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

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

For the Fiscal Year Ended December 31, 2004

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

1682 Langley Avenue, Irvine, California 92606



As of December 31, 2004, the aggregate market value of voting common stock held by non-affiliates was approximately $270,000 based upon the closing price of the Common Stock on that date.

As of May 19, 2005, 93,855,634 shares of Common Stock of the Registrant were issued and outstanding.

INTERPLAY ENTERTAINMENT CORP.

Note This amendment is being filed to correct inadvertent errors in item Part II Item 9A

INDEX TO FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 2004

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]

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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]

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

PAGE

PART I

Item 1.	Business	4

Item 2.	Properties		9

Item 3.	Legal Proceedings		9

PART II

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

Matters		11

Item 6.	Selected Financial Data		13

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

Results of Operations		14

Item 7A.	Quantitative and Qualitative Disclosure about Market Risk		37

Item 8.	Consolidated Financial Statements and Supplementary Data		37

Item 9.	Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure		38

Item 9A	Controls and Procedures		38

PART III

Item 10.	Directors and Executive Officers of the Registrant		38

Item 11.	Executive Compensation		40

Item 12.	Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters		45

Item 13.	Certain Relationships and Related Transactions		46



Item 14.	Principal Accountant Fees and Services		48

PART IV

Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	49

Signatures				50

Exhibit Index				51

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.

Interplayâ,Interplay Productionsâ,Games On Line® 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 developer, 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 titles for many of the most popular interactive entertainment software platforms, and currently are focusing our publishing and distribution business by developing interactive entertainment software for the On Line Massively Multiplayer market.

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 many such successful franchise titles to date.

Our business and industry has certain risks and uncertainties. During 2004 we continued to operate under limited cash flow from operations. We expect to operate under similar cash constraints during 2005. 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."

The majority of our sales and distribution is handled by Vivendi Universal Games, Inc. ("Vivendi") in North America and selected rest-of-world countries and was handled by Avalon Interactive Group Ltd. ("Avalon") in Europe the Commonwealth of Independent States, Africa and the Middle East until the liquidation of Avalon in February of 2005, and through licensing strategies elsewhere. Subsequently Avalon ceased operations following its involuntary liquidation in February 2005. We will most likely not receive the amounts presently due us by Avalon.

Following the liquidation of Avalon, we appointed in March 2005 our wholly owned subsidiary, Interplay Productions Ltd, as our distributor in Europe and other selected territories.

In June 2004, we licensed to Bethesda Softworks LLC ("Bethesda") the rights to develop Fallout 3 on all platforms for a non refundable advance against royalties of $1.175 million. Bethesda also has an option to develop two sequels, Fallout 4 and Fallout 5 for $1.0 million minimum guaranteed advance against royalties per sequel. Interplay retained the right to develop massively multiplayer online games (MMOLG) using the Fallout trademark.

In July 2004, we sold the Redneck Rampage intellectual property rights to Vivendi for $300,000.

In December 2004, we licensed from Majorem the exclusive worldwide, outside of Taiwan, publishing and distribution rights to the MMOLG, Ballerium.

In January 2005, our majority shareholder, Titus Interactive SA, who holds approximately 58 million shares of our common stock, representing approximately 62% of our outstanding common stock, was placed into involuntary liquidation.

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. We utilize the experience and judgment of the experienced gamers in our production group to select and produce the products we publish.

Our strategy is to invest in products for those platforms, whether PC or video game console, that have or will have sufficient installed bases or a large enough number of potential subscribers for the investment to be economically viable. We do not currently internally develop new products. As we anticipate continued substantial growth in the use of high-speed Internet access, which could provide significantly expanded market potential for online products, we are focusing our efforts to launching an online service, entitled GamesOnLine, allowing consumers to become part of a unique online community of gamers and access selected content. We currently have one online game in development, Ballerium.

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 also outsource some of our product development activities to third party developers. We contractually retain all intellectual property rights related to such projects. We also license 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 use 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 emerging technologies, such as the Internet and on-line services, our ability to protect our intellectual property rights, and to avoid infringing the intellectual property rights of others, becomes more difficult. In addition, the intellectual property laws are less clear with respect to such emerging technologies. There can be no assurance that existing intellectual property laws will provide our products with adequate protection in connection with such emerging technologies.

As the number of software products in the interactive entertainment software industry increases and the features and content of these products further overlap, interactive entertainment software developers may increasingly become subject to infringement claims. Although we take reasonable efforts to ensure that our products do not violate the intellectual property rights of others, there can be no assurance that claims of infringement will not be made. Any such claims, with or without merit, can be time consuming and expensive to defend. From time to time, we have received communications from third parties asserting that features or content of certain of our products may infringe upon such party's intellectual property rights. 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 develop or acquire our products from publishing relationships with leading independent developers.

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

Our products typically have short life cycles, and we therefore depend on the timely introduction of successful new products, including enhancements of or sequels to existing products and conversions of previously released products to additional platforms, to generate revenues to fund operations and to replace declining revenues from existing products. The development cycle of new products is difficult to predict, and involves a number of risks.

During the years ended December 31, 2004, 2003, and 2002, we spent $2.6 million, $13.7 million, and $16.2 million, respectively, on product research and development activities. Those amounts represented 20%, 38%, and 37% respectively, of net revenues in each of those periods.

Internal Product Development

In May 2004, we had to close down our internal development studio as a result of our inability to meet our payroll obligations on a timely basis. All internal projects were discontinued at that time and we currently do not have any product under development internally.

External Product Development

To expand our product offerings to include hit titles created by third party developers and to leverage our publishing capabilities, we enter into publishing arrangements with third party developers. In the years ended December 31, 2004, 2003, and 2002, approximately 0%, 0%, and 67%, respectively, of new products we released and which we believe are or will become franchise titles were developed by third party developers. We expect that the proportion of our new products which are developed externally may vary significantly from period to period as different products are released. In selecting external titles to publish, we seek titles that combine advanced technologies with creative game design. Our publishing agreements usually provide us with the exclusive right to distribute, or license another party to distribute, a product on a worldwide basis (although, in certain instances our rights are limited to a specified territory). We typically fund external development through the payment of advances upon the completion of milestones, which advances are credited against royalties based on sales of the products. Further, our publishing arrangements typically provide us with ownership of the trademarks relating to the product as well as exclusive rights to sequels to the product. We manage the production of external development projects by appointing a producer from our internal production team to oversee the development process and work with the third party developer to design, develop and test the game. At December 31, 2004, we had one title, Ballerium, being developed by a third party developer.

We believe this strategy of cultivating relationships with talented third party developers can be cost-effective and can provide an excellent source of quality products. A number of our commercially successful products have been developed under this strategy. However, our reliance on third party software developers for the development of a significant number of our interactive software entertainment products involves a number of risks. Our reliance on third party software developers subjects us to the risks that these developers will not supply us with high quality products in a timely manner or on acceptable terms.

Segment Information

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

We had during 2004 two distributors as our two main customers: Vivendi and Avalon. Vivendi and Avalon accounted for 19.8% and 79.6% of our net revenues in 2004. Vivendi have and Avalon had exclusive rights to distribute our product in substantial parts of the world. Avalon was liquidated in February 2005 and as a result, we took over distribution of our products in Europe. If Vivendi fails to deliver the proceeds owed us from distribution or fails to effectively distribute our products or perform under their distribution agreements, our business and financial results could suffer material harm.

Sales and Distribution

North America. In August 2002, we entered into a distribution arrangement with Vivendi, whereby Vivendi distributes substantially all of our products in North America for a period of three years as a whole and two years with respect to each product providing for a potential maximum term of five years. Under this distribution agreement, Vivendi pays us sales proceeds less amounts for distribution fees. Vivendi is responsible for all manufacturing, marketing and distribution expenditures, and bears all credit, price concessions and inventory risk, including product returns. Upon our delivery of a product gold master to Vivendi, Vivendi pays us, as a non-refundable minimum guarantee and which is a specified percent of the projected amount due to us based on projected initial shipment sales. Payments for sales that exceed the projected initial shipment sales are paid on a monthly basis as sales occur. Other than for products covered by the tri-party agreement with Atari, the Vivendi distribution agreement expires in August 2005.

Vivendi provides terms of sale comparable to competitors in our industry. In addition, we provide a 90-day limited warranty to end-users that our products will be free from manufacturing defects. While to date we have not experienced any material warranty claims, there can be no assurance that we will not experience material warranty claims in the future.

International. We were operating during 2004 under a distribution agreement with Avalon, pursuant to which Avalon distributed substantially all of our titles in Europe, the Commonwealth of Independent States, Africa and the Middle East for a seven-year period. Under this agreement, Avalon earned a distribution fee for its marketing and distribution of our products, and we reimbursed Avalon for certain direct costs and expenses.

Following the liquidation of Avalon, in March 2005 we appointed our wholly owned subsidiary, Interplay Productions Ltd, as our distributor in Europe and other selected territories.

In January 2003, we entered into an agreement with Vivendi to distribute substantially all of our products in select rest-of-world countries. This agreement expires in August 2005.

Interplay OEM. Our wholly owned subsidiary, Interplay OEM, distributes our interactive entertainment software titles, as well as those of other software publishers, to computer and peripheral device manufacturers for use in bundling arrangements. As a result of changes in market conditions for bundling arrangements and the limited amount of resources we have available, we no longer have any personnel applying their efforts towards bundling arrangements. In December 2002, we assigned our original equipment manufacturer, or OEM distribution rights to Vivendi and will utilize Vivendi's resources in our future OEM business. Under OEM arrangements, one or more software titles, which are either limited-feature versions or the retail version of a game, are bundled with computer or peripheral devices and are sold by an original equipment manufacturer so that the purchaser of the hardware device obtains the software as part of the hardware purchase. Although it is customary for OEM customers to pay a lower per unit price on sales through OEM bundling contracts, such arrangements involve a high unit volume commitment. Interplay OEM net revenues generally are incremental net revenues and do not have significant additional product development or sales and marketing costs. The OEM distribution agreement with Vivendi expires in August 2005.

Marketing

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

Our distributors engage in on-line marketing through Internet advertising. We maintained several Internet web sites and discontinued all web sites in June of 2004. These web sites provided news and information of interest to our customers through free demonstration versions of games, contests, games, tournaments and promotions. We expect to resume online activities as part of our upcoming GamesOnLine service. To generate interest in new product introductions, we will provide demonstration versions of upcoming titles through magazines and will provide game samples that consumers will be able to download from GamesOnline.com. In addition, we will host on-line events and maintain various message boards to keep customers informed on shipped and upcoming titles.

Competition

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

We compete primarily with other publishers of PC and video game console interactive entertainment software. Significant competitors include Activision, Atari, Capcom, Eidos, Electronic Arts, Konami, Lucas Arts, Midway, Namco, Sega, Take-Two Interactive, THQ, Ubi Soft. and Vivendi. 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, may decide to compete directly with us or to enter into exclusive relationships with our competitors.

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

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.

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

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

Backlog

We typically do not carry large inventories because most of our sales and distribution efforts have been handled by Vivendi and International distributors under the terms of our respective distribution agreements with them. To the extent we ship items, we typically ship orders immediately upon receipt. To the extent we have any backlog orders, we do not believe they would have a material adverse effect on our business.

Employees

As of December 31, 2004, we had 12 employees, including 2 in product development, 1 in sales and marketing and 9 in finance, general and administrative. We also retain independent contractors to provide certain services, primarily in connection with our product development activities. Neither we nor our full time employees are subject to any collective bargaining agreements and we believe that our relations with our employees are good.

From time to time, we have retained actors and/or "voice over" talent to perform in certain of our products, and we 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. Our Website is currently unavailable and when available 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.

Item 2.	PROPERTIES

Our headquarters are located in Irvine, California, where we leased approximately 81,000 square feet of office space. We were evicted from our building by our Landlord in early June 2004 and subsequently leased approximately 500 square feet of office space to relocate our operations. We also lease on a short term basis approximately 1,200 square feet in Beverly Hills, California, for GamesOnLine.

Item 3.	LEGAL PROCEEDINGS

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

On September 16, 2002, Knight Bridging Korea Co., Ltd ("KBK") filed a $98.8 million complaint for damages against Atari Interactive, Inc. (formerly known as Infogrames Interactive, Inc.) and other Atari Interactive affiliates as well as our subsidiary GamesOnline.com, Inc., ("GOL") alleging, among other things, breach of contract, misappropriation of trade secrets, breach of fiduciary duties and breach of implied covenant of good faith in connection with an electronic distribution agreement dated November 2001 between KBK and GOL. KBK has alleged that GOL failed to timely deliver to KBK assets to a product, and that it improperly disclosed confidential information about KBK to Atari. KBK amended its complaint to add us as a separate defendant. GOL counterclaimed against KBK for breach of contract as KBK owes GOL $700,000 in guaranteed advanced fees under the term of the agreement. In addition, the Company filed an action against Atari Interactive for breach indemnity, among other claims. In October 2004, the California Superior court dismissed the legal action of KBK against the Company and its subsidiary GOL and granted a judgment to GOL in the cross complaint from GOL against KBK for $890,730. GOL dismissed its action against Atari Interactive in April 2005.

On October 24, 2002, Synnex Information Technologies Inc ("Synnex") initiated legal proceedings against the company for various claims. The Company's attorney's have filed and obtained a motion to be relieved as counsel on August 10, 2004. The company has not yet retained replacement counsel in this action.

On November 25, 2002, Special Situations Fund III, Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., and Special Situations Technology Fund, L.P. (collectively, "Special Situations") initiated legal proceedings against us seeking damages of approximately $1.3 million, alleging, among other things, that we failed to secure a timely effective date for a Registration Statement for our shares purchased by Special Situations under a common stock subscription agreement dated March 29, 2002 and that we are therefore liable to pay Special Situations $1.3 million. This matter was settled and the case dismissed in December 2003. Special Situations had entered into a settlement agreement with us contemplating payments over time. We are currently in default of the settlement agreement.

On or about October 9, 2003, Warner Brothers Entertainment, Inc. ("Warner") filed suit against us in the Superior Court for the State of California, County of Orange, alleging default on an Amended and Restated Secured Convertible Promissory Note held by Warner dated April 30, 2002, with an original principal sum of $2.0 million. At the time the suit was filed, the current remaining principal sum due under the note was $1.4 million in principal including interest. Subsequently the company entered into a settlement agreement with Warner. The Company is currently in default of the settlement agreement.

In March 2004, we instituted litigation in the Superior Court for the State of California, Los Angeles County, against Battleborne Entertainment, Inc. ("Battleborne") Battleborne was developing a console product for us tentatively titled "Airborne: Liberation". Our complaint alleges that Battleborne repudiated the contract with us and subsequently renamed the product and entered into a development agreement with a different publisher. We seek a declaration from the court that we retain rights to the product, or damages.

In April 2004, Arden Realty Finance IV LLC ("Arden") filed an unlawful detainer action against the Company in the Superior Court for the State of California, County of Orange, alleging the Company's default under its corporate lease agreement. At the time the suit was filed, the alleged outstanding rent totaled $431,823. The Company was unable to pay the rent, and vacated the office space during the month of June 2004. On June 3, 2004, Arden obtained a judgment of approximately $588,000 exclusive of interest. In addition the Company is in the process of resolving a prior claim with the landlord in the approximate amount of $148,000, exclusive of interest. The Company has negotiated a forbearance agreement whereby Arden has agreed to accept payments commencing in January 2005 in the amount of $60,000 per month until the full amount is paid. The Company has not accrued any amount for any remaining lease obligation, should such obligation exist. We are currently in default of the forbearance agreement.

In April 2004, Bioware Corporation filed an action against the Company in the Superior Court for the State of California, County of Orange, alleging breach of contract for failure to pay royalties. At the time of filing, Bioware alleged that it was owed approximately $156,000 under various agreements for which it obtained a writ of attachment to secure payment of the alleged obligation if it is successful at trial. Bioware also sought and obtained a temporary restraining order prohibiting the Company from transferring assets up to the amount sought in the writ of attachment. We successfully opposed the preliminary injunction and vacated the temporary restraining order. Bioware subsequently dismissed their action.

Monte Cristo Multimedia, a French video game developer and publisher, filed a breach of contract complaint against the Company in the Superior Court for the State of California, County of Orange, on August 6, 2002, alleging damages in the amount of $886,406 plus interest, in connection with an exclusive distribution agreement. This claim was settled for $100,000, payable in twelve installments, however, the Company was unable to satisfy its payment obligations and consequently, Monte Cristo has filed a stipulated judgment against the Company in the amount of $100,000. If Monte Cristo executes the judgment, it will negatively affect the Company's cash flow, which could further restrict the Company's operations and cause material harm to our business.

Snowblind entered into a partial settlement agreement on June 23, 2004 following the suit filed by Snowblind on November 19, 2003. Snowblind filed a second amended complaint against the Company on or about July 12, 2004 claiming various causes of action including but not limited to, breach of contract, account stated, open book account, and recission. The action was settled in April 2005 and we granted Snowblind the exclusive license to develop games using the Dark Alliance Trademark under certain conditions. We retained the right to develop massively multiplayer online games using the Dark Alliancetrademark.

In August 2003, Reflexive Entertainment, Inc. filed an action against the Company in the Orange County Superior Court that was settled in July 2004. The Company was unable to make the payments and Reflexive sought and obtained judgment against the company.

On March 27, 2003, KDG France SAS ("KDG") filed an action against Interplay OEM, Inc. and Herve Caen for various claims. On December 29, 2003 a settlement agreement was entered into whereby Herve Caen was dismissed from the action. Further the settlement was entered into with Interplay OEM only in the amount of $170,000, however KDG reserved its rights to proceed against the Company if the settlement payment was not made. As of this date the settlement payment was not made.

The Company received notice from the Internal Revenue Service ("IRS") that it owes approximately $117,000 in payroll tax penalties which it has accrued for at December 31, 2004.

The Company was unable to meet certain 2004 payroll obligations to its employees; as a result several employees filed claims with the State of California Labor Board ("Labor Board"). The Labor Board has fined the Company approximately $10,000 for failure to meet its payroll obligations and set trial dates for August 2005.

The Company's property, general liability, auto, fiduciary liability, workers compensation and employment practices liability, have been cancelled. The Company subsequently entered into a new workers compensation insurance plan. The Labor Board fined the Company approximately $79,000 for having lost workers compensation insurance for a period of time. The Company is appealing the Labor Board fines.

On December 29, 2004, Piper Rudnick LLP ("Piper Rudnick") filed an action against Interplay Entertainment Corp. for various claims for unpaid services. We are currently evaluating the merit of this lawsuit.

