable ..............................        9,241        13,718
     Accrued royalties .............................        4,775         7,795
     Other accrued liabilities .....................        1,039         2,999
     Advances from distributors and others .........          101        12,792
     Advances from related party distributor .......        3,550        10,060
     Loans from related parties ....................         --           3,218
     Payables to related parties ...................        7,440         7,098
                                                        ---------     ---------
         Total current liabilities .................       28,228        59,256
                                                        ---------     ---------

Commitments and contingencies
Stockholders' Deficit:
     Series A preferred stock, $.001 par
         value, authorized 5,000,000 shares;
         issued and outstanding zero and
         383,354 shares, respectively ..............         --          11,753
     Common  stock, $.001 par value,
         authorized 100,000,000 issued and
         outstanding 93,849,176 and 44,995,821
         shares, respectively ......................           94            45
     Paid-in capital ...............................      121,637       110,701
     Accumulated deficit ...........................     (135,793)     (150,807)
     Accumulated other comprehensive income ........          132           158
                                                        ---------     ---------
         Total stockholders' deficit ...............      (13,930)      (28,150)
                                                        ---------     ---------
                                                        $  14,298     $  31,106
                                                        =========     =========


                             See accompanying notes.


                                      F-5


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                    YEARS ENDED DECEMBER 31,
                                            -----------------------------------
                                               2002         2001          2000
                                            ---------    ---------    ---------

Net revenues ............................   $  15,021    $  33,795    $  73,319
Net revenues from related party
     distributors .......................      28,978       22,653       28,107
                                            ---------    ---------    ---------
   Total net revenues ...................      43,999       56,448      101,426
Cost of goods sold ......................      26,706       45,816       54,061
                                            ---------    ---------    ---------
   Gross profit .........................      17,293       10,632       47,365
                                            ---------    ---------    ---------

Operating expenses:
   Marketing and sales ..................       5,814       18,697       23,326
   General and administrative ...........       7,655       12,622       10,249
   Product development ..................      16,184       20,603       22,176
                                            ---------    ---------    ---------
      Total operating expenses ..........      29,653       51,922       55,751
                                            ---------    ---------    ---------
      Operating loss ....................     (12,360)     (41,290)      (8,386)
                                            ---------    ---------    ---------

Other income (expense):
   Interest expense .....................      (2,214)      (4,285)      (2,992)
   Gain on sale of Shiny ................      28,813         --           --
   Other ................................         683         (241)        (697)
                                            ---------    ---------    ---------
       Total other income (expense) .....      27,282       (4,526)      (3,689)
                                            ---------    ---------    ---------

Income (loss) before provision
     for income taxes ...................      14,922      (45,816)     (12,075)
(Benefit) provision for income taxes ....        (225)         500         --
                                            ---------    ---------    ---------

Net income (loss) .......................   $  15,147    $ (46,316)   $ (12,075)
                                            ---------    ---------    ---------

Cumulative dividend on participating
     preferred stock ....................   $     133    $     966    $     870
Accretion of warrant ....................        --            266          532
                                            ---------    ---------    ---------
Net income (loss) available to common
     stockholders .......................   $  15,014    $ (47,548)   $ (13,477)
                                            =========    =========    =========

Net income (loss) per common share:
Basic ...................................   $    0.18    $   (1.23)   $   (0.45)
                                            =========    =========    =========
Diluted .................................   $    0.16    $   (1.23)   $   (0.45)
                                            =========    =========    =========

Shares used in calculating net income
     (loss) per common share:
Basic ...................................      83,585       38,670       30,047
                                            =========    =========    =========
Diluted .................................      96,070       38,670       30,047
                                            =========    =========    =========


                             See accompanying notes.


                                      F-6


<PAGE>


<TABLE>
                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                         AND COMPRESENSIVE INCOME (LOSS)
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                             (DOLLARS IN THOUSANDS)
<CAPTION>
                                                                                                                      ACCUMULATED
                                                                                                                         OTHER
                                                                                                                        COMPRE-
                                          PREFERRED STOCK             COMMON STOCK                                      HENSIVE
                                     ------------------------    -----------------------    PAID-IN     ACCUMULATED     INCOME
                                       SHARES        AMOUNT        SHARES       AMOUNT      CAPITAL       DEFICIT       (LOSS)
                                     ----------    ----------    ----------   ----------   ----------   ----------    ----------
<S>                                    <C>         <C>           <C>          <C>          <C>          <C>           <C>
Balance, December 31, 1999 .......         --      $     --      29,989,125   $       30   $   87,390   $  (89,782)   $      291
   Issuance of common stock,
      net of issuance costs ......         --            --          40,661         --            439         --            --
   Issuance of Series A preferred
      stock ......................      719,424        19,202          --           --           --           --            --
   Issuance of warrants ..........         --            --            --           --            798         --            --
   Exercise of stock options .....         --            --         113,850         --             42         --            --
   Accretion of warrant ..........         --             532          --           --           --           (532)         --
   Accumulated accrued dividend on
      Series A preferred stock ...         --             870          --           --           --           (870)         --
   Compensation for stock options
      granted ....................         --            --            --           --             90         --            --
   Net loss ......................         --            --            --           --           --        (12,075)         --
   Other comprehensive loss, net
      of income taxes:
         Foreign currency
             translation
             adjustment ..........         --            --            --           --           --           --             (27)

              Comprehensive loss .
                                     ----------    ----------    ----------   ----------   ----------   ----------    ----------
Balance, December 31, 2000 .......      719,424        20,604    30,143,636           30       88,759     (103,259)          264
   Issuance of common stock,
       net of issuance costs .....         --            --       8,151,253            8       11,743         --            --
   Conversion of Series A
      preferred stock into common
      stock ......................     (336,070)       (9,343)    6,679,306            7        9,336         --            --
   Dividend payable in connection
      with preferred stock
      conversion .................         --            (740)         --           --                        --            --
   Issuance of warrants ..........         --            --            --           --            675         --            --
   Exercise of stock options .....         --            --          21,626         --              9         --            --
   Accretion of warrant ..........         --             266          --           --           --           (266)         --
   Accumulated accrued dividend on
      Series A preferred stock ...         --             966          --           --           --           (966)         --
   Compensation for stock options
      granted ....................         --            --            --           --              4         --            --
   Capital contribution by Titus .         --            --            --           --             75         --            --
   Option issued in connection
      with settlement ............         --            --            --           --            100         --            --
   Net loss ......................         --            --            --           --           --        (46,316)         --
   Other comprehensive loss,
      net of income taxes:
         Foreign currency
           translation
           adjustment ............         --            --            --           --           --           --            (106)

              Comprehensive loss .
                                     ----------    ----------    ----------   ----------   ----------   ----------    ----------
Balance, December 31, 2001 .......      383,354        11,753    44,995,821           45      110,701     (150,807)          158
   Issuance of common stock,
       net of issuance costs .....         --            --         721,652            1          208         --            --
   Accumulated accrued dividend on
      Series A preferred stock ...         --             133          --           --           --           (133)         --
   Conversion of Series A
      preferred stock into common
      stock ......................     (383,354)      (10,657)   47,492,162           47       10,610         --            --
   Dividend payable in connection
      with preferred stock
      conversion .................         --          (1,229)         --           --           --           --            --
   Issuance of warrants ..........         --            --            --           --             33         --            --
   Exercise of stock options .....         --            --         639,541            1           85         --            --
   Net income ....................         --            --            --           --           --         15,147          --
   Other comprehensive income, net
      of income taxes:
         Foreign currency
            translation adjustment         --            --            --           --           --           --             (26)

              Comprehensive income
                                     ----------    ----------    ----------   ----------   ----------   ----------    ----------
Balance, December 31, 2002 .......         --      $     --      93,849,176   $       94   $  121,637   $ (135,793)   $      132
                                     ==========    ==========    ==========   ==========   ==========   ==========    ==========


<CAPTION>

                                       COMPRE-
                                       HENSIVE
                                       INCOME
                                       (LOSS)         TOTAL
                                     ----------    ---------
<S>                                  <C>           <C>
Balance, December 31, 1999 .......                 $  (2,071)
   Issuance of common stock,
      net of issuance costs ......                       439
   Issuance of Series A preferred
      stock ......................                    19,202
   Issuance of warrants ..........                       798
   Exercise of stock options .....                        42
   Accretion of warrant ..........                      --
   Accumulated accrued dividend on
      Series A preferred stock ...                      --
   Compensation for stock options
      granted ....................                        90
   Net loss ......................   $  (12,075)     (12,075)
   Other comprehensive loss, net
      of income taxes:
         Foreign currency
             translation
             adjustment ..........          (27)         (27)
                                     ----------
              Comprehensive loss .   $  (12,102)
                                     ==========    ---------
Balance, December 31, 2000 .......                     6,398
   Issuance of common stock,
       net of issuance costs .....                    11,751
   Conversion of Series A
      preferred stock into common
      stock ......................                      --
   Dividend payable in connection
      with preferred stock
      conversion .................                      (740)
   Issuance of warrants ..........                       675
   Exercise of stock options .....                         9
   Accretion of warrant ..........                      --
   Accumulated accrued dividend on
      Series A preferred stock ...                      --
   Compensation for stock options
      granted ....................                         4
   Capital contribution by Titus .                        75
   Option issued in connection
      with settlement ............                       100
   Net loss ......................   $  (46,316)     (46,316)
   Other comprehensive loss,
      net of income taxes:
         Foreign currency
           translation
           adjustment ............         (106)        (106)
                                     ----------
              Comprehensive loss .   $  (46,422)
                                     ==========    ---------
Balance, December 31, 2001 .......                   (28,150)
   Issuance of common stock,
       net of issuance costs .....                       209
   Accumulated accrued dividend on
      Series A preferred stock ...                      --
   Conversion of Series A
      preferred stock into common
      stock ......................                      --
   Dividend payable in connection
      with preferred stock
      conversion .................                    (1,229)
   Issuance of warrants ..........                        33
   Exercise of stock options .....                        86
   Net income ....................   $   15,147       15,147
   Other comprehensive income, net
      of income taxes:
         Foreign currency
            translation adjustment          (26)         (26)
                                     ----------
              Comprehensive income   $   15,121
                                     ==========    ---------
Balance, December 31, 2002 .......                 $ (13,930)
                                                   =========
</TABLE>



                             See accompanying notes.


                                      F-7


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)


                                                    YEARS ENDED DECEMBER 31,
                                                 2002        2001        2000
                                               --------    --------    --------
Cash flows from operating activities:
   Net income (loss) .......................   $ 15,147    $(46,316)   $(12,075)
   Adjustments to reconcile net income
      (loss) to net cash provided by
      (used in) operating activities--
      Depreciation and amortization ........      1,671       2,613       2,512
      Noncash expense for stock
         compensation ......................        238         679          90
      Noncash interest expense .............      1,860        --          --
      Writeoff of prepaid licenses
         and royalties .....................      4,100       8,124        --
      Gain on sale of Shiny ................    (28,813)       --          --
      Other ................................        (26)         (6)        (27)
      Changes in assets and liabilities:
         Trade receivables, net ............      3,139      14,360      (3,428)
         Trade receivables from related
            parties ........................      3,669       4,239      (2,499)
         Inventories .......................      1,949        (619)      2,698
         Prepaid licenses and royalties ....       (533)       (761)      1,545
         Other current assets ..............        (51)       (390)        102
         Accounts payable ..................     (5,777)      3,246      (2,875)
         Accrued royalties .................     (2,887)        (10)       (145)
         Other accrued liabilities .........     (1,806)       (425)     (5,905)
         Payables to related parties .......       (887)      2,185      (3,202)
         Advances from distributors
            and others .....................    (19,201)     21,144        --
                                               --------    --------    --------
             Net cash provided by
                (used in) operating
                   activities ..............    (28,208)      8,063     (23,209)
                                               --------    --------    --------

Cash flows used in investing activities:
   Purchase of property and equipment ......       (207)     (1,757)     (3,236)
   Proceeds from sale of Shiny .............     33,134        --          --
                                               --------    --------    --------
         Net cash provided by (used in)
            investing activities ...........     32,927      (1,757)     (3,236)
                                               --------    --------    --------

Cash flows from financing activities:
   Net borrowings (payments) on line
      of credit ............................     (1,576)      1,576        --
   Net borrowings (payments) of
      previous line of credit ..............       --       (24,433)      5,215
   Net borrowings (payments) of
      supplemental line of credit ..........       --        (1,000)      1,000
   (Repayment) borrowings from former
      Chairman .............................     (3,218)      3,000        (412)
   Net proceeds from issuance of
      common stock .........................          4      11,751         439
   Net proceeds from issuance of
      Series A preferred stock and
      warrants .............................       --          --        20,000
   Proceeds from exercise of stock
      options ..............................         86           9          42
   Reductions of restricted cash ...........       --          --         2,597
   Other financing activities ..............       --            75        --
                                               --------    --------    --------
         Net cash (used in) provided
            by financing activities ........     (4,704)     (9,022)     28,881
                                               --------    --------    --------
Net increase (decrease) in cash ............         15      (2,716)      2,436
Cash, beginning of year ....................        119       2,835         399
                                               --------    --------    --------
Cash, end of year ..........................   $    134    $    119    $  2,835
                                               ========    ========    ========


                             See accompanying notes.


