`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, 2007

                                       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.)

             100 N. CRESCENT DRIVE, BEVERLY HILLS, CALIFORNIA 90210
                    (Address of principal executive offices)

                                 (310) 432-1958
              (Registrant's telephone number, including area code)

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

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

                         COMMON STOCK, $0.001 PAR VALUE

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act Yes [ ] No [X].

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [] No [X].

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 a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]   Accelerated filer [ ]   Non- accelerated filer [X]
Smaller reporting company [ ]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [x].

As of June 29, 2007,  the aggregate  market value of voting common stock held by
non-affiliates was approximately  $7,000,000 based upon the closing price of the
Common Stock on that date.





Documents incorporated by reference

Portions of the  Registrant's  definitive  proxy statement  relating to its 2008
annual  meeting of  stockholders,  which will be filed with the  Securities  and
Exchange  Commission  pursuant to regulation 14A within 120 days of the close of
the  Registrant's  last fiscal year, are incorporated by reference into Part III
of this report.


As of December 31, 2007,  103,855,634  shares of Common Stock of the  Registrant
were issued and outstanding. This includes 4,658,216 shares of Treasury Stock.


                                       2





             INDEX TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007


                                                                            PAGE
                                                                            ----
PART I

    Item 1.      Business                                                      4

    Item 1A.     Risk Factors                                                  8

    Item 2.      Properties                                                   13

    Item 3.      Legal Proceedings                                            13

    Item 4.      Submission of Matters to a Vote of Security Holders          14

PART II

    Item 5.      Market for Registrant's Common Equity and Related
                 Stockholder Matters                                          14

    Item 6.      Selected Financial Data                                      16

    Item 7.      Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                          17

    Item 7A.     Quantitative and Qualitative Disclosure about
                 Market Risk                                                  26

    Item 8.      Consolidated Financial Statements and Supplementary
                 Data                                                         26

    Item 9A.(T)  Controls and Procedures                                      27

PART III

    Item 10.     Directors and Executive Officers of the Registrant           28

    Item 11.     Executive Compensation                                       28

    Item 12.     Security Ownership of Certain Beneficial Owners
                 and Management and Related Stockholder Matters               28

    Item 13.     Certain Relationships and Related Transactions               28

    Item 14.     Principal Accounting Fees and Services                       28

PART IV

    Item 15.     Exhibits, Financial Statement Schedules.                     28

Signatures                                                                    30

Exhibit Index                                                                 31


                                       3





     THIS REPORT 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
REPORT EXCEPT FOR  HISTORICAL  INFORMATION  MAY BE DEEMED TO BE  FORWARD-LOOKING
STATEMENTS.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,  OUR USE OF WORDS
SUCH AS "PLAN,"  "MAY," "WILL,"  "EXPECT,"  "BELIEVE,"  "ANTICIPATE,"  "INTEND,"
"COULD," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR
COMPARABLE TERMINOLOGY ARE INTENDED TO HELP 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 REPORT 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,
CASH CONSTRAINTS,  FINANCING ACTIVITIES, COST REDUCTION MEASURES, REPLACEMENT OF
OUR LINE OF  CREDIT  AND  MERGERS,  SALES OR  ACQUISITIONS  ARE  FORWARD-LOOKING
STATEMENTS AND THERE CAN BE NO ASSURANCE THAT WE WILL AFFECT ANY OR ALL OF THESE
OBJECTIVES IN THE FUTURE. ADDITIONAL RISKS AND UNCERTAINTIES THAT MAY AFFECT OUR
FUTURE RESULTS ARE DISCUSSED IN MORE DETAIL IN THE SECTION TITLED "RISK FACTORS"
IN "ITEM 7.  "MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS."

     ASSUMPTIONS  RELATING TO OUR  FORWARD-LOOKING  STATEMENTS 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  OUR  CONTROL.
ALTHOUGH  WE  BELIEVE  THAT  THE  ASSUMPTIONS   UNDERLYING  THE  FORWARD-LOOKING
STATEMENTS ARE REASONABLE, OUR INDUSTRY,  BUSINESS AND OPERATIONS ARE SUBJECT TO
SUBSTANTIAL  RISKS, AND THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED
AS A REPRESENTATION BY MANAGEMENT THAT ANY PARTICULAR OBJECTIVE OR PLANS WILL BE
ACHIEVED. IN ADDITION, RISKS,  UNCERTAINTIES AND ASSUMPTIONS CHANGE AS EVENTS OR
CIRCUMSTANCES CHANGE. WE DISCLAIM 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
REPORT  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 US OR ON OUR
BEHALF.

     INTERPLAY (R), INTERPLAY  PRODUCTIONS(R),  GAMES ON LINE (R) AND CERTAIN OF
OUR OTHER PRODUCT NAMES AND PUBLISHING LABELS REFERRED TO IN THIS REPORT ARE THE
COMPANY'S TRADEMARKS. THIS REPORT ALSO CONTAINS TRADEMARKS BELONGING TO OTHERS.


                                     PART I

ITEM 1.  BUSINESS

OVERVIEW AND RECENT DEVELOPMENTS

     Interplay  Entertainment  Corp.,  which we refer to in this Report as "we,"
"us," or  "our,"  is a  publisher  and  licensor  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  and  licensed  titles  for  many  of  the  most  popular   interactive
entertainment software platforms.

     We seek to publish or license out 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 or
licensed many such successful franchise titles to date.

     We own the intellectual  property rights in several  recognized video games
and intend, if the Company can obtain  financing,  to develop sequels to some of
our most successful games,  including Earthworm Jim, Dark Alliance,  Descent and
MDK , for the current generation of video game consoles or the PC.

     We have sold  "Fallout"  to a third party and have  obtained a license back
which  could  allow us to create,  develop  and  exploit a  "Fallout"  Massively
Multiplayer  Online  Game . We are  planning  to  exploit  the  license  back of
"Fallout"  MMOG.  The Company  continues  to seek  external  sources of funding,
including  but not  limited  to,  incurring  debt,  the  selling  of  assets  or
securities,  licensing  of  certain  product  rights  in  selected  territories,
selected distribution agreements, and/or other strategic transactions sufficient
to provide short-term funding, and achieve our long-term strategic objectives.

     Our business and industry has certain risks and uncertainties. During 2007,
we sold an asset and we started design work of a MMOG. There can be no assurance
we can  successfully  develop a "Fallout"  MMOG. For a fuller  discussion of the
risk and uncertainties  relating to our financial results,  our business and our
industry,  please see the section titled "Risk Factors" in Item 7.  Management's
Discussion and Analysis of Financial Condition and Results of Operations."


                                       4





     Our  principal  activities  involve  publishing  of  video  game  products,
licensing of our intellectual property rights, online distribution, back catalog
licensing and OEM/merchandising.

PRODUCTS

     We publish and distribute  interactive  entertainment  software titles that
provide  immersive  game  experiences  by  combining  advanced  technology  with
engaging content, vivid graphics and rich sound.

     Our  strategy is to invest in products for those  platforms,  whether PC or
video game console, that have or will have sufficient installed bases or a large
enough number of potential  subscribers  for the  investment to be  economically
viable.  We  currently  internally  develop  one new  product  and have four new
products in early stage of design externally.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     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.  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 have  also  outsourced,  from  time to time,  some of our
product  development  activities  to third party  developers.  We  contractually
retain all intellectual  property rights related to such projects.  We have also
licensed certain  products  developed by third parties and pay royalties on such
products.

     While we provide  "shrink wrap" 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, 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 have used copy protection on selected  products and do not provide
source code to third parties unless they have signed nondisclosure agreements.

     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,  such as using 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.  In some instances,  we may need to
engage in  litigation in the ordinary  course of our business to defend  against
such claims.  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.

PRODUCT DEVELOPMENT

     We currently have five new products in early stages of development. We have
reinitiated our in-house game development studio, and have hired game developers
for this purpose.

     During the years ended December 31, 2007,  2006 and 2005, we spent $18,000,
$0 and $300,000  respectively,  on product research and development  activities.
Those amounts represented .3%, 0% and 3%, respectively,  of net revenues in each
of those periods.


                                       5





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 13 of the Notes to our Consolidated Financial Statements included elsewhere
in this Report.

SALES AND DISTRIBUTION

     NORTH  AMERICA.  We  distribute  and  license  rights to our  products  and
intellectual  property  rights in our  video  games in North  America  and other
selected territories from our corporate offices in Beverly Hills, California.

     INTERNATIONAL.  We  distribute  and  license  rights  to our  products  and
intellectual  property  rights in our video  games in Europe and other  selected
territories thru our wholly owned subsidiary, Interplay Productions Ltd, located
in London, England.

LICENSING

     We entered into  various  licensing  agreements  during 2007 under which we
licensed others to exploit games that we have intellectual property rights.

MARKETING

     We  assist  our  distributors  in the  development  and  implementation  of
marketing programs and campaigns for each of our titles and product groups.

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 Activision,
Atari, Capcom, Eidos,  Electronic Arts, Konami, Lucas Arts, Midway, Namco, Sega,
Take-Two Interactive,  THQ, Ubi Soft. and Vivendi Games. In addition, integrated
video  game  console   hardware/software   companies   such  as  Sony   Computer
Entertainment,  Microsoft Corporation,  and Nintendo compete directly with us in
the  development  of  software  titles  for their  respective  platforms.  Large
diversified  entertainment companies,  such as The Walt Disney Company, and Time
Warner Inc.,  many of which own substantial  libraries of available  content and
have  substantially  greater financial  resources than us, also compete directly
with us or have exclusive relationships with our competitors.

SEASONALITY

     The  interactive  entertainment  software  industry is highly seasonal as a
whole,  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. Our business and financial results may therefore be affected by the timing
of our introduction of new releases.

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 third  parties.  Printing  of  manuals  and  packaging  materials,
manufacturing  of related  materials  and  assembly of  completed  packages  are
performed  to our  specifications  by  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.


                                       6





     Sony Computer Entertainment, Microsoft Corporation and Nintendo manufacture
and ship finished products that are compatible with their video game consoles to
our licensees for distribution.

     If we  experience  unanticipated  delays in the  delivery  of  manufactured
software products by our third party manufacturers,  our net sales and operating
results could be materially adversely affected.

BACKLOG

     We do not  carry  any  material  inventories  because  all of our sales and
distribution  efforts  are  handled  by our  licensees  under  the  terms of our
respective distribution agreements with them. We do not have any backlog orders

EMPLOYEES

     As of  December  31,  2007,  we had 4  employees,  including  1 in software
engineering, and 3 in finance, general and administrative.

     From time to time,  we have  retained  actors and/or "voice over" talent to
perform in certain of our  products,  and we may 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.

ADDITIONAL INFORMATION

     We file annual,  quarterly and current reports,  proxy statements and other
information  with the U.S.  Securities  and Exchange  Commission or SEC. You may
obtain copies of these reports via the Internet at the SEC's homepage located at
www.sec.gov.   You   may   also  go  to  our   Internet   address   located   at
www.interplay.com  and go to  "Investor  Relations"  which  will link you to the
SEC's homepage for our filed reports. In addition, copies of the reports we file
with the SEC may also be  obtained  at the SEC's  Public  Reference  Room at 450
Fifth  Street,  NW,  Washington,  DC 20549.  You may obtain  information  on the
operation of the Public Reference Room by Calling the SEC at 1-800-SEC-0330.


                                       7





ITEM 1A.   RISK FACTORS

RISK FACTORS

     Our future  operating  results  depend upon many factors and are subject to
various  risks  and  uncertainties.  These  major  risks and  uncertainties  are
discussed below. There may be additional risks and uncertainties which we do not
believe are  currently  material or are not yet known to us but which may become
such in the  future.  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:

RISKS RELATED TO OUR FINANCIAL RESULTS

WE CURRENTLY HAVE SOME OBLIGATIONS THAT WE ARE UNABLE TO MEET WITHOUT GENERATING
ADDITIONAL  INCOME  OR  RAISING  ADDITIONAL   CAPITAL.  IF  WE  CANNOT  GENERATE
ADDITIONAL INCOME OR RAISE ADDITIONAL  CAPITAL IN THE NEAR FUTURE, WE MAY BECOME
INSOLVENT AND/OR BE MADE BANKRUPT AND/OR MAY BECOME ILLIQUID OR WORTHLESS.

     As of December 31, 2007,  our cash balance was  approximately  $1.1 million
and our working capital deficit totaled approximately $2.3 million. We have some
significant  creditors  that  comprise a substantial  proportion of  outstanding
obligations  that we might not be able to satisfy.  There is a balance  owing to
Atari  Interactive,  Inc.  ("Atari") of approximately $1 million,  and we may be
unable to  satisfy  this debt  which  became  due on March 31,  2008.  We are in
dispute with Atari and believe we may have  various  claims that may offset some
or all of this balance. In any event, if we do not receive sufficient  financing
or sufficient funds from our operations 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.  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.  If we cannot generate enough income from our operations or are unable to
locate additional funds through financing, we will not have sufficient resources
to continue operations.

WE HAVE A  HISTORY  OF  LOSSES,  AND MAY HAVE TO  FURTHER  REDUCE  OUR  COSTS BY
CURTAILING FUTURE OPERATIONS TO CONTINUE AS A BUSINESS.

     For the year ended  December  31,  2007,  our net income was $5.9  million,
$5.75  million of our  revenue  was  recognized  from the sale of an asset,  and
$1.425 million was  recognized  from  settlements  with  creditors,  reversal of
reserves, and prior year payables.  However,  since inception,  we have incurred
significant  losses and  negative  cash flow.  As of December 31, 2007 we had an
accumulated   deficit  of  $2.3  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 distributions and licensing, 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 or assets, and delaying,  canceling or further
scaling back  operations.  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.

OUR  ABILITY TO EFFECT A  FINANCING  TRANSACTION  TO FUND OUR  OPERATIONS  COULD
ADVERSELY AFFECT THE VALUE OF YOUR STOCK.

     If we are not  acquired  by or merge with  another  entity or if we are not
able to raise additional capital by sale or license of certain of our assets, we
may need to consummate a financing  transaction to receive additional liquidity.
This  additional  financing  may  take the form of  raising  additional  capital
through public or private equity  offerings or debt financing.  To the extent we
raise additional capital by issuing equity securities, we cannot be certain that
additional  capital  will  be  available  to  us  on  favorable  terms  and  our
stockholders will likely  experience  substantial  dilution.  Our certificate of
incorporation  provides for the issuance of preferred stock however we currently
do not  have  any  preferred  stock  issued  and  outstanding.  Any  new  equity
securities  issued may have greater  rights,  preferences or privileges than our
existing  common  stock.  Material  shortage of capital may l require us to take
steps such as reducing our level of  operations,  disposing of selected  assets,
effecting  financings on less than favorable terms or seeking  protection  under
federal bankruptcy laws.