PART II

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

On May 16, 2002, the listing of our common stock was moved from the Nasdaq National Market System to the Nasdaq SmallCap Market System. On October 9, 2002, our common stock was delisted and began trading on the NASD-operated Over-the-Counter Bulletin Board. Our common stock is currently traded on the NASD-operated Over-the-Counter Bulletin Board under the symbol "IPLY" or while non-compliant "IPLYE". At May 27, 2005, there were 144 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, 2004 | High | Low 
|------------------------------------ | ---- | ----
|                                     |      |     
|First Quarter                        | $.14 | $.10
|Second Quarter                       | .14  | .03 
|Third Quarter                        | .05  | .02 
|Fourth Quarter                       | .03  | .01 
|                                     |      |     
|For the Year ended December 31, 2003 | High | Low 
|                                     |      |     
|First Quarter                        | $.08 | $.05
|Second Quarter                       | .14  | .05 
|Third Quarter                        | .14  | .09 
|Fourth Quarter                       | .12  | .07 

Dividend Policy

It is not currently our policy to pay dividends.

Securities Issuances

No new shares were issued during FY 2004

Equity Compensation Plans Information

The following table sets forth certain information regarding our equity compensation plans as of December 31, 2004:



|Plan Category                                              | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------
|                                                           | (a)                                                                                         | (b)                                                                         | (c)                                                                                                                                        
|Equity compensation plans approved by security holders     | 211,150                                                                                     | 2.02                                                                        | 7,609,447                                                                                                                                  
|Equity compensation plans not approved by security holders | -                                                                                           | -                                                                           | -                                                                                                                                          
|Total                                                      | 211,150                                                                                     | 2.02                                                                        | 7,609,447                                                                                                                                  

We have one stock option plan currently outstanding. Under the 1997 Stock Incentive Plan, as amended (the "1997 Plan"), we may grant options to our employees, consultants and directors, which generally vest from three to five years. At our 2002 annual stockholders' meeting, our 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. Our Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan- 1991, as amended (the "1991 Plan"), and our Incentive Stock Option and Nonqualified Stock Option Plan-1994, as amended (the "1994 Plan"), have terminated. An aggregate of 9,050 stock options that remain outstanding under the 1991 Plan and 1994 Plan have been transferred to our 1997 Plan.

We have treated the difference, if any, between the exercise price and the estimated fair market value as compensation expense for financial reporting purposes, pursuant to APB 25. Compensation expense for the vested portion aggregated $0, $0 and $44,000 for the years 2004, 2003 and 2002 respectively.

Item 6.	SELECTED FINANCIAL DATA

The selected consolidated statements of operations data for the years ended December 31, 2004, 2003 and 2002 and the selected consolidated balance sheets data as of December 31, 2004 and 2003 are derived from our audited consolidated financial statements included elsewhere in this Report. The selected consolidated statements of operations data for the years ended December 31, 2001 and 2000 and the selected consolidated balance sheets data as of December 31, 2002, 2001, and 2000 are derived from our audited consolidated financial statements not included 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                                   
|----------------------------------------------------------------------- | ----------------------------------------------------------
|                                                                        | 2004                                                      
|                                                                        | (Dollars in thousands, except share and per share amounts)
|Statements of Operations Data:                                          |                                                           
|Net revenues                                                            | $13,197                                                   
|Cost of goods sold                                                      | 6,826                                                     
|Gross profit                                                            | 6,371                                                     
|Operating expenses                                                      | 8,853                                                     
|Operating (income) loss                                                 | (2,482)                                                   
|Sale of Shiny                                                           | -                                                         
|Other income (expense)                                                  | (2,094)                                                   
|Income (loss) before income taxes                                       | (4,576)                                                   
|Provision (benefit) for income taxes                                    | 154                                                       
|Net income (loss)                                                       | $(4,730)                                                  
|                                                                        |                                                           
|Cumulative dividend on participating preferred stock                    | $-                                                        
|Accretion of warrant                                                    | -                                                         
|Net income (loss) available to common stockholders                      | $(4,730)                                                  
|Net income (loss) per common share:                                     |                                                           
|Basic                                                                   | $(0.05)                                                   
|Diluted                                                                 | $(0.05)                                                   
|Shares used in calculating net income (loss) per common share - basic   | 93,856                                                    
|Shares used in calculating net income (loss) per common share - diluted | 93,856                                                    
|Selected Operating Data:                                                |                                                           
|Net revenues by geographic region:                                      |                                                           
|North America                                                           | $1,544                                                    
|International                                                           | 9,934                                                     
|OEM, royalty and licensing                                              | 1,720                                                     
|Net revenues by platform:                                               |                                                           
|Personal computer                                                       | $1,817                                                    
|Video game console                                                      | 9,660                                                     
|OEM, royalty and licensing                                              | 1,720                                                     
|                                                                        | Years Ended December 31,                                  
|                                                                        | 2004                                                      
|Balance Sheets Data:                                                    | (Dollars in thousands)                                    
|Working capital (deficiency)                                            | $(17,852)                                                 
|Total assets                                                            | 834                                                       
|Total debt                                                              | 1,575                                                     
|Stockholders' equity (deficit)                                          | (17,362)                                                  



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 developer, 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 titles for many of the most popular interactive entertainment software platforms, and currently are focusing our publishing and distribution business by developing interactive entertainment software for the On Line Massively Multiplayer market.

During 2004 we continued to operate under limited cash flow from operations. We expect to operate under similar cash constraints during 2005.

On or about February 23, 2004, we received correspondence from Atari Interactive, Inc, the holder of the D&D license, alleging that we had failed to pay royalties due under the D&D license as of February 15, 2004. Our rights to distribute titles under the D&D license were terminated by Atari on April 23, 2004.

In June 2004 we licensed to Bethesda Softworks LLC, the rights to develop Fallout 3 on all platforms for $1.175 million minimum guaranteed advance against royalties. Bethesda also has an option to develop two sequels, Fallout 4, and Fallout 5 for $1.0 million minimum guaranteed advance against royalties per sequel. Interplay retained the rights to develop a massively multiplayer online game ("MMORPG") using the Fallout Trademark.

In July 2004, we granted an option to Vivendi to purchase the Redneck Rampage intellectual property rights for $300,000. Later that month, Vivendi exercised the option.

In July 2004, we entered into a tri-party agreement with Atari Interactive, Inc and Vivendi that allows Vivendi to resume North American and international distribution pursuant to their pre-existing agreements with us of certain Dungeons & Dragons games, including Baldur's Gate Dark Alliance II. The agreement provided for proceeds due us to be paid directly to Atari by Vivendi, up to an amount of $1.0 million of which approximately $.3 million was still oustanding as of December 31, 2004. As a result we did not receive any proceeds from Vivendi since July 2004 and will most likely not receive any proceeds during 2005.

In August 2004, we entered into a tri-party agreement with Atari Interactive, Inc and Avalon that allows Avalon to resume European distribution pursuant to their pre-existing agreements with us of certain Dungeons & Dragons games, including Baldur's Gate Dark Alliance II. The agreement provided for proceeds due us to be paid directly to Atari by Avalon, as a result we did not receive any proceeds from this agreement in 2004. This agreement was terminated following Avalon's liquidation in February 2005.

We also continued to significantly reduce our operational costs and personnel in 2004. We reduced our personnel by 101, from 113 in December 2003 to 12 in December 2004 by both involuntary termination and attrition. We also made reductions in expenditures in other areas. As a result of these cost-cutting measures, our ongoing cash needs to fund operations has been greatly reduced for 2005.

We continue to face difficulties in paying our vendors and have pending lawsuits as a result of our continuing cash flow difficulties. We expect to continue to operate under cash constraints during 2005.

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, 2004 consolidated financial statements includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.

We derived net revenues primarily from sales of software products to our two main distributors, Vivendi and Avalon. Vivendi distributes our products in North America and select rest-of-world countries. Vivendi also handles our OEM distribution. Our distribution agreement with Vivendi expires in August 2005 except for certain products subject to a tri-party agreement with Atari Interactive Inc which expires in December 2006. Upon expiration of the Vivendi distribution agreements we will need to either renew the distribution agreements, find new distribution partners, or resume distribution ourselves. Avalon distributed our products in Europe, the commonwealth of Independent States, Africa and the Middle East. Our distribution agreement with Avalon was terminated following Avalon's involuntary judicial liquidation in February 2005. In March 2005 we appointed our wholly owned subsidiary, Interplay Productions Ltd, as our distributor in Europe and other selected territories.

In addition, we derive royalty-based revenues from licensing arrangements of intellectual property and products to third parties for distribution in markets and through channels that are outside of our primary focus. We no longer distribute products through our Games Online subsidiary and this subsidiary will host our online gaming service.

Our products are either designed and created by our employees or by external software developers. When we use external developers, we typically advance development funds to the developers in installment payments based upon the completion of certain milestones. These advances are typically considered advances against future royalties, which are to be recouped against these advances. We currently have one product in development with external developers. We plan on creating additional products through external developers.

Our wholly owned subsidiary, Interplay OEM, distributed our interactive entertainment software titles, as well as those of other software publishers, to computer and peripheral device manufacturers for use in bundling arrangements. As a result of changes in the market conditions for bundling arrangements and the limited amount of resources we have available, we no longer have any personnel applying their efforts towards bundling arrangements. In December 2002, we licensed our OEM distribution rights to Vivendi and may utilize Vivendi's resources in our future OEM business. This agreement expires in August 2005.

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. We expect that with the upcoming release of new console systems by Sony, Nintendo and Microsoft, our industry has entered into a transition period that could affect marketability of new products.

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 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.

Substantially all of our sales were made by two distributors, Vivendi Universal Games, Inc. and Avalon Interactive Group Ltd, an affiliate of our majority shareholder Titus Interactive S.A. We recognize revenue from sales by distributors, net of sales commissions, only as the distributor recognizes sales of our products to unaffiliated third parties. For those agreements that provide the customers the right to multiple copies of a product in exchange for guaranteed amounts, we recognize revenue at the delivery and acceptance of the product gold master. We recognize per copy royalties on sales that exceed the guarantee as copies are duplicated.

We generally are not contractually obligated to accept returns, except for defective, shelf-worn and damaged products. However, on a case-by-case negotiated basis, we permit customers to return or exchange 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 provide customer support only via telephone and the Internet. Customer support costs are not significant and we charge such costs to expenses as we incur them.

We also engage in the sale of licensing rights on certain products. The terms of the licensing rights differ, but normally include the right to develop and distribute a product on a specific video game platform. 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 amortize 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 non current 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

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

Other Significant Accounting Policies

Other significant accounting policies not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial statements. The policies related to consolidation and loss contingencies require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. Certain of these matters are among topics currently under reexamination by accounting standards setters and regulators. Although no specific conclusions reached by these standard setters appear likely to cause a material change in our accounting policies, outcomes cannot be predicted with confidence. 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.

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,
|----------------------------------------------- | ------------------------
|                                                | 2004                    
|Statements of Operations Data:                  |                         
|Net revenues                                    | 100                     
|Cost of goods sold                              | 52                      
|Gross margin                                    | 48                      
|Operating expenses:                             |                         
|Marketing and sales                             | 13                      
|General and administrative                      | 34                      
|Product development                             | 20                      
|Other                                           | -                       
|Total operating expenses                        | 67                      
|Operating income (loss)                         | (19)                    
|Other income (expense)                          | (16)                    
|Income (loss) before provision for income taxes | (35)                    
|Provision for income taxes                      | 1                       
|Net income (loss)                               | (36)                    
|                                                |                         
|Selected Operating Data:                        |                         
|Net revenues by segment:                        |                         
|North America                                   | 12                      
|International                                   | 75                      
|OEM, royalty and licensing                      | 13                      
|                                                | 100                     
|Net revenues by platform:                       |                         
|Personal computer                               | 14                      
|Video game console                              | 73                      
|OEM, royalty and licensing                      | 13                      
|                                                | 100                     



Geographically, our net revenues for the years ended December 31, 2004 and 2003 breakdown as follows: (in thousands)

|                         | 2004   | 2003   | Change   | % Change
|------------------------ | ------ | ------ | -------- | --------
|North America            | 1,544  | 13,541 | (11,997) | (88.6%) 
|International            | 9,934  | 6,484  | 3,450    | 53.2%   
|OEM, Royalty & Licensing | 1,720  | 16,276 | (14,306) | (89.2%) 
|Net Revenues             | 13,197 | 36,301 | (22,854) | (63.9%) 



Geographically, our net revenues for the years ended December 31, 2003 and 2002 breakdown as follows: (in thousands)

|                         | 2003   | 2002   | Change   | % Change
|------------------------ | ------ | ------ | -------- | --------
|North America            | 13,541 | 26,184 | (12,643) | (48%)   
|International            | 6,484  | 5,674  | 810      | 14%     
|OEM, Royalty & Licensing | 16,276 | 12,141 | 3,885    | 32%     
|Net Revenues             | 36,301 | 43,999 | (7,948)  | (18%)   

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

Net revenues for the year ended December 31, 2004 were $13.2 million, a decrease of 63.9% compared to the same period in 2003. This decrease resulted from a 88% decrease in North American net revenues and a 89% decrease in OEM, royalties and licensing revenues, offset by a 53% increase in International net revenues. Net revenues for the year ended December 31, 2003 were $36.1 million, a decrease of 18% compared to the same period in 2002. This decrease resulted from a 48% decrease in North American net revenues, offset by a 14% increase in International net revenues and a 32% increase in OEM, royalties and licensing revenues.

North American net revenues for the year ended December 31, 2004 were $1.5 million as compared to $13.5 million for the year ended December 31, 2003. The decrease in North American net revenues in 2004 was mainly due to releasing zero product gold masters in 2004 as compared to delivering six product gold masters in 2003.

We expect that our North American publishing net revenues will decrease in 2005 compared to 2004, mainly due to decreased catalog sales.

The decrease in North American net revenues in 2003 was mainly due to lower total unit sales of both new release and catalog titles. Although we released six titles in each of 2003 and 2002, all six titles in 2003 were released by Vivendi, as compared to five in 2002, under the terms of the 2002 distribution agreement, whereby Vivendi pays us a lower per unit rate and in return assumes all credit, product return and price concession risks, as well as being responsible for all manufacturing, marketing and distribution expenditures. This resulted in a decrease in North American sales of $19.4 million in 2003, partially offset by a decrease in product returns and price concessions of $6.7 million as compared to the 2002 period. Our product returns were also lower in 2003 due primarily to the reduction in price concessions we made in connection with our decreased catalog sales under our prior North American Distribution Agreement we entered into with Vivendi in 2001.

International net revenues for the year ended December 31, 2004 were $9.9 million an increase of 3.4 million as compared to International net revenues for the year ended December 31, 2003. The increase in International net revenues compared to the year ended December 31, 2003 was mainly due to releasing Baldur's Gate Dark Alliance II and Fallout: Brotherhood of Steel during the twelve months ended December 31, 2004 and not having comparable titles during 2003.

We expect that our International publishing net revenues will decrease in 2005 as compared to 2004, mainly due to decreased unit sales.

International net revenues for the year ended December 31, 2003 were $6.5 million. The increase in International net revenues for the year ended December 31, 2002 was mainly due to a decrease in product returns and price concessions of $3.1 million compared to the 2002 period and the recognition of $0.6 million in revenues related to Avalon's CVA, offset by a decrease of both new release and catalog sales.

OEM, royalty and licensing net revenues for the year ended December 31, 2004 were $1.7 million, a decrease of $14.3 million as compared to the same period in 2003. The OEM business decreased $14.3 million as a consequence of our reorganization.

OEM, royalty and licensing net revenues for the year ended December 31, 2003 were $16.0 million, an increase of $3.9 million as compared to the same period in 2002. The OEM business decreased $2.8 million as a result of our efforts to focus on our core business of developing and publishing video game titles for distribution directly to the end users and our continued focus on video game console titles, which typically are not bundled with other products. The year ended December 31, 2003 also included $15.0 million in revenues for the sale of the Hunter: The Reckoning video game franchise in the first quarter of 2003 and $0.5 million in net revenues related to the sale of the Galleon video game in the fourth quarter of 2003.

Platform Net Revenues

Our platform net revenues for the years ended December 31, 2004 and 2003 breakdown as follows: (in thousands)

|                         | 2004   | 2003   | Change   | % Change
|------------------------ | ------ | ------ | -------- | --------
|Personal Computer        | 1,817  | 7,671  | (5,854)  | (76.3%) 
|Video Game Console       | 9,660  | 12,354 | (2,694)  | (21.8%) 
|OEM, Royalty & Licensing | 1,720  | 16,276 | (14,306) | (89.2%) 
|Net Revenues             | 13,197 | 36,301 | (22,854) | (63.4%) 

PC net revenues for the year ended December 31, 2004 were $1.8 million, a decrease of 76.3% compared to the same period in 2003. The decrease in PC net revenues in 2004 was primarily due to no new releases. We expect our PC net revenues to decrease in 2005 as compared to 2004 as we continue to reorganize the company.

Our video game console net revenues for the year ended December 31, 2004 were $9.6 million a decrease of 21.8% compared to the same period in 2003. The decrease in video game console net revenues was partially attributed to our releasing or delivering no gold masters to Vivendi. Our catalog sales also decreased in 2004 as compared to 2003. Since we anticipate releasing no new console titles in 2005, we expect our video game console net revenues to decrease in 2005.

Our platform net revenues for the years ended December 31, 2003 and 2002 breakdown as follows: (in thousands)

|                         | 2003   | 2002   | Change  | % Change
|------------------------ | ------ | ------ | ------- | --------
|Personal Computer        | 7,671  | 15,802 | (8,131) | (52%)   
|Video Game Console       | 12,354 | 16,056 | (3,702) | (23%)   
|OEM, Royalty & Licensing | 16,276 | 12,141 | 3,885   | 31%     
|Net Revenues             | 36,301 | 43,999 | (7,948) | (18%)   

PC net revenues for the year ended December 31, 2003 were $7.7 million, a decrease of 52% compared to the same period in 2002. The decrease in PC net revenues in 2003 was primarily due to the lower sales of our title Lionheart in 2003 as compared to our 2002 release of Icewind Dale II. The decrease in PC net revenues were further affected by a decrease in catalog sales.

Our video game console net revenues decreased 23% for the year ended December 31, 2003 compared to the same period in 2002. The decrease in video game console net revenues was partially attributed to our releasing or delivering five gold masters to Vivendi, all under our 2002 distribution agreement with them, whereby, we received a lower per unit rate in return for Vivendi being responsible for all manufacturing, marketing, and distribution expenditures. These five titles were: RLH (Xbox), Baldur's Gate: Dark Alliance II (PlayStation 2), Baldur's Gate: Dark Alliance II (Xbox), Fallout: Brotherhood of Steel (PlayStation 2) and Fallout: Brotherhood of Steel (Xbox). We also released five titles in 2002 to Vivendi; however, only four were under the 2002 distribution agreement. Furthermore, our video game console net revenues were reduced in 2003 by not releasing Baldur's Gate: Dark Alliance II (PlayStation 2), Baldur's Gate: Dark Alliance II (Xbox), Fallout: Brotherhood of Steel (PlayStation 2)andFallout: Brotherhood of Steel (Xbox) in Europe. Our catalog sales also decreased in 2003 as compared to 2002.