                                      F-8


<PAGE>


                  INTERPLAY ENTERTAINMENT CORP AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                             (DOLLARS IN THOUSANDS)


                                                       YEARS ENDED DECEMBER 31,
                                                      2002      2001       2000
                                                    ------     ------     ------
Supplemental cash flow information:
    Cash paid during the year for
      interest ................................     $  344     $1,592     $3,027

Suplemental disclosure of non-cash
    investing and financing activities:
    Acquisition of remaining interest
       in Shiny for options on common
       stock ..................................       --          100       --
    Accretion of preferred stock to
       redemption value .......................       --          266        532
    Dividend payable on partial
       conversion of preferred stock ..........      1,229        740       --
    Accrued dividend on participating
       preferred stock ........................        133        966        870
    Common stock issued under Product
       Agreement ..............................        205       --         --



                             See accompanying notes.


                                      F-9


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


1.   DESCRIPTION OF BUSINESS AND OPERATIONS

     Interplay Entertainment Corp., a Delaware corporation, and its subsidiaries
(the "Company"),  develop and publish interactive  entertainment  software.  The
Company's  software is developed  for use on various  interactive  entertainment
software platforms,  including personal computers and video game consoles,  such
as the Sony PlayStation 2, Microsoft Xbox and Nintendo GameCube.  As of December
31, 2002, Titus Interactive, S.A. ("Titus"), a France-based developer, publisher
and distributor of interactive  entertainment software,  owned 71 percent of the
Company's  common  stock.  The  Company's  common stock trades on the NASDAQ OTC
Bulletin Board under the symbol "IPLY.OB."

GOING CONCERN

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming the Company will continue as a going concern, which contemplates, among
other things,  the realization of assets and  satisfaction of liabilities in the
normal course of business. The Company has incurred substantial operating losses
during the last three  years,  and at December  31,  2002,  has a  stockholders'
deficit of $13.9 million and a working  capital  deficit of $17.1  million.  The
Company has  historically  funded its  operations  primarily  through the use of
lines of credit,  royalty and distribution  fee advances,  cash generated by the
private sale of securities, and proceeds of its initial public offering.

     To reduce its working capital needs,  the Company has  implemented  various
measures  including a reduction  of  personnel,  a reduction  of fixed  overhead
commitments,  cancellation or suspension of development on future titles,  which
management  believes do not meet sufficient  projected  profit margins,  and the
scaling back of certain marketing  programs.  Management will continue to pursue
various  alternatives to improve future operating  results,  and further expense
reductions,  some of which may have a long-term  adverse impact on the Company's
ability to generate successful future business activities.

     In addition,  the Company continues to seek and expects to require external
sources  of  funding,  including  but not  limited  to, a sale or  merger of the
Company,  a  private  placement  of the  Company's  capital  stock,  the sale of
selected  assets (Note 17), the licensing of certain  product rights in selected
territories,   selected   distribution   agreements,   and/or  other   strategic
transactions  sufficient to provide short-term funding,  and potentially achieve
the  Company's  long-term  strategic  objectives.  In this  regard,  the Company
completed the sale of its  subsidiary  Shiny  Entertainment,  Inc.  ("Shiny") in
April 2002,  for  approximately  $47.2  million  (Note 3). The Company  used the
proceeds  from  the  sale  of  Shiny  to  fund  operations  and to pay  existing
obligations,  including $11.5 million of prepaid  advances that were accelerated
as a condition of the transaction.  Additionally,  in August 2002, the Company's
Board of Directors  approved and commenced the process of establishing a Special
Committee  comprised of directors that are independent of the Company's  largest
stockholder, Titus Interactive S.A. ("Titus"), to investigate strategic options,
including  raising capital from the sale of debt or equity securities and a sale
of the Company.

     In August  2002,  the  Company  has  entered  into a new  three-year  North
American distribution  agreement with Vivendi Universal Games, Inc. ("Vivendi"),
which  substantially  replaces the August 2001  agreement with Vivendi (Note 6).
Under the new  agreement,  the Company  receives  cash payments from Vivendi for
distributed  products sooner than under the Company's August 2001 agreement with
Vivendi.  The Company has amended its  agreement  with  Vivendi to increase  the
number of territories in which Vivendi can distribute the Company's products. In
return,  the Company has  received  additional  advances  from Vivendi for these
additional  rights.  In February 2003, the Company sold to Vivendi the rights to
develop and publish  future  titles under the Company's  "Hunter"  license (Note
17).

     The Company  anticipates its current cash reserves,  proceeds from the sale
of the Hunter  franchise,  plus its expected  generation  of cash from  existing
operations,  will only be sufficient to fund its anticipated  expenditures  into
the second  quarter of fiscal 2003.  Consequently,  the Company  expects that it
will need to  substantially  reduce  its  working  capital  needs  and/or  raise
additional  financing.  However,  no  assurance  can be given  that  alternative
sources of funding  could be  obtained on  acceptable  terms,  or at all.  These
conditions,  combined with the  Company's  historical  operating  losses and its
deficits in stockholders'  equity and working capital,  raise  substantial doubt
about


                                      F-10


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


the  Company's  ability  to  continue  as  a  going  concern.  The  accompanying
consolidated  financial statements do not include any adjustments to reflect the
possible future effects on the  recoverability  and classification of assets and
liabilities that might result from the outcome of this uncertainty.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

     The accompanying  consolidated financial statements include the accounts of
Interplay  Entertainment  Corp.  and its  wholly-owned  subsidiaries,  Interplay
Productions Limited (U.K.),  Interplay OEM, Inc., Interplay  Productions Pty Ltd
(Australia),   Interplay   Co.,   Ltd.,   (Japan)  and  Games   On-line.   Shiny
Entertainment, Inc., which was sold by the Company in April 2002, is included in
the  consolidated  financial  statements  up  to  the  date  of  the  sale.  All
significant intercompany accounts and transactions have been eliminated.

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 disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting  period.  Actual results could differ from those estimates.
Significant  estimates made in preparing the consolidated  financial  statements
include, among others, sales returns and allowances, cash flows used to evaluate
the  recoverability of prepaid licenses and royalties and long-lived assets, and
certain accrued liabilities related to restructuring activities and litigation.

RISKS AND UNCERTAINTIES

     The Company  operates in a highly  competitive  industry that is subject to
intense  competition,  potential  government  regulation and rapid technological
change.   The  Company's   operations  are  subject  to  significant  risks  and
uncertainties including financial,  operational,  technological,  regulatory and
other business risks associated with such a company.

RECLASSIFICATIONS

     Certain  reclassifications  have been made to the prior period's  financial
statements to conform to classifications used in the current period.

INVENTORIES

     Inventories  consist of CD-ROMs,  DVDs,  manuals,  packaging  materials and
supplies, and packaged software ready for shipment, including video game console
software.  Inventories are valued at the lower of cost (first-in,  first-out) or
market.  The Company regularly  monitors  inventory for excess or obsolete items
and makes any valuation corrections when such adjustments are known.

     Net  realizable  value is based on  management's  forecast for sales of the
Company's  products  in the  ensuing  years.  The  industry in which the Company
operates is  characterized  by  technological  advancement  and changes.  Should
demand  for  the  Company's   products  prove  to  be  significantly  less  than
anticipated, the ultimate realizable value of the Company's inventories could be
substantially  less  than  the  amount  shown on the  accompanying  consolidated
balance sheets.


                                      F-11


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


PREPAID LICENSES AND ROYALTIES

     Prepaid  licenses  and  royalties  consist  of fees  paid  to  intellectual
property rights holders for use of their trademarks or copyrights. Also included
in prepaid  royalties are prepayments  made to independent  software  developers
under development arrangements that have alternative future uses. These payments
are contingent  upon the successful  completion of milestones,  which  generally
represent specific deliverables.  Royalty advances are recoupable against future
sales based upon the contractual royalty rate. The Company amortizes the cost of
licenses,  prepaid royalties and other outside production costs to cost of goods
sold over six months  commencing with the initial shipment in each region of the
related  title.  The Company  amortizes  these  amounts at a rate based upon the
actual number of units shipped with a minimum  amortization of 75 percent in the
first  month of  release  and a minimum  of 5 percent  for each of the next five
months after  release.  This minimum  amortization  rate  reflects the Company's
typical product life cycle.  Management evaluates the future realization of such
costs  quarterly  and charges to cost of goods sold any amounts that  management
deems  unlikely  to be fully  realized  through  future  sales.  Such  costs are
classified as current and noncurrent assets based upon estimated product release
date.

SOFTWARE DEVELOPMENT COSTS

     Research  and  development  costs,  which  consist  primarily  of  software
development costs, are expensed as incurred.  Statement of Financial  Accounting
Standards  ("SFAS") No. 86,  "Accounting for the Cost of Computer Software to be
Sold, Leased, or Otherwise Marketed", provides for the capitalization of certain
software  development  costs  incurred  after  technological  feasibility of the
software is established or for development  costs that have  alternative  future
uses.  Under the  Company's  current  practice of developing  new products,  the
technological  feasibility of the underlying  software is not established  until
substantially all product development is complete,  which generally includes the
development of a working  model.  The Company has not  capitalized  any software
development costs on internal development  projects,  as the eligible costs were
determined to be insignificant.

ACCRUED ROYALTIES

     Accrued  royalties  consist  of  amounts  due  to  outside  developers  and
licensors based on contractual  royalty rates for sales of shipped  titles.  The
Company records a royalty expense based upon a contractual royalty rate after it
has fully recouped the royalty advances paid to the outside  developer,  if any,
prior to shipping a title.

PROPERTY AND EQUIPMENT

     Property  and  equipment  are stated at cost.  Depreciation  of  computers,
equipment and furniture and fixtures is provided using the straight-line  method
over a five year period. Leasehold improvements are amortized on a straight-line
basis over the lesser of the estimated  useful life or the remaining lease term.
Upon the sale or retirement of property and equipment, the accounts are relieved
of the cost and the related accumulated depreciation, with any resulting gain or
loss included in the consolidated statement of operations.

OTHER NON-CURRENT ASSETS

     At December 31,  2001,  other  non-current  assets  consisted  primarily of
goodwill related to our Shiny subsidiary, which was sold in April 2002.