                                       8





RISKS RELATED TO OUR BUSINESS

TITUS  INTERACTIVE  SA (PLACED  IN  INVOLUNTARY  BANKRUPTCY  IN  JANUARY,  2005)
CONTROLLED AND NOW FINANCIAL  PLANNING AND DEVELOPMENT  S.A.  ("FPD") CONTROLS A
MAJORITY OF OUR VOTING  STOCK AND CAN ELECT A MAJORITY OF OUR BOARD OF DIRECTORS
AND PREVENT AN  ACQUISITION  OF US THAT IS FAVORABLE TO OUR OTHER  STOCKHOLDERS.
ALTERNATIVELY,  TITUS  COULD  AND FPD CAN ALSO  CAUSE A SALE OF  CONTROL  OF OUR
COMPANY THAT MAY NOT BE FAVORABLE TO OUR OTHER STOCKHOLDERS.

     Titus  owned and now FPD owns  approximately  58  million  shares of common
stock.  As a  consequence,  Titus  could and FPD 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. 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.  Further,  Titus could and
FPD can cause a sale of control of our Company  that may not be favorable to our
stockholders.  Such a sale,  including if it involves a 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 MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP A "FALLOUT" MMOG.

We are planning to exploit our license back of "Fallout"  MMOG and are reviewing
the  avenues  for  securing  financing  of at  least  $30  million  to fund  its
production  but no assurance  can be made that we will be able to do so, and our
license back may as a result be terminated.

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

     We are currently  operating  without a credit agreement or credit facility.
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.

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

     We are  presently  without a CFO,  and Mr. Caen has assumed the position of
interim-CFO and continues as CFO to date until a replacement can be found.

OUR BUSINESS AND INDUSTRY IS BOTH SEASONAL AND  CYCLICAL.  IF WE FAIL TO DELIVER
OUR PRODUCTS AT THE RIGHT TIMES, OUR SALES WILL SUFFER.

     Our business is highly seasonal, with the highest levels of consumer demand
occurring in the fourth  quarter.  Our industry is also cyclical.  The timing of
hardware  platform  introduction is often tied to the year-end season and is not
within our control.  As new  platforms are being  introduced  into our industry,
consumers often choose to defer game software purchases until such new platforms
are available,  which would cause sales of our products on current  platforms to
decline.  This decline may not be offset by increased  sales of products for the
new platform.

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:


                                       9





     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.

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

     Our losses in the past have stemmed  partly from the  significant  costs we
incurred to develop our  entertainment  software  products,  product returns and
price concessions.  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 licensing  existing  products  could reduce our
earnings.

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
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  licensing  of  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 depend on the successful production
of hit titles on a continuous  basis. The failure of one or more new 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.

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

     Our business  requires  extensive  time and creative  effort to produce and
market.  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
executive management team currently consists solely of CEO and interim CFO Herve
Caen. Our failure to recruit or 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 4%
and 66% of our total net  revenues  for years ended  December 31, 2007 and 2006,
respectively. 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  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;


                                       10





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

     o    fluctuations in foreign currency exchange rates;

     o    political and economic instability; 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 past earnings 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.

SOME OF 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.  Our  distributors  allow  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,  our  distributors  provide
pricing  concessions to our customers to manage our customers'  inventory levels
in the  distribution  channel.  Our  distributors  could  be  forced  to  accept
substantial  product  returns and provide  pricing  concessions  to maintain our
relationships with retailers and their access to distribution channels.

RISKS RELATED TO OUR INDUSTRY

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  "shrink-wrap"
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.

     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 lack resources to
defend proprietary technology.

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


                                       11





     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 BUSINESS IS INTENSELY  COMPETITIVE AND PROFITABILITY IS INCREASINGLY  DRIVEN
BY A FEW KEY  TITLE  RELEASES.  IF WE ARE  UNABLE TO  DELIVER  KEY  TITLES,  OUR
BUSINESS MAY BE HARMED.

     Competition  in  our  industry  is  intense.  New  videogame  products  are
regularly  introduced.  Increasingly,  profits and  revenues in our industry are
dominated  by certain  key product  releases  and are  increasingly  produced in
conjunction  with the latest consumer and media trends.  Many of our competitors
may have more finances and other resources for the development of product titles
than we do. If our competitors develop more successful products, or if we do not
continue  to  develop  consistently  high-quality  products,  our  revenue  will
decline.

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;

     o    new media formats

     o    releases of new video game consoles;

     o    new video game systems by Sony, Microsoft, Nintendo and others.

     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:

     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.

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.


                                       12





RISKS RELATED TO OUR STOCK

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  Certificate  of  Incorporation,  as amended,  provides  for  5,000,000
authorized  shares of Preferred Stock. Our Board of Directors has the authority,
without  any  action by the  stockholders,  to issue up to  4,280,576  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:

     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 COMMON STOCK MAY BE SUBJECT TO THE "PENNY STOCK" RULES WHICH COULD ADVERSELY
AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

     "Penny stocks"  generally  include equity  securities  with a price of less
than $5.00 per share,  which are not traded on a national  stock  exchange or on
Nasdaq,  and are issued by a company  that has  tangible net assets of less than
$2,000,000  if the company has been  operating  for at least  three  years.  The
"penny  stock" rules  require,  among other  things,  broker  dealers to satisfy
special sales practice  requirements,  including making  individualized  written
suitability  determinations and receiving a purchaser's written consent prior to
any transaction. In addition, additional disclosure in connection with trades in
the common stock are required,  including the delivery of a disclosure  schedule
prescribed by the SEC relating to the "penny  stock"  market.  These  additional
burdens   imposed  on   broker-dealers   may  discourage   them  from  effecting
transactions  in our  common  stock,  which  may make it more  difficult  for an
investor  to sell their  shares  and  adversely  affect the market  price of our
common stock.

OUR STOCK 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.

ITEM 2.    PROPERTIES

     The Company's headquarters are located in Beverly Hills, California,  where
we lease approximately 3,100 square feet of office space. The facility is leased
through April 2008. We are currently subleasing  approximately 1,100 square feet
of our facility to an  independent  third party.  We also have a  representation
office in France.

ITEM 3.    LEGAL PROCEEDINGS

     The  Company  may be 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.

     The litigation  with Bioware Corp. was finally  settled in March 2008, when
$200,000 held in escrow subsequent to our bankruptcy proceedings dismissal order
was paid to Bioware Corp.


                                       13





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

     None

                                     PART II

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

     The Company trades 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."  At March 20,  2008,  there were 105
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, 2007              HIGH             LOW
------------------------------------             -----            -----

     First Quarter.........................      $ .17            $ .05
     Second Quarter........................        .15              .06
     Third Quarter.........................        .09              .05
     Fourth Quarter........................        .12              .06

FOR THE YEAR ENDED DECEMBER 31, 2006              HIGH             LOW
------------------------------------             -----            -----

     First Quarter.........................      $ .04            $ .01
     Second Quarter........................        .04              .02
     Third Quarter.........................        .03              .01
     Fourth Quarter........................        .29              .01


DIVIDEND POLICY

     It is not currently our policy to pay dividends.

STOCK COMPENSATION PLANS

     The  following  table sets forth certain  information  regarding our equity
compensation plans as of December 31, 2007:

                                                                                Number of securities
                                                                               remaining available for
                           Number of securities to     Weighted-average     future issuance under equity
                           be issued upon exercise     exercise price of         compensation plans
                           of outstanding options,   outstanding options,       (excluding securities
Plan Category                warrants and rights      warrants and rights     reflected in column (a))
----------------------     -----------------------   --------------------   ----------------------------
                                     (a)                      (b)                        (c)
Equity compensation
  plans approved by
  security holders                1,410,000                 0.044                     8,590,000

Equity compensation
  plans not approved
  by security holders             7,330,298                 0.38                           --
                           -----------------------                          ----------------------------
Total                             8,740,298                                           8,590,000
                           =======================                          ============================


     We have one stock option plan currently  outstanding.  Under the 1997 Stock
Incentive  Plan,  as amended  (the "1997  Plan"),  we may grant up to 10 million
options to our employees,  consultants and directors,  which generally vest from
three to five years.

     There were  differences  between the exercise  price and the estimated fair
market  value  which was  recorded  as  compensation  expense  in the  amount of
$12,000, $38,000 and $0, respectively, for financial reporting purposes.


                                       14





PERFORMANCE GRAPH

     The following  graph sets forth the percentage  change in cumulative  total
stockholder  return of our common stock during the period from December 31, 2002
to December 31, 2007,  compared with the cumulative  returns of the NASDAQ Stock
Market (U.S.  Companies)  Index,  the Media  General Index 820 (which is our old
peer group) and a new peer group  comprising Media General Index 820 plus Giants
Interactive Group Inc. The comparison  assumes $100 was invested on December 31,
2002 in our  common  stock  and in each of the  foregoing  indices.  Information
presented below is as of the end of the fiscal year ended December 31, 2007.`

`------------------------------  ----------- ----------- ---------- ----------- ----------- -----------
                                     12/02       12/03      12/04       12/05       12/06       12/07
------------------------------  ----------- ----------- ---------- ----------- ----------- -----------
INTERPLAY ENTERTAINMENT CORP.       100.00      125.00      23.33       13.33      225.00      133.33
NASDAQ COMPOSITE                    100.00      149.34     161.86      166.64      186.18      205.48
NEW PEER GROUP                      100.00      182.00     234.53      197.80      206.79      259.39
OLD PEER GROUP                      100.00      182.00     234.53      197.80      206.79      259.39


     In any of our fillings  under the Securities Act of 1933, as amended or the
Securities  Exchange Act of 1934, as amended that  incorporate  this performance
graph and the data related thereto by reference, this performance graph and data
related thereto will be considered  excluded from the incorporation by reference
and will not be deemed a part of any such other filing unless we expressly state
that the performance graph and the data related thereto is so incorporated.


                                       15





ITEM 6.    SELECTED FINANCIAL DATA

     The selected consolidated statements of operations data for the years ended
December 31, 2007,  2006 and 2005 and the selected  consolidated  balance sheets
data as of December 31, 2007 and 2006 are derived from our audited  consolidated
financial  statements  included elsewhere in this Report. 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  "Item  7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
Report.

                                                           YEARS ENDED DECEMBER 31,
                                        -------------------------------------------------------------
                                           2007         2006         2005         2004         2003
                                        ---------    ---------    ---------    ---------    ---------
                                                    (Dollars in thousands, except share and
                                                               per share amounts)
STATEMENTS OF OPERATIONS DATA:
Net revenues ........................   $   6,001    $     967    $   7,158    $  13,197    $  36,301
Cost of goods sold ..................           8          167          478        6,826       13,120
                                        ---------    ---------    ---------    ---------    ---------
Gross profit ........................       5,993          800        6,680        6,371       23,181
Operating expenses ..................       1,538        2,069        3,197        8,853       21,787
                                        ---------    ---------    ---------    ---------    ---------
Operating (income) loss .............       4,455       (1,269)       3,483       (2,482)       1,394
Other income (expense) ..............       1,401        4,348        2,445       (2,094)         (82)
                                        ---------    ---------    ---------    ---------    ---------
Income (loss) before income taxes ...       5,856        3,079        5,928       (4,576)       1,312
Provision (benefit) for income taxes         --           --           --            154         --
                                        ---------    ---------    ---------    ---------    ---------
Net income (loss) ...................   $   5,856    $   3,079    $   5,928    $  (4,730)   $   1,312
                                        =========    =========    =========    =========    =========

Cumulative dividend on participating
   preferred stock ..................   $    --      $    --      $    --      $    --      $    --
Accretion of warrant ................        --           --           --           --           --
                                        ---------    ---------    ---------    ---------    ---------
Net income (loss) available to common
   stockholders .....................   $   5,856    $   3,079    $   5,928    $  (4,730)   $   1,312
                                        =========    =========    =========    =========    =========
Net income (loss) per common share:
     Basic ..........................   $   0.059    $   0.030    $   0.063    $   (0.05)   $    0.01
     Diluted ........................   $   0.057    $   0.030    $   0.063    $   (0.05)   $    0.01

Shares used in calculating net income
   (loss) per common share - basic ..      99,197      100,513       93,856       93,856       93,852
Shares used in calculating net income
   (loss) per common share - diluted      102,028      102,603       93,856       93,856      104,314

SELECTED OPERATING DATA:
Net revenues by geographic region:
     North America ..................   $       5    $     203    $   2,885    $   1,544    $  13,541
     International ..................         246          632        4,056        9,933        6,484
     OEM, royalty and licensing .....        --            132          217        1,720       16,276
     Recognition from sale of
        "Fallout" ...................       5,750         --           --           --           --

Net revenues by platform:
     Personal computer ..............   $     222    $     456    $     631    $   1,817    $   7,671
     Video game console .............          29          379          971        9,660       12,354
     OEM, royalty and licensing .....        --            132          217        1,720       16,276
     Recognition of Revenue from
        expired contracts ...........        --           --          4,571         --           --
     Recognition from sale of
        "Fallout" ...................       5,750         --           --           --           --
     Online licensing ...............        --           --            768         --           --

                                                                  DECEMBER 31,
                                        -------------------------------------------------------------
                                           2007         2006         2005         2004         2003
                                        ---------    ---------    ---------    ---------    ---------
                                                          (Dollars in thousands)
BALANCE SHEETS DATA:
Working capital (deficiency) ........   $  (2,279)   $  (8,098)   $ (11,497)   $ (17,852)   $ (14,750)
Total assets ........................       1,201          323          673          834        5,486
Total debt ..........................       3,480        8,410       12,163       18,195       18,122
Stockholders' equity  (deficit) .....      (2,279)      (8,087)     (11,490)     (17,362)     (12,636)


                                       16





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.

EXECUTIVE OVERVIEW AND SUMMARY

     Interplay  Entertainment  Corp. is a publisher and licensor of  interactive
entertainment  software  for both core gamers and the mass  market.  We are most
widely known for our titles in the  action/arcade,  adventure/role  playing game
(RPG), and strategy/puzzle  categories. We have produced and licensed titles for
many of the most popular interactive entertainment software platforms.

     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  or  settlement
values.  The  Report of our  Independent  Auditors  for the  December  31,  2007
consolidated  financial statements includes an explanatory  paragraph expressing
substantial doubt about our ability to continue as a going concern.

     We entered into  various  licensing  agreements  during 2007 under which we
licensed others to exploit games that we have  intellectual  property rights to.
We expect in 2008 to enter into similar  license  arrangements  to generate cash
for the Company's operations.