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

Our net revenues, cost of goods sold and gross margin for the years ended December 31, 2004 and 2003 break down as follows: (in thousands)

|                   | 2004   | 2003   | Change   | % Change
|------------------ | ------ | ------ | -------- | --------
|Net Revenues       | 13,197 | 36,301 | (23,104) | (63.6%) 
|Cost of Goods Sold | 6,826  | 13,120 | (6,294)  | (48%)   
|Gross Margin       | 6,371  | 23,181 | (16,810) | (72.5%) 



Our cost of goods sold decreased 48% to $6.8 million in the year ended December 31, 2004 compared to $12.9 million in the same period in 2003. Furthermore, in 2003 we incurred $2.9 million in amortization of prepaid royalties associated with the sale of the Hunter: The Reckoninglicense and approximately $2.9 million in write-offs of development projects that were impaired because the titles were not expected to meet our desired profit requirements. In addition, the decrease was mainly a result of lower product cost of goods associated with lower overall product sales. We expect our cost of goods sold to decrease in 2005 as compared to 2004 because we anticipate lower overall product sales.

Our gross margin decreased to 48.3% for the twelve months ended December 31, 2004 from 63.9% in the comparable period in 2003. This was primarily due to the sale of the Hunter: The Reckoning license, which yielded approximately an 80% profit margin in 2003 partially offset by the sale of the rights to develop Fallout 3 and the sale of Redneck Rampage in 2004.

Our net revenues, cost of goods sold and gross margin for the years ended December 31, 2003 and 2002 breakdown as follows: (in thousands)

|                   | 2003   | 2002   | Change   | % Change
|------------------ | ------ | ------ | -------- | --------
|Net Revenues       | 36,301 | 43,999 | (7,948)  | (18%)   
|Cost of Goods Sold | 13,120 | 26,706 | (13,786) | (52%)   
|Gross Margin       | 23,181 | 17,293 | 5,838    | 34%     

Our cost of goods sold decreased 52% to $12.9 million in the year ended December 31, 2003 compared to the same period in 2002. Furthermore, we incurred $2.9 million of non-recurring charges related to the write-off of prepaid royalties on titles that were cancelled or not expected to meet our desired profit requirements as compared to $4.1 million in the 2002 period. In addition, the decrease was mainly a result of lower product cost of goods associated with lower overall product sales.

Our gross margin increased to 64% in 2003 from 39% in 2002. This was due to a decrease in our royalty expense as a result of a decrease of $1.2 million in write-off of prepaid royalties, a decrease in our product cost of goods, a decrease in product returns and price concessions as compared to the 2002 period due to distributing all of our new releases in North America under the 2002 distribution agreement with Vivendi and the sale of the Hunter: The Reckoningfranchise in February 2003.

Marketing and Sales

Our marketing and sales expenses for the years ended December 31, 2004 and 2003 breakdown as follows: (in thousands)

|                    | 2004  | 2003  | Change | % Change
|------------------- | ----- | ----- | ------ | --------
|Marketing and Sales | 1,703 | 1,415 | 288    | 20.4%   

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, 2004 were $1.7 million, a 20.4% increase as compared to the 2003 period. The increase in marketing and sales expenses is due primarily to increased advertising costs for Baldur's Gate Dark Alliance 2 on the PS2 and Xbox platforms in Europe. We expect our marketing and sales expenses to decrease in 2005 compared to 2004, as we expect to ship release fewer titles in 2005 as compared to 2004.

Our marketing and sales expenses for the years ended December 31, 2003 and 2002 breakdown as follows: (in thousands)

|                    | 2003  | 2002  | Change  | % Change
|------------------- | ----- | ----- | ------- | --------
|Marketing and Sales | 1,415 | 5,814 | (4,399) | (76%)   

Marketing and sales expenses for the year ended December 31, 2003 were $1.4 million, a 76% decrease as compared to the 2002 period. The decrease in marketing and sales expenses is due to a $2.3 million reduction in advertising and retail marketing support expenditures and a decrease of $2.1 million in personnel costs and general expenses.

General and Administrative

Our general and administrative expenses for the years ended December 31, 2004 and 2003 breakdown as follows: (in thousands)

|                           | 2004  | 2003  | Change  | % Change
|-------------------------- | ----- | ----- | ------- | --------
|General and Administrative | 4,514 | 6,692 | (2,178) | (32.6%) 

General and administrative expenses primarily consist of administrative personnel expenses, facilities costs, professional fees, bad debt expenses and other related operating expenses. General and administrative expenses for the year ended December 31, 2004 were $4.5 million, a 32.6% decrease as compared to the same period in 2003. The decrease is mainly due to decreases in personnel costs and general expenses as a result of a reduction in administrative personnel during 2004. We expect our general and administrative expenses to decrease in 2005 compared to 2004.

Our general and administrative expenses for the years ended December 31, 2003 and 2002 breakdown as follows: (in thousands)

|                           | 2003  | 2002  | Change | % Change
|-------------------------- | ----- | ----- | ------ | --------
|General and Administrative | 6,692 | 7,655 | (963)  | (13%)   

General and administrative expenses for the year ended December 31, 2003 were $6.7 million, a 13% decrease as compared to the same period in 2002. The decrease is due to a $1.0 million decrease in personnel costs and general expenses in 2003. In the 2002 period, we incurred significant charges of $0.4 million in loan termination fees associated with the termination of our line of credit and $0.5 million in consulting expenses payable to Europlay 1, LLC, ("Europlay") an outside consulting firm hired in 2002 to assist us with the restructuring of the company and the sale of Shiny Entertainment, Inc.

Product Development

Our product development expenses for the years ended December 31, 2004 and 2003 breakdown as follows: (in thousands)

|                    | 2004  | 2003   | Change   | % Change
|------------------- | ----- | ------ | -------- | --------
|Product Development | 2,636 | 13,680 | (11,044) | (80.7%) 

We charge internal product development expenses, which consist primarily of personnel and support costs, to operations in the period incurred. Product development expenses for the year ended December 31, 2004 were $2.6 million, a 80.7% decrease as compared to the same period in 2003. This decrease was mainly due to a $11 million 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. We expect our product development expenses to decrease in 2005 compared to 2004 as a result of reductions of development personnel during 2004.

Our product development expenses for the years ended December 31, 2003 and 2002 breakdown as follows: (in thousands)

|                    | 2003   | 2002   | Change  | % Change
|------------------- | ------ | ------ | ------- | --------
|Product Development | 13,680 | 16,184 | (2,504) | (16%)   

Product development expenses for the year ended December 31, 2003 were $13.7 million, a 16% decrease as compared to the same period in 2002. This decrease was due to a $2.5 million decrease in personnel costs as a result of a reduction in headcount and the sale of Shiny Entertainment, Inc. in April 2002.

Other Expense, Net

Our other expense for the years ended December 31, 2004 and 2003 breakdown as follows: (in thousands)

|              | 2004  | 2003 | Change  | % Change
|------------- | ----- | ---- | ------- | --------
|Other Expense | 2,248 | 82   | (2,166) | (278%)  

Other expense consists primarily of interest expense, bad debt expense, payroll tax penalties, write-off of fixed assets and foreign currency exchange transaction losses. Other expense for the year ended December 31, 2004 was $2.2 million, a 278% decrease as compared to the same period in 2003. This increase is due primarily to a write-off of fixed assets and a write down of the Avalon accounts receivable balance.

Our other expense for the years ended December 31, 2003 and 2002 breakdown as follows: (in thousands)

|              | 2003 | 2002  | Change  | % Change
|------------- | ---- | ----- | ------- | --------
|Other Expense | 82   | 1,531 | (1,449) | (95%)   

Other expense for the year ended December 31, 2003 was $0.1 million, a 95% decrease as compared to the same period in 2002. The 2002 period included higher interest expense related to higher net borrowings, a $1.8 million provision due to a delay in the effectiveness of a registration statement in connection with our private placement of 8,126,770 shares of Common Stock and a $0.9 million gain in the settlement and termination of a building lease in the United Kingdom.

Provision (Benefit) for Income Taxes

Our provision/(benefit) for income taxes for the years ended December 31, 2004 and 2003 breakdown as follows: (in thousands)

|                    | 2004 | 2003 | Change | % Change
|------------------- | ---- | ---- | ------ | --------
|Provision (Benefit) | 0    | (0)  | 0      | 0%      

We recorded no tax provision for the years ended December 31, 2004 and 2003.

Our provision/(benefit) for income taxes for the years ended December 31, 2003 and 2002 breakdown as follows: (in thousands)

|                    | 2003 | 2002  | Change | % Change
|------------------- | ---- | ----- | ------ | --------
|Provision (Benefit) | 0    | (225) | 225    | 100%    

We recorded no tax provision for the year ended December 31, 2003, compared with a tax benefit of $225,000 for the year ended December 31, 2002. In June 2002, the Internal Revenue Service ("IRS") concluded their examination of our consolidated federal income tax returns for the years ended April 30, 1992 through 1997. In fiscal 2001, we established a reserve of $500,000, representing management's best estimate of amounts to be paid in settlement of the IRS claims. With the executed settlement, the actual amount owed was only $275,000. Accordingly, we adjusted our reserve and, as a result, recognized an income tax benefit of $225,000. We have a deferred tax asset of approximately $54.3 million that has been fully reserved at December 31, 2003. This tax asset would reduce future provisions for income taxes and related tax liabilities when realized, subject to limitations.

Liquidity and Capital Resources

As of December 31, 2004, we had a working capital deficit of approximately $18 million, and our cash balance was approximately $29,000. We currently have no cash reserves and are unable to pay current liabilities. The Company cannot continue in its current form without obtaining additional financing or income.

On April 16, 2004, Arden Realty, our landlord, filed an unlawful detainer action against us alleging unpaid rent of approximately $432,000. We were unable to pay our rent, and vacated the office space during the month of June 2004. On June 3, 2004, our Landlord obtained a judgment of approximately $588,000 exclusive of interest. We also owe an additional approximately $148,000 on a prior settlement with the Landlord. We negotiated a forbearance agreement whereby Arden has agreed to accept payments commencing in January 2005 in the amount of $60,000 per month until the full amount is paid. We are currently in default of this agreement.

We have received notice from the Internal Revenue Service ("IRS") that we owe approximately $117,000 in payroll tax penalties for late payment of payroll taxes in the 3rd and 4th quarters of 2003 and the 1st and 2nd quarters of 2004. Such amount has been accrued at December 31, 2004. We have received notice from the California Employment Development Department that we owe payroll taxes and penalties of approximately $101,000. We have received notice from the State Board of Equalization that we owe approximately $64,000 in State Use Tax. We have also received notice from the Orange County Treasurer that we owe approximately $28,000 in property taxes. Such amounts have been accrued at December 31, 2004.

We were unable to meet certain 2004 payroll obligations to our employees, as a result several employees filed claims with the State of California Labor Board ("Labor Board"). The Labor Board has fined us approximately $10,000 for failure to meet our payroll obligations and set trial dates for August 2005.

Since we were having difficulty meeting our payroll obligations on a timely basis to our employees a large number of our employees stopped reporting to work in late May and early June 2004. We were subsequently evicted from our building at 16815 Von Karman Avenue in Irvine, California in mid June 2004. We had a core group of approximately 12 employees on payroll on December 31, 2004, some of whom are actively working from the new company locations in Irvine and Beverly Hills, California and some have subsequently left the Company. Substantially all employees have not been paid for the period August through December 31, 2004. Since we have been unable to pay the employees we have continuing liability to them and there is a high probability that some or all of them will seek employment elsewhere. There may be some liability to us arising from employees, including those who have left.

Our property, general liability, auto, fiduciary liability, workers compensation, directors and officers, and employment practices liability insurance policies, have been cancelled. We obtained a new workers' compensation insurance policy. The Labor Board fined us approximately $79,000 for not having worker's compensation coverage for a period of time. Our health insurance was also cancelled but was subsequently reinstated. We are appealing the Labor Board fines.

On July 2, 2004,we granted an option to Vivendi to purchase the Redneck Rampage intellectual property rights for $300,000. On July 19, 2004, Vivendi exercised the option and paid the $300,000 on July 23, 2004.

We entered into tri-party agreements with Atari Interactive, Inc. and Vivendi and Avalon that allows Vivendi to resume North American distribution, and Avalon to resume International distribution pursuant to their pre-existing agreements with us of certain Dungeons & Dragons games, including Baldur's Gate: Dark Alliance II.In September 2004 Atari notified Vivendi that Vivendi is currently in breach of its obligations to remit royalties to Atari pursuant to the terms of the agreement. Atari Interactive notified Vivendi that if Vivendi did not cure the breach set forth in the letter by September 30, 2004 that the letter shall be deemed notice of termination of the agreement. According to reports we received from Vivendi we believe Atari was paid by Vivendi approximately $742,000 as of December 31, 2004. We will most likely not receive any proceeds from Vivendi during 2005.

Interplay licensed to Bethesda Softworks LLC, "Bethesda" the rights to develop Fallout 3 on all platforms for $1.175 million minimum guaranteed advance against royalties. Bethesda also has an option to develop two sequels, Fallout 4, and Fallout 5 for $1.0 million minimum guaranteed advance against royalties per sequel. Interplay retained the rights to develop a massively multiplayer online game using the Fallout Trademark.

We have substantially reduced our operating expenses. We need to reduce our continuing liabilities. We have to raise additional capital or financing. If we do not receive sufficient financing 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.

Additionally, we have reduced our fixed overhead commitments, and cancelled or suspended development on future titles which management believes do not meet sufficient projected profit margins, and scaled back certain marketing programs associated with the cancelled projects. Management will continue to pursue various alternatives to improve future operating results.

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

We have been operating without a credit facility since October 2001, which has adversely affected cash flow. We continue to face difficulties in paying our vendors, and employees, and have pending lawsuits as a result of our continuing cash flow difficulties. We expect these difficulties to continue during 2005.

Historically, we have funded our operations primarily through the use of lines of credit, cash flow from operations, including royalty and distribution fee advances, cash generated by the sale of securities, and the sale of assets.

Our primary capital needs have historically been working capital requirements necessary to fund our operations, the development and introduction of products and related technologies and the acquisition or lease of equipment and other assets used in the product development process. Our operating activities used cash of $2.9 million during the twelve months ended December 31, 2004, primarily attributable to fees incurred for lawsuits, and other liabilities, and recoupment of advances received by distributors.

Cash provided by investing activities of $28,000 for the twelve months ended December 31, 2004 consisted of normal capital expenditures and sales, primarily for office and computer equipment used in our operations. We do not currently have any material commitments with respect to any future capital expenditures. Net cash provided by financing activities of $738,000 for the twelve months ended December 31, 2004, consisted primarily of repayments of our notes payable.

Avalon distributed our products in Europe, the commonwealth of Independent States, Africa and the Middle East. Our distribution agreement with Avalon was terminated following Avalon's involuntary judicial liquidation in February 2005. In March 2005 we appointed our wholly owned subsidiary, Interplay Productions Ltd, as our distributor in Europe and other selected territories. As a result, we cannot guarantee our ability to collect fully the debts we believe are due and owed to us from Avalon. We subsequently fully reserved the Avalon receivable.

Currently there is no internal development of new titles going on.

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

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, 2004, 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 year | 1 - 3
years | 3 - 5
years | More than
5 years
|---------------------------------- | ----- | ---------------- | ----------- | ----------- | -----------------
|Developer Licensee Commitments (1) | 4,694 | 3,051            | 1,643       |             |                  
|Lease Commitments (2)              | 737   | 737              |             |             |                  
|Taxes (3)                          | 310   | 310              |             |             |                  
|Other Commitments (4)              | 1,476 | 970              | 506         |             |                  
|Total                              | 7,217 | 5,068            | 2,149       | -           | -                

Our current cash reserves plus our expected cash from existing operations will only be sufficient to fund our anticipated expenditures into the second quarter of fiscal 2005. We will need to substantially reduce our working capital needs, continue to consummate certain sales of assets and/or raise additional financing to meet our contractual obligations.

(1) Developer/Licensee Commitments: The products produced by us are designed and created by our employee designers and artists and by non-employee software developers ("independent developers"). We typically advance development funds to the independent developers during development of our games, usually in installment payments made upon the completion of specified development milestones, which payments are considered advances against subsequent royalties based on the sales of the products. These terms are typically set forth-in written agreements entered into with the independent developers. In addition we have content license contracts that contain minimum guarantee payments and marketing commitments that are not dependent on any deliverables. These developer and content license commitments represent the sum of (1) minimum marketing commitments under royalty bearing licensing agreements, and (2) minimum payments and advances against royalties due under royalty-bearing licenses and developer agreements.

(2) Lease Commitments: The company's headquarters were located in Irvine, California where the Company leased approximately 81,000 square feet of office space. This lease would have expired in June 2006. On or about April 16, 2004, Arden Realty Finance IV LLC filed an unlawful detainer action against the Company in the Superior Court for the State of California, County of Orange, alleging the Company's default under its corporate lease agreement. At the time the suit was filed, the alleged outstanding rent totaled $431,823. The Company was unable to satisfy this obligation and reach an agreement with its landlord, the Company subsequently forfeited its lease and vacated the building. Arden Realty obtained a judgment for approximately $588,000 exclusive of interest. The Company also owes an additional approximately $149,000 making a total owed to Arden by the Company of approximately $737,000. The Company negotiated a forbearance agreement whereby Arden has agreed to accept payments commencing in January 2005 in the amount of $60,000 per month until the full amount is paid. The Company has been unable to make any of the $60,000 per month payments. We have monthly rental agreements in Irvine, CA and Beverly Hills, California for our operations.

(3) We have received notice from the Internal Revenue Service ("IRS") that we owe approximately $117,000 in payroll tax penalties for late payment of payroll taxes in the 3rd and 4th quarters of 2003 and the 1st and 2nd quarters of 2004. Such amount has been accrued at December 31, 2004. We have received notice from the California Unemployment Development Department that we owe payroll taxes and penalties of approximately $101,000. We have received notice from the State Board of Equalization that we owe approximately $64,000 in State Use Tax. We have also received notice from the Orange County Treasurer that we owe approximately $28,000 in property taxes. Such amounts have been accrued at December 31, 2004.

(4) Other Commitments: Consist of payment plans entered into with various creditors.

Activities with Related Parties

It is our policy that related party transactions are to be reviewed and approved by a majority of our disinterested directors or our Independent Committee.

Our operations involve significant transactions with our majority stockholder Titus and its affiliates. We had a major distribution agreement with Avalon, an affiliate of Titus.

TRANSACTIONS WITH TITUS

Titus presently owns approximately 58 million shares of common stock, which represents approximately 62% of our outstanding common stock, our only voting security.