LONG-LIVED ASSETS

     On January 1, 2002, the Company  adopted  Financial  Accounting  Statements
Board ("FASB")  Statement of Financial  Accounting  Standards  ("SFAS") No. 144,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed  Of." SFAS 144  requires  that  long-lived  assets be  reviewed  for
impairment  whenever  events or changes  in  circumstances  indicate  that their
carrying amounts may not be recoverable. If the cost basis of a long-lived asset
is greater than the projected future undiscounted net cash flows from such asset
(excluding  interest),  an impairment loss is recognized.  Impairment losses are
calculated as the difference between the cost basis


                                      F-12


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


of an asset and its estimated fair value.  SFAS 144, which  supercedes SFAS 121,
also requires companies to separately report discontinued operations and extends
that  reporting to a component of an entity that either has been disposed of (by
sale,  abandonment,  or in a distribution to  shareholders)  or is classified as
held for sale.  Assets to be disposed  are reported at the lower of the carrying
amount or fair value less costs to sell. The adoption of SFAS 144 did not have a
material impact on the Company's financial position or results of operations. To
date,  management has  determined  that no impairment  exists and therefore,  no
adjustments  have been made to the carrying values of long-lived  assets.  There
can be no assurance,  however,  that market conditions will not change or demand
for the  Company's  products or services  will  continue  which could  result in
impairment of long-lived assets in the future.

GOODWILL AND INTANGIBLE ASSETS

     On January 1, 2002,  the  Company  adopted  SFAS 142,  "GOODWILL  AND OTHER
INTANGIBLE  ASSETS,"  which  addresses how  intangible  assets that are acquired
individually  or with a group of other  assets  should be  accounted  for in the
financial  statements upon their  acquisition and after they have been initially
recognized  in the  financial  statements.  SFAS 142 requires  that goodwill and
identifiable  intangible  assets  that  have  indefinite  useful  lives  not  be
amortized  but  rather  be  tested  at  least  annually  for   impairment,   and
identifiable  intangible  assets that have finite useful lives be amortized over
their useful lives. SFAS 142 provides specific guidance for testing goodwill and
identifiable  intangible  assets that will not be amortized for  impairment.  In
addition,  SFAS 142 expands the disclosure requirements about goodwill and other
intangible assets in the years subsequent to their acquisition.  The adoption of
SFAS 142 did not have a material effect on the Company's financial statements at
December 31, 2002.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  carrying  value of cash,  accounts  receivable  and  accounts  payable
approximates  the fair value. In addition,  the carrying value of all borrowings
approximates  fair value  based on interest  rates  currently  available  to the
Company. The fair value of trade receivable from related parties,  advances from
related party distributor, loans to/from related parties and payables to related
parties are not determinable as these transactions are with related parties.

REVENUE RECOGNITION

     Revenues  are  recorded   when  products  are  delivered  to  customers  in
accordance  with  Statement  of  Position   ("SOP")  97-2,   "Software   Revenue
Recognition"  and SEC Staff Accounting  Bulletin No. 101,  Revenue  Recognition.
With  the  signing  of  the  Vivendi  distribution  agreement  in  August  2001,
substantially  all of  the  Company's  sales  are  made  by  two  related  party
distributors  (Notes 6 and 12), Vivendi,  which owns  approximately 5 percent of
the outstanding  shares of the Company's  common stock,  and Virgin  Interactive
Entertainment  Limited ("Virgin"),  a subsidiary of Titus, the Company's largest
stockholder.

     The Company  recognizes  revenue from sales by  distributors,  net of sales
commissions,  only as the distributor recognizes sales of the Company's products
to unaffiliated  third parties.  For those agreements that provide the customers
the right to multiple  copies of a product in exchange for  guaranteed  amounts,
revenue is recognized at the delivery and acceptance of the product master.  Per
copy  royalties on sales that exceed the  guarantee  are  recognized  as earned.
Guaranteed  minimum royalties on sales,  where the guarantee is not recognizable
upon delivery, are recognized as the minimum payments come due.

     The Company is generally  not  contractually  obligated to accept  returns,
except for  defective,  shelf-worn  and  damaged  products  in  accordance  with
negotiated  terms.  However,  on a case by case  negotiated  basis,  the Company
permits  customers  to return  or  exchange  product  and may  provide  markdown
allowances on products  unsold by a customer.  In  accordance  with SFAS No. 48,
"Revenue Recognition when Right of Return Exists", revenue is recorded net of an
allowance for estimated  returns,  exchanges,  markdowns,  price concessions and
warranty  costs.  Such  reserves  are  based  upon  management's  evaluation  of
historical  experience,  current industry trends and estimated costs. The amount
of reserves  ultimately  required could differ  materially in the near term from
the amounts included in the accompanying consolidated financial statements.


                                      F-13


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     Customer  support  provided  by the  Company is limited  to  telephone  and
Internet support. These costs are not significant and are charged to expenses as
incurred.

     The  Company  also  engages  in the sale of  licensing  rights  on  certain
products.  The terms of the licensing  rights differ,  but normally  include the
right to develop and distribute a product on a specific video game platform. For
these  activities,  revenue is recognized when the rights have been  transferred
and no other obligations exist.

     The Emerging  Issues Task Force (EITF) issued EITF 01-09 in November  2001.
The  pronouncement  codifies and reconciles the consensus reached on EITF 00-14,
00-22 and 00-25,  which  addresses the  recognition,  measurement and profit and
loss account  classification of certain selling  expenses.  The adoption of this
issue has resulted in the reclassification of certain selling expenses including
sales incentives,  slotting fees, buydowns and distributor payments from cost of
sales and administrative expenses to a reduction in sales.  Additionally,  prior
period amounts were reclassified to conform to the new requirements.  The impact
of this pronouncement resulted in a reduction of net sales of $0.1 million, $1.3
million and $3.2 million for the years ended  December 31, 2002,  2001 and 2000,
respectively. These amounts, consisting principally of promotional allowances to
the Company's retail  customers were previously  recorded as sales and marketing
expenses; therefore, there was no impact to net income for any period.

ADVERTISING COSTS

     The Company generally  expenses  advertising costs as incurred,  except for
production  costs  associated with media campaigns that are deferred and charged
to expense at the first run of the ad. Cooperative advertising with distributors
and  retailers is accrued when revenue is  recognized.  Cooperative  advertising
credits are reimbursed when qualifying  claims are submitted.  Advertising costs
approximated  $3.0  million,  $6.7  million and $8.8 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

INCOME TAXES

     The  Company  accounts  for  income  taxes  using the  liability  method as
prescribed  by the SFAS No. 109,  "Accounting  for Income  Taxes." The statement
requires an asset and liability approach for financial  accounting and reporting
of income taxes. Deferred income taxes are provided for temporary differences in
the recognition of certain income and expense items for financial  reporting and
tax purposes given the provisions of the enacted tax laws. A valuation allowance
is provided for significant  deferred tax assets when it is more likely than not
those assets will not be recovered

FOREIGN CURRENCY

     The  Company  follows  the  principles  of 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. Gains or losses arising from
the translation of the foreign  subsidiaries'  financial statements are included
in the accompanying  consolidated  financial  statements as a component of other
comprehensive loss. Losses resulting from foreign currency transactions amounted
to $104,000,  $237,000 and  $935,000  during the years ended  December 31, 2002,
2001 and 2000,  respectively,  and are included in other income (expense) in the
consolidated statements of operations.

NET INCOME (LOSS) PER SHARE

     Basic net income  (loss) per common  share is computed  by dividing  income
(loss)  attributable to common  stockholders  by the weighted  average number of
common  shares  outstanding.  Diluted  net income  (loss)  per  common  share is
computed by dividing income (loss)  attributable  to common  stockholders by the
weighted  average  number of common  shares  outstanding  plus the effect of any
convertible debt, dilutive stock options and common stock warrants. For the year
ended December 31, 2002, all options and warrants outstanding to purchase common
stock


                                      F-14


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


were excluded from the earnings per share  computation as the exercise price was
greater than the average  market price of the common  shares and for years ended
December 31, 2001 and 2000,  all options and  warrants to purchase  common stock
were excluded from the diluted loss per share calculation, as the effect of such
inclusion would be antidilutive.

COMPREHENSIVE INCOME (LOSS)

     Comprehensive  income  (loss) of the  Company  includes  net income  (loss)
adjusted for the change in foreign  currency  translation  adjustments.  The net
effect of income taxes on comprehensive income (loss) is immaterial.

STOCK-BASED COMPENSATION

     The Company  accounts for employee  stock  options in  accordance  with the
Accounting  Principles  Board  Opinion No. 25  "Accounting  for Stock  Issued to
Employees"  and  related  Interpretations  and  makes  the  necessary  pro forma
disclosures mandated by SFAS No. 123 "Accounting for Stock-based Compensation".

     In  March  2000,  the  FASB  issued  Interpretation  No.  44,  ("FIN  44"),
Accounting  for  Certain   Transactions   Involving  Stock   Compensation  -  an
Interpretation  of APB 25. This  Interpretation  clarifies (a) the definition of
employee for purposes of applying  Opinion 25, (b) the criteria for  determining
whether  a  plan  qualifies  as a  non-compensatory  plan,  (c)  the  accounting
consequence of various  modifications  to the terms of a previously  fixed stock
option or award,  and (d) the accounting  for an exchange of stock  compensation
awards in a business  combination.  FIN 44 became  effective  July 1, 2000,  but
certain  conclusions  in FIN 44 cover  specific  events that occur after  either
December 15, 1998,  or January 12, 2000.  Management  believes  that the Company
accounts for its employee stock based compensation in accordance with FIN 44.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure - an Amendment of FASB Statement No.
123".  SFAS No. 148 amends FASB Statement No. 123,  "Accounting  for Stock-Based
Compensation",  to provide  alternative methods of transition for an entity that
voluntarily changes to the fair-value-based method of accounting for stock-based
employee  compensation.  It  also  amends  the  disclosure  provisions  of  that
statement  to require  prominent  disclosure  about the effects on reported  net
income and earnings per share and the entity's  accounting policy decisions with
respect  to  stock-based  employee  compensation.   Certain  of  the  disclosure
requirements  are required  for all  companies,  regardless  of whether the fair
value  method or  intrinsic  value  method is used to  account  for  stock-based
employee  compensation  arrangements.  The Company  continues to account for its
employee  incentive  stock  option  plans using the  intrinsic  value  method in
accordance  with  the  recognition  and  measurement  principles  of  Accounting
Principles  Board Opinion No. 25,  "Accounting  for Stock Issued to  Employees."
SFAS 148 is  effective  for  financial  statements  for fiscal years ended after
December 15, 2002 and for interim periods beginning after December 15, 2002. The
Company has adopted the disclosure  provisions of this statement during the year
ended December 31, 2002.


                                      F-15


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     At  December  31,  2002,  the  Company  has  three   stock-based   employee
compensation  plans,  which are  described  more fully in Note 11.  The  Company
accounts for those plans under the recognition and measurement principles of APB
Opinion  No.  25,  "Accounting  for Stock  Issued  to  Employees,"  and  related
Interpretations.  Stock-based employee compensation cost reflected in net income
was zero,  $4,000 and $90,000 for the years ended  December 31,  2002,  2001 and
2000, respectively. The following table illustrates the effect on net income and
earnings per common share if the Company had applied the fair value  recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
to stock-based employee compensation.

                                                  YEARS ENDED DECEMBER 31,
                                             2002          2001          2000
                                           --------      --------      --------
                                             (Dollars in thousands, except per
                                                       share amounts)
Net income (loss) available to
   common stockholders, as
   reported ..........................     $ 15,014      $(47,548)     $(13,477)
Pro forma compensation expense .......         (232)       (1,177)       (1,370)
                                           --------      --------      --------
Pro forma net income (loss)
   available to common
   stockholders ......................     $ 14,782      $(48,725)     $(14,847)
                                           ========      ========      ========
Basic and diluted net income
   (loss) as reported ................     $   0.18      $  (1.23)     $  (0.45)
Basic and diluted pro forma
   net income (loss) .................     $   0.18      $  (1.26)     $  (0.49)

RECENT ACCOUNTING PRONOUNCEMENTS

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
Retirement  Obligations."  SFAS  No.  143  addresses  financial  accounting  and
reporting for obligations  associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The provisions of SFAS No. 143
are effective for financial  statements  issued for fiscal years beginning after
June 15, 2002, with early application encouraged and generally are to be applied
prospectively.  The Company does not expect the adoption of SFAS No. 143 to have
a  material  impact  on  its  consolidated  financial  position  or  results  of
operations.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities." SFAS No. 146 addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a  Restructuring)".  The provisions of SFAS
No. 146 are effective for exit or disposal  activities  that are initiated after
December  31,  2002,  with early  application  encouraged.  The Company does not
expect  the  adoption  of  SFAS  No.  146  to  have  a  material  impact  on its
consolidated financial position or results of operations.