     We have sold  "Fallout"  to a third party and have  obtained a license back
which could allow us to create,  develop  and exploit a "Fallout"  MMOG.  We are
planning to exploit our license back of  "Fallout"  MMOG and are  reviewing  the
avenues for securing  financing  of at least $30 million to fund its  production
but no assurance can be made that we will be able to do so.

     We are now focused on a two-pronged  growth strategy.  While we are working
to secure funding for the  development of a MMOG based on the popular  "Fallout"
franchise,  we are at the same time  exploring ways to leverage our portfolio of
gaming  properties  through  sequels  and  various  development  and  publishing
arrangements. We are planning, if we can obtain financing, to develop sequels to
some of our most  successful  games,  including  Earthworm  Jim, Dark  Alliance,
Descent and MDK. We are reinitiating our in-house game development  studio,  and
have hired game developers. Initial funding for these steps will derive from the
remaining proceeds from the sale of "Fallout".

     We continue to seek external sources of funding,  including but not limited
to,  incurring  debt, the selling of assets or securities,  licensing of certain
product rights in selected territories, selected distribution agreements, and/or
other  strategic  transactions  sufficient to provide  short-term  funding,  and
achieve our long-term strategic objectives.

     Our  products  were  either  designed  and created by our  employees  or by
external software  developers.  When we used external  developers,  we typically
advanced  development funds to the developers in installment payments based upon
the completion of certain milestones.  These advances were typically  considered
advances against future  royalties.  We currently have no product in development
with external developers.

     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 new
console systems by Sony, Nintendo and Microsoft, our industry has entered into a
new cycle that could affect marketability of new products, if any.

     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.

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


                                       17





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. 104, Revenue Recognition.

     We recognize 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 as earned.  Guaranteed  minimum royalties on sales,  where
the guarantee is not  recognized  upon  delivery,  are recognized as the minimum
payments come due. The Company  recognizes revenue on expired contracts when the
termination date of the contract is reached because guaranteed minimum royalties
are not reimbursable and are recorded as revenue.

     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  products 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. The amount of reserves ultimately required could differ materially in the
near term from the amounts provided in the accompanying  consolidated  financial
statements.

     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. We recognize revenue
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  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  amortized  these  amounts at a rate based upon the actual  number of
units shipped with a minimum  amortization  of 75% in the first month of release
and a minimum of 5% for each of the next five months after release. This minimum
amortization rate reflects our typical product life cycle. Our management relies
on forecasted  revenue to evaluate the future  realization of prepaid  royalties
and  charges to cost of goods sold any  amounts  they deem  unlikely to be fully
realized  through  future  sales.  Such  costs are  classified  as  current  and
noncurrent  assets based upon estimated product release date. If actual revenue,
or revised sales forecasts,  fall below the initial forecasted sales, the charge
may be larger than  anticipated in any given  quarter.  Once the charge has been
taken,  that amount will not be expensed in future quarters when the product has
shipped.

SOFTWARE DEVELOPMENT COSTS

     SOFTWARE  DEVELOPMENT  COSTS.  Software  development costs include payments
made to independent software developers under development agreements, as well as
direct costs incurred for internally developed products.

     We account for software  development  costs in accordance with Statement of
Financial  Accounting  Standard  ("SFAS") No. 86,  "Accounting  for the Costs of
Computer  Software  to  Be  Sold,  Leased,  or  Otherwise   Marketed."  Software
development  costs  are  capitalized  once the  technological  feasibility  of a
product  is  established  and  such  costs  are  determined  to be  recoverable.
Technological  feasibility  of  a  product  encompasses  both  technical  design
documentation  and  game  design   documentation.   For  products  where  proven
technology exists, this may occur early in the development cycle.  Technological
feasibility  is evaluated on a  product-by-product  basis.  Prior to a product's
release,  we  expense,  as part of  "cost of sales  --  software  royalties  and
amortization,"   capitalized   costs  when  we  believe  such  amounts  are  not
recoverable.  Capitalized  costs  for  those  products  that  are  cancelled  or
abandoned are charged to product development expense in the period of


                                       18





cancellation.  Amounts related to software development which are not capitalized
are charged immediately to product  development  expense. We evaluate the future
recoverability of capitalized  amounts on a quarterly basis. The  recoverability
of capitalized  software  development  costs is evaluated  based on the expected
performance of the specific  products for which the costs relate.  Criteria used
to evaluate  expected product  performance  include:  historical  performance of
comparable products using comparable technology; orders for the product prior to
its  release;  and  estimated  performance  of a  sequel  product  based  on the
performance of the product on which the sequel is based.

     Commencing upon product release, capitalized software development costs are
amortized to "cost of sales -- software royalties and amortization" based on the
ratio of current revenues to total projected revenues, generally resulting in an
amortization  period of six months or less. For products that have been released
in prior periods,  we evaluate the future  recoverability of capitalized amounts
on  a  quarterly  basis.  The  primary  evaluation  criterion  is  actual  title
performance.

     Significant   management  judgments  and  estimates  are  utilized  in  the
assessment of when technological  feasibility is established,  as well as in the
ongoing assessment of the recoverability of capitalized costs. In evaluating the
recoverability  of  capitalized   costs,  the  assessment  of  expected  product
performance  utilizes forecasted sales amounts and estimates of additional costs
to be incurred.  If revised  forecasted  or actual  product  sales are less than
and/or  revised  forecasted  or  actual  costs  are  greater  than the  original
forecasted  amounts  utilized in the initial  recoverability  analysis,  the net
realizable  value may be lower than  originally  estimated in any given quarter,
which could result in an impairment charge.

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.  Please
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.


                                       19





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,
                                                    ---------------------------
                                                     2007      2006       2005
                                                    ------    ------     ------
STATEMENTS OF OPERATIONS DATA:
Net revenues ..................................        100%      100%       100%
Cost of goods sold ............................       --          17          7
                                                    ------    ------     ------
Gross margin ..................................        100        83         93
Operating expenses:
     Marketing and sales ......................          4        52          4
     General and administrative ...............         21       161         37
     Product development ......................       --        --            4
                                                    ------    ------     ------
     Total operating expenses .................         25       213         45
                                                    ------    ------     ------
Operating income (loss) .......................         75      (130)        48
Other income (expense) ........................         25       449         34
                                                    ------    ------     ------
Income (loss) before provision
     for income taxes .........................        100       319         82
Provision for income taxes ....................       --        --         --
                                                    ------    ------     ------
Net income (loss) .............................        100%      319%        82%
                                                    ======    ======     ======

SELECTED OPERATING DATA:
Net revenues by segment:
     North America ............................         96%       21%        41%
     International ............................          4        66         56
     OEM, royalty and licensing ...............       --          13          3
                                                    ------    ------     ------
                                                       100%      100%       100%
                                                    ======    ======     ======
Net revenues by platform:
     Personal computer ........................          4%       47%         9%
     Video game console .......................       --          39         14
     OEM, royalty and licensing ...............       --          14          3
     Recognition from sale of " Fallout".......         96      --         --
     Recognition of revenue on expired
          contracts ...........................       --        --           63
     Online licensing .........................       --        --           11
                                                    ------    ------     ------
                                                       100%      100%       100%
                                                    ======    ======     ======


     Geographically,  our net revenues for the years ended December 31, 2007 and
2006 breakdown as follows: (in thousands)

                                    2007        2006       Change     % Change
------------------------------    --------    --------    --------    --------
North America ................       5,755         203       5,552       2,734%
International ................         246         632        (386)      (61.1%)
OEM, Royalty & Licensing .....           0         132        (132)       (100%)
                                  --------    --------    --------    --------
Net Revenues .................       6,001         967       5,034         520%
                                  ========    ========    ========    ========

     Geographically,  our net revenues for the years ended December 31, 2006 and
2005 breakdown as follows: (in thousands)

                                    2006        2005       Change    % Change
------------------------------    --------    --------    --------    --------
North America ................        203        2,885      (2,682)      (92.9%)
International ................        632        4,056      (3,424)      (84.4%)
OEM, Royalty & Licensing .....        132          217         (85)      (39.2%)
                                  --------    --------    --------    --------
Net Revenues .................        967        7,158      (6,191)      (86.5%)
                                  ========    ========    ========    ========


                                       20





NORTH AMERICAN, INTERNATIONAL AND OEM, ROYALTY AND LICENSING NET REVENUES

     Net  revenues  for the year ended  December  31, 2007 were  $6,001,000,  an
increase of 520% compared to the same period in 2006. The Company had $5,750,000
in income from recognition of the sale of "Fallout" and $5,000 in North American
royalties earned This increase resulted from a 2,734% increase in North American
net revenue due to the sale of "Fallout" and a 61.1%  decrease in  International
net  revenue,  royalty and  licensing  revenues  and a 100%  decrease in OEM net
revenue.

     Net revenues for the year ended December 31, 2006 were $967,000, a decrease
of 86.5%  compared to the same period in 2005.  This  decrease  resulted  from a
92.9%  decrease  in  North  American  net  revenue,  and  a  84.4%  decrease  in
International net revenues and a 39.2% decrease in OEM,  royalties and licensing
revenues.

     North  American  net  revenues  for the year ended  December  31, 2007 were
$5,755,000  as compared to $203,000 for the year ended  December  31, 2006.  The
Company had  $5,750,000 in income from  recognition of the sale of "Fallout" and
$5,000 in North American royalties earned in 2007.

     North  American  net  revenues  for the year ended  December  31, 2006 were
$203,000 as compared to  $2,885,000  for the year ended  December 31, 2005.  The
decrease  in North  American  net  revenues  in 2006 was mainly due to no longer
recognizing as income  advanced  royalties on expired  contracts and new product
releases during the twelve months ended December 31,2006.

     International  net  revenues  for the year  ended  December  31,  2007 were
$246,000,  a decrease of $386,000 as compared to International  net revenues for
the year ended  December 31, 2006.  The decrease in  International  net revenues
compared to the year ended  December 31, 2006 was mainly due to a 61.1% decrease
in back catalog sales.

     International  net  revenues  for the year  ended  December  31,  2006 were
$632,000,  a decrease of $3.4 million as compared to International  net revenues
for the year ended December 31, 2005. The decrease in International net revenues
compared to the year ended  December 31, 2005 was mainly due to  recognizing  as
income  advanced  royalties  on expired  contracts  and no new product  releases
during the twelve months ended December 31, 2006.

     OEM,  royalty and  licensing  net revenues for the year ended  December 31,
2007 were $.0, a decrease  of  $132,000  as compared to the same period in 2006.
The OEM business decreased $132,000 as a consequence of our reorganization.

     OEM,  royalty and  licensing  net revenues for the year ended  December 31,
2006 were  $132,000,  a decrease  of $85,000 as  compared  to the same period in
2005.   The   decrease  in  OEM  business   was  mainly   attributable   to  our
reorganization.

PUBLISHING NET REVENUES BY PLATFORM, SALE OF " FALLOUT", CONTRACTS AND LICENSING
DEALS NET REVENUES

     Our  publishing net revenues by platform,  sale of "Fallout"  contracts and
licensing  deals net  revenues  for the years ended  December  31, 2007 and 2006
breakdown as follows: (in thousands)

                                      2007       2006      Change     % Change
---------------------------------   --------   --------   --------    --------
Personal Computer ...............        222        456       (234)      (51.3%)
Video Game Console ..............         29        379       (350)      (92.3%)
OEM, Royalty & Licensing ........          0        132       (132)     (100.0%)
Recognition of revenue on
   sale of "Fallout" ............      5,750          0      5,750      (100.0%)
                                    --------   --------   --------    --------
Net Revenues ....................      6,001        967      5,034         520%
                                    ========   ========   ========    ========


     PC net  revenues  for the year ended  December  31, 2007 were  $222,000,  a
decrease of 51.3%  compared to the same period in 2006.  The  decrease in PC net
revenues in 2007 was primarily due to lower back catalog sales.

     Our video game console net  revenues  for the year ended  December 31, 2007
were $29,000 a decrease of 92.3% compared to the same period in 2006, mainly due
to lower back catalog sales.


                                       21





     The  Company  had  $5,750,000  in income  from  recognition  of the sale of
"Fallout" as a one time non-recurring event.

     Our platform,  expired  contracts and licensing  deals net revenues for the
years ended December 31, 2006 and 2005 breakdown as follows: (in thousands)

                                      2006       2005      Change     % Change
---------------------------------   --------   --------   --------    --------
Personal Computer ...............        456        631       (175)      (27.7%)
Video Game Console ..............        379        971       (592)      (60.9%)
OEM, Royalty & Licensing ........        132        217        (85)      (39.2%)
Recognition of revenue on
   expired contracts ............          0      4,571     (4,571)        N/A
Online Licensing ................          0        768       (768)        N/A
                                    --------   --------   --------    --------
Net Revenues ....................        967      7,158     (6,191)      (86.5%)
                                    ========   ========   ========    ========

     PC net  revenues  for the year ended  December  31, 2006 were  $456,000,  a
decrease of 27.7 % compared to the same period in 2005.  The  decrease in PC net
revenues in 2006 was primarily due to no new releases and the  expiration of our
distribution agreement with Vivendi in 2005.

     Our video game console net  revenues  for the year ended  December 31, 2006
were $379,000 a decrease of 60.9% compared to the same period in 2005. There was
no revenue  recognition from deferred revenue of expired  contracts for the year
ended  December 31, 2006.  Licensing  for the year ended  December 31, 2006 were
$0.The  decrease in video game console net revenues was  primarily due to no new
releases. Our catalog sales also decreased in 2006 as compared to 2005.

COST OF GOODS SOLD; GROSS MARGIN

     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. 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 net  revenues,  cost of goods sold and gross margin for the years ended
December 31, 2007 and 2006 breakdown as follows: (in thousands)

                                      2007       2006      Change     % Change
---------------------------------   --------   --------   --------    --------
Net Revenues ....................      6,001        967      5,034       520.5%
Cost of Goods Sold ..............          8        167       (159)      (95.2%)
                                    --------   --------   --------    --------
Gross Margin ....................      5,993        800      5,193       649.1%
                                    ========   ========   ========    ========

     Our cost of goods sold  decreased to $8,000 in the year ended  December 31,
2007  compared to  $167,000  in the same  period in 2006.  We expect our cost of
goods sold to increase in 2007 as compared  to 2006  because we  anticipate  new
product releases.

     Our gross  margin  increased  to  $5,993,000  for the twelve  months  ended
December 31, 2007 from $800,000 in the  comparable  period in 2006. The increase
in gross margin was mainly attributable to our sale of " Fallout".