We performed certain distribution services on behalf of Titus for a fee. In connection with such distribution services, we recognized fee income of $0 and $5,000 for the twelve months ended December 31, 2004, and 2003, respectively.

As of December 31, 2004 and December 31, 2003, Titus and its affiliates excluding Avalon owed us $370,000 and $362,000, respectively. We owed Titus and its affiliates excluding Avalon $30,000 and $0 as of December 31, 2004 and December 31, 2003 respectively.

TRANSACTIONS WITH TITUS AFFILIATES

Transactions with Avalon, a wholly owned subsidiary of Titus

We had an International Distribution Agreement with Avalon, a wholly owned subsidiary of Titus. Pursuant to this distribution agreement, Avalon provided for the exclusive distribution of substantially all of our products in Europe, Commonwealth of Independent States, Africa and the Middle East for a seven-year period ending February 2006, cancelable under certain conditions, subject to termination penalties and costs. Under this agreement, as amended, we paid Avalon a distribution fee based on net sales, and Avalon provides certain market preparation, warehousing, sales and fulfillment services on our behalf. In connection with the International Distribution Agreement with Avalon, we incurred distribution commission expense of $62,000 and $.9 million, for the twelve months ended December 31, 2004, and 2003 respectively. This agreement was terminated as a result of Avalon's liquidation in February 2005.

Transactions with Titus Software

In March 2003, we entered into a note receivable with Titus Software Corp., ("TSC"), a subsidiary of Titus, and advanced TSC $226,000. The note earns interest at 8% per annum and was due in February 2004. In May 2003, our Board of Directors rescinded the note receivable and demanded repayment of the $226,000 from TSC. As of the date of this filing the balance on the note with accrued interest has not been paid. The balance on the note receivable, with accrued interest, at September 30, 2004 was approximately $254,000. The total receivable due from TSC is approximately $327,000 as of September 30, 2004. The majority of the additional approximately $73,000 was due to TSC subletting office space and miscellaneous other items.

In May 2003, we paid TSC $60,000 to cover legal fees in connection with a lawsuit against Titus. As a result of the payment, our CEO requested that we credit the $60,000 to amounts we owed to him arising from expenses incurred in connection with providing services to us. Our Board of Directors is in the process of investigating the details of the transaction, including independent counsel review as appropriate, in order to properly record the transaction.

Transactions with Titus Japan

In June 2003, we began operating under a representation agreement with Titus Japan K.K. ("Titus Japan"), a majority-controlled subsidiary of Titus, pursuant to which Titus Japan represents us as an agent in regards to certain sales transactions in Japan. This representation agreement has not yet been approved by our Board of Directors and is currently being reviewed by them. Our Board of Directors has approved the payments of certain amounts to Titus Japan in connection with certain services already performed by them on our behalf. As of December 31, 2004 we had a zero balance with Titus Japan. During the twelve months ending December 31, 2004 our Japanese subsidiary paid to Titus Japan approximately $209,000 in commissions, marketing and publishing staff services. Our Japanese subsidiary had approximately $369,000 in revenue in the twelve months ending December 31, 2004.

Transactions with Titus SARL

As of December 31, 2004, we have a receivable of $18,000 and $43,000 respectively for product development services that we provided. Titus SARL was placed into involuntary liquidation in January 2005.

Transactions with Titus GIE

In February 2004, we engaged the services of GIE Titus Interactive Group, a wholly owned subsidiary of Titus, for a three-month service agreement pursuant to which GIE Titus or its agents shall provide to us certain foreign administrative and legal services at a rate of $5,000 per month for three months. As of December 31, 2004, we had a zero balance with Titus GIE Interactive Group. Titus GIE was placed into involuntary liquidation in January 2005.



Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs - An Amendment of ARB No. 43, Chapter 4." This new standard is the result of a broader effort by the FASB to improve financial reporting by eliminating differences between Generally Accepted Accounting Principles ("GAAP") in the United States and accounting principles developed by the International Accounting Standards Board ("IASB"). As part of this effort, the FASB and the IASB identified opportunities to improve financial reporting by eliminating certain narrow differences between their existing accounting standards. SFAS No.

151 clarifies that abnormal amounts of idle facility expense, freight handling costs and spoilage costs should be expensed as incurred and not included in overhead. Further, SFAS No. 151 requires that allocation of fixed production overheads to conversion costs should be based on normal capacity of the production facilities. The provisions in SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Companies must apply the standard prospectively. Management does not expect the adoption of SFAS No. 151 to have a material impact on the Company's financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment," a revision to SFAS 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R established the accounting treatment for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. SFAS 123R requires the Company to value the share-based compensation based on the classification of the share-based award. If the share-based award is to be classified as a liability, the Company must re-measure the award at each balance sheet date until the award is settled. If the share-based award is to be classified as equity, the Company will measure the value of the share-based award on the date of grant but the award will not be re-measured at each balance sheet date. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." SFAS 123R is effective for public companies with calendar year ends no later than the beginning of the next fiscal year. All public companies must use either the modified prospective or modified retrospective transition method. Under the modified prospective method, awards that are granted, modified, or settled after the date of adoption should be measured and accounted for in accordance with SFAS 123R. Unvested equity classified awards that were granted prior to the effective date should continue to be accounted for in accordance to SFAS 123 except that the amounts must be recognized in the statement of operations. Under the modified retrospective method, the previously reported amounts are restated (either to the beginning of the year of adoption or for all periods presented) to reflect SFAS 123 amounts in the statement of operations. Management is in the process of determining the effect SFAS 123R will have upon the Company's financial position and statement of operations and the method of transition adoption.

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.

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 a number of 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 our stock would become illiquid or worthless.

As of December 31, 2004, our cash balance was approximately $29,000 and our outstanding accounts payable and current liabilities totaled approximately $13.2 million. In particular we have some significant creditors that comprise a substantial proportion of outstanding obligations that we might not be able to satisfy. 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, 2004, our net loss from operations was $2.5 million and for the year ended December 31, 2003, our net loss from operations was $1.3 million. Since inception, we have incurred significant losses and negative cash flow, and as of December 31, 2004 we had an accumulated deficit of $139 million. Our ability to fund our capital requirements out of our available cash and cash generated from our operations depends on a number of factors. Some of these factors include the progress of our product development programs, the rate of growth of our business, and our products' commercial success. If we cannot generate positive cash flow from operations, we will have to continue to reduce our costs and raise working capital from other sources. These measures could include selling or consolidating certain operations or assets, and delaying, canceling or scaling back product development and marketing programs. These measures could materially and adversely affect our ability to publish successful titles, and may not be enough to permit us to operate profitability, or at all.

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 will require us to take drastic 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.

RISKS RELATED TO OUR BUSINESS

Titus Interactive SA controls a majority of our voting stock and can elect a majority of our Board of Directors and prevent an acquisition of us that is favorable to our other stockholders. Alternatively, Titus can also cause a sale of control of our Company that may not be favorable to our other stockholders.



Titus owns approximately 58 million shares of common stock, which represents approximately 62% of our outstanding common stock, our only voting security. As a consequence, Titus can control substantially all matters requiring stockholder approval, including the election of directors, subject to our stockholders' cumulative voting rights, and the approval of mergers or other business combination transactions. At our 2003 and 2002 annual stockholders meetings, Titus exercised its voting power to elect a majority of our Board of Directors. Currently, our Chief Executive Officer and interim Chief Financial Officer Herve Caen is a director of various Titus affiliates. 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' bankruptcy could lead to a sale by its liquidator or other representative in bankruptcy, of shares Titus holds in us, thereby potentially reducing the value of our shares and market capitalization. Such a sale and dispersion of shares to multiple stockholders further could have the effect of making any business combination, or a sale of all of our shares as a whole, more difficult.

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. The lack of a credit agreement or credit facility has significantly impeded our ability to fund our operations and has caused material harm to our business. 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.

A significant percentage of our revenues historically depended on our distributors' diligent sales efforts.

Avalon was the exclusive distributor for most of our products in Europe, the Commonwealth of Independent States, Africa and the Middle East. Our agreement with Avalon was terminated following the liquidation of Avalon in February 2005. We subsequently appointed our wholly owned subsidiary Interplay Productions Ltd as our distributor for Europe.

Vivendi has exclusive rights to distribute our products in North America and selected International territories. Our agreement with Vivendi will expire in August 2005 for most of our products.

Our revenues and cash flows could fall significantly and our business and financial results could suffer material harm if:

- We fail to replace Vivendi as our distributor; or
- Interplay Productions Ltd fails to effectively distribute our products.

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

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:

- demand for our products and our competitors' products;
- the size and rate of growth of the market for interactive entertainment software;
- changes in personal computer and video game console platforms;
- 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;
- changes in our product mix;
- the number of our products that are returned; and
- 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:

- the uncertainties associated with the interactive entertainment software development process;
- approvals required from content and technology licensors; and
- 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 introduction of our products, or if there are significant defects or dissatisfaction with our products, our business could be harmed.

For the year ended December 31, 2004, our net loss from operations was $2.5 million. We have incurred significant net losses in previous years periods. Our losses in the past stemmed partly from the significant costs we incured 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 releasing new products could reduce our net revenues and our ability to recoup development and operational costs.

If our products do not achieve broad market acceptance, our business could be harmed significantly.

Consumer preferences for interactive entertainment software are always changing and are extremely difficult to predict. Historically, few interactive entertainment software products have achieved continued market acceptance. Instead, a limited number of releases have become "hits" and have accounted for a substantial portion of revenues in our industry. Further, publishers with a history of producing hit titles have enjoyed a significant marketing advantage because of their heightened brand recognition and consumer loyalty. We expect the importance of introducing hit titles to increase in the future. We cannot assure you that our new products will achieve significant market acceptance, or that we will be able to sustain this acceptance for a significant length of time if we achieve it.

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

Our reliance on third party software developers subjects us to the risks that these developers will not supply us with high quality products in a timely manner or on acceptable terms.

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

- limited financial resources may force developers out of business prior to their completion of projects for us or require us to fund additional costs; and
- the possibility that developers could demand that we renegotiate our arrangements with them to include new terms less favorable to us.

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

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

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

In addition, integrated video game console hardware/software companies such as Sony Computer Entertainment, Nintendo, and Microsoft Corporation compete directly with us in the development of software titles for their respective platforms and they have generally discretionary approval authority over the products we develop for their platforms. Large diversified entertainment companies, such as The Walt Disney Company, and Time Warner Inc. many of which own substantial libraries of available content and have substantially greater financial resources, may decide to compete directly with us or to enter into exclusive relationships with our competitors.

We 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 of CEO and interim CFO Hervé 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 75% and 18% of our total net revenues for years ended December 31, 2004 and 2003, respectively. Most of these revenues came from our distribution relationship with Avalon, pursuant to which Avalon became the exclusive distributor for most of our products in Europe, the Commonwealth of Independent States, Africa and the Middle East. To the extent our resources allow, we intend to continue to expand our direct and indirect sales, marketing and product localization activities worldwide.

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

- recessions in foreign economies may reduce purchases of our products;
- translating and localizing products for international markets is time consuming and expensive;
- accounts receivable are more difficult to collect and when they are collectible, they may take longer to collect;
- regulatory requirements may change unexpectedly;
- it is difficult and costly to staff and manage foreign operations;
- fluctuations in foreign currency exchange rates;
- political and economic instability; and
- delays in market penetration of new platforms in foreign territories.

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

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

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. We have mitigated this risk in North America under our current distribution arrangement with Vivendi, as sales will be guaranteed with no offset for product returns and price concessions.

We depend upon third party licenses of content for many of our products.

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

If distribution contract claims continue to be asserted against us, we may be unable to sustain our business or meet our current obligations.

During calendar year 2004, we were involved in disputes with our key distributor Vivendi Universal Games. While we have since reached an amicable settlement with Vivendi, other distribution-related contract claims may be asserted against us in the future. Such claims can harm our business by consuming our limited human and financial resources, regardless of the merits of the claims. We incur substantial expenses in evaluating and defending against such claims. In the event that there is a determination against us on any these types of claims, we could incur significant monetary liability and there could be a negative impact on product release.

Our licensors are also often our competitors. We may fail to maintain existing licenses, or obtain new licenses from platform companies on acceptable terms or to obtain renewals of existing or future licenses from licensors.



We are required to obtain a license to develop and distribute software for each of the video game console platforms for which we develop products, including a separate license for each of North America, Japan and Europe. We have obtained licenses to develop software for the Sony PlayStation and PlayStation 2, as well as video game platforms from Nintendo and Microsoft, who are also our competitors. Each of these companies has the right to approve the technical functionality and content of our products for their platforms prior to distribution. Typically, such license agreements give broad control to the licensor over the approval, manufacturing and shipment of products on their platform. Due to the competitive nature of the approval process, we typically must make significant product development expenditures on a particular product prior to the time we seek these approvals. Our inability to obtain these approvals or to obtain them on a timely basis could cause material harm to our business.

Our sales volume and the success of our products depend in part upon the number of product titles distributed by hardware companies for use with their video game platforms.

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

- we are required to submit and pay for minimum numbers of discs we want produced containing our software, regardless of whether these discs are sold, shifting onto us the financial risk associated with poor sales of the software developed by us; and
- reorders of discs are expensive, reducing the gross margin we receive from software releases that have stronger sales than initially anticipated and that require the production of additional discs.

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

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 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:

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

- operating systems such as Microsoft Windows Longhorn;
- new media formats
- releases of new video game consoles;
- 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:

- anticipate future technologies and platforms and the rate of market penetration of those technologies and platforms;
- obtain licenses to develop products for those platforms on favorable terms; or
- 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.

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. 719,424 shares of Series A Preferred Stock was issued to Titus in the past, which amount has been fully converted into our common stock. In addition, our certificate of incorporation and bylaws contain provisions that:

- eliminate the ability of stockholders to act by written consent and to call a special meeting of stockholders; and
- 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 ofourbusiness, including:

- general conditions in the computer, software, entertainment, media or electronics industries;
- changes in earnings estimates or buy/sell recommendations by analysts;
- investor perceptions and expectations regarding our products, plans and strategic position and those of our competitors and customers; and
- price and trading volume volatility of the broader public markets, particularly the high technology sections of the market.



Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We do not have any derivative financial instruments as of December 31, 2004. 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, which primarily have been from Avalon.

We recognized a $33,000 loss, $58,000 gain and $104,000 loss during the years ended December 31, 2004, 2003 and 2002, respectively, primarily in connection with foreign exchange fluctuations in the timing of payments received on accounts receivable from Avalon.

Item 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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



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

The information required by this Item 9 has been previously furnished and is incorporated herein by reference to our forms 8-K filed on (i) February 25, 2003, and amendment to such form 8-K filed on February 27, 2003, and (ii) March 30, 2005.

Item 9A. 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 not effective, at the reasonable assurance level, in ensuring that information required to be disclosed is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms and in timely alerting him to material information required to be included in this report.

Due to the departure of numerous key employees during June 2004, there was significant change in our internal controls over financial reporting that occurred during the quarter ended September 30, 2004 and the quarter ended December 31, 2004 that have materially affected or are reasonably likely to materially affect these controls. On January 18, 2005 the Controller of the Company at that time resigned causing the auditors to note a material weakness. Management appointed a new Controller to take over the reporting duties from the previous Controller and hired additional accounting staff. The Company also took steps to remediate any material weakness by relocating to new offices, gathering archives and reinstalling all computer systems.

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 systems 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.

PART III

Item 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Summary Information Concerning Directors, Executive Officers and Certain Significant Employees

The following table sets forth certain information regarding our directors and executive officers and their ages as of May 27, 2005:



|Directors               |  | Age |  | Present Position                                                                               
|----------------------- |  | --- |  | -----------------------------------------------------------------------------------------------
|                        |  |     |  |                                                                                                
|Hervé Caen              |  | 43  |  | Chairman of the Board of Directors, Chief Executive Officer and Interim Chief Financial Officer
|Eric Caen               |  | 39  |  | Director                                                                                       
|Michel Welter (1)(2)(3) |  | 46  |  | Director                                                                                       

1. Member of the Audit Committee of the Board of Directors.
2. Member of the Compensation Committee of the Board of Directors.
3. Member of the Independent Committee of the Board of Directors.

Herve Caen and Eric Caen are brothers. There are no other family relationships between any director and/or any executive officer. The Board of Directors has determined that there are no other significant employees for purposes of this Item 10.

Background Information Concerning Directors and Executive Officers

Hervé Caen joined us as President and as a director in November 1999. Mr. Caen was appointed interim Chief Executive Officer in January 2002 and currently serves as our Chief Executive Officer and interim Chief Financial Officer to date. Mr. Caen has served as Chairman of our Board of Directors since September 2001. Mr. Caen has served as Chairman of the Board of Directors of Titus Interactive S.A., an interactive entertainment software company since 1991. Mr. Caen was also Chief Executive Officer of Titus Interactive S.A. from 1991 through December 31, 2002. Mr. Caen also serves as Managing Director of Titus Interactive Studio, Titus SARL and Digital Integration Services, which positions he has held since 1985, 1991 and 1998, respectively. Mr. Caen also serves as Chief Executive Officer of Titus Software Corporation, Chairman of Titus Software UK Limited and Representative Director of Titus Japan K.K., which positions he has held since 1988, 1991 and 1998, respectively.

Eric Caen has served as a director since November 1999. Mr. Caen has served as a Director and as President of Titus Interactive S.A. since 1991. Mr. Caen is also currently the Chief Executive Officer of Titus Interactive S.A. Mr. Caen also serves as Vice President of Titus Software Corporation, Secretary and Director of Titus Software UK Limited and Director of Titus Japan K.K. and Digital Integration Limited, which positions he has held since 1988, 1991, 1998 and 1998, respectively. Mr. Caen has also served as Managing Director of Total Fun 2, a French record production company, since 1998. Mr. Caen served as Managing director of Titus SARL from 1988 to 1991.

Michel Welter joined our Board of Directors in September 2001. Mr. Welter, together with his company Weltertainment, is involved in the trading and exploitation of animated TV series. From 2000 to 2002 he served as President of CineGroupe International, a Canadian company, which develops, produces and distributes animated television series and movies. From 1990 to the end of 2000, Mr. Welter served as President of Saban Enterprises where he launched the international merchandising for the hit series "Power Rangers" and was in charge of international business development where he put together numerous co-productions with companies in Europe and Asia.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% stockholders are required by SEC rules and regulations to furnish us with all Section 16(a) forms they file. Based solely on our review of the copies of the forms received by us and representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the year ended December 31, 2004, all our executive officers, directors and greater than 10% stockholders complied with all Section 16(a) filing requirements.