     In  November  2002,  the FASB  issued  Interpretation  No. 45,  ("FIN 45"),
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of Indebtedness  of Others.  FIN 45 requires a guarantor to
(i) include disclosure of certain  obligations,  and (ii) if applicable,  at the
inception of the  guarantee,  recognize a liability  for the fair value of other
certain obligations undertaken in issuing a guarantee. The disclosure provisions
of the  Interpretation  are  effective  for  financial  statements of interim or
annual  reports  that end after  December  15,  2002 and the Company has adopted
these  requirements.   However,  the  provisions  for  initial  recognition  and
measurement are effective on a prospective  basis for guarantees that are issued
or modified after December 31, 2002, irrespective.  As of December 31, 2002, the
Company has not guaranteed the  indebtedness of its  subsidiaries or any related
parties.

     In January 2003, the FASB issued  Interpretation No. 46,  "CONSOLIDATION OF
VARIABLE  INTEREST  ENTITIES"  ("FIN 46").  This  interpretation  of  Accounting
Research  Bulletin  No.  51,  "CONSOLIDATED   FINANCIAL  STATEMENTS,"  addresses
consolidation  by business  enterprises  of variable  interest  entities.  Under
current practice,  two enterprises  generally have been included in consolidated
financial  statements  because one enterprise  controls the other through voting
interests.  FIN 46 defines  the concept of  "variable  interests"  and  requires
existing  unconsolidated  variable interest entities to be consolidated by their
primary  beneficiaries  if the entities do not effectively  disperse risks among
the


                                      F-16


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


parties involved.  This interpretation  applies immediately to variable interest
entities  created after January 31, 2003. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable  interest  entities in
which an enterprise  holds a variable  interest that it acquired before February
1, 2003. If it is reasonably  possible that an enterprise  will  consolidate  or
disclose  information  about a  variable  interest  entity  when FIN 46  becomes
effective, the enterprise shall disclose information about those entities in all
financial  statements issued after January 31, 2003. The  interpretation  may be
applied  prospectively  with a  cumulative-effect  adjustment  as of the date on
which it is first applied or by restating previously issued financial statements
for one or more years with a cumulative-effect adjustment as of the beginning of
the first year restated.  Based on the recent release of FIN 46, the Company has
not  completed  its  assessment as to whether or not the adoption of FIN 46 will
have a material impact on its consolidated financial statements.

3.   SHINY ENTERTAINMENT, INC

     In 1995, the Company acquired a 91 percent interest in Shiny Entertainment,
Inc. ("Shiny") for $3.6 million in cash and stock. The acquisition was accounted
for using the purchase  method.  The  allocation of purchase  price  included $3
million of  goodwill.  The  purchase  agreement  required the Company to pay the
former owner of Shiny  additional  cash  payments of up to $5.6 million upon the
delivery and acceptance of five future Shiny interactive  entertainment software
titles (the  "earnout  payments").  In March 2001,  the Company  entered into an
amendment to the Shiny purchase agreement which, among other things, settled all
outstanding  claims  under the  earnout  payments,  and  resulted in the Company
acquiring  the  remaining  nine percent  equity  interest in Shiny for $600,000,
payable in installments of cash and options on common stock.  The amendment also
provided  for  additional  cash  payments  to the former  owner of Shiny for two
interactive  entertainment  software  titles to be delivered in the future.  The
former owner of Shiny would have earned  royalties  after the future delivery of
the two titles to the Company. At December 31, 2001, the Company owed the former
owner of Shiny  $200,000  related to this  amendment,  which is  recorded  under
accounts payable in the accompanying consolidated balance sheets.

     On April 30, 2002, the Company  consummated the sale of Shiny,  pursuant to
the terms of a Stock Purchase Agreement, dated April 23, 2002, as amended, among
the Company,  Infogrames,  Inc., Shiny,  Shiny's president and Shiny Group, Inc.
Pursuant to the purchase  agreement,  Infogrames acquired all of the outstanding
common stock of Shiny for approximately $47.2 million,  which was paid to or for
the benefit of the Company as follows:

     o    $3.0 million in cash paid to the Company at closing;

     o    $10.8 million to be paid to the Company  pursuant to a promissory note
          from  Infogrames  providing  for  scheduled  payments  with the  final
          payment due July 31, 2002;

     o    $26.1 million paid  directly to third party  creditors of the Company;
          and

     o    $7.3  million  paid to  Shiny's  president  and Shiny  Group for Shiny
          common stock that was issued to such parties to settle claims relating
          to the Company's original acquisition of Shiny.

     The promissory  note  receivable from Infogrames was paid in full in August
2002.


                                      F-17


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     The Company  recognized a gain of $28.8  million on the sale of Shiny.  The
details of the sale are as follows:

                                                                  (In millions)
Sale price of Shiny ...........................................      $  47.2
Net assets of Shiny at April 30, 2002 .........................          2.3
Transaction related costs:
     Cash payment to Warner Brothers for consent to
        transfer Matrix license ...............................          2.2
     Note payable issued to Warner Brothers for
        consent to transfer Matrix license (Note 5) ...........          2.0
     Payment to Shiny's President & Shiny Group ...............          7.1
     Commission fees to Europlay I, LLC .......................          3.9
     Legal fees ...............................................          0.9
                                                                     -------
Gain on sale ..................................................      $  28.8
                                                                     =======

     In addition, the Company recorded a tax provision of $150,000 in connection
with the sale of Shiny.

     Concurrently  with the  closing of the sale,  the  Company  settled a legal
dispute  with  Vivendi,  relating  to  the  parties'  August  2001  distribution
agreement.  The Company also settled legal disputes with its former bank and its
former  Chairman,  relating to the Company's April 2001 credit facility with its
former bank that was partially  guaranteed by its former Chairman.  The disputes
with Vivendi, the bank and the former Chairman were settled and dismissed,  with
prejudice, following consummation of the sale.

4.   DETAIL OF SELECTED BALANCE SHEET ACCOUNTS

 INVENTORIES

     Inventories consist of the following:

                                                                DECEMBER 31,
                                                           2002            2001
                                                          ------          ------
                                                          (Dollars in thousands)
Packaged software ..................................      $2,029          $3,230
CD-ROMs, DVDs, manuals, packaging and supplies .....        --               748
                                                          ------          ------
                                                          $2,029          $3,978
                                                          ======          ======


PREPAID LICENSES AND ROYALTIES

     Prepaid licenses and royalties consist of the following:

                                                                 DECEMBER 31,
                                                             2002          2001
                                                           -------       -------
                                                          (Dollars in thousands)
Prepaid royalties for titles in development ........       $ 4,644       $ 7,539
Prepaid royalties for shipped titles ...............           431           710
Prepaid licenses and trademarks ....................            54         2,092
                                                           -------       -------
                                                           $ 5,129       $10,341
                                                           =======       =======


                                      F-18


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     Amortization of prepaid licenses and royalties is included in cost of goods
sold and totaled  $9.7  million,  $8.0  million and $14.7  million for the years
ended December 31, 2002, 2001 and 2000, respectively.

     During the years ended  December 31, 2002 and 2001,  the Company  wrote-off
$4.1 million and $8.1 million,  respectively, of prepaid royalties for titles in
development  that were impaired due to the  cancellation of certain  development
projects,  which  the  Company  has  recorded  under  cost of goods  sold in the
accompanying  consolidated statements of operations. No amounts were written-off
during the year ended December 31, 2000.

 PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                                                              DECEMBER 31,
                                                        2002             2001
                                                      --------         --------
                                                        (Dollars in thousands)
Computers and equipment ......................        $  9,125         $  9,756
Furniture and fixtures .......................             107              107
Leasehold improvements .......................           1,232            1,226
                                                      --------         --------
                                                        10,464           11,089
Less:  Accumulated depreciation
     and amortization ........................          (7,334)          (6,051)
                                                      --------         --------
                                                      $  3,130         $  5,038
                                                      ========         ========

     For the years ended December 31, 2002, 2001 and 2000, the Company  incurred
depreciation  and  amortization  expense of $1.7 million,  $2.1 million and $2.1
million,  respectively.  Shiny's  property and equipment,  which had accumulated
depreciation  of $0.4 million at December  31,  2001,  was sold with the sale of
Shiny.  During the years ended December 31, 2001 and 2000, the Company  disposed
of fully depreciated  equipment having an original cost of $2.3 million and $8.3
million, respectively.

5.   PROMISSORY  NOTE,   WORKING CAPITAL  LINE OF CREDIT AND  LOANS FROM RELATED
PARTIES

     The Company issued to Warner Bros. a Secured  Convertible  Promissory  Note
bearing  interest at 6 percent per annum,  due April 30, 2003,  in the principal
amount of $2.0 million in  connection  with the sale of Shiny (Note 3). The note
was issued in partial  payment of amounts due Warner  Bros.  under the  parties'
license  agreement  for the video game based on the motion  picture  THE MATRIX,
which is being  developed by Shiny.  The note is secured by all of the Company's
assets,  and may be converted by the holder thereof into shares of the Company's
common  stock on the  maturity  date or,  to the  extent  there is any  proposed
prepayment,  within the 30 day period prior to such  prepayment.  The conversion
price is equal to the lower of (a) $0.304 or (b) an amount  equal to the average
closing  price of a share of the  Company's  common stock for the five  business
days ending on the day prior to the conversion  date,  provided that in no event
can the note be  converted  into  more than  18,600,000  shares.  If any  amount
remains  due  following  conversion  of the note  into  18,600,000  shares,  the
remaining  amount will be payable in cash.  The Company  agrees to register with
the Securities  and Exchange  Commission the shares of common stock to be issued
in the event Warner Bros. exercises its conversion option. At December 31, 2002,
the balance owed to Warner Bros., including accrued interest, is $2.1 million.

     In April 2001,  the  Company  entered  into a three year loan and  security
agreement  ("L&S  Agreement")  with a bank providing for a $15.0 million working
capital  line of  credit  secured  by all the  assets  of the  Company.  The L&S
Agreement  replaced an expiring  agreement with another bank that was repaid and
terminated.  Advances  under the new line of credit  were  limited  to an amount
based on qualified  accounts  receivable  and  inventory,  as defined,  and bore
interest at the bank's prime rate (4.75 percent at December 31, 2001),  or LIBOR
plus 2.5 percent. The default rate under the line of credit was the bank's prime
rate plus 2 percent.  At  December  31,  2001,  the  Company  was in default and
borrowings  under the  working  capital  line of credit  bore  interest  at 6.75
percent.


                                      F-19


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     At December  31, 2001,  the Company was in  violation of certain  financial
covenants set forth under the L&S Agreement and the bank  exercised its right to
terminate the agreement effective October 26, 2001.  Accordingly,  the remaining
unamortized  value of the warrant  issued to the former  Chairman was charged to
interest  expense during the fourth  quarter of 2001. In 2002,  the  outstanding
balance was paid in full and the L&S Agreement was terminated.

     In connection with the L&S Agreement, and the retirement of the former line
of credit, a secured personal guarantee of $5 million previously provided by the
Company's  former  Chairman was  released,  and a new personal  guarantee for $2
million,  secured  by $1 million in cash,  was  provided  to the new bank by the
former Chairman. In addition, the former Chairman provided the Company with a $3
million loan,  payable in May 2002,  with interest at 10 percent  secured by all
the assets of the Company.  In connection  with the new guarantee and loan,  the
former Chairman  received a warrant to purchase  500,000 shares of the Company's
Common Stock at $1.75 per share,  expiring in April 2011.  The fair value of the
warrant of $675,000 (estimated by the Company based on the Black-Scholes  option
pricing  model  pursuant to SFAS 123 and EITF 00-27,  "Application  of Issue No.
98-5 to Certain  Convertible  Instruments") was deferred and was being amortized
to interest  expense over the term of the L&S agreement.  In connection with the
sale of Shiny  (Note 3), the loan from the former  Chairman  was paid in full in
April 2002.