     Our net  revenues,  cost of goods sold and gross margin for the years ended
December 31, 2005 and 2004 breakdown as follows: (in thousands)


                                      2006       2005      Change     % Change
---------------------------------   --------   --------   --------    --------
Net Revenues ....................        967      7,158     (6,191)      (86.5%)
Cost of Goods Sold ..............        167        478       (311)      (65.1%)
                                    --------   --------   --------    --------
Gross Margin ....................        800      6,680     (5,880)      (88.0%)
                                    ========   ========   ========    ========


                                       22





     Our cost of goods sold decreased to $167,000 in the year ended December 31,
2006 compared to $478,000 in the same period in 2005.

     Our gross margin decreased to $800,000 for the twelve months ended December
31, 2006 from $6.7 milliion in the  comparable  period in 2005.  The decrease in
gross margin was mainly attributable to our decrease in revenue.

MARKETING AND SALES

     Our marketing and sales  expenses for the years ended December 31, 2007 and
2006 breakdown as follows: (in thousands)

                                      2007       2006      Change     % Change
---------------------------------   --------   --------   --------    --------
Marketing and Sales .............        245        509       (264)      (51.9%)


     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 twelve months ended  December 31, 2007 were  $245,000,  a 51.9%
decrease as compared to the 2006 period due to  discontinuing of the business of
Interplay Japan.

     Our marketing and sales  expenses for the years ended December 31, 2005 and
2004 breakdown as follows: (in thousands)

                                      2006       2005      Change     % Change
---------------------------------   --------   --------   --------    --------
Marketing and Sales .............        509        312        197       63.1%


     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 twelve months ended  December 31, 2006 were  $509,000,  a 63.1%
increase as compared to the 2005 period.  The  increase in  marketing  and sales
expenses is due to certain  expenses being  classified as marketing and sales in
2006 compared to prior year classification into general and administration and a
continued effort to sell back catalog products.

GENERAL AND ADMINISTRATIVE

     Our general and  administrative  expenses for the years ended  December 31,
2007 and 2006 breakdown as follows: (in thousands)

                                      2007       2006      Change     % Change
---------------------------------   --------   --------   --------    --------
General and Administrative ......      1,274      1,560       (286)      (18.3%)


     General and  administrative  expenses  primarily  consist of administrative
personnel  expenses,  facilities  costs,  professional  fees,  and other related
operating  expenses.  General  and  administrative  expenses  for the year ended
December 31, 2007 were $1.3  million,  a 18.3%  decrease as compared to the same
period in 2006.  The decrease is mainly due to decreases in personnel  costs and
general expenses as a result of a reduction in the administrative  personnel and
CEO compensation during 2007.

     Our general and  administrative  expenses for the years ended  December 31,
2005 and 2004 breakdown as follows: (in thousands)

                                      2006       2005      Change     % Change
---------------------------------   --------   --------   --------    --------
General and Administrative ......      1,560      2,617     (1,057)      (40.4%)


     General and  administrative  expenses  primarily  consist of administrative
personnel  expenses,  facilities  costs,  professional  fees,  and other related
operating  expenses.  General  and  administrative  expenses  for the year ended
December 31, 2006 were $1.6  million,  a 40.4%  decrease as compared to the same
period in 2005.  The decrease is mainly due to decreases in personnel  costs and
general  expenses  during  2006.  The  decrease  in general  and  administrative
expenses is due to certain  expenses being  classified as marketing and sales in
2006 compared to prior year classification into general and administration.


                                       23





PRODUCT DEVELOPMENT

     Our product development  expenses for the years ended December 31, 2007 and
2006 breakdown as follows: (in thousands)

                                      2007       2006      Change     % Change
---------------------------------   --------   --------   --------    --------
Product Development .............         18          0         18        (100%)

       Product development  expenses for the year ended December 31, 2007 were $
18,000,  a 100%  increase as compared to the same period in 2006.  This increase
was mainly due to the hiring of a software  developer  in the fourth  quarter of
2007.

     Our product development  expenses for the years ended December 31, 2005 and
2004 breakdown as follows: (in thousands)

                                      2006       2005      Change     % Change
---------------------------------   --------   --------   --------    --------
Product Development .............          0        268       (268)     (100.0%)


     We charged 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,  2006  were $0, a 100%
decrease as compared to the same period in 2005. This decrease was mainly due to
a $268,000  decrease in  personnel  costs and general  expenses as a result of a
reduction in headcount and the closure of our internal development studio during
the year.

OTHER EXPENSE (INCOME), NET

     Our other expense for the years ended  December 31, 2007 and 2006 breakdown
as follows: (in thousands)

                                      2007       2006      Change     % Change
---------------------------------   --------   --------   --------    --------
Other Expense (Income) ..........     (1,401)    (4,348)    (2,947)      (67.8%)


     Other income  consists  primarily of reversal  and  adjustments  to certain
accrual and accounts  payables in the amount of $1,425,000,  interest expense on
debt in the amount of $59,000,  foreign currency exchange transactions gains and
losses, and rental income in the amount of $73,000 and bad debts of $38,000. The
decrease  is  attributable  to  reversals  of a  smaller  amount  of prior  year
accruals.

     Our other expense for the years ended  December 31, 2005 and 2004 breakdown
as follows: (in thousands)

                                      2006       2005      Change     % Change
---------------------------------   --------   --------   --------    --------
Other Expense (Income) ..........     (4,348)    (2,445)    (1,903)       77.8%


     Other  income   consists   primarily  of   settlement   in  the  amount  of
approximately $310,000, reversal of reserves in the amount of approximately $2.2
million, reduction of accrued royalties in the amount of $810,000,  reversals of
accounts  payable in the amount of $1.2 million,  interest expense in the amount
of $135,000 and additional miscellaneous income.

PROVISION (BENEFIT) FOR INCOME TAXES

     We recorded no tax  provision for the years ended  December 31, 2007,  2006
and 2005.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2007, we had a working capital deficit of  approximately
$2,300,000,  and our cash balance was approximately $1,138,000 of which $200,000
was held in escrow in connection  with the settlement of litigation with Bioware
Corp. There is a balance owing to Atari of approximately $1 million,  and we may
be unable to satisfy  this debt which  became due on March 31,  2008.  We are in
dispute with Atari and believe we may have  various  claims that may offset some
or all of this  balance.  In any event,  we cannot  continue to fund our current
operations without obtaining additional financing or income.

     We sold  "Fallout"  to a third party and have  obtained the license back to
allow us to create,  develop and exploit a "Fallout"  MMOG.  We are  planning to
exploit the license back of  "Fallout"  MMOG and are  reviewing  the avenues for
securing financing of at least $30 million to fund its production.


                                       24






     We are now focused on a two-pronged  growth strategy.  While we are working
to secure funding for the  development of a MMOG based on the popular  "Fallout"
franchise,  we are at the same time  exploring ways to leverage our portfolio of
gaming  properties  through  sequels  and  various  development  and  publishing
arrangements. We are planning, if we can obtain financing, to develop sequels to
some of our most  successful  games,  including  Earthworm  Jim, Dark  Alliance,
Descent and MDK. We have reinitiated our in-house game development  studio,  and
have hired game  developers.  Initial funding for these steps will mainly derive
from the remaining proceeds from the sale of "Fallout".

     We continue to seek external sources of funding,  including but not limited
to,  incurring  debt, the selling of assets or securities,  licensing of certain
product rights in selected territories, selected distribution agreements, and/or
other  strategic  transactions  sufficient to provide  short-term  funding,  and
achieve our long-term strategic objectives.

     If we do not receive  sufficient  financing or income we may (i)  liquidate
assets, (ii) sell the company (iii) seek protection from our creditors including
the  filing  of  voluntary  bankruptcy  or  being  the  subject  of  involuntary
bankruptcy,  and/or (iv)  continue  operations,  but incur  material harm to our
business,  operations or financial conditions.  These conditions,  combined with
our historical  operating  losses and our deficits in  stockholders'  equity and
working  capital,  raise  substantial  doubt  about our ability to continue as a
going concern.

     Our  primary   capital  needs  have   historically   been  working  capital
requirements necessary to fund our operations. Our operating activities provided
cash of $1,088,000  during the twelve months ended December 31, 2007,  primarily
attributable  to the sale of  "Fallout"..  The Company had  $5,750,000 in income
from  recognition of the sale of "Fallout";  however the Company does not expect
material further non- recurring income in 2008.

     We entered into  various  licensing  agreements  during 2007 under which we
licensed others to exploit games that we have  intellectual  property rights to.
We expect in 2008 to enter into similar  license  arrangements  to generate cash
for the Company's operations.

     No assurance  can be given that funding can be obtained by us on acceptable
terms, or at all. These conditions,  combined with our deficits in stockholders'
equity  and  working  capital,  raise  substantial  doubt  about our  ability to
continue as a going concern.

OFF-BALANCE SHEET ARRANGEMENTS

     We do not have  any  off-balance  sheet  arrangements  under  which we have
obligations  under a  guaranteed  contract  that has any of the  characteristics
identified in paragraph 3 of FASB Interpretation 3 of FASB Interpretation No. 45
Guarantors  Accounting and Disclosure  Requirements  for  Guarantees,  Including
Indirect  Guarantees of Indebtedness  of Others.  We do not have any retained or
contingent interest in assets transferred to an unconsolidated entity or similar
arrangement  that serves as credit,  liquidity  or market  risk  support to such
entity  for  such  assets.  We also do not  have  any  obligation,  including  a
contingent  obligation,  under a  contract  that  would  be  accounted  for as a
derivative instrument. We have no obligations, including a contingent obligation
arising out of a variable interest (as referenced in FASB Interpretation No. 46,
Consolidation of Variable  Interest  Entities (January 2003), as may be modified
or supplemented) in an  unconsolidated  entity that is held by, and material to,
the registrant, where such entity provides financing,  liquidity, market risk or
credit  risk  support  to, or  engages  in  leasing,  hedging  or  research  and
development services with the registrant.

CONTRACTUAL OBLIGATIONS

     The following table summarizes certain of our contractual obligations under
non-cancelable  contracts and other  commitments  at December 31, 2007,  and the
effect such  obligations  are expected to have on our liquidity and cash flow in
future periods (in thousands).

--------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS        TOTAL     LESS THAN    1 - 3    3 - 5   MORE THAN
                                          1 YEAR      YEARS    YEARS    5 YEARS
--------------------------------------------------------------------------------
Lease Commitments (1)            46         46          0        0         0
--------------------------------------------------------------------------------

(1) We have a lease  commitment at the Beverly Hills office  through April 2008.
The Company is presently in negotiations to extend that lease but no commitments
have been made.  We also have a lease  commitment  at the French  representation
office through February 28, 2011 with an option for an additional 3 years.


                                       25





RECENT ACCOUNTING PRONOUNCEMENTS

     In February 2007, the FASB issued  Statement No. 159, THE FAIR VALUE OPTION
FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES -- INCLUDING AN AMENDMENT OF FASB
STATEMENT NO. 115 ("SFAS No. 159").  SFAS No. 159 permits  entities to choose to
measure many  financial  instruments  and certain other items at fair value that
are not currently required to be measured at fair value.  Subsequent  unrealized
gains and losses on items for which the fair value  option has been elected will
be  reported in  earnings.  The  provisions  of SFAS No. 159 are  effective  for
financial  statements issued for fiscal years beginning after November 15, 2007.
We are  evaluating  if we will adopt SFAS No. 159 and what  impact the  adoption
will have on our Consolidated Financial Statements if we adopt.

     In July 2006,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Interpretation  No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES (FIN 48). FIN
48 clarifies the  accounting for  uncertainty  in income taxes  recognized in an
enterprise's  financial  statements in accordance with SFAS 109,  ACCOUNTING FOR
INCOME  TAXES.  FIN  48  prescribes  a  recognition  threshold  and  measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position  taken or expected to be taken in a tax  return.  FIN 48 also  provides
guidance on derecognition, classification, interest and penalties, accounting in
interim  periods,  disclosure  and  transition.  FIN 48 is  effective  for years
beginning after December 15, 2006. We will adopt FIN 48 as of December 30, 2006,
as required.  Currently, we are not able to estimate the impact FIN 48 will have
on our financial statements.

      In  September  2006,  the FASB issued SFAS 157,  FAIR VALUE  MEASUREMENTS,
which  defines  fair value,  creates a  framework  for  measuring  fair value in
generally accepted  accounting  principles (GAAP), and expands disclosures about
fair value measurements.  SFAS 157 is effective for financial  statements issued
for fiscal years  beginning  after  November 15, 2007. We will adopt SFAS 157 on
its effective date. The Company has not yet determined the effect,  if any, that
the  application  of  SFAS  No.  157  will  have on its  consolidated  financial
statements.

      In September 2006, the Securities and Exchange  Commission  ("SEC") issued
SAB No. 108,  Topic 1-N,  "Considering  the Effects of Prior Year  Misstatements
when Quantifying  Misstatements  in Current Year Financial  Statements." SAB No.
108 requires companies to evaluate the materiality of current year misstatements
using both the rollover approach and the iron curtain  approach.  SAB No. 108 is
effective for  statements  covering the first fiscal year ending after  November
15,  2006.  The  adoption  of SAB No. 108 did not have a material  impact on the
Company's consolidated financial position and results of operations.

     Other recent  accounting  pronouncements  issued by the FASB (including its
Emerging  Issues  Task  Force),  the  American  Institute  of  Certified  Public
Accountants  and  the  Securities  and  Exchange  Commission  did not or are not
believed by  management to have a material  impact on the  Company's  present or
future consolidated financial statements.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not have any  derivative  financial  instruments  as of December  31,
2007.  However, we are exposed to certain market risks arising from transactions
in the normal course of business,  principally  the risk associated with foreign
currency fluctuations. We do not hedge our risk associated with foreign currency
fluctuations.

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.

     We recognized a $60,000 loss, $9,000 loss and $56,000 loss during the years
ended December 31, 2007,  2006 and 2005,  respectively,  primarily in connection
with  foreign  exchange  fluctuations  in the  timing of  payments  received  on
accounts receivable from foreign distributors or licensees.

ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our Consolidated Financial Statements begin on page F-1 of this report.


                                       26





ITEM 9A.(T) CONTROLS AND PROCEDURES

     As of the end of the period  covered  by this  report,  we  carried  out an
evaluation,  under  the  supervision  and with the  participation  of our  Chief
Executive  Officer and interim Chief Financial  Officer of the  effectiveness of
the design and operation of our disclosure  controls and procedures.  Based upon
this evaluation, our Chief Executive Officer and interim Chief Financial Officer
concluded that our disclosure  controls and procedures  were  effective,  at the
reasonable  assurance  level,  in  ensuring  that  information  required  to  be
disclosed  is  recorded,  processed,  summarized  and  reported  within the time
periods  specified  by the SEC rules and  forms  and in timely  alerting  him to
material information required to be included in this report.