Audit Committee Independence and Audit Committee Financial Expert

The Audit Committee currently consists of Michel Welter. The Board has determined that since October 2004 when Mr Stefanovich resigned from the board, who was until that time the "audit committee financial expert", as that term is defined in Section 407 of the Sarbanes-Oxley Act of 2002 and pursuant to the rules and regulations of the SEC, the Audit Committee no longer has such an expert. The Board determined that Mr Stefanovich was, and has also determined that Mr. Welter is, "independent", as that term is defined under the rules of the National Association of Securities Dealers, Inc.

Code of Ethics

We have adopted a Code of Ethics for all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller and any person performing similar functions. The Code of Ethics was filed as an exhibit to the Amendment No. 1 to the 10K for the period ended December 31, 2003.

Item 11.	EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation earned during the last three fiscal years ended December 31, 2004, by our Chief Executive Officer and President whose total salary and bonus during the year ended December 31, 2004 exceeded $100,000 (collectively, the "Named Executive Officers"). No other executive officer serving at December 31, 2004, received total salary and bonus during 2004 in excess of $100,000.

SUMMARY COMPENSATION TABLE

|                                                                                                | Annual Compensation | Long-Term
Compensation | All Other
Compensation
|----------------------------------------------------------------------------------------------- | ------------------- | ---------------------- | ----------------------
|Name and Principal Position                                                                     | Year                | Salary                 | Bonus                 
|Hervé Caen (1)                                                                                  | 2004                | $ 260,330 (2)          |                       
|Chairman of the Board of
Directors, Chief Executive Officer
and Interim Chief Financial
Officer | 2003
2002           | 487,147
250,000        |                       
|                                                                                                | 2004                | 116,276 (4)            |                       
|Phillip Adam                                                                                    | 2003                | 200,000                |                       
|President                                                                                       | 2002                | 168,000                |                       
|                                                                                                |                     |                        |                       
|                                                                                                |                     |                        |                       

---------------

1. Mr. Caen joined us as President in November 1999. Mr. Caen was appointed Chief Executive Officer in January 2002 and currently serves as our Chief Executive Officer and interim Chief Financial Officer. Mr. Caen has served as Chairman of our Board of Directors since September 2001. In March 2003, our Compensation Committee approved an annual base salary of $360,000 as Chief Executive officer and $100,000 per year while serving as interim Chief Financial Officer.
2. Mr. Caen was only paid a portion of his salary during FY 2004 due to the limited cash available. We accrued the balance due Mr. Caen of $199,670 as of December 31, 2004.
3. Mr. Caen received 2,000 shares of our common stock pursuant to a non-discretionary grant made under the terms of our Employee Stock Purchase Program.
4. Mr. Adam was only paid a portion of his salary during FY 2004 due to the limited cash available. We accrued the balance due Mr. Adam of $75,391 as of December 31, 2004. Mr. Adam resigned on January 15th, 2005.
5. Mr. Adam's other compensation consists of matching payments made under our 401(k) plan.





STOCK OPTION GRANTS IN FISCAL 2004

There were no stock options or stock appreciation rights granted to the Named Executive Officers during the year ended December 31, 2004.

AGGREGATE OPTION/ SAR EXERCISES
AND 2004 YEAR-END OPTION VALUES

There were no exercises of stock options or stock appreciation rights during the year ended December 31, 2004 for any of the Named Executive Officers.

|Name         | Shares Acquired
on Exercise | Value Realized | Number of Securities
Underlying
Unexercised Options
at Year-End
(Exercisable/
Unexercisable) | Value of
Unexercised in-the-
Money Options at
Year-End
(Exercisable/
Unexercisable) (1)
|------------ | --------------------------- | -------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------
|Hervé Caen   | --                          | --             | --                                                                                           | --                                                                                     
|Phillip Adam | --                          | --             | 10,000/0                                                                                     | $0/$0                                                                                  

-------------------





Director Compensation

Currently, we accrue for payment to each of our non-employee directors' compensation as follows:

- $5,000 in cash compensation per quarter for attendance at Board of Directors meetings.
- $5,000 in cash compensation per annum for each Board committee a director is a member of and participates in.
- Upon election and appointment to the Board, or upon loss of employee status of an employee director, an option to purchase up to 25,000 shares of our common stock under the Third Amended and Restated 1997 Stock Incentive Plan. These director options are each for a term of ten years and vest over the first three years.
- An option to purchase 5,000 shares of our common stock under the Third Amended and Restated 1997 Stock Incentive Plan for each subsequent year of director service. These director options are each for a term of ten years and vest over the first three years.

Employment Agreements

Mr. Hervé Caen currently serves as our Chief Executive Officer and interim Chief Financial Officer. We previously entered into an employment agreement with Mr. Hervé Caen for a term of three years through November 2002, pursuant to which he currently serves as our Chairman of the Board of Directors and Chief Executive Officer. The employment agreement provided for an annual base salary of $250,000, with such annual raises as may be approved by the Board of Directors, plus annual bonuses at the discretion of the Board of Directors. Mr. Caen is also entitled to participate in the incentive compensation and other employee benefit plans established by us from time to time. In March 2003, our Compensation Committee approved an annual base salary increase for Mr. Caen from $250,000 to $360,000. The Compensation Committee is currently negotiating a new employment agreement with Mr. Caen.

Mr. Phillip Adam served as our President during 2004. In March 2003, our Compensation Committee approved a three-year employment agreement with Mr Adam as President for an annual base salary of $200,000. Mr Adam resigned from the company on January 15, 2005.



Compensation Committee Interlocks and Insider Participation

The Compensation Committee currently consists of Michel Welter. From January to August 2004, the Compensation Committee was comprised of Michel Welter, Jerry DeCiccio and Robert Stefanovich. Mr. DeCiccio resigned as a director in August 2004. From August 2004 to Ortober 2004, Mr Welter and Mr Stefanovich served on our Compensation Committee. Mr. Stefanovich resigned as a director in October 2004. During 2004, decisions regarding executive compensation were made by our Compensation Committee. None of the current 2004 members of our Compensation Committee nor any of our 2004 executive officers or directors had a relationship that would constitute an interlocking relationship with executive officers and directors of another entity.

Compensation Committee Report on Executive Compensation

The following is the Report of the Compensation Committee describing the compensation policies applicable to the Company's executive officers. This information shall not be deemed to be "soliciting material" or to be "filed" with the SEC nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the company specifically incorporates it by reference into a filing.

Compensation Policies and Objectives

The Compensation Committee reviews and approves the annual salary, bonus and other benefits, including incentive compensation awards, of our executive officers, including the Chief Executive Officer. The Compensation Committee also reviews the employee benefit plans and recommends changes to the existing plans to the Board of Directors. The executive compensation policy is designed to attract and retain exceptional executives by offering compensation for superior performance that is competitive with other well-managed organizations. The Compensation Committee measures executive performance on an individual and corporate basis.

There are three components to the executive compensation program, as follows:

Base Salary. Base salaries for executives and other key employees are determined by individual financial and non-financial performance and general economic conditions of the company and of the industry. In recommending salaries for executive officers, the Compensation Committee (i) reviews the historical performance of the executives, and (ii) reviews specific information provided by its accountants and other consultants, as necessary, with respect to the competitiveness of salaries paid to the our executives.

Annual Bonus. Annual bonuses for executives and other key employees are tied directly to the company's financial performance as well as individual performance. The purpose of annual cash bonuses is to reward executives for achievements of corporate, financial and operational goals. Annual cash bonuses are intended to reward the achievement of outstanding performance. If certain objective and subjective performance goals are not met, annual bonuses are reduced or not paid.

Long-Term Incentives. The purpose of these plans is to create an opportunity for executives and other key employees to share in the enhancement of stockholder value through stock options. The overall goal of this component of pay is to create a strong link between the management of the company and its stockholders through management stock ownership and the achievement of specific corporate financial measures that result in the appreciation of our share price. Stock options are awarded in order to tie the executive officers' interests to the company's performance and align those interests closely with those of our stockholders. The Compensation Committee generally has followed the practice of granting options on terms that provide that the options become exercisable in installments over a two to five year period. The Compensation Committee believes that this feature not only provides an employee retention factor but also makes longer-term growth in share prices important for those receiving options.

No stock options were granted to our executive officers in 2004. The Compensation Committee continues to review the desirability of issuing stock options to its executive officers in any given fiscal year to provide incentives in connection with our corporate objectives.

Fiscal Year 2004 Chief Executive Officer Compensation

The salary, annual raises and annual bonus of Hervé Caen, our Chief Executive Officer and interim Chief Financial Officer, are determined in accordance with Mr. Caen's employment agreement with us. Mr. Caen's employment agreement provides for a base salary of $360,000 per year, with annual raises and bonuses as may be approved at the discretion of our Board of Directors and $100,000 per year while serving as interim Chief Financial Officer. The amounts of any annual raises or bonuses are determined in accordance with the policies and objectives set forth above. For the fiscal year ended December 31, 2004, Mr. Caen received $260,330 in compensation as Chief Executive Officer and interim Chief Financial Officer. The Compensation Committee did not award Mr. Caen any options during 2004. The Compensation Committee is currently negotiating a new employment agreement with Mr. Hervé Caen.

Tax Law Implications for Executive Compensation

Section 162(m) of the Internal Revenue Code limits us to a deduction for federal income tax purposes of no more than $1 million of compensation paid to certain Named Executive Officers in a taxable year. Compensation above $1 million may be deducted if it is "performance-based compensation" within the meaning of the Code. The Compensation Committee believes that at present the compensation paid to each Named Executive Officer in a taxable year will not exceed the deduction limit of $1 million under Section 162(m). However, the Compensation Committee has determined that stock awards granted under the long-term incentive plans with an exercise price at least equal to the fair market value of our common stock on the date of grant will be treated as "performance-based compensation."

The Compensation Committee*

Michel Welter

* From January to August 2004, the Compensation Committee was comprised of Michel Welter, Jerry DeCiccio and Robert Stefanovich. Mr. DeCiccio resigned as a director in August 2004. Mr. Stefanovich resigned as a director in October 2004.



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, 1999 to December 31, 2004, compared with the cumulative returns of the NASDAQ Stock Market (U.S. Companies) Index and the Media General Index 820*. The comparison assumes $100 was invested on December 31, 1999 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, 2004.

This performance graph and the data related thereto shall not be deemed to be "soliciting material" or "filed" with the SEC nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into a filing.

Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of March 31, 2005, unless otherwise indicated, certain information relating to the ownership of our common stock by (i) each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock, (ii) each of our directors, (iii) each of the Named Executive Officers, and (iv) all of our executive officers and directors as a group. Except as may be indicated in the footnotes to the table and subject to applicable community property laws, each such person has the sole voting and investment power with respect to the shares owned. The address of each person listed is in care of us, 1682 Langley Avenue, Irvine, California 92606, unless otherwise set forth below such person's name.

|Name and Address                                                                                                       | Number of Shares
Of Common StockBeneficially Owned (1) | Percent (2)
|---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | -----------
|                                                                                                                       |                                                        |            
|Directors:                                                                                                             |                                                        |            
|Hervé Caen                                                                                                             | 8,681,306                                              | (4)        
|Eric Caen                                                                                                              | 30,001                                                 | (5)        
|Michel Welter                                                                                                          | 60,001                                                 | (6)        
|                                                                                                                       |                                                        |            
|Non-Director Named Executive Officers:                                                                                 |                                                        |            
|Phillip Adam                                                                                                           | 208,779                                                | (7)        
|                                                                                                                       |                                                        |            
|5% Holders:                                                                                                            |                                                        |            
|Titus Interactive SA
Parc de l'Esplanade
12, rue Enrico FermiSt-Thibault-des-Vignes
77462 Lagny-sur-Marne Cedex
France | 58,426,293                                             | (3)        
|                                                                                                                       |                                                        |            
|Directors and Executive Officers as a Group (4 persons)                                                                | 8,961,754                                              |            

* Less than one percent.

1. Beneficial ownership is determined in accordance with the rules and regulations of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options currently exercisable, or exercisable within 60 days of March 31, 2005 are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

















Equity Compensation Plans Information

The following table sets forth certain information regarding our equity compensation plans as of December 31, 2004:



|Plan Category                                              | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------
|                                                           | (a)                                                                                         | (b)                                                                         | (c)                                                                                                                                        
|Equity compensation plans approved by security holders     | 211,150                                                                                     | 2.02                                                                        | 7,609,447                                                                                                                                  
|Equity compensation plans not approved by security holders | -                                                                                           | -                                                                           | -                                                                                                                                          
|Total                                                      | 211,150                                                                                     | 2.02                                                                        | 7,609,447                                                                                                                                  



We have one stock option plan currently outstanding. Under the 1997 Stock Incentive Plan, as amended (the "1997 Plan"), we may grant options to our employees, consultants and directors, which generally vest from three to five years. At our 2002 annual stockholders' meeting, our 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. Our Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan- 1991, as amended (the "1991 Plan"), and our Incentive Stock Option and Nonqualified Stock Option Plan-1994, as amended (the "1994 Plan"), have terminated. Our employee stock purchase plan has been terminated. An aggregate of 9,050 stock options that remain outstanding under the 1991 Plan and 1994 Plan have been transferred to our 1997 Plan.

We have treated the difference, if any, between the exercise price and the estimated fair market value as compensation expense for financial reporting purposes, pursuant to APB 25. Compensation expense for the vested portion aggregated $0, $0 and $0 for the years ended December 31, 2004, 2003 and 2002, respectively.

Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

It is our policy that related party transactions are to be reviewed and approved by a majority of our disinterested directors or our Independent Committee.

Our operations involve significant transactions with our majority stockholder Titus and its affiliates. We had a major distribution agreement with Avalon, an affiliate of Titus.

TRANSACTIONS WITH TITUS

Titus presently owns approximately 58 million shares of common stock, which represents approximately 62% of our outstanding common stock, our only voting security.

We performed certain distribution services on behalf of Titus for a fee. In connection with such distribution services, we recognized fee income of $0 and $5,000 for the twelve months ended December 31, 2004, and 2003, respectively.

As of December 31, 2004 and December 31, 2003, Titus and its affiliates excluding Avalon owed us $370,000 and $362,000, respectively. We owed Titus and its affiliates excluding Avalon $30,000 and $0 as of December 31, 2004 and December 31, 2003 respectively.

TRANSACTIONS WITH TITUS AFFILIATES

Transactions with Avalon, a wholly owned subsidiary of Titus

We had an International Distribution Agreement with Avalon, a wholly owned subsidiary of Titus. Pursuant to this distribution agreement, Avalon provided for the exclusive distribution of substantially all of our products in Europe, Commonwealth of Independent States, Africa and the Middle East for a seven-year period ending February 2006, cancelable under certain conditions, subject to termination penalties and costs. Under this agreement, as amended, we paid Avalon a distribution fee based on net sales, and Avalon provides certain market preparation, warehousing, sales and fulfillment services on our behalf. In connection with the International Distribution Agreement with Avalon, we incurred distribution commission expense of $62,000 and $.9 million, for the twelve months ended December 31, 2004, and 2003 respectively. This agreement was terminated as a result of Avalon's liquidation in February 2005.

Transactions with Titus Software

In March 2003, we entered into a note receivable with Titus Software Corp., ("TSC"), a subsidiary of Titus, and advanced TSC $226,000. The note earns interest at 8% per annum and was due in February 2004. In May 2003, our Board of Directors rescinded the note receivable and demanded repayment of the $226,000 from TSC. As of the date of this filing the balance on the note with accrued interest has not been paid. The balance on the note receivable, with accrued interest, at September 30, 2004 was approximately $254,000. The total receivable due from TSC is approximately $327,000 as of September 30, 2004. The majority of the additional approximately $73,000 was due to TSC subletting office space and miscellaneous other items.

In May 2003, we paid TSC $60,000 to cover legal fees in connection with a lawsuit against Titus. As a result of the payment, our CEO requested that we credit the $60,000 to amounts we owed to him arising from expenses incurred in connection with providing services to us. Our Board of Directors is in the process of investigating the details of the transaction, including independent counsel review as appropriate, in order to properly record the transaction.

Transactions with Titus Japan

In June 2003, we began operating under a representation agreement with Titus Japan K.K. ("Titus Japan"), a majority-controlled subsidiary of Titus, pursuant to which Titus Japan represents us as an agent in regards to certain sales transactions in Japan. This representation agreement has not yet been approved by our Board of Directors and is currently being reviewed by them. Our Board of Directors has approved the payments of certain amounts to Titus Japan in connection with certain services already performed by them on our behalf. As of December 31, 2004 we had a zerobalance with Titus Japan. During the twelve months ending December 31, 2004 our Japanese subsidiary paid to Titus Japan approximately $209,000 in commissions, marketing and publishing staff services. Our Japanese subsidiary had approximately $369,000 in revenue in the twelve months ending December 31, 2004.

Transactions with Titus SARL

As of December 31, 2004, we have a receivable of $18,000 and $43,000 respectively for product development services that we provided. Titus SARL was placed into involuntary liquidation in January 2005.

Transactions with Titus GIE

In February 2004, we engaged the services of GIE Titus Interactive Group, a wholly owned subsidiary of Titus, for a three-month service agreement pursuant to which GIE Titus or its agents shall provide to us certain foreign administrative and legal services at a rate of $5,000 per month for three months. As of December 31, 2004, we had a zero balance with Titus GIE Interactive Group. Titus GIE was placed into involuntary liquidation in January 2005.







Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

Rose, Snyder & Jacobs ("RSJ") served as our independent auditors for fiscal year 2004. For fiscal year 2003, Squar, Milner, Reehl & Williamson LLP ("SMRW") served as our independent auditors.

Aggregate fees billed by our independent auditors for professional services rendered for the audit of fiscal years 2004 and 2003 and for other professional services billed in fiscal years 2004 and 2003 are as follows:



|                    | Year Ended       
|------------------- | -----------------
|Description of Fees | December 31, 2004
|Audit Fees          | $16,097 (1)(4)   
|Audit-Related Fees  | --               
|Tax Fees (3)        | --               
|All Other Fees      | --               
|                    |                  
|TOTAL:              | $16,097          
|                    |                  

1. This entire amount was paid to SMRW.
2. We paid SMRW $45,000 for a 12-month audit ending June 30, 2003 in connection with the audit requirements of our majority stockholder Titus Interactive S.A. ("Titus"), of which $37,500 was reimbursed to us by Titus. The $7,500 balance was determined by SMRW to be savings applied towards our regular annual company audit. This semi-annual audit and the related reimbursement amount was pre-approved and authorized by our Audit Committee.
3. Of this amount, $85,000 was paid to SMRW and $96,972 was paid to Ernst & Young.
4. We expect to incur additional fees in connection with the review of this form 10-K for the year ended December 31, 2004.

Audit Committee Pre-Approval Policies and Procedures

Our Audit Committee has a policy that all audit and non-audit related services provided by our independent auditor is to be approved by our Audit Committee. Specifically, the Audit Committee requires that prior to the engagement of our independent auditor for any specified service, the approval of the Audit Committee must be received. All such matters are to be approved in a scheduled meeting of the Audit Committee consisting of a quorum of the Audit Committee. All of the above aggregate fees billed by our independent auditors have been approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.