6.  ADVANCES FROM DISTRIBUTORS AND OTHERS

Advances from distributors and OEMs consist of the following:

                                                                 DECEMBER 31,
                                                               2002       2001
                                                             -------     -------
                                                          (Dollars in thousands)
Advance from console hardware manufacturer .............     $  --       $ 5,000
Advances for distribution rights to a future title .....        --         4,000
Advances for other distribution rights .................         101       3,792
                                                             -------     -------
                                                             $   101     $12,792
                                                             =======     =======
Net advance from Vivendi distribution agreement
   (related party) .....................................     $ 3,550     $10,060
                                                             =======     =======

     In March  2001,  the  Company  entered  into a  supplement  to a  licensing
agreement  with a console  hardware  and  software  manufacturer  under which it
received an advance of $5.0 million.  This advance was repaid with proceeds from
the sale of Shiny.

     In July 2001,  the Company  entered into a  distribution  agreement  with a
distributor  whereby the distributor would have the North American  distribution
rights to a future title. In return, the distributor paid the Company an advance
of $4.0 million to be recouped  against  future amounts due to the Company based
on net  sales of the  future  title.  In  January  2002,  the  Company  sold the
publishing  rights  to  this  title  to the  distributor  in  connection  with a
settlement agreement entered into with the third party developer. The settlement
agreement  provided,  among other things, that the Company assign its rights and
obligations  under the  product  agreement  to the third party  distributor.  In
consideration  for  assigning  the product  agreement  to the  distributor,  the
Company  was not  required  to repay the $4.0  million  advance  nor repay  $1.6
million  related to past  royalties  and interest  owed to the  distributor.  In
addition, the Company agreed to forgive $0.6 million in advances previously paid
to the developer. As a result, the Company recorded net revenues of $5.6 million
and a related cost of sales of $0.6 million in the year ended December 31, 2002.

     Other advances from distributors are repayable as products covered by those
agreements are sold.


                                      F-20


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     In April 2002, the Company  entered into an agreement with Titus,  pursuant
to which,  among other  things,  the Company sold to Titus all right,  title and
interest in the games "EarthWorm Jim", "Messiah",  "Wild 9", "R/C Stunt Copter",
"Sacrifice", "MDK", "MDK II", and "Kingpin", and Titus licensed from the Company
the right to develop, publish,  manufacture and distribute the games "Hunter I",
"Hunter II",  "Icewind  Dale I",  "Icewind  Dale II", and "BG: Dark Alliance II"
solely on the Nintendo Advance GameBoy game system for the life of the games. As
consideration for these rights, Titus issued to the Company a promissory note in
the principal amount of $3.5 million, which note bears interest at 6 percent per
annum.  The  promissory  note was due on August 31,  2002,  and may be paid,  at
Titus' option, in cash or in shares of Titus common stock with a per share value
equal to 90 percent of the average trading price of Titus' common stock over the
5 days  immediately  preceding the payment date.  The Company has provided Titus
with a guarantee  under this  agreement,  which provides that in the event Titus
does not achieve gross sales of at least $3.5 million by June 25, 2003,  and the
shortfall is not the result of Titus'  failure to use best  commercial  efforts,
the Company will pay to Titus the difference between $3.5 million and the actual
gross sales achieved by Titus, not to exceed $2.0 million. The Company is in the
later  stages of  negotiations  with  Titus to  repurchase  these  assets  for a
purchase  price payable by canceling the $3.5 million  promissory  note, and any
unpaid  accrued  interest  thereon.  Concurrently,  the  Company and Titus would
terminate any executory obligations relating to the original sale, including the
Company's  obligation  to pay Titus up to $2 million  if Titus does not  achieve
gross sales of at least $3.5 million by June 25, 2003.  As Titus is the majority
stockholder  of  the  Company  and  the   probability  of  the  agreement  being
terminated,  the Company has offset the related note receivable in the amount of
$3.5 million against the deferred revenue in the amount of $3.5 million.

     In August 2001,  the Company  entered into a  distribution  agreement  with
Vivendi  providing  for  Vivendi to become the  Company's  distributor  in North
America through December 31, 2003 for  substantially  all of its products,  with
the exception of products with pre-existing  distribution agreements.  Under the
terms of the agreement,  as amended,  Vivendi earns a distribution  fee based on
the net sales of the titles  distributed.  The  agreement  provided  for advance
payments from Vivendi  totaling $10.0  million.  In amendments to the agreement,
Vivendi  agreed  to  advance  the  Company  an  additional  $3.5  million.   The
distribution  agreement,  as  amended,  provides  for  the  acceleration  of the
recoupment  of the advances  made to the Company,  as defined.  During the three
months ended March 31, 2002,  Vivendi  advanced the Company an  additional  $3.0
million   bringing  the  total  amounts   advanced  to  the  Company  under  the
distribution  agreement  with  Vivendi  to $16.5  million.  In April  2002,  the
distribution  agreement was further amended to provide for Vivendi to distribute
substantially  all of the Company's  products through December 31, 2002,  except
certain  future  products,  which Vivendi would have the right to distribute for
one year  from the date of  release.  As of  August 1,  2002,  all  distribution
advances  relating to the August 2001 agreement from Vivendi were fully recouped
or repaid.

     In August 2002, the Company entered into a new distribution  agreement with
Vivendi  whereby  Vivendi  will  distribute  substantially  all of  the  Company
products  in North  America for a period of three years as a whole and two years
with  respect to each  product  giving a potential  maximum  term of five years.
Under the August 2002  agreement,  Vivendi will pay the Company  sales  proceeds
less amounts for distribution  fees, price  concessions and returns.  Vivendi is
responsible for all manufacturing,  marketing and distribution expenditures, and
bears all credit,  price  concessions  and  inventory  risk,  including  product
returns.  Upon the Company's delivery of a gold master to Vivendi,  Vivendi will
pay the Company as a non-refundable  minimum  guarantee,  a specified percent of
the projected amount due the Company based on projected  initial shipment sales,
which are  established by Vivendi in accordance with the terms of the agreement.
The  remaining  amounts  are  due  upon  shipment  of the  titles  to  Vivendi's
customers.  Payments for future sales that exceed the projected initial shipment
sales are paid on a monthly basis. As of December 31, 2002, Vivendi had advanced
the Company $3.6 million  related to future  minimum  guarantees on  undelivered
products.


                                      F-21


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


7.  INCOME TAXES

     Income (loss) before provision for income taxes consists of the following:

                                              YEARS ENDED DECEMBER 31,
                                   --------------------------------------------
                                     2002              2001              2000
                                   --------          --------          --------
                                              (Dollars in thousands)
Domestic .................         $ 14,922          $(44,264)         $(10,801)
Foreign ..................             --              (1,552)           (1,274)
                                   --------          --------          --------
Total ....................         $ 14,922          $(45,816)         $(12,075)
                                   ========          ========          ========



     The provision for income taxes is comprised of the following:

                                                  YEARS ENDED DECEMBER 31,
                                          ------------------------------------
                                           2002            2001           2000
                                          -----           -----          -----
                                                   (Dollars in thousands)
Current:
   Federal .....................          $(225)          $ 500          $ --
   State .......................           --              --              --
   Foreign .....................           --              --              --
                                          -----           -----          -----
                                           (225)            500            --
Deferred:
   Federal .....................           --              --              --
   State .......................           --              --              --
                                          -----           -----          -----
                                           --              --              --
                                          -----           -----          -----
                                          $(225)          $ 500          $ --
                                          =====           =====          =====

     The Company files a  consolidated  U.S.  Federal  income tax return,  which
includes all of its domestic operations.  The Company files separate tax returns
for each of its foreign  subsidiaries in the countries in which they reside. The
Company's  available net  operating  loss ("NOL")  carryforward  for Federal tax
reporting purposes  approximates $131 million and expires through the year 2022.
The Company's NOL's for State tax reporting purposes approximate $93 million and
expires  through  the year 2012.  The  utilization  of the federal and state net
operating losses may be limited by Internal  Revenue Code Section 382.  Further,
utilization  of the  Company's  state NOLs for tax years  beginning  in 2002 and
2003, will be suspended under provisions of California law.

     In June 2002,  the  Internal  Revenue  Service  ("the IRS")  concluded  its
examination  of the Company's  consolidated  federal  income tax returns for the
years ended April 30, 1992 through  1997.  In 2001,  the Company  established  a
reserve of $500,000,  representing  management's  best estimate of amounts to be
paid in settlement of the IRS claims. In the second quarter of 2002, the Company
reached a  settlement  with the IRS and  agreed to pay  $275,000  to settle  all
outstanding issues. With the executed  settlement,  the Company has adjusted its
reserve and, as a result, recorded an income tax benefit of $225,000 in the year
ended December 31, 2002.


                                      F-22


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     A reconciliation of the statutory Federal income tax rate and the effective
tax rate as a percentage of pretax loss is as follows:

                                                    YEARS ENDED DECEMBER 31,
                                                ------------------------------
                                                 2002        2001        2000
                                                ------      ------      ------
Statutory income tax rate ..................      34.0%      (34.0)%     (34.0)%
State and local income taxes, net of
   Federal income tax benefit ..............       2.0        (6.0)       (3.0)
   Valuation allowance .....................     (36.0)       40.0        37.0
Other ......................................      (1.5)        1.1         --
                                                ------      ------      ------
                                                  (1.5)%       1.1 %       -- %
                                                ======      ======      ======


     The components of the Company's net deferred  income tax asset  (liability)
are as follows:

                                                                DECEMBER 31,
                                                          ---------------------
                                                            2002         2001
                                                          --------     --------
                                                          (Dollars in thousands)
Current deferred tax asset (liability):
     Prepaid royalties ...............................    $    422     $ (4,485)
     Nondeductible reserves ..........................         468        3,645
     Reserve for advances ............................      (2,041)        --
     Accrued expenses ................................      (1,297)         666
     Foreign loss and credit carryforward ............       2,556          867
     Federal and state net operating losses ..........      51,192       53,741
     Research and development credit carryforward ....       2,374          831
     Other ...........................................         909          305
                                                          --------     --------
                                                            54,583       55,570
                                                          --------     --------
Non-current deferred tax asset (liability):
     Depreciation expense ............................        (192)        (181)
     Nondeductible reserves ..........................        --            532
                                                          --------     --------
                                                              (192)         351
                                                          --------     --------
Net deferred tax asset before
     valuation allowance .............................      54,390       55,921
Valuation allowance ..................................     (54,390)     (55,921)
                                                          --------     --------
Net deferred tax asset ...............................    $   --       $   --
                                                          ========     ========


     The Company maintains a valuation allowance against its deferred tax assets
due  to  the  uncertainty   regarding  future  realization.   In  assessing  the
realizability  of its deferred tax assets,  management  considers  the scheduled
reversal of deferred tax liabilities,  projected future taxable income,  and tax
planning  strategies.  The valuation  allowance on deferred tax assets decreased
$1.5  million  during  December  31, 2002 and  increased  $16.9  million  during
December 31, 2001.


                                      F-23


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


8.   COMMITMENTS AND CONTINGENCIES

LEASES

     The Company has various  leases for the office space it occupies  including
its corporate  offices in Irvine,  California.  The lease for corporate  offices
expires in June 2006 with one five-year  option to extend the term of the lease.
The Company has also entered into various  office  equipment  operating  leases.
Future  minimum  lease  payments  under  noncancelable  operating  leases are as
follows:

  Year ending December 31 (Dollars in thousands):
     2003 ...........................      $   1,386
     2004 ...........................          1,533
     2005 ...........................          1,532
     2006 ...........................            764
     2007 ...........................            --
                                           ---------
                                           $   5,215
                                           =========


     Total rent expense was $2.1 million,  $2.7 million and $2.8 million for the
years ended December 31, 2002, 2001 and 2000, respectively.