     There  were  no  changes  made  in our  internal  controls  over  financial
reporting  that occurred  during the quarter  ended  December 31, 2007 that have
materially affected or reasonably likely to materially affect these controls.

     Our  management,  including  the CEO,  does not expect that our  disclosure
controls and procedures or our internal  control over  financial  reporting will
necessarily  prevent all fraud and material errors.  An internal control system,
no matter how well  conceived and  operated,  can provide only  reasonable,  not
absolute, assurance that the objectives of the control system are met.

     Further,  the design of a control  system must  reflect the fact that there
are  resource  constraints,  and the  benefits  of controls  must be  considered
relative to their  costs.  Because of the inherent  limitations  on all internal
control  systems,  our  internal  control  system can  provide  only  reasonable
assurance of achieving its  objectives and no evaluation of controls can provide
absolute  assurance  that all control  issues and  instances  of fraud,  if any,
within our Company have been detected.  These inherent  limitations  include the
realities that judgments in  decision-making  can be faulty, and that breakdowns
can occur  because of simple  error or mistake.  Additionally,  controls  can be
circumvented by the individual acts of some persons, by collusion of two or more
people,  and/or by management override of the control.  The design of any system
of internal  control is also based in part upon  certain  assumptions  about the
likelihood  of future  events,  and can provide only  reasonable,  not absolute,
assurance  that any design will succeed in achieving  its stated goals under all
potential future conditions.  Over time,  controls may become inadequate because
of changes in  circumstances,  and/or the degree of compliance with the policies
and procedures may deteriorate.

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     The Company's management, including our Chief Executive Officer and interim
Chief  Financial  Officer,  is  responsible  for  establishing  and  maintaining
adequate  internal control over financial  reporting (as such term is defined in
Exchange Act Rule 13a-15(f) and 15d-15(f)) for Interplay Entertainment Corp. and
its  subsidiaries  (the  "Company").  The Company's  internal control system was
designed to provide reasonable  assurance to the Company's  management and Board
of  Directors  regarding  the  preparation  and fair  presentation  of published
consolidated  financial  statements in  accordance  with  accounting  principles
generally accepted in the United States of America.

     Because of its  inherent  limitations,  a system of internal  control  over
financial reporting can provide only reasonable assurance and may not prevent or
detect misstatements.  Further, because of changing conditions, effectiveness of
internal  control over  financial  reporting  may vary over time.  The Company's
processes contain self-monitoring  mechanisms,  and actions are taken to correct
deficiencies as they are identified.

     Management has assessed the effectiveness of the Company's internal control
over  financial  reporting as of December  31,  2007,  based on the criteria for
effective internal control described in Internal Control -- Integrated Framework
issued by the Committee of Sponsoring  Organizations of the Treadway Commission.
Based  on its  assessment,  management  concluded  that the  Company's  internal
control over financial reporting was effective as of December 31, 2007.

     This annual report does not include an attestation  report of the Company's
registered  public  accounting  firm regarding  internal  control over financial
reporting.  Management's  report was not subject to attestation by the Company's
registered  public accounting firm pursuant to temporary rules of the Securities
and Exchange  Commission  that permit the Company to provide  only  management's
report in this annual report.


                                       27





                                    PART III


ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  in Item 10 is  incorporated  herein by  reference  to the
section  entitled  "Proposal One ----  Election of  Directors"  contained in the
Proxy  Statement  (the "Proxy  Statement")  for the 2008  annual  meeting of the
stockholders to be filed with the Securities and Exchange  Commission within 120
days of the close of the fiscal year ended December 31, 2007.

ITEM 11.   EXECUTIVE COMPENSATION

     The  information  in Item 11 is  incorporated  herein by  reference  to the
section  entitled  "Proposal One ----  Election of  Directors"  contained in the
Proxy Statement.


ITEM 12.   SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND  MANAGEMENT AND
           RELATED STOCKHOLDER MATTERS

     The  information  in Item12 is  incorporated  herein  by  reference  to the
section  entitled  "General  Information"  ----  Security  Ownership  of Certain
Beneficial  Owners and Management" and "Proposal One ---- Election of Directors"
contained in the Proxy Statement.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  in Item 13 is  incorporated  herein by  reference  to the
section entitled "Proposal One --- Election of Directors" contained in the Proxy
Statement.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

     The  information  in Item 14 is  incorporated  herein by  reference  to the
section  entitled  by  reference  to the  section  entitled  "Proposal  Two  ---
Ratification  of the  Appointment of Independent  Registered  Public  Accountant
Firm" contained in the Proxy Statement.

                                     PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following  documents,  except for exhibit 32.1 which is being  furnished
herewith, 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.


                                       28





                                   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 Beverly  Hills,,
California this 3rd day of April, 2008.

                                      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)

                                                                    EXHIBIT 24.1

                                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, Interim       April 3, 2008
Herve Caen                Chief Financial Officer and
                          Director (Principal Executive
                          and Financial and Accounting
                          Officer)



/s/ Eric Caen
____________________      Director                               April 3, 2008
Eric Caen




/s/ Michel Welter
____________________      Director                               April 3, 2008
Michel Welter


                                       29





                                  EXHIBIT INDEX


EXHIBIT
NO.                                    DESCRIPTION

3.1      Amended and  Restated  Certificate  of  Incorporation  of the  Company;
         (incorporated  herein by  reference  to  Exhibit  3.1 to the  Company's
         Annual Report on Form 10-K for the year ended December 31, 2003).

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 the  Company's
         Annual Report on Form 10-K for the year ended December 31, 1999).

3.3      Certificate  of  Amendment of  Certificate  of  Designation  of Rights,
         Preferences,  Privileges and  Restrictions of Series A Preferred Stock,
         as filed with the  Delaware  Secretary  of State on October  30,  2000;
         (incorporated  herein by  reference  to  Exhibit  3.3 to the  Company's
         Annual Report on Form 10-K for the year ended December 31, 2003).

3.4      Certificate  of  Amendment  of  Amended  and  Restated  Certificate  of
         Incorporation of the Company,  as filed with the Delaware  Secretary of
         State on November 2, 2000; (incorporated herein by reference to Exhibit
         3.4 to the  Company's  Annual  Report on Form  10-K for the year  ended
         December 31, 2003).

3.5      Certificate  of  Amendment  of  Amended  and  Restated  Certificate  of
         Incorporation of the Company,  as filed with the Delaware  Secretary of
         State on January 21, 2004; (incorporated herein by reference to Exhibit
         3.5 to the  Company's  Annual  Report on Form  10-K for the year  ended
         December 31, 2003).

3.6      Amended and  Restated  Bylaws of the Company;  (incorporated  herein by
         reference to Exhibit 3.6 to the  Company's  Annual  Report on Form 10-K
         for the year ended December 31, 2003).

3.7      Amendment to the Amended and Restated Bylaws of the Company dated March
         9,  2004;  (incorporated  herein by  reference  to  Exhibit  3.7 to the
         Company's  Annual  Report on Form 10-K for the year ended  December 31,
         2003).

4.1      Specimen  form of stock  certificate  for Common  Stock;  (incorporated
         herein by reference to Exhibit 4.1 to the Form S-1)

10.01    Third Amended and Restated 1997 Stock Incentive Plan (the "1997 Plan");
         (incorporated herein by reference to Appendix A of the Definitive Proxy
         Statement filed on August 20, 2002).

10.02    Form  of  Stock  Option   Agreement   pertaining  to  the  1997  Plan.;
         (incorporated herein by reference to exhibit 10.2 to the form S-1).

10.03    Form of  Restricted  Stock  Purchase  Agreement  pertaining to the 1997
         Plan;  (incorporated  herein by  reference  to Exhibit 10.3 to the Form
         S-1).

10.04    Form of  Indemnification  Agreement  for Officers and  Directors of the
         Company; (incorporated herein by reference to Exhibit 10.11 to the Form
         S-1).

10.05    Employment  Agreement between the Company and Herve Caen dated November
         9, 1999;  (incorporated  herein by  reference  to  Exhibit  10.3 to the
         Company's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1999).

10.06    Trademark License Agreement  by and between Bethesda  Softworks LLC and
         the  Company  dated  as of  April  4,  2007;  (incorporated  herein  by
         reference  to exhibit  10.49 to  the  Company's  8-K filed on April 12,
         2007).

14.1     Code of Ethics of the  Company;  (incorporated  herein by  reference to
         Exhibit 14.1 to Amendment No. 1 to the Company's  Annual Report on Form
         10-K for the year ended December 31, 2003 filed on April 27, 2004).

21.1     Subsidiaries of the Company.

23.1     Consent of Jeffrey S. Gilbert, Independent Registered Public Accounting
         firm


                                       30





24.1     Power of Attorney (included on signature page to this Form 10-K)

31.1     Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
         Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2     Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
         Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32.1     Certification  of 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.


                                       31





                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                        AND REPORT OF INDEPENDENT AUDITOR



                                                                            PAGE
                                                                            ----

Report of Independent Registered Public Accounting Firm .............        F-2

Consolidated Balance Sheets at December 31, 2007 and 2006 ...........        F-3

Consolidated Statements of Operations for the years ended
   December 31, 2007, 2006 and 2005 .................................        F-4

Consolidated Statements of Stockholder's Equity (Deficit)
   and Comprehensive Income (loss) for the years ended
   December 31, 2007, 2006, 2005 ....................................        F-5

Consolidated Statements of Cash Flows for the years ended
   December 31, 2007, 2006 and 2005 .................................        F-6

Notes to Consolidated Financial Statements ..........................        F-7

Schedule II - Valuation and Qualifying Accounts .....................        S-1


                                       F-1





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Interplay Entertainment Corp.

     I have audited the consolidated  balance sheets of Interplay  Entertainment
Corp. (a majority-owned  subsidiary of Financial Planning and Development S.A. )
and  Subsidiaries  (the  "Company")  as of  December  31,  2007 and 2006 and the
related  consolidated  statements of operations,  stockholders' equity (deficit)
and comprehensive income(loss)and cash flows each of the years in the three year
period ending December 31, 2007. My audit included the schedule of valuation and
qualifying  accounts  for the years  ended  December  31,  2007 and 2006.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  My  responsibility  is to express an opinion on these  consolidated
financial statements and the schedule based on my audit.

     I conducted my audit in  accordance  with  standards Of the Public  Company
Accounting Oversight Board (United States).  Those standards require that I plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  consideration of internal control over financial  reporting as a basis
for designing audit  procedures that are appropriate in the  circumstances,  but
not for the  purpose  of  expressing  an  opinion  on the  effectiveness  of the
Company's internal control over financial reporting.  Accordingly,  I express no
such  opinion.  An audit also  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  financial
statement  presentation.  I believe my audit provides a reasonable  basis for my
opinion.

     In my opinion,  the  consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Interplay  Entertainment Corp. and Subsidiaries as of December 31, 2006 and 2005
and the results of their  operations  and their cash flows for each of the years
in the three year period ending December 31, 2007, in conformity with accounting
principles  generally  accepted  in the United  States of America.  Also,  in my
opinion the related  financial  statement  schedule for the years ended December
31,  2007,  2006 and 2005 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  consolidated  financial  statements  have been  prepared
assuming the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has limited liquid resources,
a history of losses,  negative  working capital of $2,279,000 and  stockholders'
deficit of $2,279,000. These matters raise substantial doubt about the Company's
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also discussed in Note 1. The consolidated  financial  statements do
not  include  any  adjustment  that  might  result  from the  outcomes  of these
uncertainties.


/S/ JEFFREY S. GILBERT
------------------------------
Jeffrey S. Gilberg

Los Angeles, California
March 26, 2008


                                       F-2





                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                                                                 DECEMBER 31,
                                                                       ------------------------------
                                                                            2007             2006
                                                                       -------------    -------------
                                      ASSETS
Current Assets:
     Cash ..........................................................   $   1,138,000    $      50,000
     Trade receivables, net of allowances
         of $37,000 and $17,000, respectively ......................          26,000          227,000
     Inventories ...................................................           1,000            8,000
     Deposits ......................................................           4,000            4,000
     Prepaid expenses ..............................................          10,000            6,000
     Other receivables .............................................          13,000           17,000
                                                                       -------------    -------------
        Total current assets .......................................       1,192,000          312,000

Property and equipment, net ........................................           9,000            3,000
Other assets .......................................................               0            8,000
                                                                       -------------    -------------
          Total  assets ............................................   $   1,201,000    $     323,000
                                                                       =============    =============

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
     Note payable ..................................................   $   1,045,000    $   1,427,000
     Notes payable officer and directors ...........................         729,000          694,000
     Accounts payable subject to judgments .........................               0        1,653,000
     Accounts payable ..............................................         911,000        4,006,000
     Accrued royalties .............................................         200,000          170,000
     Deferred income ...............................................         595,000          460,000

                                                                       -------------    -------------
          Total current liabilities ................................       3,480,000        8,410,000
                                                                       -------------    -------------

Commitments and contingencies
Stockholders' Equity (Deficit):
     Preferred stock, $0.001 par value 5,000,000 shares authorized;
        no shares issued or outstanding, respectively,
     Common stock, $0.001 par value 150,000,000 shares authorized;
        issued and outstanding  103,855,634 shares in 2007 and
       103,855,634 shares in 2006 ..................................         104,000          104,000
     Paid-in capital ...............................................     121,976,000      121,964,000
     Accumulated deficit ...........................................    (124,349,000)    (130,205,000)
     Accumulated other comprehensive income ........................         (10,000)          50,000
     Treasury stock of 4,658,216 shares at December 31,2007 and 2006            --               --
                                                                       -------------    -------------
          Total stockholders' (deficit) ............................      (2,279,000)      (8,087,000)
                                                                       -------------    -------------
          Total liabilities and stockholders'(deficit) .............   $   1,201,000    $     323,000
                                                                       =============    =============


                             See accompanying notes.