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.



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized, at Irvine, California this 2nd day of June 2005.

INTERPLAY ENTERTAINMENT CORP.



/s/ Hervé Caen

By:___________________________________

Hervé Caen

Its: Chief Executive Officer and

Interim Chief Financial Officer

(Principal Executive and

Financial and Accounting Officer)

POWER OF ATTORNEY

The undersigned directors and officers of Interplay Entertainment Corp. do hereby constitute and appoint Hervé 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/ Hervé Caen

Hervé Caen       | Chief Executive Officer, Interim Chief Financial Officer and Director (Principal Executive and Financial and Accounting Officer) | June 2, 2005
|/s/ Eric Caen

Eric Caen         | Director                                                                                                                         | June 2, 2005
|/s/ Michel Welter

Michel Welter | Director                                                                                                                         | June 2, 2005



EXHIBIT INDEX

EXHIBIT

NO.		DESCRIPTION

2.1	Agreement and Plan of Reorganization and Merger, dated May 29, 1998, between the Company and Interplay Productions; (incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-1, No. 333-48473 (the "Form S-1")).

2.2 	Stock Purchase Agreement by and between Infogrames, Inc., Shiny Entertainment Inc., David Perry, Shiny Group, Inc., and the Company dated April 23, 2002; (incorporated herein by reference to Exhibit 2.1 to the Company's Form 8-K filed May 6, 2002).

2.3 	Amendment Number 1 to the Stock Purchase Agreement by and between the Company, Infogrames, Inc., Shiny Entertainment, Inc., David Perry, and Shiny Group, Inc. dated April 30, 2002; (incorporated herein by reference to Exhibit 2.2 to the Company's Form 8-K filed May 6, 2002).

3.1 	Amended and Restated Certificate of Incorporation of the Company; (incorporated herein by reference to Exhibit 3.1 to the 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)

4.2 	Shareholders' Agreement among MCA Inc., the Company, and Brian Fargo, dated March 30, 1994, as amended; (incorporated herein by reference to Exhibit 4.2 to the Form S-1).

4.3 	Investors' Rights Agreement dated October 10, 1996, as amended, among the Company and holders of its Subordinated Secured Promissory Notes and Warrants to purchase Common Stock.; (incorporated herein by reference to Exhibit 4.3 to the Form S-1).

10.01 	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. 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 	Employee Stock Purchase Plan; (incorporated herein by reference to Exhibit 10.10 to the Form S-1).

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

10.06 	Von Karman Corporate Center Office Building Lease between the Company and Aetna Life Insurance Company of Illinois dated September 8, 1995, together with amendments thereto; (incorporated herein by reference to Exhibit 10.14 to the Form S-1).

10.07 	Heads of Agreement concerning Sales and Distribution between the Company and Activision, Inc., dated November 19, 1998, as amended; (incorporated herein by reference to Exhibit 10.23 to The Company's Annual Report on Form 10-K for the year ended December 31, 1998). (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment).

10.08 	Stock Purchase Agreement between the Company and Titus Interactive SA, dated March 18, 1999; (incorporated herein by reference to Exhibit 10.24 to The Company's Annual Report on Form 10-K for the year ended December 31, 1998).

10.09 	International Distribution Agreement between the Company and Virgin Interactive Entertainment Limited, dated February 10, 1999; (incorporated herein by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment).

10.10 	Termination Agreement among the Company, Virgin Interactive Entertainment Limited, VIE Acquisition Group, LLC and VIE Acquisition Holdings, LLC, dated February 10, 1999; (incorporated herein by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment).

10.11 	Fifth Amendment to Lease for Von Karman Corporate Center Office Building between the Company and Arden Realty Finance IV, L.L.C., dated December 4, 1998; (incorporated herein by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).

10.12 	Stock Purchase Agreement dated July 20, 1999, by and among the Company, Titus Interactive S.A., and Brian Fargo; (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).

10.13 	Exchange Agreement dated July 20, 1999, by and among Titus Interactive S.A., Brian Fargo, Herve Caen and Eric Caen; (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).

10.14 	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).

10.15 	Warrant (350,000 shares) for Common Stock between the Company and Titus Interactive S.A., dated April 14, 2000; (incorporated herein by reference to Exhibit 10.33 to The Company's Annual Report on Form 10-K for the year ended December 31, 1999).

10.16 	Warrant (50,000 shares) for Common Stock between the Company and Titus Interactive S.A., dated April 14, 2000; (incorporated herein by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).

10.17 	Warrant (100,000 shares) for Common Stock between the Company and Titus Interactive S.A., dated April 14, 2000; (incorporated herein by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).

10.18 	Amendment Number 1 to International Distribution Agreement between the Company and Virgin Interactive Entertainment Limited, dated July 1, 1999; (incorporated herein by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999).

10.19 	Common Stock Subscription Agreement of the Company, dated March 29, 2001; (incorporated herein by reference to Exhibit 4.1 to the Form S-3 filed on April 17, 2001).

10.20 	Common Stock Purchase Warrant of the Company; (incorporated herein by reference to Exhibit 4.2 to the Form S-3 filed on April 17, 2001).

10.21 	Warrant to Purchase Common Stock of the Company, dated April 25, 2001; (incorporated herein by reference to Exhibit 10.4 to the Form S-3 filed on May 4, 2001).

10.22 	Agreement between the Company, Brian Fargo, Titus Interactive S.A., and Herve Caen, dated May 15, 2001; (incorporated herein by reference to Exhibit 99 to Form SCD 13D/A).

10.23 	Distribution Agreement, dated August 23, 2001. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q for the quarter ending September 30, 2001).

10.24 	Letter Agreement re: Amendment #1 to Distribution Agreement dated August 23, 2001, dated September 14, 2001. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.2 to the Form 10-Q for the quarter ending September 30, 2001).

10.25 	Letter Agreement re: Secured Advance and Amendment #2 to Distribution Agreement, dated November 20, 2001 by and between the Company, and Vivendi Universal Interactive Publishing North America, Inc.; (incorporated herein by reference to Exhibit 10.47 to the Form 10-K for the year ended December 31, 2001).

10.26 	Letter Agreement re: Secured Advance and Amendment #3 to Distribution Agreement, dated December 13, 2001 by and between the Company, and Vivendi Universal Interactive Publishing North America, Inc.; (incorporated herein by reference to Exhibit 10.48 to the Form 10-K for the year ended December 31, 2001).

10.27 	Third Amendment to Computer License Agreement, dated July 25, 2001 by and between the Company, and Infogrames, Inc.; (incorporated herein by reference to Exhibit 10.49 to the Form 10-K for the year ended December 31, 2001).

10.28 	Letter Agreement and Amendment Number 4 to Distribution Agreement by and between Vivendi Universal Games, Inc. and the Company, dated January 18, 2002; (incorporated herein by reference to Exhibit 10.1 to Form 10-Q filed on May 15, 2002).

10.29 	Fourth Amendment To Computer License Agreement by and between the Company, and Infogrames Interactive, Inc. dated January 23, 2002. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to request for confidential treatment); (incorporated herein by reference to Exhibit 10.2 to Form 10-Q filed on May 15, 2002).

10.30 	Amendment Number Four to the Product Agreement by and between the Company, Infogrames Interactive, Inc., and Bioware Corp. dated January 24, 2002; (incorporated herein by reference to Exhibit 10.3 to Form 10-Q filed on May 15, 2002).

10.31 	Amended and Restated Amendment Number 1 to Product Agreement by and between the Company, and High Voltage Software, Inc. dated March 5, 2002. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to request for confidential treatment); (incorporated herein by reference to Exhibit 10.4 to Form 10-Q filed on May 15, 2002).

10.32 	Settlement Agreement and Release by and between Brian Fargo, the Company, Interplay OEM, Inc., Gamesonline.com, Inc., Shiny Entertainment, Inc., and Titus Interactive S.A. dated March 13, 2002; (incorporated herein by reference to Exhibit 10.6 to Form 10-Q filed on May 15, 2002).

10.33 	Agreement by and between Vivendi Universal Games Inc., the Company, and Shiny Entertainment, Inc. dated April of 2002; (incorporated herein by reference to Exhibit 10.7 to Form 10-Q filed on May 15, 2002).

10.34 	Term Sheet by and between Titus Interactive S.A., and the Company, dated April 26, 2002; (incorporated herein by reference to Exhibit 10.8 to Form 10-Q filed on May 15, 2002).

10.35 	Promissory Note by Titus Interactive S.A. in favor of the Company, dated April 26, 2002; (incorporated herein by reference to Exhibit 10.9 to Form 10-Q filed on May 15, 2002).

10.36 	Amended and Restated Secured Convertible Promissory Note, dated April 30, 2002, in favor of Warner Bros., a division of Time Warner Entertainment Company, L.P.; (incorporated herein by reference to Exhibit 10.10 to Form 10-Q filed on May 15, 2002).

10.37 	Video Game Distribution Agreement by and between Vivendi Universal Games, Inc. and the Company, dated August 9, 2002. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.1 to Form 10-Q filed on November 19, 2002).

10.38 	Letter of Intent by and between Vivendi Universal Games, Inc. and the Company, dated August 9, 2002. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.2 to Form 10-Q filed on November 19, 2002).

10.39 	Letter Agreement and Amendment #2 by and between Vivendi Universal Games, Inc. and the Company, dated August 29, 2002. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.3 to Form 10-Q filed on November 19, 2002).

10.40 	Letter Agreement and Amendment #3 by and between Vivendi Universal Games, Inc. and the Company, dated September 12, 2002. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.4 to Form 10-Q filed on November 19, 2002).

10.41 	Letter Agreement and Amendment # 4 (OEM & Back-Catalog) to Video Game Distribution Agreement dated August 9, 2002 by and between Vivendi Universal Games, Inc. and the Company, dated December 20, 2002. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002).

10.42 	Letter Agreement and Amendment # 5 (Asia Pacific & Australia) to Video Game Distribution Agreement dated August 9, 2002 by and between Vivendi Universal Games, Inc. and the Company dated January 13, 2003. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002).

10.43 	Purchase & Sale Agreement by and between Vivendi Universal Games, Inc. and the Company dated February 26, 2003. (Portions omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment); (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q for the quarter ending March 31, 2003).

10.44 	Amendment Number 2 of International Distribution Agreement by and between Virgin Interactive Entertainment Limited (renamed Avalon Interactive Group Ltd.) and the Company, dated January 1, 2000; (incorporated herein by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003).

10.45 	Amendment to International Distribution Agreement, by and between Virgin Interactive Entertainment Limited (renamed Avalon Interactive Group Ltd.) and the Company, dated April 2001; (incorporated herein by reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003).

10.46 	Avalon Amendment Number 4 of International Distribution Agreement, by and between Avalon Interactive Group Limited and the Company, dated August 6, 2003; (incorporated herein by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003).

1. Mutual Release Settlement Agreement by and between Warner Bros. Entertainment, Inc. and the Company, dated October 13, 2003. 21.1 Subsidiaries of the Company; (incorporated herein by reference to Exhibit 10.47 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003).

10.48	Letter Agreement by and between Majorem Ltd and the Company, dated December 21, 2004.

14.1	Code of Ethics of the Company; (incorporated herein by reference to Exhibit 14.1 to Amendment No. 1 to

1. Subsidiaries of the Company

1. Consent of Squar, Milner LLP, Independent Registered Public Accounting Firm.
2. Consent of Rose, Snyder & Jacobs, Independent Registered Public Accounting Firm.

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

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.
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.



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 Hervé Caen.

1. Press Release dated August 15, 2002; (incorporated herein by reference to Exhibit 99.2 to Form 10-Q filed August 19, 2002).

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AND REPORTS OF INDEPENDENT AUDITORS





|                                                                                                            |  | Page
|----------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                            |  |     
|Reports of Independent Registered Public Accounting Firms                                                   |  | F-2 
|Consolidated Financial Statements                                                                           |  |     
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                   |  | F-4 
|Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002                  |  | F-5 
|Consolidated Statements of Stockholder's Equity (Deficit) for the
years ended December 31, 2004, 2003, 2002 |  | F-6 
|Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002                  |  | F-7 
|Notes to Consolidated Financial Statements                                                                  |  | F-9 
|Schedule II - Valuation and Qualifying Accounts                                                             |  | S-1 









REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and Shareholders

Interplay Entertainment Corp.

We have audited the accompanying consolidated balance sheet of Interplay Entertainment Corp. (a majority-owned subsidiary of Titus Interactive S.A.), and subsidiaries (the "Company"), as of December 31, 2004, and the related consolidated statement of operations, shareholders' equity (deficit) and other comprehensive income (loss) and cash flows for the year then ended. Our audit also included the schedule of valuation and qualifying accounts for the year ended December 31, 2004. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interplay Entertainment Corp. and subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2004, 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 that the Company will continue as a going concern. As discussed in Note 1, the Company has negative working capital of $17.8 million and a stockholders' deficit of $17.3 million at December 31, 2004. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Rose, Snyder & Jacobs, A Corporation of Public Accountants

Encino, California

May 31, 2005



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders

Interplay Entertainment Corp.

We have audited the accompanying consolidated balance sheet of Interplay Entertainment Corp. (a majority-owned subsidiary of Titus Interactive S.A.), and subsidiaries (the "Company"), as of December 31, 2003, and the related consolidated statements of operations, shareholders' equity (deficit) and other comprehensive income and cash flows for each of the years in the two year period then ended. Our audit also included the financial statement schedule listed in the Index at Item 15(a) (2) for the years ended December 31, 2003 and 2002. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interplay Entertainment Corp. and subsidiaries as of December 31, 2003, and the results of their operations and their cash flows for each of the years in the two year period then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule for the years ended December 31, 2003 and 2002, when considered in relation to the basic financial statements, taken as a whole, present fairly in all material respects the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has negative working capital of $14.8 million and a stockholders' deficit of $12.7 million at December 31, 2003, losses from operations through December 31, 2003 and negative operating cash flow for the year then ended. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Squar Milner Reehl & Williamson, LLP

Newport Beach, California

March 25, 2004











|INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES                
|--------------------------------------------------------------
|                                                              
|CONSOLIDATED BALANCE SHEETS                                   
|(Dollars in thousands, except share and per share amounts)    
|                                                              
|                                                              
|ASSETS                                                        
|Current Assets:                                               
|Cash                                                          
|Restricted Cash                                               
|Trade receivables from related parties, net of allowances     
|of $2,370 and $691, respectively                              
|Trade receivables, net of allowances                          
|of $36 and $34, respectively                                  
|Inventories                                                   
|Prepaid licenses and royalties                                
|Deposits                                                      
|Prepaid expenses                                              
|Other receivables                                             
|Total current assets                                          
|                                                              
|Property and equipment, net                                   
|                                                              
|                                                              
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                
|                                                              
|Current Liabilities:                                          
|Current debt                                                  
|Accounts payable                                              
|Accrued royalties                                             
|Advances from distributors and others                         
|Advances from related party distributors                      
|Deferred Income                                               
|Total current liabilities                                     
|                                                              
|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; 
|93,855,634 shares issued and outstanding, respectively        
|Paid-in capital                                               
|Accumulated deficit                                           
|Accumulated other comprehensive income                        
|Total stockholders' equity (deficit)                          
|                                                              

See accompanying notes.



INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

|                                                                                          | Years Ended December 31,
|----------------------------------------------------------------------------------------- | ------------------------
|                                                                                          | 2004                    
|                                                                                          |                         
|                                                                                          |                         
|Net revenues                                                                              | $ 1,932                 
|Net revenues from related party distributors                                              | 11,265                  
|Total net revenues                                                                        | 13,197                  
|Cost of goods sold                                                                        | 6,826                   
|Gross profit                                                                              | 6,371                   
|                                                                                          |                         
|Operating expenses:                                                                       |                         
|Marketing and sales                                                                       | 1,703                   
|General and administrative                                                                | 4,514                   
|Product development                                                                       | 2,636                   
|Total operating expenses                                                                  | 8,853                   
|                                                                                          |                         
|Operating income (loss)                                                                   | (2,482)                 
|                                                                                          |                         
|Other income (expense):                                                                   |                         
|Interest expense                                                                          | (249)                   
|Gain on sale of Shiny                                                                     | -                       
|Other                                                                                     | (1,999)                 
|Total other income (expense)                                                              | (2,248)                 
|                                                                                          |                         
|Income (loss) before provision (benefit) for                                              |                         
|income taxes                                                                              | (4,730)                 
|Provision (benefit) for income taxes                                                      | -                       
|                                                                                          |                         
|Net income (loss)                                                                         | $ (4,730)               
|                                                                                          |                         
|Cumulative dividend on participating preferred stock                                      | $ -                     
|Accretion of warrant                                                                      | -                       
|                                                                                          |                         
|Net income (loss) available to common stockholders                                        | $ (4,730)               
|                                                                                          |                         
|Net income (loss) per common share:                                                       |                         
|Basic                                                                                     | $ (0.05)                
|Diluted                                                                                   | $ (0.05)                
|                                                                                          |                         
|Weighted average number of shares used in calculating
net income (loss) per common share: |                         
|Basic                                                                                     | 93,856                  
|Diluted                                                                                   | 93,856                  



See accompanying notes.