LITIGATION

     The Company is involved in various legal proceedings, claims and litigation
arising in the ordinary course of business,  including disputes arising over the
ownership of intellectual property rights and collection matters. In the opinion
of  management,  the  outcome of known  routine  claims will not have a material
adverse  effect on the  Company's  business,  financial  condition or results of
operations.

     On September 16, 2002, Knight Bridging Korea Co., Ltd ("KBK") filed a $98.8
million  complaint for damages against both  Infogrames,  Inc. and the Company's
subsidiary  GamesOnline.com,  Inc.,  alleging,  among  other  things,  breach of
contract,  misappropriation  of trade  secrets,  breach of fiduciary  duties and
breach of  implied  covenant  of good  faith in  connection  with an  electronic
distribution agreement dated November 2001 between KBK and GamesOnline.com, Inc.
KBK has alleged that GamesOnline.com failed to timely deliver to KBK assets to a
product, and that it improperly disclosed confidential  information about KBK to
Infogrames.  The  Company  believes  this  complaint  is without  merit and will
vigorously defend its position.

     On November 25,  2002,  Special  Situations  Fund III,  Special  Situations
Cayman Fund,  L.P.,  Special  Situations  Private Equity Fund, L.P., and Special
Situations  Technology Fund, L.P.  (collectively,  "Special Situations") filed a
motion for  summary  judgment  in lieu of  complaint  against the Company in the
amount of $1.3 million, alleging, among other things, that the Company is liable
to pay  Special  Situations  $1.3  million  for its  failure  to secure a timely
effective  date for a  Registration  Statement  for the  Company's  shares which
Special Situations  purchased pursuant to a common stock subscription  agreement
dated March 29, 2002 between  Special  Situations  and the Company.  The Company
disputes the amount owed and will vigorously defend its position.

EMPLOYMENT AGREEMENTS

     The  Company  has  entered  into  employment  agreements  with  certain key
employees  providing for, among other things,  salary,  bonuses and the right to
participate in certain  incentive  compensation and other employee benefit plans
established by the Company.  Under these  agreements,  upon termination  without
cause or resignation for good reason, as defined,  the employees may be entitled
to certain severance benefits, as defined. These agreements expire through 2003.


                                      F-24


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


NASDAQ DELISTING

     On October 9, 2002, the Company's common stock was delisted from The Nasdaq
SmallCap Market due to the Company's failure to maintain certain minimum listing
requirements and began trading on the  NASD-operated  Over-the-Counter  Bulletin
Board.

9.   STOCKHOLDERS' EQUITY

PREFERRED STOCK AND COMMON STOCK

     The Company's  articles of incorporation  authorize up to 10,000,000 shares
of $0.001 par value preferred stock.  Shares of preferred stock may be issued in
one or more classes or series at such time as the Board of Directors  determine.
As of December 31, 2002, there were no shares of preferred stock outstanding.

     In 2002,  the  Company  amended a  development  agreement  with a developer
whereby the  developer  would receive  shares of the  Company's  common stock in
return for meeting  certain  milestones.  As a result of the  developer  meeting
these  milestones,  the Company has agreed to issue 700,000 shares of its common
stock.  The  accompanying  statement of operations  includes  royalty expense of
$205,000  based on the value of the common stock on the day the common stock was
earned. The Company issued the stock in February 2003.

     In April 2001, the Company completed a private placement of 8,126,770 units
at $1.5625 per unit for total  proceeds of $12.7  million,  and net  proceeds of
approximately  $11.7  million.  Each unit consisted of one share of common stock
and a warrant to purchase  one share of common  stock at $1.75 per share,  which
was exercisable  immediately.  If the Company issues additional shares of common
stock at a per share price below the exercise  price of the  warrants,  then the
warrants are to be repriced, as defined,  subject to stockholder  approval.  The
warrants expire in March 2006. In addition to the warrants issued in the private
placement,  the  Company  granted  the  investment  banker  associated  with the
transaction  a warrant for 500,000  shares of the Company's  common  stock.  The
warrant has an exercise  price of $1.5625 per share and vests one year after the
registration  statement  for the shares of common stock issued under the private
placement becomes effective.  The warrant expires four years after it vests. The
registration  statement  was  not  declared  effective  by May 31,  2001  and in
accordance  with the terms of the agreement,  the Company  incurred a penalty of
approximately  $254,000 per month,  payable in cash,  until June 2002,  when the
registration statement was declared effective. The Company is currently involved
in negotiations with certain of these investors with respect to payment of these
penalties. During the year ended December 31, 2002 and 2001, the Company accrued
penalties  of $1.8  million  and $1.8  million,  respectively,  payable to these
stockholders,  which was  charged to results of  operations  and  classified  as
interest expense.  The total amount accrued at December 31, 2002 and 2001is $3.6
million and $1.8 million, respectively.

     In April 2000, the Company  completed a $20 million  transaction with Titus
under a Stock Purchase  Agreement and issued 719,424 shares of newly  designated
Series A Preferred Stock ("Preferred Stock") and a warrant for 350,000 shares of
the Company's  Common Stock,  which had  preferences  under certain  events,  as
defined.  The  Preferred  Stock  was  convertible  by Titus,  redeemable  by the
Company,  and accrued a 6 percent cumulative  dividend per annum payable in cash
or, at the option of Titus, in shares of the Company's  Common Stock as declared
by the  Company's  Board of  Directors.  The  Company  held rights to redeem the
Preferred  Stock shares at the original  issue price plus all accrued but unpaid
dividends.  Titus was entitled to convert the Preferred Stock shares into shares
of Common Stock at any time after May 2001. The  conversion  rate was the lesser
of $2.78  (7,194,240  shares of Common  Stock) or 85 percent of the market price
per  share at the time of  conversion,  as  defined.  The  Preferred  Stock  was
entitled to the same voting  rights as if it had been  converted to Common Stock
shares subject to a maximum of 7,619,047  votes.  In October 2000, the Company's
stockholders  approved  the  issuance  of  the  Preferred  Stock  to  Titus.  In
connection with this transaction, Titus received a warrant for 350,000 shares of
the Company's Common Stock  exercisable at $3.79 per share at anytime.  The fair
value  of  the  warrant  was  estimated  on the  date  of the  grant  using  the
Black-Scholes pricing model. This resulted in the Company allocating $19,202,000
to the Preferred Stock and $798,000 to the warrant, which is included in paid in
capital. The discount on the Preferred


                                      F-25


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


Stock was accreted over a one-year  period as a dividend to the Preferred  Stock
in the amount of $532,000 and $266,000  during the year ended  December 31, 2001
and 2000,  respectively.  As of December 31, 2001,  the Company had accreted the
full amount.  In  addition,  Titus  received a warrant for 50,000  shares of the
Company's Common Stock  exercisable at $3.79 per share,  because the Company did
not meet  certain  financial  operating  performance  targets for the year ended
December  31, 2000.  The fair value of this  warrant was recorded as  additional
interest expense. Both warrants expire in April 2010.

     In August 2001, Titus converted  336,070 shares of Series A Preferred Stock
into  6,679,306  shares  of  Common  Stock.  This  conversion  did  not  include
accumulated   dividends  of  $740,000  on  the  Preferred   Stock,   these  were
reclassified  as an  accrued  liability  as Titus had  elected  to  receive  the
dividends in cash. In March 2002,  Titus converted its remaining  383,354 shares
of Series A  Preferred  Stock  into  47,492,162  shares of  Common  Stock.  This
conversion  did  not  include  accumulated  dividends  of  $1.2  million  on the
Preferred Stock,  these were  reclassified as an accrued  liability as Titus had
elected to receive the dividends in cash. Collectively,  Titus has 71 percent of
the total voting power of the Company's capital stock at December 31, 2002.

     In August  2000,  the  Company  issued a warrant to  purchase up to 100,000
shares of the  Company's  Common  Stock to a vendor in  connection  with  public
relations  services they provided to the Company.  The fair value of the warrant
was amortized to general and  administrative  expenses over the vesting  period.
The  warrant  vests at  certain  dates over a one year  period and has  exercise
prices  between  $3.00 per share and $6.00 per share,  as  defined.  The warrant
expires in August 2003.

     During 2000, the Company's  Board of Directors  approved a resolution  that
increased the number of authorized  shares of the Company's Common Stock from 50
million to 100 million.

EMPLOYEE STOCK PURCHASE PLAN

     Under this plan,  eligible  employees may purchase  shares of the Company's
Common Stock at 85% of fair market value at specific,  predetermined  dates.  In
2000,  the Board of  Directors  increased  the  number of shares  authorized  to
300,000.  Of  the  300,000  shares  authorized  to be  issued  under  the  plan,
approximately  84,877  shares  remained  available  for issuance at December 31,
2002.  Employees  purchased 21,652 and 24,483 shares in 2002 and 2001 for $4,000
and $31,000, respectively.

SHARES RESERVED FOR FUTURE ISSUANCE

     Common  stock  reserved  for future  issuance  at  December  31, 2002 is as
follows:

Stock option plans:
       Outstanding ........................................            1,091,697
       Available for future grants ........................            3,209,735
Employee Stock Purchase Plan ..............................               84,877
Warrants ..................................................            9,687,068
                                                                      ----------
Total .....................................................           14,073,377
                                                                      ==========


10.  NET EARNINGS (LOSS) PER COMMON SHARE

     Basic earnings  (loss) per common share is computed as net earnings  (loss)
attributable to common  stockholders  divided by the weighted  average number of
common shares  outstanding for the period and does not include the impact of any
potentially dilutive  securities.  Diluted earnings per common share is computed
by dividing  the net earnings  attributable  to the common  stockholders  by the
weighted average number of common shares outstanding


                                      F-26


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


plus the effect of any dilutive  stock options and common stock warrants and the
conversion of outstanding convertible debentures.

                                                    YEARS ENDED DECEMBER 31,
                                                -------------------------------
                                                  2002       2001        2000
                                                --------   --------    --------
                                                  (Amounts in thousands, except
                                                       per share amounts)
Net income (loss) available to common
   stockholders .............................   $ 15,015   $(47,548)   $(13,477)
   Interest related to conversion of
      secured convertible
      promissory note .......................         82       --          --
                                                --------   --------    --------
   Dilutive net income (loss)
      available to common stockholders ......   $ 15,097   $(47,548)   $(13,477)
                                                ========   ========    ========
Shares used to compute net income
   (loss) per share:
   Weighted-average common shares ...........     83,585     38,670      30,047
   Dilutive stock equivalents ...............     12,485       --          --
                                                --------   --------    --------
   Dilutive potential common shares .........     96,070     38,670      30,047
                                                ========   ========    ========
Net income (loss) per share:
   Basic ....................................   $   0.18   $  (1.23)   $  (0.45)
   Diluted ..................................   $   0.16   $  (1.23)   $  (0.45)

     There were options and warrants  outstanding to purchase  10,778,765 shares
of common stock at December 31, 2002,  which were excluded from the earnings per
common  share  computation  as the  exercise  price was greater than the average
market price of the common shares.  The dilutive stock  equivalents in the above
calculation  related to the outstanding  convertible  debentures at December 31,
2002, which the Company utilized the "if converted" method pursuant to SFAS 128.

     Due to the net loss  attributable for the years ended December 31, 2001 and
2000, on a diluted basis to common stockholders, stock options and warrants have
been excluded from the diluted earnings per share calculation as their inclusion
would have been  antidilutive.  Had net income been reported for the years ended
December 31, 2001 and 2000, an additional  13,694,739 and 4,449,967 shares would
have been added to dilutive  potential  common shares,  respectively,  and there
were 484,848 shares of restricted Common Stock at December 31, 2000, which would
have been added dilutive  potential common shares. The weighted average exercise
price  at  December  31,  2002,  2001  and  2000 was  $1.99,  $2.07  and  $3.03,
respectively, for the options and warrants outstanding.