                                       F-3





                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                          YEARS ENDED DECEMBER 31,
                                              -----------------------------------------------
                                                   2007            2006              2005
                                              -------------    -------------    -------------
Revenue ...................................   $   6,001,000    $     967,000    $   7,158,000
Cost of goods sold ........................           8,000          167,000          478,000
                                              -------------    -------------    -------------
   Gross profit ...........................       5,993,000          800,000        6,680,000
                                              -------------    -------------    -------------

Operating expenses:
   Marketing and sales ....................         245,000          509,000          312,000
   General and administrative .............       1,275,000        1,560,000        2,617,000
   Product development ....................          18,000                0          268,000
                                              -------------    -------------    -------------
      Total operating expenses ............       1,538,000        2,069,000        3,197,000
                                              -------------    -------------    -------------

      Operating income  (loss) ............       4,455,000       (1,269,000)       3,483,000
                                              -------------    -------------    -------------

Other income (expense):
   Interest expense .......................         (59,000)        (139,000)        (146,000)
   Other (primarily reversal of prior year
      recorded liabilities and settlements)       1,460,000        4,487,000        2,591,000
                                              -------------    -------------    -------------
       Total other income (expense) .......       1,401,000        4,348,000        2,445,000
                                              -------------    -------------    -------------

Income (loss) before provision (benefit)
   for income taxes .......................       5,856,000        3,079,000        5,928,000
Provision (benefit) for income taxes ......            --               --               --
                                              -------------    -------------    -------------

Net income (loss) .........................   $   5,856,000    $   3,079,000    $   5,928,000
                                              =============    =============    =============

Net income (loss) per common share:
Basic .....................................   $       0.059    $       0.032    $        0.06
                                              =============    =============    =============
Diluted ...................................   $       0.057    $       0.032    $        0.06
                                              =============    =============    =============

Weighted average number of shares used
   in calculating net income (loss) per
   common share:
Basic .....................................      99,197,000       95,030,000       93,856,000
                                              =============    =============    =============
Diluted ...................................     102,027,000       97,120,000       93,856,000
                                              =============    =============    =============



                                       F-4





                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                         AND COMPREHENSIVE INCOME (LOSS)
                  YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
                             (Dollars in thousands)

                                      PREFERRED STOCK              COMMON STOCK
                                 -------------------------   ------------------------
                                    SHARES        AMOUNT        SHARES        AMOUNT
                                 -----------   -----------   -----------   -----------
Balance, December 31, 2004 ...          --            --      93,855,634   $        94
   Issuance of common stock,
      net of issuance costs ..          --            --            --            --
   Net Income ................          --            --            --            --
   Other comprehensive income,
      net of income taxes:
      Foreign currency
         translation
         adjustment ..........          --            --            --            --
                                 -----------   -----------   -----------   -----------
Balance, December 31, 2005 ...          --            --      93,855,634            94
                                 ===========   ===========   ===========   ===========
   Issuance of common stock,
       net of issuance costs .          --            --            --            --
   Additional Paid in
      Capital- Options .......          --            --            --            --
   Shares for Debt - Special
      Situations .............          --            --      10,000,000            10
   Treasury stock
   Net Income ................          --            --            --            --
   Other comprehensive income,
      net of income taxes:
      Foreign currency
         translation
         adjustment ..........          --            --            --            --
                                 -----------   -----------   -----------   -----------
Balance, December 31, 2006 ...          --            --     103,855,634   $       104
                                 ===========   ===========   ===========   ===========
   Issuance of common stock,
      net of issuance of
      costs ..................          --            --            --            --
   Additional Paid in -
      Capital - Options ......          --            --            --            --
   Net Income ................          --            --            --            --
   Other comprehensive income,
      net of income taxes:
      Foreign currency
         translation
         adjustment ..........          --            --            --            --
                                 -----------   -----------   -----------   -----------
Balance, December 31,2007 ....          --            --     103,855,634   $       104
                                 ===========   ===========   ===========   ===========


                                                              ACCUMULATED
                                                                 OTHER
                                   PAID-IN     ACCUMULATED   COMPREHENSIVE
                                   CAPITAL       DEFICIT     INCOME (LOSS)      TOTAL
                                 -----------   -----------    -----------    -----------
Balance, December 31, 2004 ...   $   121,640   $  (139,211)   $       115    $   (17,362)
   Issuance of common stock,
      net of issuance costs ..          --            --             --             --
   Net Income ................          --          (5,928)          --           (5,928)
   Other comprehensive income,
      net of income taxes:
      Foreign currency
         translation
         adjustment ..........          --            --              (56)           (56)
                                 -----------   -----------    -----------    -----------
Balance, December 31, 2005 ...   $   121,640   $  (133,283)   $        59    $   (11,490)
                                 ===========   ===========    ===========    ===========
   Issuance of common stock,
       net of issuance costs .          --            --             --             --
   Additional Paid in
      Capital- Options .......            38          --             --               38
   Shares for Debt - Special
      Situations .............           286          --             --             --
   Treasury stock
   Net Income ................          --           3,079           --            3,079
   Other comprehensive income,
      net of income taxes:
      Foreign currency
         translation
         adjustment ..........          --              (1)            (9)           (10)
                                 -----------   -----------    -----------    -----------
Balance, December 31, 2006 ...   $   121,966   $  (130,205)   $        50         (8,087)
                                 ===========   ===========    ===========    ===========
   Issuance of common stock,
      net of issuance of
      costs ..................          --            --             --             --
   Additional Paid in -
      Capital - Options ......            12          --             --               12
   Net Income ................          --           5,856           --            5,856
   Other comprehensive income,
      net of income taxes:
      Foreign currency
         translation
         adjustment ..........          --            --              (60)           (60)
                                 -----------   -----------    -----------    -----------
Balance, December 31,2007 ....   $   121,976   $  (124,349)   $       (10)   $    (2,279)
                                 ===========   ===========    ===========    ===========


                             See accompanying notes.


                                      F-5





                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OF CASH FLOWS

                                                                   YEARS ENDED DECEMBER 31,
                                                         -----------------------------------------
                                                             2007           2006           2005
                                                         -----------    -----------    -----------
Cash flows from operating activities:
   Net income (loss) .................................   $ 5,856,000    $ 3,079,000    $ 5,928,000
   Adjustments to reconcile net income (loss) to
      cash provided by (used in) operating activities:
      Depreciation and amortization ..................         2,000          4,000        142,000
      Deposit ........................................          --            4,000         (8,000)
      Additional Paid in Capital - Options expenses ..        12,000         38,000           --
      Shares issued for settlement of  liability .....          --          296,000           --
      Reversal of prior year recorded liabilities ....    (1,425,000)    (4,441,000)    (2,345,000)
      Writeoff of prepaid licenses and royalties .....          --             --             --
      Abandonement of fixed assets ...................          --             --          323,000
      Changes in assets and liabilities:
         Restricted cash .............................          --             --            2,000
         Trade receivables, net ......................       201,000        201,000       (297,000)
         Trade receivables from related parties ......          --           17,000         (6,000)
         Inventories .................................         7,000           --           18,000
         Prepaid licenses and royalties ..............          --             --             --
         Prepaid expenses ............................        (4,000)        54,000        (60,000)
         Loss on sale of assets ......................          --             --             --
         Loss on abandonment of assets ...............          --             --             --
         Other current assets/receivables ............         4,000         (9,000)       129,000
         Accounts payable ............................    (3,315,000)      (367,000)       885,000
         Accrued royalties ...........................        30,000         (7,000)      (329,000)
         Note Payable Officer ........................        35,000        694,000           --
         Payables to related parties .................          --             --       (3,870,000)
         Deferred Income .............................       135,000        355,000       (475,000)
         Accumulated other comprehensive income ......       (60,000)        10,000         56,000
                                                         -----------    -----------    -----------
             Net cash provided by (used in) operating
                activities ...........................     1,478,000        (72,000)        93,000
                                                         -----------    -----------    -----------
Cash flows from investing activities:
   Purchases of property and equipment ...............        (8,000)          --             --
                                                         -----------    -----------    -----------
            Net cash (used in) investing activities ..        (8,000)          --             --
                                                         -----------    -----------    -----------

Cash flows from financing activities:
   Repayment of debt .................................      (382,000)          --             --
   Proceeds from debt ................................          --             --             --
                                                         -----------    -----------    -----------
         Net cash used in  financing activities ......      (382,000)          --             --
                                                         -----------    -----------    -----------
Effect of exchange rate changes on cash ..............          --             --             --
                                                         -----------    -----------    -----------
Cash, beginning of year ..............................        50,000        122,000         29,000
                                                         -----------    -----------    -----------
Cash, end of year ....................................   $ 1,138,000    $    50,000    $   122,000
                                                         ===========    ===========    ===========

Supplemental cash flow information:

    Cash paid during the year for interest ...........   $   371,000    $      --      $      --
                                                         ===========    ===========    ===========


                             See accompanying notes.


                                      F-6





                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005


1.   DESCRIPTION OF BUSINESS AND OPERATIONS

     Interplay Entertainment Corp., a Delaware corporation, and its subsidiaries
(the  "Company"),  publish  and  license  to  others  interactive  entertainment
software.  The Company's  software is developed  for use on various  interactive
entertainment  software  platforms,  including personal computers and video game
consoles.  The Company's common stock is quoted on the NASDAQ OTC Bulletin Board
under the symbol "IPLY".

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 had net income of $5.9 million in 2007,
primarily derived from one time non-recurring  events which occurred in 2007. At
December 31, 2007, the Company had a stockholders' deficit of $2.3 million and a
working capital deficit of $2.3 million. The Company has historically funded its
operations from licensing fees, royalty and distribution fee advances,  and will
continue to exploit its existing  intellectual property rights in our videogames
to provide future funding.

     In addition,  the Company  continues to seek,  external  sources of funding
including,  but not  limited  to, a sale or  merger  of the  Company,  a private
placement  or  public  offering  of the  Company's  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
the Company's long-term strategic objectives.  Although the Company has had some
success  in  licensing  or sales of  certain  of its  products  in the past,  no
assurance can be given that the Company will do so in the future.

      The Company  expects that it will need to obtain  additional  financing or
income to fund its current  operations.  However, no assurance can be given that
funding  can 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 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.,  Games On-line and Interplay
Japan  which  is  inactive..   All   significant   inter-company   accounts  and
transactions have been eliminated.

CASH AND CASH EQUIVELENTS

The Company considers all highly liquid investments with insignificant  interest
rate  risks and  original  maturities  of three  months or less from the date of
purchase to be cash equivalents.  The carry amounts of cash and cash equivalents
approximate their fair values.

USE OF ESTIMATES

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  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  consolidated  financial  statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates made in
preparing the consolidated  financial  statements include,  among others,  sales
returns and allowances,  allowances for  uncollectible  receivables,  cash flows


                                      F-7





used to evaluate  the  recoverability  of prepaid  licenses  and  royalties  and
long-lived  assets,  and certain accrued  liabilities  related to  restructuring
activities and litigation. Actual results could differ from those estimates.

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.

INVENTORIES

     Inventories  consist of 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.  Based on management's  evaluation,  the Company had not
established any valuation allowance at December 31, 2007 .

     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.

PREPAID LICENSES AND ROYALTIES

     The Company has in the past had prepaid  licenses and royalties  consisting
of fees paid to intellectual property rights holders for use of their trademarks
or  copyrights.  Also included in prepaid  royalties  were  prepayments  made to
independent  software  developers  under  development   arrangements  that  have
alternative  future uses.  These  payments were  contingent  upon the successful
completion of  milestones,  which  generally  represent  specific  deliverables.
Royalty advances were recoupable against future sales based upon the contractual
royalty rate. The Company  amortized these costs 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  amortized these amounts at a rate based upon the actual number of units
shipped with a minimum  amortization  of 75% in the first month of release and a
minimum  of 5% for each of the next five  months  after  release.  This  minimum
amortization rate reflected 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 were  classified  as current and  noncurrent
assets  based  upon  estimated  product  release  dates.  There  were no prepaid
licenses and royalties at December 31, 2007.

SOFTWARE DEVELOPMENT COSTS

     SOFTWARE  DEVELOPMENT  COSTS.  Software  development costs include payments
made to independent software developers under development agreements, as well as
direct costs incurred for internally developed products.

     We account for software  development  costs in accordance with Statement of
Financial  Accounting  Standard  ("SFAS") No. 86,  "Accounting  for the Costs of
Computer  Software  to  Be  Sold,  Leased,  or  Otherwise   Marketed."  Software
development  costs  are  capitalized  once the  technological  feasibility  of a
product  is  established  and  such  costs  are  determined  to be  recoverable.
Technological  feasibility  of  a  product  encompasses  both  technical  design
documentation  and  game  design   documentation.   For  products  where  proven
technology exists, this may occur early in the development cycle.  Technological
feasibility  is evaluated on a  product-by-product  basis.  Prior to a product's
release,  we  expense,  as part of  "cost of sales  --  software  royalties  and
amortization,"   capitalized   costs  when  we  believe  such  amounts  are  not
recoverable.  Capitalized  costs  for  those  products  that  are  cancelled  or
abandoned  are  charged  to  product   development  expense  in  the  period  of
cancellation.  Amounts related to software development which are not capitalized
are charged immediately to product  development  expense. We evaluate the future
recoverability of capitalized  amounts on a quarterly basis. The  recoverability
of capitalized  software  development  costs is evaluated  based on the expected
performance of the specific  products for which the costs relate.  Criteria used
to evaluate  expected product  performance  include:  historical  performance of
comparable products using comparable technology; orders for the product prior to
its  release;  and  estimated  performance  of a  sequel  product  based  on the
performance of the product on which the sequel is based.


                                      F-8





     Commencing upon product release, capitalized software development costs are
amortized to "cost of sales -- software royalties and amortization" based on the
ratio of current revenues to total projected revenues, generally resulting in an
amortization  period of six months or less. For products that have been released
in prior periods,  we evaluate the future  recoverability of capitalized amounts
on  a  quarterly  basis.  The  primary  evaluation  criterion  is  actual  title
performance.

     Significant   management  judgments  and  estimates  are  utilized  in  the
assessment of when technological  feasibility is established,  as well as in the
ongoing assessment of the recoverability of capitalized costs. In evaluating the
recoverability  of  capitalized   costs,  the  assessment  of  expected  product
performance  utilizes forecasted sales amounts and estimates of additional costs
to be incurred.  If revised  forecasted  or actual  product  sales are less than
and/or  revised  forecasted  or  actual  costs  are  greater  than the  original
forecasted  amounts  utilized in the initial  recoverability  analysis,  the net
realizable  value may be lower than  originally  estimated in any given quarter,
which could result in an impairment charge.

     Research  and  development  costs,  which  consisted  primarily of software
development  costs,  are expensed as incurred.  Financial  accounting  Standards
Board  ("FASB")The  Company has not capitalized any software  development  costs
since  2003  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 period of five to seven years.  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   statements  of
operations.

LONG-LIVED ASSETS

     The Company  reviews  long-lived  assets 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
estimated  fair  value,  based on various  models,  including  projected  future
undiscounted net cash flows from such asset (excluding interest) and replacement
value, an impairment loss is recognized. Impairment losses are calculated as the
difference  between  the cost basis of an asset and its  estimated  fair  value.
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 additional impairment of other long-lived assets in the future.

GOODWILL AND INTANGIBLE ASSETS

     Goodwill and  identifiable  intangible  assets that have indefinite  useful
lives  are  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.  At December 31, 2007 and 2006,  the Company
had no goodwill or intangible assets subject to amortization.

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.


                                      F-9





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. 104, Revenue Recognition.