|                                        |                 |  |              |  |            |  |             |  |               |  |               |  | Accumulated   |  |               |  |           
|--------------------------------------- | --------------- |  | ------------ |  | ---------- |  | ----------- |  | ------------- |  | ------------- |  | ------------- |  | ------------- |  | ----------
|                                        |                 |  |              |  |            |  |             |  |               |  |               |  | Other         |  | Other         |  |           
|                                        | Preferred Stock |  | Common Stock |  | Paid-in    |  | Accumulated |  | Comprehensive |  | Comprehensive |  |              
|                                        | Shares          |  | Amount       |  | Shares     |  | Amount      |  | Capital       |  | Deficit       |  | Income (Loss) |  | Income (Loss) |  | Total     
|Balance, December 31, 2001 (Unaudited)  | 383,354         |  | 11,753       |  | 44,995,821 |  | 45          |  | 110,701       |  | (150,807)     |  | 158           |  |               |  | (28,150)  
|Issuance of common stock,               |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|net of issuance costs                   | -               |  | -            |  | 721,652    |  | 1           |  | 208           |  | -             |  | -             |  |               |  | 209       
|Accumulated accrued dividend on         |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|Series A preferred stock                | -               |  | 133          |  | -          |  | -           |  | -             |  | (133)         |  | -             |  |               |  | -         
|Conversion of Series A preferred stock  |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|into common stock                       | (383,354)       |  | (10,657)     |  | 47,492,162 |  | 47          |  | 10,610        |  | -             |  | -             |  |               |  | -         
|Dividend payable in connection with     |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|preferred stock conversion              | -               |  | (1,229)      |  | -          |  | -           |  | -             |  | -             |  | -             |  |               |  | (1,229)   
|Issuance of warrants                    | -               |  | -            |  | -          |  | -           |  | 33            |  | -             |  | -             |  |               |  | 33        
|Exercise of stock options               | -               |  | -            |  | 639,541    |  | 1           |  | 85            |  | -             |  | -             |  |               |  | 86        
|Net income                              | -               |  | -            |  | -          |  | -           |  | -             |  | 15,147        |  | -             |  | 15,147        |  | 15,147    
|Other comprehensive income,             |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|net of income taxes:                    |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|Foreign currency translation adjustment | -               |  | -            |  | -          |  | -           |  | -             |  | -             |  | (26)          |  | (26)          |  | (26)      
|Comprehensive income                    |                 |  |              |  |            |  |             |  |               |  |               |  |               |  | 15,121        |  |           
|Balance, December 31, 2002              | -               |  | -            |  | 93,849,176 |  | 94          |  | 121,637       |  | (135,793)     |  | 132           |  |               |  | (13,930)  
|Issuance of common stock,               |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|net of issuance costs                   | -               |  | -            |  | 6,458      |  | -           |  | 3             |  | -             |  | -             |  |               |  | 3         
|Net Income                              | -               |  | -            |  | -          |  | -           |  | -             |  | 1,312         |  | -             |  | 1,312         |  | 1,312     
|Other comprehensive income,             |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|net of income taxes:                    |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|Foreign currency translation adjustment | -               |  | -            |  | -          |  | -           |  | -             |  | -             |  | (21)          |  | (21)          |  | (21)      
|Comprehensive income                    |                 |  |              |  |            |  |             |  |               |  |               |  |               |  | $ 1,291       |  |           
|Balance, December 31, 2003              | -               |  | $ -          |  | 93,855,634 |  | $ 94        |  | $ 121,640     |  | $ (134,481)   |  | $ 111         |  |               |  | $ (12,636)
|Issuance of common stock,               |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|net of issuance costs                   | -               |  | -            |  | -          |  | -           |  | -             |  | -             |  | -             |  |               |  | -         
|Net Income                              | -               |  | -            |  | -          |  | -           |  | -             |  | (4,730)       |  | -             |  | -             |  | (4,730)   
|Other comprehensive income,             |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|net of income taxes:                    |                 |  |              |  |            |  |             |  |               |  |               |  |               |  |               |  |           
|Foreign currency translation adjustment | -               |  | -            |  | -          |  | -           |  | -             |  | -             |  | 4             |  | -             |  | 4         
|Other comprehensive income              | -               |  | -            |  | -          |  | -           |  | -             |  | -             |  |               |  |               |  | -         
|Comprehensive income                    |                 |  |              |  |            |  |             |  |               |  |               |  |               |  | $ -           |  |           
|Balance, December 31, 2004              | -               |  | $ -          |  | 93,855,634 |  | $ 94        |  | $ 121,640     |  | $ (139,211)   |  | $ 115         |  |               |  | $ (17,362)



See accompanying notes.

|INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES     
|---------------------------------------------------
|                                                   
|CONSOLIDATED STATEMENTS OF CASH FLOWS              
|(Dollars in thousands)                             
|                                                   
|                                                   
|                                                   
|                                                   
|Cash flows from operating activities:              
|Net income (loss)                                  
|Adjustments to reconcile net income (loss) to      
|cash provided by (used in) operating activities--  
|Depreciation and amortization                      
|Noncash expense for stock compensation             
|Noncash interest expense                           
|Amortization of prepaid licenses and royalties     
|Writeoff of prepaid licenses and royalties         
|Gain on sale of Shiny                              
|Other                                              
|Changes in assets and liabilities:                 
|Trade receivables, net                             
|Trade receivables from related parties             
|Inventories                                        
|Prepaid licenses and royalties                     
|Other receivables                                  
|Accounts payable                                   
|Accrued current debt                               
|Other accrued liabilities                          
|Payables to related parties                        
|Advances from distributors and others              
|Net cash provided by (used in) operating activities
|                                                   
|Cash flows from investing activities:              
|Purchases of property and equipment                
|Proceeds from sale of Shiny                        
|Net cash (used in) provided by investing activities
|                                                   
|Cash flows from financing activities:              
|Net borrowings (payments) on line of credit        
|(Repayment) borrowings from former Chairman        
|Net proceeds from issuance of common stock         
|Repayment of note payable                          
|Proceeds from exercise of stock options            
|Other financing activities                         
|Net cash used in financing activities              
|Net increase (decrease) in cash                    
|Cash, beginning of year                            
|Cash, end of year                                  



See accompanying notes.





INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(Dollars in thousands)



|                                                                       | Years Ended December 31, | 
|---------------------------------------------------------------------- | ------------------------ | 
|                                                                       | 2004                     | 
|                                                                       |                          | 
|Supplemental cash flow information:                                    |                          | 
|Cash paid during the year for interest                                 | $ -                      | 
|                                                                       |                          | 
|Suplemental disclosure of non-cash investing and financing activities: |                          | 
|Dividend payable on partial conversion of preferred stock              | -                        | 
|Accrued dividend on participating preferred stock                      | -                        | 
|Common stock issued under Product Agreement                            | -                        | 





See accompanying notes.

INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004



1. Description of Business and Operations

Interplay Entertainment Corp., a Delaware corporation, and its subsidiaries (the "Company"), develop, publish and license out interactive entertainment software. The Company's software is developed for use on various interactive entertainment software platforms, including personal computers and video game consoles, such as the Sony PlayStation 2, Microsoft Xbox and Nintendo GameCube. As of December 31, 2004, Titus Interactive, S.A. ("Titus"), a France-based developer, publisher and distributor of interactive entertainment software, owned 62% of the Company's common stock.

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 a net operating loss of $4.7 million in 2004. Also at December 31, 2004, the Company had a stockholders' deficit of $17.3 million and a working capital deficit of $17.8 million. The Company has historically funded its operations primarily through the use of lines of credit (although the Company has not had the availability of such lines since October 2001), licensing fees, royalty and distribution fee advances, cash generated by the private sale of securities, and proceeds of its initial public offering.

To reduce working capital needs, the Company has implemented various measures including a reduction of personnel, a reduction of fixed overhead commitments, cancellation or suspension of development on future titles. Management will continue to pursue various alternatives to improve future operating results, and further expense reductions, some of which may have a long-term adverse impact on the Company's ability to generate successful future business activities.

In addition, the Company continues to seek and expects to require external sources of funding, including but not limited to, a sale or merger of the Company, a private placement of the Company's capital stock, the sale of selected assets, the licensing of certain product rights in selected territories, selected distribution agreements, and/or other strategic transactions sufficient to provide short-term funding, and potentially achieve the Company's long-term strategic objectives. In this regard, the Company licensed to Bethesda Softworks LLC ("Bethesda") the rights to develop Fallout 3 on all platforms for a non refundable advance against royalties of $1.175 million and sold the Redneck Rampage intellectual property rights to Vivendi for $300,000.

The Company anticipates its current cash reserves plus its expected generation of cash from existing operations, will only be sufficient to fund its anticipated expenditures into the second quarter of fiscal 2005. Consequently, the Company expects that it will need to substantially reduce its working capital needs and/or raise additional financing. However, no assurance can be given that alternative sources of funding could be obtained on acceptable terms, or at all. These conditions, combined with the Company's historical operating losses and its deficits in stockholders' equity and working capital, raise substantial doubt about 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.

Authorized Common Stock

The Company has a total of 150,000,000 authorized shares of common stock.



2. Summary of Significant Accounting Policies

Consolidation

The accompanying consolidated financial statements include the accounts of Interplay Entertainment Corp. and its wholly-owned subsidiaries, Interplay Productions Limited (U.K.), Interplay OEM, Inc., Interplay Productions Pty Ltd (Australia), Interplay Co., Ltd., (Japan) and Games On-line. All significant inter-company accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 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 has established a reserve at December 31, 2004 and 2003 of approximately $0 and $30,000 respectively.

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

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

Software Development Costs

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

Accrued Royalties

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

Property and Equipment

Property and equipment are stated at cost. Depreciation of computers, equipment and furniture and fixtures is provided using the straight-line method over a 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

On January 1, 2002, the Company adopted Financial Accounting Statements Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the estimated fair value, based on many 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. SFAS 144, which supercedes SFAS 121, also requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to shareholders) or is classified as held for sale. Assets to be disposed are reported at the lower of the carrying amount or fair value less costs to sell. The adoption of SFAS 144 did not have a material impact on the Company's financial position or results of operations. Management has determined that no impairment exists and therefore, no adjustments have been made to the carrying values of long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company's products or services will continue which could result in impairment of long-lived assets in the future.

Goodwill and Intangible Assets

On January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other Intangible Assets," which addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in the financial statements upon their acquisition and after they have been initially recognized in the financial statements. SFAS 142 requires that goodwill and identifiable intangible assets that have indefinite useful lives not be amortized but rather be tested at least annually for impairment, and identifiable intangible assets that have finite useful lives be amortized over their useful lives. SFAS 142 provides specific guidance for testing goodwill and identifiable intangible assets that will not be amortized for impairment. In addition, SFAS 142 expands the disclosure requirements about goodwill and other intangible assets in the years subsequent to their acquisition. At December 31, 2004, the Company had no goodwill or intangible items 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.

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. With the signing of the new Vivendi distribution agreement in August 2002, substantially all of the Company's sales are made by two related party distributors (Notes 6 and 12), Vivendi, which owns less than 5

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 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. In accordance with SFAS No. 48, "Revenue Recognition when Right of Return Exists," revenue is recorded net of an allowance for estimated returns, exchanges, markdowns, price concessions and warranty costs. Such reserves are based upon management's evaluation of historical experience, current industry trends and estimated costs. The reserve for estimated returns, exchanges, markdowns, price concessions and warranty costs was $0 and $0.4 million at December 31, 2004 and 2003, respectively. The amount of reserves 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 telephone and Internet support. These costs are not significant and are charged to expenses as incurred.

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

In November 2001, the Emerging Issues Task Force (EITF) issued EITF 01 09, "Accounting for Consideration given by a Vendor to a Customer". The pronouncement codifies and reconciles the consensus reached on EITF 00-14, 00-22 and 00-25, which addresses the recognition, measurement and profit and loss account classification of certain selling expenses. The adoption of this issue has resulted in the reclassification of certain selling expenses including sales incentives, slotting fees, buy downs and distributor payments from cost of sales and administrative expenses to a reduction in sales. Additionally, prior period amounts were reclassified to conform to the new requirements. The impact of this pronouncement resulted in a reduction of net sales of $0, $0, and $0.1 million for the years ended December 31, 2004, 2003 and 2002, respectively. These amounts, consisting principally of promotional allowances to the Company's retail customers were previously recorded as sales and marketing expenses; therefore, there was no impact to net income for any period.

Advertising Costs

The Company generally expenses advertising costs as incurred, except for production costs associated with media campaigns that are deferred and charged to expense at the first run of the ad. Cooperative advertising with distributors and retailers is accrued when revenue is recognized. Cooperative advertising credits are reimbursed when qualifying claims are submitted. Advertising costs approximated $1.2 million, $0.6 million and $3.0 million for the years ended December 31, 2004, 2003 and 2002, respectively.



Income Taxes

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

Foreign Currency

The Company follows the principles of SFAS No. 52, "Foreign Currency Translation," using the local currency of its operating subsidiaries as the functional currency. Accordingly, all assets and liabilities outside the United States are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Income and expense items are translated at the weighted average exchange rate prevailing during the period. Gains or losses arising from the translation of the foreign subsidiaries' financial statements are included in the accompanying consolidated financial statements as a component of other comprehensive loss. Gains and Losses resulting from foreign currency transactions amounted to a $33,000 loss, $58,000 gain and $104,000 loss during the years ended December 31, 2004, 2003 and 2002, respectively, and are included in other income (expense) in the consolidated statements of operations.

Net Income (Loss) Per Share

Basic net income (loss) per common share is computed by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per common share is computed by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding plus the effect of any convertible debt, dilutive stock options and common stock warrants. For the years ended December 31, 2004, 2003 and 2002, 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.

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 14).

Management establishes an allowance for doubtful accounts based on qualitative and quantitative review of credit profiles of our 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 primarily reflects the manufacture expense and royalties to third party developers, which are recognized upon delivery of the product. Cost of support includes (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 accounts for employee stock options in accordance with the Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related Interpretations and makes the necessary pro forma disclosures mandated by SFAS No. 123 "Accounting for Stock-based Compensation".

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

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

At December 31, 2004, the Company has one stock-based employee compensation plan, which is described more fully in Note 11. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Stock-based employee compensation cost reflected in net income was $0, $0, and $0 for the years ended December 31, 2004, 2003 and 2002, respectively. The following table illustrates the effect on net income and earnings per common share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

|                                                                | Years Ended December 31,                        
|--------------------------------------------------------------- | ------------------------------------------------
|                                                                | 2004                                            
|                                                                | (Dollars in thousands, except per share amounts)
|Net income (loss) available to common stockholders, as reported | $ (4,730)                                       
|Pro forma estimated fair value compensation expense             | -                                               
|Pro forma net income (loss) available to common stockholders    | $ (4,730)                                       
|Basic net income (loss) per common share as reported            | $ (0.05)                                        
|Diluted net income (loss) per common share as reported          | $ 0.05)                                         
|Basic pro forma net income (loss) per common share              | $ (0.05)                                        
|Diluted pro forma net income (loss) per common share            | $ (0.05)                                        



Recent Accounting Pronouncements



In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 151, "Inventory Costs - An Amendment of ARB No. 43, Chapter 4." This new standard is the result of a broader effort by the FASB to improve financial reporting by eliminating differences between Generally Accepted Accounting Principles ("GAAP") in the United States and accounting principles developed by the International Accounting Standards Board ("IASB"). As part of this effort, the FASB and the IASB identified opportunities to improve financial reporting by eliminating certain narrow differences between their existing accounting standards. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight handling costs and spoilage costs should be expensed as incurred and not included in overhead. Further, SFAS No. 151 requires that allocation of fixed production overheads to conversion costs should be based on normal capacity of the production facilities. The provisions in SFAS No. 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Companies must apply the standard prospectively. Management does not expect the adoption of SFAS No. 151 to have a material impact on the Company's financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment," a revision to SFAS 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R established the accounting treatment for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. SFAS 123R requires the Company to value the share-based compensation based on the classification of the share-based award. If the share-based award is to be classified as a liability, the Company must re-measure the award at each balance sheet date until the award is settled. If the share-based award is to be classified as equity, the Company will measure the value of the share-based award on the date of grant but the award will not be re-measured at each balance sheet date. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." SFAS 123R is effective for public companies with calendar year ends no later than the beginning of the next fiscal year. All public companies must use either the modified prospective or modified retrospective transition method. Under the modified prospective method, awards that are granted, modified, or settled after the date of adoption should be measured and accounted for in accordance with SFAS 123R. Unvested equity classified awards that were granted prior to the effective date should continue to be accounted for in accordance to SFAS 123 except that the amounts must be recognized in the statement of operations. Under the modified retrospective method, the previously reported amounts are restated (either to the beginning of the year of adoption or for all periods presented) to reflect SFAS 123 amounts in the statement of operations. Management is in the process of determining the effect SFAS 123R will have upon the Company's financial position and statement of operations and the method of transition adoption.

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.

1. Shiny Entertainment, Inc

In 1995, the Company acquired a 91

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

- $3.0 million in cash paid to the Company at closing;
- $10.8 million to be paid to the Company pursuant to a promissory note from Infogrames providing for scheduled payments with the final payment due July 31, 2002;
- $26.1 million paid directly to third party creditors of the Company; and
- $7.3 million paid to Shiny's president and Shiny Group for Shiny common stock that was issued to such parties to settle claims relating to the Company's original acquisition of Shiny.

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

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

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



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

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

4. Detail of Selected Balance Sheet Accounts

Prepaid licenses and royalties

Prepaid licenses and royalties consist of the following:

|                                            | December 31,          
|------------------------------------------- | ----------------------
|                                            | 2004                  
|                                            | (Dollars in thousands)
|Prepaid royalties for titles in development | $ -                   
|Prepaid royalties for shipped titles        | -                     
|Prepaid licenses and trademarks             | -                     
|                                            | $ -                   



Amortization of prepaid licenses and royalties is included in cost of goods sold and totaled $2, $5.2 million and $5.7 million for the years ended December 31, 2004, 2003 and 2002, respectively.

During the years ended December 31, 2004, 2003 and 2002, the Company wrote-off $.2 million, $2.9 million and $4.1 million, respectively, of prepaid royalties for titles in development that were impaired due to the cancellation of certain development projects, which the Company has recorded under cost of goods sold in the accompanying consolidated statements of operations.

Property and Equipment

Property and equipment consists of the following:

|                                                | December 31,          
|----------------------------------------------- | ----------------------
|                                                | 2004                  
|                                                | (Dollars in thousands)
|Computers and equipment                         | $ 1,463               
|Furniture and fixtures                          | 8                     
|Leasehold improvements                          | -                     
|                                                | 1,471                 
|Less: Accumulated depreciation and amortization | (981)                 
|                                                | $ 490                 



For the years ended December 31, 2004, 2003 and 2002, the Company incurred depreciation and amortization expense of $.8 million, $1.4 million and $1.7 million, respectively. During the years ended December 31, 2004, 2003 and 2002, the Company disposed of fully depreciated equipment having an original cost of $4.7 million, $4.6 and $0 million, respectively. Disposition of assets in 2004 generated a loss of $.9 million.

5. Promissory Notes

The Company issued to Warner Brothers Entertainment, Inc. ("Warner") a Secured Convertible Promissory Note bearing interest at 6

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 main distributors, Vivendi and Avalon. The note was issued in payment of all outstanding accrued royalties due Atari under the D&D license agreement which license was terminated by Atari on April 23, 2004. At December 31, 2004, the balance owed to Atari, is $1.3 million as a result of payments made by Vivendi and Avalon on the Company's behalf to Atari.