11.   EMPLOYEE BENEFIT PLANS

 STOCK OPTION PLANS

     The Company has three stock option plans. Under the Incentive Stock Option,
Nonqualified  Stock  Option and  Restricted  Stock  Purchase  Plan--1991  ("1991
Plan"), the Company was authorized to grant options to its employees to purchase
up to 111,000  shares of common  stock.  Under the  Incentive  Stock  Option and
Nonqualified  Stock Option Plan--1994 ("1994 Plan"),  the Company was authorized
to grant  options to its  employees  to purchase up to 150,000  shares of common
stock.  Under the 1997 Stock Incentive  Plan, as amended,  the Company may grant
options to its employees,  consultants and directors to purchase up to 6,000,000
shares of common stock.

     Options  under all three  plans  generally  vest from three to five  years.
Holders  of  options  under the 1991 Plan and the 1994 Plan  shall be deemed 100
percent  vested  in the  event  of a  merger  in which  the  Company  is not the
surviving entity, a sale of substantially all of the assets of the Company, or a
sale of all shares of Common Stock of the  Company.  The Company has treated the
difference,  if any,  between the exercise  price and the estimated  fair market
value as compensation expense for financial reporting purposes,  pursuant to APB
25.  Compensation  expense for the vested portion  aggregated  zero,  $4,000 and
$90,000 for the years ended December 31, 2002, 2001 and 2000, respectively.


                                      F-27


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     The  following is a summary of option  activity  pursuant to the  Company's
stock option plans:
<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                         -------------------------------------------------------------------------
                                   2002                      2001                     2000
                         ----------------------    ----------------------    ---------------------
                                       WEIGHTED                  WEIGHTED                 WEIGHTED
                                       AVERAGE                   AVERAGE                  AVERAGE
                                       EXERCISE                  EXERCISE                 EXERCISE
                           SHARES       PRICE        SHARES       PRICE        SHARES      PRICE
                         ----------    --------    ----------    --------    ----------   --------
<S>                       <C>            <C>        <C>           <C>         <C>           <C>
Options outstanding at
   beginning of period    4,007,969      $2.57      3,539,828     $2.90       3,340,780     $3.30
   Granted                        -         -         739,667      1.25         968,498      2.64
   Exercised               (639,541)      0.14        (21,626)     0.47        (113,850)     0.37
   Canceled              (2,276,731)      3.44       (249,900)     3.36        (655,600)     5.14
                         ----------                ----------                ----------
Options outstanding
   at end of period       1,091,697      $3.10      4,007,969     $2.57       3,539,828     $2.90
                         ==========                ==========                ==========
   Options exercisable      744,892                 2,093,606                 1,496,007
                         ==========                ==========                ==========
</TABLE>

     The following  outlines the significant  assumptions  used to estimated the
fair value  information  presented  utilizing  the  Black-Scholes  Single Option
approach with ratable amortization. There were no options granted in 2002.

                                                      YEARS ENDED DECEMBER 31,
                                                     --------------------------
                                                       2001              2000
                                                     ---------        ---------
Risk free rate .................................          4.5%             6.2%
Expected life ..................................     6.7 years        7.3 years
Expected volatility ............................           94%              90%
Expected dividends .............................           --               --
Weighted- average grant-date fair value
   of options granted ..........................     $    1.02        $    2.14

     A detail of the options outstanding and exercisable as of December 31, 2002
is as follows:

                          OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                  -----------------------------------   ------------------------
                                Weighted
                                 Average      Weighted                  Weighted
                                Remaining      Average                   Average
   Range of          Number     Contract      Exercise      Number      Exercise
Exercise Prices   Outstanding     Life         Price     Exercisable     Price
--------------------------------------------------------------------------------
$ 0.68 - $ 2.31       281,000      7.82       $   1.50      140,871     $   1.92
$ 2.44 - $ 2.64       214,834      7.64           2.63      141,539         2.64
$ 2.69 - $ 2.69       292,300      6.52           2.69      225,700         2.69
$ 3.25 - $ 8.00       303,563      5.40           5.30      236,782         5.75
                   ----------     -----       --------    ---------     --------
$ 0.68 - $ 8.00     1,091,697      6.76       $   3.10      744,892     $   3.51
                   ==========     =====       ========    =========     ========

PROFIT SHARING 401(K) PLAN

     The  Company  sponsors  a 401(k)  plan  ("the  Plan")  for  most  full-time
employees. The Company matches 50 percent of the participant's  contributions up
to six  percent of the  participant's  base  compensation.  The  profit  sharing
contribution  amount  is at the  sole  discretion  of  the  Company's  Board  of
Directors.  Participants  vest at a rate of 20 percent  per year after the first
year of service for profit sharing  contributions  and 20 percent per year after
the first two years of service for matching  contributions.  Participants become
100 percent vested upon death, permanent


                                      F-28


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


disability  or  termination  of the Plan.  Benefit  expense  for the years ended
December  31,  2002,   2001  and  2000  was  $79,000,   $255,000  and  $267,000,
respectively.

12.  RELATED PARTY TRANSACTIONS

     Amounts receivable from and payable to related parties are as follows:

                                                              DECEMBER 31,
                                                          2002            2001
                                                        -------         -------
                                                         (Dollars in thousands)
Receivables from related parties:
        Virgin .................................        $ 2,050         $ 7,504
        Vivendi (Note 6) .......................            487           2,437
        Titus ..................................            200             260
        Return allowance .......................           (231)         (4,026)
                                                        -------         -------
        Total ..................................        $ 2,506         $ 6,175
                                                        =======         =======

Payables to related parties:
        Virgin .................................        $ 1,797         $ 5,790
        Vivendi ................................          5,322            --
        Titus ..................................            321           1,308
                                                        -------         -------
        Total ..................................        $ 7,440         $ 7,098
                                                        =======         =======

EVENTS WITH TITUS INTERACTIVE S.A.

     Titus, the Company's largest  stockholder,  has a majority of the Company's
stockholders'  voting  power,  providing  Titus with the  ability to control the
outcome of votes on proposals presented to the Company's  stockholders,  as well
as the  ability  to elect a  majority  of the  Company's  directors.  The events
relating to Titus' gaining of majority voting power are as follows:

     o    On September  5, 2001,  the Company  entered into a Support  Agreement
          with Titus  providing for the  nomination  to the  Company's  Board of
          Directors a slate of six individuals  mutually acceptable to Titus and
          the Company for  election as directors  at the  Company's  2001 annual
          meeting of stockholders, and appointing a Chief Administrative Officer
          ("CAO") to the  Company.  Also on  September  5, 2001,  as part of the
          Support Agreement,  three of the existing directors resigned and three
          new  directors  acceptable  to Titus were  appointed by the  remaining
          directors  to  fill  the  three  vacancies.  As  a  consequence,  from
          September 6, 2001 until the 2001 annual meeting on September 18, 2001,
          the Board of  Directors  consisted  of five  individuals  nominated by
          Titus, and two directors previously nominated by management.

     o    On September 13, 2001, the Company's Board of Directors established an
          Executive Committee, consisting of the Company's President and CAO, to
          administer  and  oversee  all  aspects  of  the  Company's  day-to-day
          operations,  including,  without limitation, (a) the relationship with
          lenders,  including LaSalle Business Credit,  Inc.; (b) relations with
          Europlay  I,  LLC  ("Europlay"),  consultants  retained  to  effect  a
          restructuring  of  the  Company;  (c)  capital  raising  efforts;  (d)
          relationships  with vendors and licensors;  (e) employment of officers
          and employees;  (f) retaining and managing outside  professionals  and
          consultants; and (g) directing management.

     o    The Company's  2001 annual  meeting was held on September 18, 2001. At
          the annual  meeting,  the five Titus nominees and one of the directors
          previously  nominated by management  were elected to continue to serve
          as  directors.  Subsequent  to  September  18,  2001,  two  additional
          independent directors were elected to the Board of Directors.


                                      F-29


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


     In September  2001,  Titus retained  Europlay as consultants to assist with
the restructuring of the Company.  Because the arrangement with Europlay is with
Titus and Europlay's services have a direct benefit to the Company,  the Company
has recorded an expense and a capital  contribution  by Titus of $75,000 for the
year ended  December  31, 2001 in  accordance  with the SEC's  Staff  Accounting
Bulletin  No. 79  "Accounting  for Expenses  and  Liabilities  Paid by Principal
Stockholders."  Beginning in October 2001, the Company agreed to reimburse Titus
for  consulting  expense  incurred on behalf of the Company.  As of December 31,
2001,  the  Company  owed Titus  $450,000 as a result of this  arrangement.  The
amounts owed to Europlay by Titus under this arrangement,  were paid directly to
Europlay  with the sale of Shiny in April 2002 (Note 3).  The  Company  has also
entered into a  commission-based  agreement  with Europlay  where  Europlay will
assist the Company with strategic transactions, such as debt financing or equity
financing,  the  sale of  assets  or an  acquisition  of the  Company.  Europlay
assisted  the  Company  with  the  sale of  Shiny,  and as a  result,  earned  a
commission based on the sales price of Shiny.

     In March  2003,  the  Company  entered  into a note  receivable  with Titus
Software  Corp.  ("TSC"),  a subsidiary of Titus,  for $226,000.  The note earns
interest at 8 percent per annum and is due in February 2004. The note is secured
by (i) 4.0 million shares of the Company's common stock held by Titus (ii) TSC's
rights in and to a note receivable due from the President of Interplay and (iii)
rights in and to TSC's most current  video game title  releases  during 2003 and
2004.

     In March 2003,  the  Company's  Board of Directors  further  authorized  an
additional  $500,000  loan to Titus,  with interest at 8 percent per annum and a
maturity date in February  2004, on the condition  that Titus is able to provide
sufficient  security  that is  acceptable  to the Board,  which  shall  include,
without limitation,  a minimum of 9.3 million shares of our common stock held by
Titus and (ii) rights in and to Titus' most  current  video game title  releases
during 2003 and 2004.

DISTRIBUTION AND PUBLISHING AGREEMENTS

Titus Interactive S.A.

     In connection  with the equity  investments  by Titus (Note 9), the Company
performs  distribution services on behalf of Titus for a fee. In connection with
such  distribution  services,  the  Company  recognized  fee income of  $22,000,
$21,000 and  $435,000  for the years ended  December  31,  2002,  2001 and 2000,
respectively.

     During the year ended December 31, 2000, the Company  recognized $3 million
in licensing revenue under a multi-product  license agreement with Titus for the
technology  underlying  one title and the content of three  titles for  multiple
game  platforms,  extended for a maximum  period of twelve years,  with variable
royalties  payable to the Company  from five to ten  percent,  as  defined.  The
Company  earned a $3 million  non-refundable  fully-recoupable  advance  against
royalties  upon  signing  and  completing  all  of  its  obligations  under  the
agreement.

     Amounts due to Titus at  December  31, 2002  consisted  primarily  of trade
payables. Amounts due to Titus at December 31, 2001 include dividends payable of
$740,000 and $450,000 for services rendered by Europlay.

Virgin Interactive Entertainment Limited

     In February 1999, the Company  entered into an  International  Distribution
Agreement with Virgin Interactive  Entertainment  Limited  ("Virgin"),  a wholly
owned  subsidiary of Titus,  which  provides for the exclusive  distribution  of
substantially  all  of  the  Company's  products  in  Europe,   Commonwealth  of
Independent  States,  Africa  and  the  Middle  East  for a  seven-year  period,
cancelable under certain conditions, subject to termination penalties and costs.
Under the  Agreement,  the Company pays Virgin a monthly  overhead fee,  certain
minimum  operating  charges,  a distribution  fee based on net sales, and Virgin
provides certain market preparation, warehousing, sales and fulfillment services
on behalf of the Company.

     The Company amended its  International  Distribution  Agreement with Virgin
effective  January 1, 2000. Under the amended  Agreement,  the Company no longer
pays Virgin an overhead fee or minimum commissions. In


                                      F-30


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


addition,  the Company extended the term of the agreement  through February 2007
and  implemented  an  incentive  plan  that will  allow  Virgin to earn a higher
commission rate, as defined.  Virgin disputed the amendment to the International
Distribution  Agreement  with the  Company,  and  claimed  that the  Company was
obligated,  among other things,  to pay for a portion of Virgin's overhead of up
to  approximately  $9.3 million  annually,  subject to decrease by the amount of
commissions earned by Virgin on its distribution of the Company's products.