     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 gold 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
recognizes  revenue  on  expired  contracts  when  the  termination  date of the
contract is reached because  guaranteed  minimum  royalties are not reimbursable
and is therefore, recorded as revenue.

     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  basis,  the  Company may permit
customers to return or exchange product and may provide  markdown  allowances on
products  unsold by a customer.  Revenue is  recorded  net of an  allowance  for
estimated returns,  exchanges,  markdowns, price concessions and warranty costs.
Such allowances are based upon management's evaluation of historical experience,
current industry trends and estimated costs. Management of the Company estimated
that no allowances  were  necessary at December 31, 2007 and 2006. The amount of
allowances ultimately required could differ materially in the near term from the
amounts included in the accompanying consolidated financial statements.

     Customer  support  provided by the Company is limited to 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 Company has entered into various licensing
agreements  during 2007 under which it licensed others to exploit games to which
the Company had intellectual property rights.

REVERSAL OF CERTAIN PRIOR YEAR ACCRUALS AND ACCOUNTS PAYABLE

     During the year ended  December  31,  2007,  2006 and 205 the  Company  has
reversed certain accruals and accounts  payables of approximately  $1.4 million,
$4.5  million  and $2.6  million  respectively.  It is the  Company's  policy to
reverse  outstanding  accruals and accounts  payables that have been outstanding
for over 3 years and no effort has been made by the vendor or claimant  for that
period of time to collect the outstanding balances.

ADVANCES FROM DISTRIBUTORS

     Deferred  income is recognized when contracts with  distributors  expire or
are terminated.

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  advertising.  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  $245,000,  $509,000 and $312,000 for the years
ended December 31, 2007, 2006 and 2005, 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


                                      F-10





tax purposes given the provisions of the enacted tax laws. A valuation allowance
has been  provided  for all  deferred  tax assets  equal to the amounts of these
assets.

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.   Gains  and  Losses   resulting  from  foreign   currency
transactions amounted to a $60,000 loss, $9,000 loss and $56,000 loss during the
years ended December 31, 2007, 2006 and 2005,  respectively,  and is 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 if any. For
the years ended December 31, 2006 and 2005, all options and warrants outstanding
to purchase  common stock were excluded from the earnings per share  computation
as the exercise  price was greater  than the average  market price of the common
shares.  For the year ended December 31, 2007 certain  warrants and options were
dilutive and were included in diluted net income per share.

     The Company  discloses  information  regarding  segments in accordance with
SFAS No. 131 DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
SFAS No. 131 establishes  standards for reporting of financial information about
operating  segments  in  annual  financial  statements  and  requires  reporting
selected  information about operating segments in interim financial reports. The
Company is managed,  and financial  information is developed,  on a geographical
basis,  rather than a product line basis. Thus, the Company has provided segment
information on a geographical basis (see Note 13).

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     Management   establishes  an  allowance  for  doubtful  accounts  based  on
qualitative  and  quantitative  review  of  credit  profiles  of  the  Company's
customers,  contractual  terms  and  conditions,  current  economic  trends  and
historical payment,  return and discount experience.  Management  reassesses the
allowance  for doubtful  accounts  each period.  If  management  made  different
judgments or utilized different estimates for any period,  material  differences
in the amount and timing of revenue recognized could result. Accounts receivable
are written off when all collection attempts have failed.

COST OF SOFTWARE REVENUE

     Cost of software  revenue  primarily  reflects the manufacture  expense and
royalties to third party  developers,  which are recognized upon delivery of the
product.  Cost of support  incl4udes (i) sales  commissions and salaries paid to
employees  who  provide  support to clients  and (ii) fees paid to  consultants,
which are  recognized  as the  services are  performed.  Sales  commissions  are
expensed as incurred.

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 follows the principal of SFS No. 123(R), "SHARE-BASED PAYMENT"
("SFAS 123R"),  which requires the  measurement  and recognition of compensation
cost at fair value for all  share-based  payments,  including  stock options and
restricted  stock  awards.   The  Company  utilized  the  modified   prospective
transition method and, as a result,  did not  retroactively  adjust results from
prior  periods.  Under  this  transition  method,  stock-based  compensation  is


                                      F-11





recognized for: (1) expense related to the remaining  non-vested  portion of all
stock awards granted prior to January 1, 2006 based on the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION ("SFAS 123") and the same straight-line attribution
method  used to  determine  the pro forma  disclosures  under SFAS 123;  and (2)
expense related to all stock awards granted on or subsequent to January 1, 2006,
based on the grant date fair value  estimated in accordance  with the provisions
of SFAS 123R.

     At December 31, 2007, the Company has one stock-based employee compensation
plan,  which  is  described  more  fully  in  Note  10.   Stock-based   employee
compensation cost approximated $12,000,  $40,000, $0 was reflected in net income
for the years ended December 31, 2007, 2006 and 2005, respectively.  Stock-based
employee compensation:

                                                                         YEARS ENDED DECEMBER 31,
                                                                  ------------------------------------
                                                                     2007         2006         2005
                                                                  ----------   ----------   ----------
                                                                    (Dollars in thousands, except per
                                                                             share amounts)
Net income (loss) available to common stockholders, as reported   $    5,856   $    3,079   $    5,928
Pro forma estimated fair value compensation expense ...........         --           --           --
                                                                  ----------   ----------   ----------
Pro forma net income (loss) available to common stockholders ..   $    5,856   $    3,079   $    5,928
                                                                  ==========   ==========   ==========
Basic net income (loss) per common share as reported ..........   $     .059        0.030   $     0.06
Diluted net income (loss) per common share as reported ........   $     .057   $    0.028   $     0.06
Basic pro forma net income (loss) per common share ............   $     .059   $    0.030   $     0.06
Diluted pro forma net income (loss) per common share ..........   $     .057   $    0.028   $     0.06


RECENT ACCOUNTING PRONOUNCEMENTS

     In February 2007, the FASB issued  Statement No. 159, THE FAIR VALUE OPTION
FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES -- INCLUDING AN AMENDMENT OF FASB
STATEMENT NO. 115 ("SFAS No. 159").  SFAS No. 159 permits  entities to choose to
measure many  financial  instruments  and certain other items at fair value that
are not currently required to be measured at fair value.  Subsequent  unrealized
gains and losses on items for which the fair value  option has been elected will
be  reported in  earnings.  The  provisions  of SFAS No. 159 are  effective  for
financial  statements issued for fiscal years beginning after November 15, 2007.
We are  evaluating  if we will adopt SFAS No. 159 and what  impact the  adoption
will have on our Consolidated Financial Statements if we adopt.

     In July 2006,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Interpretation  No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES (FIN 48). FIN
48 clarifies the  accounting for  uncertainty  in income taxes  recognized in an
enterprise's  financial  statements in accordance with SFAS 109,  ACCOUNTING FOR
INCOME  TAXES.  FIN  48  prescribes  a  recognition  threshold  and  measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position  taken or expected to be taken in a tax  return.  FIN 48 also  provides
guidance on derecognition, classification, interest and penalties, accounting in
interim  periods,  disclosure  and  transition.  FIN 48 is  effective  for years
beginning after December 15, 2006. We will adopt FIN 48 as of December 30, 2006,
as required.  Currently, we are not able to estimate the impact FIN 48 will have
on our financial statements.

     In September 2006, the FASB issued SFAS 157, FAIR VALUE MEASUREMENTS, which
defines fair value,  creates a framework for  measuring  fair value in generally
accepted accounting  principles (GAAP), and expands disclosures about fair value
measurements.  SFAS 157 is effective for financial  statements issued for fiscal
years beginning after November 15, 2007. We will adopt SFAS 157 on its effective
date.  The  Company  has  not yet  determined  the  effect,  if  any,  that  the
application of SFAS No. 157 will have on its consolidated financial statements.

     In September  2006, the Securities and Exchange  Commission  ("SEC") issued
SAB No. 108,  Topic 1-N,  "Considering  the Effects of Prior Year  Misstatements
when Quantifying  Misstatements  in Current Year Financial  Statements." SAB No.
108 requires companies to evaluate the materiality of current year misstatements
using both the rollover approach and the iron curtain approach.. The adoption of
SAB  No.  108 did not  have a  material  impact  on the  Company's  consolidated
financial position and results of operations.


                                      F-12





     Other recent  accounting  pronouncements  issued by the FASB (including its
Emerging  Issues  Task  Force),  the  American  Institute  of  Certified  Public
Accountants  and  the  Securities  and  Exchange  Commission  did not or are not
believed by  management to have a material  impact on the  Company's  present or
future consolidated financial statements.

3.   DETAIL OF SELECTED BALANCE SHEET ACCOUNTS PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                                                               DECEMBER 31,
                                                           ------------------
                                                            2007        2006
                                                           ------      ------
                                                          (Dollars in thousands)
Computers and equipment ..............................     $    9      $   14
Furniture and fixtures ...............................          8           8
Leasehold improvements ...............................       --          --
                                                           ------      ------
                                                               17          22
Less:  Accumulated depreciation and amortization .....         (7)        (19)
                                                           ------      ------
      Net Equipment ..................................     $   10      $    3
                                                           ======      ======

     For the years ended December 31, 2007, 2006 and 2005, the Company  incurred
depreciation   and  amortization   expense  of  $2,000,   $4,000  and  $100,000,
respectively.  During the years ended  December  31,  2007,  2006 and 2005,  the
Company  disposed of fully  depreciated  equipment  having an  original  cost of
$14,000, $0 and $1.4 million, respectively.

4.   NOTE PAYABLE

         The Company  issued on October 2, 2006 to the  following  officers  and
directors,  Herve Caen,  Eric Caen and Michel Welter,  conditional  demand notes
(such  notes to be  exercisable  only if the  tangible  net worth of the company
exceeds  $1  million  or in a case of  change  in  control)  bearing a 5% annual
interest  rate.  The  conditional  demand  notes were  issued for the earned but
unpaid director's fees to Herve Caen for $50,000,  to Eric Caen for $50,000,  to
Michel Welter for $85,000, and for earned but unpaid salary to Herve Caen in the
amount of $500,000 totaling $685,000. Interest accrued on the demand notes as of
December 31, 2007 was $44,000.

     The Company issued to Atari  Interactive,  Inc. ("Atari") a Promissory Note
bearing no interest,  due December 31,  2006,  in the  principal  amount of $2.0
million in connection  with Atari  entering into tri-party  agreements  with the
Company and its then main  distributors,  Vivendi and Avalon.  On March 28, 2007
both parties  agreed to extend the option  period of the  promissory  note until
March 31, 2008, and the note is now  delinquent.  The Company is in dispute with
Atari and believes it may have various claims that may offset some or all of the
balance  owned to Atari.  The note was  issued  in  payment  of all  outstanding
accrued royalties due Atari under the Dungeons & Dragons license agreement which
license was  terminated  by Atari on April 23, 2004.  At December 31, 2007,  the
balance owed to Atari, is $1.045 million as a result of payments made by Vivendi
and Avalon on the Company's behalf to Atari.

5.   ADVANCES FROM DISTRIBUTORS WHICH ARE CONSIDERED DEFERRED INCOME

                                                               DECEMBER 31,
                                                         -----------------------
                                                           2007           2006
                                                         --------       --------
                                                         (Dollars in thousands)

Advances for future distribution rights ..........       $595,000       $460,000
                                                         ========       ========


                                      F-13





6.  INCOME TAXES

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

                                           YEARS ENDED DECEMBER 31,
                             --------------------------------------------------
                                 2007               2006                2005
                             -----------        -----------         -----------
                                          (Dollars in thousands)
Domestic ............        $ 5,640,000        $ 3,624,000         $ 6,554,000

Foreign .............            216,000           (550,000)           (626,000)
                             -----------        -----------         -----------
Total ...............        $ 5,856,000        $ 3,074,000         $ 5,928,000
                             ===========        ===========         ===========

     The provision for income taxes is comprised of the following:

                                                      YEARS ENDED DECEMBER 31,
                                                  ------------------------------
                                                   2007        2006        2005
                                                  ------      ------      ------
                                                      (Dollars in thousands)
Current:
   Federal .................................      $ --        $ --        $ --
   State ...................................        --          --          --
   Foreign .................................        --          --          --
                                                  ------      ------      ------
Deferred:
   Federal .................................        --          --          --
   State ...................................        --          --          --
                                                  ------      ------      ------
                                                  $ --        $ --        $ --
                                                  ======      ======      ======


     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 $135 million and expires through the year 2027.
The Company's NOL for California  State tax reporting  purposes  approximate $36
million and expires  through the year 2017.  The  utilization of the federal and
state net operating losses may be limited by Internal Revenue Code.

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

                                                   2007       2006       2005
                                                  ------     ------     ------

Statutory Federal income tax rate .............     34.0%      34.0%      34.0%
State income tax effect, net of
   federal benefits ...........................      5.8        5.8        5.8
   Valuation allowance ........................    (39.8)     (39.5)     (39.5)
   Tax rate differentiation of
      foreign earnings ........................     --         --         --
   Other ......................................     --         --         --
                                                  ------     ------     ------
                                                    -- %       -- %       -- %
                                                  ======     ======     ======


                                      F-14





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

                                                             DECEMBER 31,
                                                       ------------------------
                                                          2007          2006
                                                       ----------    ----------
                                                        (Dollars in thousands)
Current deferred tax asset (liability):
     Prepaid royalties .............................   $     --      $      183
     Deferred Royalties ............................   $     (237)         --
     Accrued expenses ..............................           (8)          (31)
     Foreign loss and credit carryforward ..........        2,875         2,954
     Federal and state net operating losses ........       53,648        54,994
     Other .........................................         --            --
                                                       ----------    ----------
                                                           56,278        58,100
                                                       ----------    ----------
Non-current deferred tax asset (liability):
     Depreciation expense ..........................         --            --
     Nondeductible reserves ........................         --            --
                                                       ----------    ----------
                                                             --            --
                                                       ----------    ----------
Net deferred tax asset before
     valuation allowance ...........................       56,278        58,100
Valuation allowance ................................       56,278       (58,100)
                                                       ----------    ----------
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
$1.8 million during the year ending  December 31, 2007 and increased $.4 million
during the year ending December 31, 2006.

7.   COMMITMENTS AND CONTINGENCIES

LEASES

     The Company's  headquarters are located in Beverly Hills,  California.  The
facility is leased through April 2008. The Company is currently  subleasing on a
short-term  basis a portion of the office space to an  independent  third party.
The Company closed the satellite  office in Irvine,  California in May 2006. The
Company also has a lease commitment at the French  representation office through
February 28, 2008 with an option for an additional 6 years.

     The  minimum  annual  net  rentals  for 2008 and 2009 are  $41,000  and $0,
respectively.