     The  Company  settled  this  dispute  with Virgin in April 2001 and further
amended the  International  Distribution  Agreement and amended the  Termination
Agreement and the Product Publishing  Agreement,  all of which were entered into
on  February  10,  1999 when the  Company  acquired  an equity  interest  in VIE
Acquisition  Group LLC ("VIE"),  the parent entity of Virgin. As a result of the
April 2001  settlement,  Virgin dismissed its claim for overhead fees, VIE fully
redeemed  the  Company's  ownership  interest in VIE and Virgin paid the Company
$3.1 million in net past due balances owed under the International  Distribution
Agreement.  In  addition,  the Company paid Virgin a one-time  marketing  fee of
$333,000  for the period  ending June 30, 2001 and the monthly  overhead fee was
revised  for the  Company to pay  $111,000  per month for the nine month  period
beginning  April 2001, and $83,000 per month for the six month period  beginning
January 2002, with no further overhead  commitment for the remainder of the term
of the International Distribution Agreement. The Company no longer has an equity
interest in VIE or Virgin as of April 2001.

     In January 2003,  Virgin and the Company  entered into a waiver  related to
the  distribution  of a video game title in which the Company  sold the European
distribution  rights to Vivendi.  In consideration for Virgin  relinquishing its
rights, the Company agreed to pay Virgin $650,000 and will pay Virgin 50 percent
of all proceeds in excess of the advance  received from Vivendi.  As of December
31,  2002 the Company had paid  Virgin  $220,000 of the  $650,000  due under the
waiver agreement.

     In February 2003, Virgin Interactive  Entertainment  (Europe) Limited,, the
operating  subsidiary of Virgin filed for a Company  Voluntary  Arrangement,  or
CVA, a process of reorganization in the United Kingdom which must be approved by
Virgin's  creditors.  Virgin owed the Company,  prior to reserve,  approximately
$1.8 million at December 31, 2002. As of March 28, 2003, the CVA was rejected by
Virgin's  creditors,  and Virgin is presently  negotiating with its creditors to
propose a new CVA.  The Company  does not know what  affect  approval of the CVA
will have on its ability to collect amounts Virgin owes the Company.  If the new
CVA is not  approved,  the  Company  expects  Virgin  to  cease  operations  and
liquidate,  in which event the Company  will most likely not receive any amounts
presently due to it by Virgin,  and will not have a distributor for its products
in Europe and the other  territories in which Virgin  presently  distributes its
products.

     In connection with the International  Distribution  Agreement,  the Company
incurred distribution  commission expense of $0.9 million, $2.3 million and $4.6
million for the years ended December 31, 2002, 2001 and 2000,  respectively.  In
addition, the Company recognized overhead fees of $0.5 million, $1.0 million and
zero and certain minimum operating charges to Virgin of zero,  $333,000 and zero
for the years ended December 31, 2002, 2001 and 2000, respectively.

     The Company  has also  entered  into a Product  Publishing  Agreement  with
Virgin,  which  provides the Company  with an  exclusive  license to publish and
distribute  substantially all of Virgin's  products within North America,  Latin
America and South America for a royalty based on net sales.  As part of terms of
the April 2001 settlement between Virgin and the Company, the Product Publishing
Agreement  was  amended to provide  for the  Company to publish  only one future
title developed by Virgin. In connection with the Product  Publishing  Agreement
with Virgin,  the Company  earned  $66,000,  $36,000 and $63,000 for  performing
publishing  and  distribution  services  on behalf of Virgin for the years ended
December 31, 2002, 2001 and 2000, respectively.

     In connection with the International  Distribution  Agreement,  the Company
subleases  office space from Virgin.  Rent expense paid to Virgin was  $104,000,
$104,000  and $101,000  for the years ended  December  31, 2002,  2001 and 2000,
respectively.


                                      F-31


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


Vivendi Universal Games, Inc.

     In connection with the  distribution  agreements with Vivendi (Note 6), the
Company  incurred  distribution  commission  expense of $14.0  million  and $2.2
million  for  the  years  ended  December  31,  2002  and  2001,   respectively.
Distribution  commission  expense in 2002 for titles  released  under the August
2002 agreement, were inclusive of all marketing,  manufacturing and distribution
expenditures.

INVESTMENT IN AFFILIATE

     In connection  with the  International  Distribution  Agreement and Product
Publishing  Agreement,  the Company had also entered into an Operating Agreement
with Virgin Acquisition Holdings,  LLC, which, among other terms and conditions,
provided the Company with a 43.9 percent  equity  interest in VIE.  During 1999,
Titus acquired a 50.1 percent equity interest in VIE and in 2000, Titus acquired
the 6 percent  originally  owned by the two former  members of the management of
Interplay  Productions  Limited,  the Company's United Kingdom  subsidiary.  The
Company  and Titus  together  held a 100  percent  equity  interest in VIE as of
December  31,  2000.  As part of the terms of the  April  2001  settlement  with
Virgin,  VIE redeemed the  Company's  ownership  interest in VIE. The Company no
longer has any equity interest in VIE or Virgin as of April 2001.

     The Company  accounted for its  investment  in VIE in  accordance  with the
equity method of accounting.  The Company did not recognize any material  income
or loss in connection  with its  investment in VIE for the years ended  December
31, 2001 and 2000.

OTHER

     The  Company  had  amounts  due from a  business  controlled  by the former
Chairman of the  Company.  Net amounts due,  prior to reserves,  at December 31,
2000 were $2.5 million. Such amounts at December 31, 2000 are fully reserved. In
2001, the Company wrote off this receivable.

13.  CONCENTRATION OF CREDIT RISK

     As of December 31, 2002,  substantially  all of the Company's sales were to
its  distributors  Virgin and Vivendi.  Virgin and Vivendi  each have  exclusive
rights to  distribute  the  Company's  products in  substantial  portions of the
world. As a consequence,  the  distribution of the Company's  products by Virgin
and Vivendi will generate a substantial majority of the Company's revenues,  and
proceeds from Virgin and Vivendi from the distribution of the Company's products
will  constitute a substantial  majority of the Company's  operating cash flows.
Therefore,  the Company's  revenues and cash flows could fall  significantly and
the Company's business and financial results could suffer material harm if:

     o    either  Virgin or Vivendi  fails to deliver  to the  Company  the full
          proceeds owed it from distribution of its products;
     o    either Virgin or Vivendi fails to effectively distribute the Company's
          products in their respective territories; or
     o    either  Virgin or  Vivendi  otherwise  fails to  perform  under  their
          respective distribution agreements.

     The Company  typically  sells to  distributors  and  retailers on unsecured
credit,  with terms that vary  depending upon the customer and the nature of the
product.  The Company  confronts  the risk of  non-payment  from its  customers,
whether due to their financial  inability to pay the Company,  or otherwise.  In
addition,  while the Company maintains a reserve for uncollectible  receivables,
the reserve may not be sufficient in every circumstance.  As a result, a payment
default by a  significant  customer  could cause  material harm to the Company's
business.

     For the years ended December 31, 2002, 2001 and 2000,  Virgin accounted for
approximately 11, 22 and 29 percent, respectively, of net revenues in connection
with the International Distribution Agreement (Note 12).


                                      F-32


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


Vivendi  accounted  for 71 and 17  percent  of net  revenues  in the year  ended
December 31, 2002 and 2001, respectively.

14.  SEGMENT AND GEOGRAPHICAL INFORMATION

     The Company operates in one principal  business  segment,  which is managed
primarily from the Company's U.S. headquarters.

     Net revenues by geographic regions were as follows:

                                     YEARS ENDED DECEMBER 31,
                   ------------------------------------------------------------
                           2002                2001                2000
                   ------------------   ------------------   ------------------
                    AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
                   --------   -------   --------   -------   --------   -------
                                       (Dollars in thousands)
North America ..   $ 26,184      60 %   $ 34,998      62 %   $ 53,298      52 %
Europe .........      4,988      11       12,597      22       28,107      28
Rest of World ..        686       2        2,854       5        6,970       7
OEM, royalty and
   licensing ...     12,141      27        5,999      11       13,051      13
                   --------   -------   --------   -------   --------   -------
                   $ 43,999     100 %   $ 56,448     100 %   $101,426     100 %
                   ========   =======   ========   =======   ========   =======

15.  OTHER EXPENSE, NET

     In April 2002,  the Company  entered into a settlement  agreement  with the
landlord  of an office  facility  in the United  Kingdom,  whereby  the  Company
returned  the property  back to the  landlord and was released  from any further
lease  obligations.  As a result of this  settlement,  the  Company  reduced its
amounts  accrued for this  contractual  cash  obligation by $0.8 million for the
year ended December 31, 2002.

16.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     The Company's summarized quarterly financial data is as follow:

                                 MAR. 31     JUN. 30      SEPT. 30      DEC. 31
                                --------    ---------    ----------    --------
                                (Dollars in thousands, except per share amounts)
Year ended December 31, 2002:
Net revenues ................   $ 15,375    $  11,842    $    9,677    $  7,105
                                ========    =========    ==========    ========
Gross profit ................   $ 10,898    $   1,240    $    4,002    $  1,153
                                ========    =========    ==========    ========
Net income (loss) ...........   $  1,495    $  20,868    $   (1,847)   $ (5,369)
                                ========    =========    ==========    ========

Net income (loss) per common
   share basic ..............   $   0.03    $    0.22    $    (0.02)   $  (0.06)
                                ========    =========    ==========    ========
Net income (loss) per common
   share diluted ............   $   0.02    $    0.22    $    (0.02)   $  (0.06)
                                ========    =========    ==========    ========

Year ended December 31, 2001:
Net revenues ................   $ 16,813    $  14,302    $    3,825    $ 21,508
                                ========    =========    ==========    ========
Gross profit ................   $  6,328    $   3,309    $   (7,623)   $  8,618
                                ========    =========    ==========    ========
Net loss ....................   $ (8,422)   $ (12,398)   $  (20,648)   $ (4,848)
                                ========    =========    ==========    ========

Net loss per common share
   basic/diluted ............   $  (0.30)   $   (0.34)   $    (0.50)   $  (0.09)
                                ========    =========    ==========    ========


                                      F-33


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                                DECEMBER 31, 2002


17.  SUBSEQUENT EVENTS

     In February 2003, the Company has sold all future interactive entertainment
publishing  rights to the "Hunter:  The  Reckoning"  franchise  for $15 million,
payable in  installments.  The  Company  retains  the  rights to the  previously
published  "Hunter:  The  Reckoning"  titles  on  Microsoft  Xbox  and  Nintendo
GameCube.

18.  ARTHUR ANDERSEN, LLP'S REPORT ON 2000 CONSOLIDATED FINANCIAL STATEMENTS


     On or about August 31, 2002, Arthur Andersen,  LLP ("AA")  discontinued its
public audit practice and AA effectively no longer exists as an operating public
accounting  firm.  Therefore,  AA was unable to reissue its audit  report on the
Company's December 31, 2000 consolidated financial statements.  The audit report
on such consolidated financial statements included in this filing is only a copy
of their previously issued audit report.


                                      F-34


<PAGE>


                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                   TRADE RECEIVABLES ALLOWANCE
                                 ---------------------------------------------------------
                                   BALANCE AT     PROVISIONS FOR                BALANCE AT
                                  BEGINNING OF       RETURNS      RETURNS AND     END OF
            PERIOD                   PERIOD       AND DISCOUNTS    DISCOUNTS      PERIOD
            ------                ------------    ------------    ----------    ----------

<S>                               <C>             <C>             <C>           <C>
Year ended December 31, 2000      $      9,161    $     19,016    $  (21,634)   $    6,543
                                  ============    ============    ==========    ==========

Year ended December 31, 2001      $      6,543    $     19,875    $  (18,877)   $    7,541
                                  ============    ============    ==========    ==========

Year ended December 31, 2002      $      7,541    $      2,586    $   (9,041)   $    1,086
                                  ============    ============    ==========    ==========
</TABLE>


                                      S-1