     Total net rent expense was $ 83,000 net,  $77,000 and $40,000 for the years
ended December 31, 2007, 2006 and 2005, respectively.

LITIGATION

         The Company may be 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.


                                      F-15





8.  STOCKHOLDERS' EQUITY

PREFERRED STOCK AND COMMON STOCK

     The Company's articles of incorporation authorize up to 5,000,000 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, 2007, there were no shares of preferred stock outstanding.

     In August 2001, the former majority shareholder converted 336,070 shares of
Series A Preferred  Stock it  purchased in April 2000 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 since
Titus had elected to receive the  dividends in cash.  In March 2002,  the former
majority  shareholder  converted  its  remaining  383,354  shares  of  Series  A
Preferred Stock into 47,492,162  shares of Common Stock. In connection with sale
of  Preferred  Stock  with the  former  majority  shareholder  in April 2000 the
Company  issued a warrant to purchase  350,000  shares of the  Company's  common
stock at $3.79 per share and another warrant to the former majority  shareholder
to purchase 50,000 shares of the Company's common stock at $3.79 per share. Both
warrants expire in April 2010.

WARRANTS ISSUED

     During 2006 the Company issued 6,370,000 warrants to purchase the Company's
common stock at $.0279 per share (average closing price over ten days subsequent
to the resolution  authorizing  the issuance of the warrants) to the officer and
directors.

     The   6,100,000   warrants  were  issued  to  the  officer  to  reduce  his
compensation  and to  convert  a  portion  of  his  unpaid  compensation  into a
conditional  demand note.  The  conditions  includes that such note will be paid
only if the tangible net worth of the Company exceeds $1 million or in a case of
change  in  control.  The  demand  note  will  accrue  interest  at a rate of 5%
annually. These warrants were valued using the Black-Scholes Model.

     In addition  270,000 warrants were issued to the directors to convert their
earned but unpaid  director's fees to conditional  demand notes.  The conditions
include  that  such  notes  will be paid only if the  tangible  net worth of the
Company  exceeds $1 million or in a case of change in control.  The demand notes
will accrue interest at a rate of 5% annually,  These warrants were valued using
the Black-Scholes Model.

     The aggregate amount charged against income was approximately $12,000.

SHARES RESERVED FOR FUTURE ISSUANCE

     Common  stock  reserved  for future  issuance  at  December  31, 2007 is as
follows:

Stock option plans:
       Outstanding ........................................            1,410,000
       Available for future grants ........................            8,590,000
                                                                      ----------
                                                                      10,000,000

Warrants ..................................................            7,330,298
                                                                      ----------
Total .....................................................           17,330,298
                                                                      ==========
TREASURY STOCK

     In December 2005,  NBC Universal  returned  their  4,658,216  shares of the
Company's  common stock at no cost to the Company.  The Company  included  these
shares as treasury stock in 2007 and 2006.

9.  NET EARNINGS (LOSS) PER COMMON SHARE

     Basic earnings  (loss) per common share is computed as net earnings  (loss)
available  to common  stockholders  divided by the  weighted  average  number of
common shares  outstanding for the period and does not include the impact of any


                                      F-16





potentially dilutive  securities.  Diluted earnings per common share is computed
by  dividing  the net  earnings  available  to the  common  stockholders  by the
weighted  average  number of common  shares  outstanding  plus the effect of any
dilutive  stock  options  and  common  stock  warrants  and  the  conversion  of
outstanding convertible debentures.

                                                                               YEARS ENDED DECEMBER 31,
                                                                           ------------------------------
                                                                             2007       2006       2005
                                                                           --------   --------   --------
                                                                            (Amounts in thousands, except
                                                                                 per share amounts)

Net income (loss) available to common stockholders .....................   $  5,856   $  3,079   $  5,928

   Interest related to conversion of secured convertible promissory note       --         --         --
                                                                           --------   --------   --------
   Dilutive net income (loss) available to common stockholders .........   $  5,856   $  3,079   $  5,928
                                                                           --------   --------   --------
Shares used to compute net income (loss) per common share:

   Weighted-average common shares ......................................     99,197     95,030     93,856

   Dilutive stock equivalents ..........................................      2,831      2,090       --
                                                                           --------   --------   --------
   Dilutive potential common shares ....................................    102,028     97,120     93,856
                                                                           ========   ========   ========
Net income (loss) per common share:

   Basic ...............................................................   $  0.059   $  0.032   $   0.06

   Diluted .............................................................   $  0.057   $  0.032   $   0.06


     There were options and warrants outstanding to purchase 8,740,298 shares of
common  stock at December 31, 2007,  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 weighted average exercise price at December 31, 2007, 2006 and 2005 was
$.38, $.38 and $1.84, respectively, for the options and warrants outstanding. No
dilution  effect for options and  warrants  has been made for 2005 as the market
price of the common  stock did not exceed the  exercise  price of the options or
warrants.  The dilution effect for the year ended December 31,2007 was (378,000)
common shares related to warrants issued to officer and directors.

                                                     YEARS ENDED DECEMBER 31,
                           ----------------------------------------------------------------------------
                                     2007                      2006                      2005
                           -----------------------   ------------------------   -----------------------
                                         WEIGHTED                   WEIGHTED                  WEIGHTED
                                         AVERAGE                    AVERAGE                   AVERAGE
                                         EXERCISE                   EXERCISE                  EXERCISE
                             SHARES       PRICE       SHARES         PRICE       SHARES        PRICE
                           ----------   ----------   ----------    ----------   ----------   ----------
Warrants outstanding at
   beginning of year ...    7,330,000   $     0.38    9,587,068    $     1.84    9,587,068   $     1.84
   Granted .............         --           --      6,370,000        0.0279         --           --
   Exercised ...........         --           --           --            --           --           --
   Canceled ............         --           --     (8,626,770)         --           --           --
                           ----------                ----------                 ----------
   Warrants outstanding
      and exercisable at
      end of year ......    7,330,298   $     0.38    7,330,298    $     0.38    9,587,068   $     1.84
                           ==========                ==========                 ==========


                                      F-17





     A detail of the warrants  outstanding  and  exercisable  as of December 31,
2007 is as follows:

                                  WARRANTS OUTSTANDING AND EXERCISABLE
                           -----------------------------------------------------
                                                                       WEIGHTED
                                                  WEIGHTED AVERAGE     AVERAGE
  RANGE OF EXERCISE                                  REMAINING         EXERCISE
        PRICES             NUMBER OUTSTANDING      CONTRACT LIFE         PRICE
-----------------------    ------------------     ----------------    ----------
     $1.75 -  $1.75                   500,000             3.33            1.75
     $3.79 -  $3.79                   460,298             3.29            3.79
    $.0279 -  $.0279                6,370,000             8.75          $.0279


10.  EMPLOYEE BENEFIT PLANS

STOCK OPTION PLANS

     The Company has one stock option plan currently outstanding. Under the 1997
Stock  Incentive  Plan,  as amended  (the "1997  Plan"),  the  Company may grant
options to its employees,  consultants and directors,  which generally vest from
three to five years.  At the Company's 2002 annual  stockholders'  meeting,  its
stockholders  voted to approve an  amendment  to the 1997 Plan to  increase  the
number of authorized  shares of common stock  available  for issuance  under the
1997 Plan from four million to 10 million. The Company's Incentive Stock Option,
Nonqualified  Stock Option and Restricted  Stock Purchase Plan- 1991, as amended
(the "1991 Plan"),  and the Company's  Incentive  Stock Option and  Nonqualified
Stock Option Plan-1994, as amended, (the "1994 Plan"), have been terminated.

     The  following is a summary of option  activity  pursuant to the  Company's
stock option plans:

                                                     YEARS ENDED DECEMBER 31,
                           ----------------------------------------------------------------------------
                                     2007                      2006                      2005
                           -----------------------   ------------------------   -----------------------
                                         WEIGHTED                   WEIGHTED                  WEIGHTED
                                         AVERAGE                    AVERAGE                   AVERAGE
                                         EXERCISE                   EXERCISE                  EXERCISE
                             SHARES       PRICE        SHARES        PRICE        SHARES       PRICE
                           ----------   ----------   ----------    ----------   ----------   ----------
Options outstanding at
   beginning of year ...    2,660,000   $     0.05       70,000    $     0.30      211,150   $     2.02
   Granted .............         --           --      2,590,000         0.045         --           --
   Exercised ...........         --           --           --            --           --           --
   Canceled ............   (1,250,000)       0.045         --            --       (141,150)        2.02
                           ----------                ----------                 ----------
Options outstanding at
   end of year .........    1,410,000   $    0.045    2,660,000    $     0.05       70,000   $     0.30
                           ==========                ==========                 ==========
   Options exercisable .    1,460,000                 2,640,000                    50,000
                           ==========                ==========                 ==========


     Black Scholes  Single  Option  approach was used to estimate the fair value
information  presented utilizing ratable  amortization.  There were 0, 2,590,000
and 0 options granted in 2007, 2006 and 2005, respectively.


                                      F-18





     A detail of the options outstanding and exercisable as of December 31, 2007
is as follows:

                                     OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                        -------------------------------------------    ---------------------------
                                          WEIGHTED       WEIGHTED                       WEIGHTED
                                          AVERAGE        AVERAGE                        AVERAGE
  RANGE OF EXERCISE        NUMBER        REMAINING       EXERCISE        NUMBER         EXERCISE
       PRICES           OUTSTANDING    CONTRACT LIFE       PRICE       OUTSTANDING        PRICE
-------------------     -----------    -------------    -----------    -----------     -----------
$ 0.045  -   $ 0.68       1,140,000          7.75          $ 0.045       1,190,002      $ 0.045
                        -----------    -------------    -----------    -----------     -----------
$ 0.045  -   $ 0.68       1,140,000          7.75          $ 0.045       1,190,002      $ 0.045
                        ===========    =============    ===========    ===========     ===========


PROFIT SHARING 401(K) PLAN

     In 2003,  the  employee  stock  purchase  plan was  terminated.  The Profit
Sharing 401(k) plan during 2007 had  distributed all assets in the plan and will
file their final pension plan returns during 2007.

ACTIVITIES WITH RELATED PARTIES

     It is the  Company's  policy  that  related  party  transactions  shall  be
reviewed and approved by a majority of the Company's  disinterested directors or
its Independent Committee.

11.  CONCENTRATION OF CREDIT RISK

     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 has the risk of non-payment from its customers, whether due
to their  financial  inability  to pay, 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 and
cash flow. o

12.  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,
                   ----------------------------------------------------------------------
                           2007                    2006                    2005
                   --------------------    --------------------    ----------------------
                    AMOUNT      PERCENT     AMOUNT      PERCENT     AMOUNT       PERCENT
                   --------    --------    --------    --------    --------      --------
                  (Dollars in thousands)  (Dollars in thousands)   (Dollars in thousands)

North America ..   $  5,755          96%   $    203          21%   $  2,885(1)         40%
Europe .........        246           4         471          49       1,779(1)         25
Rest of World ..       --          --           161          17       2,277(1)         32
OEM, royalty and
   licensing ...       --          --           132          13         217             3
                   --------    --------    --------    --------    --------      --------
                   $  6,001         100%   $    967         100%   $  7,158           100%
                   ========    ========    ========    ========    ========      ========

(1)  Included in the net revenues by geographic regions is the sale of "Fallout"
     in the amount of $5,750,000.

(2)  Included  in net  revenue by  geographic  regions  are the  recognition  of
     deferred revenue on contracts  expiring as follows:
     North  America - $2,071  million  Europe  $363,000 Rest of the World $2,138
     million.


                                      F-19





13.  QUARTERLY FINANCIAL DATA (UNAUDITED)

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

                                               MARCH 31        JUNE 30      SEPTEMBER 30    DECEMBER 31
                                             ------------    ------------   ------------   ------------
                                                    (Dollars in thousands, except per share amounts)
Year ended December 31, 2007:
Net revenues .............................   $         79    $      5,812   $         47   $         63
                                             ============    ============   ============   ============
Gross profit .............................   $         75    $      5,810   $         32   $         76
                                             ============    ============   ============   ============
Net income (loss) ........................   $        229    $      5,467   $        497   $       (337)
                                             ============    ============   ============   ============

Net income (loss) per common share basic .   $       0.00    $      0.055   $       0.00   $      (0.00)
                                             ============    ============   ============   ============
Net income (loss) per common share diluted   $       0.00    $      0.055   $       0.00   $      (0.00)
                                             ============    ============   ============   ============

Year ended December 31, 2006:
Net revenues .............................   $        106    $        239   $        335   $        287
                                             ============    ============   ============   ============
Gross profit .............................   $        100    $         93   $        330   $        277
                                             ============    ============   ============   ============
Net income (loss) ........................   $       (529)   $      2,060   $      1,633   $        (85)
                                             ============    ============   ============   ============

Net income (loss) per common share basic .   $     (0.006)   $       0.02   $       0.02   $     (0.001)
                                             ============    ============   ============   ============
Net income (loss) per common share diluted   $     (0.006)   $       0.02   $       0.02   $     (0.001)
                                             ============    ============   ============   ============


14.  INVOLUNTARY BANKRUPTCY

     On  November  1,  2006  an  involuntary  petition  under  Chapter  7 of the
Bankruptcy  Code  was  filed  in  Federal  Court  by  several  of the  Company's
creditors.  Involuntary  bankruptcy is a process where a court appointed trustee
is empowered to liquidate the non exempt  property,  if any, of the debtor.  The
Company had opposed the petition and on July 17, 2007 the petition was dismissed
by the Court.

     Under  the  motion  for   dismissal   the  Company   agreed  to  distribute
approximately  $2,900,000  held in escrow to certain  creditors  of the Company.
These distributions were made in July 2007.

     The litigation  with Bioware Corp. was finally  settled in March 2008, when
$200,000 held in escrow subsequent to our bankruptcy proceedings dismissal order
was paid to Bioware Corp.


                                      F-20





                 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

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



                                                 TRADE RECEIVABLES ALLOWANCE
                               ----------------------------------------------------------
                                               PROVISIONS
                                 BALANCE AT    FOR RETURNS                    BALANCE AT
                                 BEGINNING         AND         RETURNS AND      END OF
          PERIOD                 OF PERIOD      DISCOUNTS       DISCOUNTS       PERIOD
----------------------------   ------------   ------------    ------------   ------------

Year ended December 31, 2005   $      2,406   $       (216)   $       --     $      2,190
                               ============   ============    ============   ============

Year ended December 31, 2006   $      2,190   $     (2,173)   $       --     $         17
                               ============   ============    ============   ============

Year ended December 31, 2007   $         17   $         20    $       --     $         37
                               ============   ============    ============   ============


                                       S-1`