6. Advances from Distributors, Related Parties and Others

Advances from distributors and OEMs consist of the following:

|                                                                | December 31,          
|--------------------------------------------------------------- | ----------------------
|                                                                | 2004                  
|                                                                | (Dollars in thousands)
|Advances for other distribution rights                          | $ 476                 
|                                                                |                       
|Net advance from Vivendi distribution agreement (related party) | $ 2,989               



In April 2002, the Company entered into an agreement with Titus, pursuant to which, among other things, the Company sold to Titus all right, title and interest in the games EarthWorm Jim, Messiah, Wild 9, R/C Stunt Copter, Sacrifice, MDK, MDK II, and Kingpin, and Titus licensed from the Company the right to develop, publish, manufacture and distribute the games Hunter I, Hunter II, Icewind Dale I, Icewind Dale II, and BG: Dark Alliance II solely on the Nintendo Advance GameBoy game system for the life of the games. As consideration for these rights, Titus issued to the Company a promissory note in the principal amount of $3.5 million, which note bears interest at 6% per annum. The promissory note was due on August 31, 2002, and may be paid, at Titus' option, in cash or in shares of Titus common stock with a per share value equal to 90% of the average trading price of Titus' common stock over the 5 days immediately preceding the payment date. The Company has provided Titus with a guarantee under this agreement, which provides that in the event Titus does not achieve gross sales of at least $3.5 million by June 25, 2003, and the shortfall is not the result of Titus' failure to use best commercial efforts, the Company will pay to Titus the difference between $3.5 million and the actual gross sales achieved by Titus, not to exceed $2.0 million. In April 2003, the Company entered into a rescission agreement with Titus to repurchase these assets for a purchase price payable by canceling the $3.5 million promissory note, and any unpaid accrued interest thereon. Concurrently, the Company and Titus terminated all executory obligations including, without limitation, the Company's obligation to pay Titus up to the $2 million guarantee.

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

In August 2002, the Company entered into a new distribution agreement with Vivendi whereby Vivendi will distribute substantially all of the Company products in North America for a period of three years as a whole and two years with respect to each product giving a potential maximum term of five years. Under the August 2002 agreement, Vivendi will pay the Company sales proceeds less amounts for distribution fees. Vivendi is responsible for all manufacturing, marketing and distribution expenditures, and bears all credit, price concessions and inventory risk, including product returns. Upon the Company's delivery of a gold master to Vivendi, Vivendi will pay the Company as a non-refundable minimum guarantee, a specified percent of the projected amount due the Company based on projected initial shipment sales, which are established by Vivendi in accordance with the terms of the agreement. The remaining amounts are due upon shipment of the titles to Vivendi's customers. Payments for future sales that exceed the projected initial shipment sales are paid on a monthly basis. In December 2002, the Company granted OEM rights and selected back catalog titles in North America to Vivendi. In January 2003, the Company granted Vivendi the right to distribute substantially all of our products in select rest-of-world countries. As of December 31, 2004, Vivendi had $2.9 million of its advance remaining to recoup under the rest-of-world countries and OEM back catalog agreements. As of December 2004, the Company earned $0.7 million of the $3.6 million advance related to future minimum guarantees on undelivered products.

In February 2003, the Company sold to Vivendi all future interactive entertainment-publishing rights to the Hunter: The Reckoning license for $15 million, payable in installments, which were fully paid at June 30, 2003. The Company retained the rights to the previously published Hunter: The Reckoning titles on Microsoft Xbox and Nintendo GameCube.

In February 2003, Vivendi advanced the Company $1.0 million pursuant to a letter of intent. As of December 31, 2003, the advance was discharged and recouped in full by Vivendi under the terms of the Vivendi settlement.

In September 2003, the Company terminated its distribution agreement with Vivendi as a result of their alleged breaches, including for non-payment of money owed to the Company under the terms of this distribution agreement. In October 2003, Vivendi and the Company reached a mutually agreed upon settlement and agreed to reinstate the 2002 distribution agreement. . Vivendi distributed the Company's games Fallout: Brotherhood of Steel and Baldurs Gate: Dark Alliance II in North America and Asia-Pacific (excluding Japan), and retained exclusive distribution rights in these regions for all of the Company's future titles through August 2005.



During 2003, the Company entered into two distribution agreements granting the distribution rights to certain titles for a total of $0.8 million in cash advance payments. As of December 31, 2004, approximately $0.2 of the advance has been earned.

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

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

7. Income Taxes

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

|         | Years Ended December 31,
|-------- | ------------------------
|         | 2004                    
|         |                         
|Domestic | $ (4,574)               
|Foreign  | (3)                     
|Total    | $ (4,577)               



The provision for income taxes is comprised of the following:

|          | Years Ended December 31,
|--------- | ------------------------
|          | 2004                    
|          | (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 2023. The Company's NOL's for State tax reporting purposes approximate $70 million and expires through the year 2013. The utilization of the federal and state net operating losses may be limited by Internal Revenue Code Section 382.

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





|                                     | 2004   |   | 2003   |   | 2002   |  
|------------------------------------ | ------ | - | ------ | - | ------ | -
|Statutory income tax rate            | 34.0   | % | 34.0   | % | 34.0   | %
|State and local income taxes, net of |        |   |        |   |        |  
|Federal income tax benefit           | -      |   | -      |   | 2.0    |  
|Valuation allowance                  | (39.5) |   | (39.5) |   | (36.0) |  
|Other                                | 5.5    |   | 5.5    |   | (1.5)  |  
|                                     | -      | % | -      | % | (1.5)  | %



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

|                                             | December 31,          
|-------------------------------------------- | ----------------------
|                                             | 2004                  
|                                             | (Dollars in thousands)
|Current deferred tax asset (liability):      |                       
|Prepaid royalties                            | $ -                   
|Nondeductible reserves                       | 938                   
|Reserve for advances                         | (789)                 
|Accrued expenses                             | 870                   
|Foreign loss and credit carryforward         | 2,566                 
|Federal and state net operating losses       | 51,753                
|Research and development credit carryforward | 2,374                 
|Other                                        | -                     
|                                             | 57,712                
|                                             |                       
|Non-current deferred tax asset (liability):  |                       
|Depreciation expense                         | -                     
|Nondeductible reserves                       | -                     
|                                             | -                     
|                                             |                       
|Net deferred tax asset before                |                       
|valuation allowance                          | 57,712                
|Valuation allowance                          | (57,712)              
|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 increased $3.4 million during the year ending December 31, 2004 and decreased $0.05 million during the year ending December 31, 2003.

8. Commitments and Contingencies

Atari termination

On or about February 23, 2004, the Company received correspondence from Atari Interactive, Inc, the holder of the D&D license, alleging that the Company had failed to pay royalties due under the D&D license as of February 15, 2004. The company's rights to distribute titles under the D&D license were terminated by Atari on April 23, 2004.

In July 2004, we entered into a tri-party agreement with Atari Interactive, Inc and Vivendi that allows Vivendi to resume North American and international distribution pursuant to their pre-existing agreements with us of certain Dungeons & Dragons games, including Baldur's Gate Dark Alliance II. The agreement provided for proceeds due us to be paid directly to Atari by Vivendi, up to an amount of $1.0 million of which approximately $.3 million was still oustanding as of December 31, 2004. As a result we did not receive any proceeds from Vivendi since July 2004 and will most likely not receive any proceeds during 2005.

In August 2004, we entered into a tri-party agreement with Atari Interactive, Inc and Avalon that allows Avalon to resume European distribution pursuant to their pre-existing agreements with us of certain Dungeons & Dragons games, including Baldur's Gate Dark Alliance II. The agreement provided for proceeds due us to be paid directly to Atari by Avalon, as a result we did not receive any proceeds from this agreement in 2004. This agreement was terminated following Avalon's liquidation in February 2005.

Payroll Taxes

At December 31, 2004, the Company had accrued approximately $117,000 for past due interest and penalties on the late payment of federal payroll taxes. The Company owes approximately $20,000 in past due Federal payroll taxes. As of December 31, 2004, the Company owes approximately $101,000 in past due payroll tax principal, penalties, or interest to the State of California. The Company owes approximately $64,000 in State Use tax. The Company also owes approximately $28,000 in property tax.

Insurance

The Company's property, general liability, auto, workers compensation, fiduciary liability, Directors and Officers, and employment practices liability have been cancelled during the year ending December 31, 2004. The Company is current on its workers comp and employee health insurance premiums.

Leases

The Company has a month to month rental agreement for the office space it occupies including its corporate offices in Irvine, California.

Total rent expense was $.4 million, $1.8 million, and $2.1 million for the years ended December 31, 2004, 2003 and 2002, respectively.

The company's headquarters were located in Irvine, California where the Company leased approximately 81,000 square feet of office space. This lease would have expired in June 2006. On or about April 16, 2004, Arden Realty Finance IV LLC filed an unlawful detainer action against the Company in the Superior Court for the State of California, County of Orange, alleging the Company's default under its corporate lease agreement. At the time the suit was filed, the alleged outstanding rent totaled $431,823. The Company was unable to satisfy this obligation and reach an agreement with its landlord, the Company subsequently forfeited its lease and vacated the building. Arden Realty obtained a judgment for approximately $588,000 exclusive of interest. The Company also owes an additional approximately $149,000 making a total owed to Arden by the Company of approximately $737,000. The Company negotiated a forbearance agreement whereby Arden has agreed to accept payments commencing in January 2005 in the amount of $60,000 per month until the full amount is paid. The Company has been unable to make any of the $60,000 per month payments. The Company signed a monthly rental agreement beginning in August 2004 at 1682 Langley Ave in Irvine, CA for its operations. The monthly payments are approximately $1,300 per month.

Litigation

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

On September 16, 2002, Knight Bridging Korea Co., Ltd ("KBK") filed a $98.8 million complaint for damages against Atari Interactive, Inc. (formerly known as Infogrames Interactive, Inc.) and other Atari Interactive affiliates as well as the Company's subsidiary GamesOnline.com, Inc., alleging, among other things, breach of contract, misappropriation of trade secrets, breach of fiduciary duties and breach of implied covenant of good faith in connection with an electronic distribution agreement dated November 2001 between KBK and GamesOnline.com, Inc. KBK has alleged that GamesOnline.com failed to timely deliver to KBK assets to a product, and that it improperly disclosed confidential information about KBK to Atari. KBK amended its complaint to add the Company as a separate defendant. The Company counterclaimed against KBK and also against Atari Interactive for breach of contract, among other claims. GOL counterclaimed against KBK for breach of contract as KBK owes GOL $700,000 in guaranteed advanced fees under the term of the agreement. In addition, the Company filed an action against Atari Interactive for breach indemnity, among other claims. In October 2004, the California Superior court dismissed the legal action of KBK against the Company and its subsidiary GOL and granted a judgment to GOL in the cross complaint from GOL against KBK for $890,730. GOL dismissed its action against Atari Interactive in April 2005.

On October 24, 2002, Synnex Information Technologies Inc ("Synnex") initiated legal proceedings against the company for various claims. The Company's attorney's have filed and obtained a motion to be relieved as counsel on August 10, 2004. The company has not yet retained replacement counsel in this action.

On November 25, 2002, Special Situations Fund III, Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., and Special Situations Technology Fund, L.P. (collectively, "Special Situations") initiated legal proceedings against the Company seeking damages of approximately $1.3 million, alleging, among other things, that the Company failed to secure a timely effective date for a Registration Statement for the Company's shares purchased by Special Situations under a common stock subscription agreement dated March 29, 2002 and that the Company is therefore liable to pay Special Situations $1.3 million. This matter was settled and the case dismissed in December 2003. Special Situations had entered into a settlement agreement with the Company contemplating payments over time. We are currently in default of the settlement agreement.

On or about October 9, 2003, Warner Brothers Entertainment, Inc. filed suit against the Company in the Superior Court for the State of California, County of Orange, alleging default on an Amended and Restated Secured Convertible Promissory Note held by Warner dated April 30, 2002, with an original principal sum of $2.0 million. At the time the suit was filed, the current remaining principal sum due under the note was $1.4 million in principal and interest. The Company stipulated to a judgment in favor of Warner Brothers and are in the process of satisfying the judgment, of which approximately $837,000 remained to be paid as of December 31, 2004. The Company is currently in default of the settlement agreement with Warner and has entered into a payment plan, of which the Company is in default, for the remaining balance of $0.34 million payable in one remaining installment.

In March 2004, the Company instituted litigation in the Superior Court for the State of California, Los Angeles County, against Battleborne Entertainment, Inc. ("Battleborne"). Battleborne was developing a console product for us tentatively titled "Airborne: Liberation." The Company's complaint alleges that Battleborne repudiated the contract with the Company and subsequently renamed the product and entered into a development agreement with a different publisher. The Company seeks a declaration from the court that it retain rights to the product, or damages.

On or about April 16, 2004, Arden Realty Finance IV LLC filed an unlawful detainer action against the Company in the Superior Court for the State of California, County of Orange, alleging the Company's default under its corporate lease agreement.  At the time the suit was filed, the alleged outstanding rent totaled $431,823.  The Company was unable to pay the rent, and vacated the office space during the month of June 2004. On June 3, 2004, Arden obtained a judgment of approximately $588,000 exclusive of interest. In addition the Company is in the process of resolving a prior claim with the landlord in the approximate amount of $148,000, exclusive of interest. The Company has negotiated a forbearance agreement whereby Arden has agreed to accept payments commencing in January 2005 in the amount of $60,000 per month until the full amount is paid. The Company has not accrued any amount for any remaining lease obligation, should such obligation exist. The Company is currently in default of the forbearance agreement.



On or about April 19, 2004, Bioware Corporation filed a breach of contract action against the Company in the Superior Court for the State of California, County of Orange, alleging failure to pay royalties when due.  At the time of filing, Bioware alleged that it was owed approximately $156,000 under various agreements for which it obtained a writ of attachment to secure payment of the alleged obligation if it is successful at trial. Bioware also sought and obtained a temporary restraining order prohibiting the Company from transferring assets up to the amount sought in the writ of attachment. The Company successfully opposed the preliminary injunction and vacated the temporary restraining order. Bioware subsequently dismissed their action.

Monte Cristo Multimedia, a French video game developer and publisher, filed a breach of contract complaint against the Company in the Superior Court for the State of California, County of Orange, on August 6, 2002, alleging damages in the amount of $886,406 plus interest, in connection with an exclusive distribution agreement. This claim was settled for $100,000, payable in twelve installments, however, the Company was unable to satisfy its payment obligations and consequently, Monte Cristo has filed a stipulated judgment against the Company in the amount of $100,000. If Monte Cristo executes the judgment, it will negatively affect the Company's cash flow, which could further restrict the Company's operations and cause material harm to its business.

Snowblind entered into a partial settlement agreement on June 23, 2004 following the suit filed by Snowblind on November 19, 2003. Snowblind filed a second amended complaint against the Company on or about July 12, 2004 claiming various causes of action including but not limited to, breach of contract, account stated, open book account, and recission. The action was settled in April 2005 and the Company granted Snowblind the exclusive license to develop games using the Dark Alliance Trademark under certain conditions. The Company retained the right to develop massively multiplayer online games using the Dark Alliancetrademark.

In August 2003, Reflexive Entertainment, Inc. filed an action against the Company in the Orange County Superior Court that was settled in July 2004. The Company was unable to make the payments and Reflexive sought and obtained judgment against the company.

On March 27, 2003, KDG France SAS ("KDG") filed an action against Interplay OEM, Inc. and Herve Caen for various claims. On December 29, 2003 a settlement agreement was entered into whereby Herve Caen was dismissed from the action. Further the settlement was entered into with Interplay OEM only in the amount of $170,000, however KDG reserved its rights to proceed against the Company if the settlement payment was not made. As of this date the settlement payment was not made.

The Company received notice from the Internal Revenue Service ("IRS") that it owes approximately $90,000 in payroll tax penalties which it has accrued for at December 31, 2004. The Company has requested the abatement by the IRS of such penalties.

The Company was unable to meet certain 2004 payroll obligations to its employees, as a result several employees filed claims with the State of California Labor Board ("Labor Board"). The Labor Board has fined the Company approximately $10,000 for failure to meet its payroll obligations and set trial dates for August 2005.

The Company's property, general liability, auto, fiduciary liability, workers compensation and employment practices liability, have been cancelled. The Company subsequently entered into a new workers compensation insurance plan. The Labor Board fined the Company approximately $79,000 for having lost workers compensation insurance for a period of time. The Company is appealing the Labor Board fines.

On December 29, 2004, Piper Rudnick LLP ("Piper Rudnick") filed an action against Interplay Entertainment Corp. for various claims for unpaid services. The Company is currently evaluating the merit of this lawsuit.

Employment Agreements

The Company has entered into various employment agreements with certain key employees providing for, among other things, salary, bonuses and the right to participate in certain incentive compensation and other employee benefit plans established by the Company. Under these agreements, upon termination without cause or resignation for good reason, the employees may be entitled to certain severance benefits, as defined. These agreements expire through 2006.



9. 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, 2004, there were no shares of preferred stock outstanding.

In April 2001, the Company completed a private placement of 8,126,770 units at $1.5625 per unit for total proceeds of $12.7 million, and net proceeds of approximately $11.7 million. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock at $1.75 per share, which are currently exercisable. If the Company issues additional shares of common stock at a per share price below the exercise price of the warrants, then the warrants are to be repriced, as defined, subject to stockholder approval. The warrants expire in March 2006. In addition to the warrants issued in the private placement, the Company granted the investment banker associated with the transaction a warrant for 500,000 shares of the Company's common stock. The warrant has an exercise price of $1.5625 per share and vests one year after the registration statement for the shares of common stock issued under the private placement becomes effective. The warrant expires four years after it vests. The registration statement was not declared effective by May 31, 2001 and in accordance with the terms of the agreement, the Company incurred a penalty of approximately $254,000 per month, payable in cash, until June 2002, when the registration statement was declared effective. During 2003, the Company settled with certain of these investors with respect to payment. During the years ended December 31, 2004, 2003, and 2002, the Company accrued a provision of $0, $0 million and $1.8 million, respectively, payable to these stockholders, which was charged to results of operations and classified as interest expense. The total amount accrued at December 31, 2004 and 2003 is $3.1 million and $3.1 million, respectively, which is included in accounts payable in the accompanying consolidated balance sheet.

In April 2000, the Company completed a $20 million transaction with Titus under a Stock Purchase Agreement and issued 719,424 shares of newly designated Series A Preferred Stock ("Preferred Stock") and a warrant for 350,000 shares of the Company's Common Stock, which had preferences under certain events, as defined. The Preferred Stock was convertible by Titus, redeemable by the Company, and accrued a 6% cumulative dividend per annum payable in cash or, at the option of Titus, in shares of the Company's Common Stock as declared by the Company's Board of Directors. The Company held rights to redeem the Preferred Stock shares at the original issue price plus all accrued but unpaid dividends. Titus was entitled to convert the Preferred Stock shares into shares of Common Stock at any time after May 2001. The conversion rate was the lesser of $2.78 (7,194,240 shares of Common Stock) or 85% of the market price per share at the time of conversion, as defined. The Preferred Stock was entitled to the same voting rights as if it had been converted to Common Stock shares subject to a maximum of 7,619,047 votes. In October 2000, the Company's stockholders approved the issuance of the Preferred Stock to Titus. In connection with this transaction, Titus received a warrant for 350,000 shares of the Company's Common Stock exercisable at $3.79 per share at anytime. The fair value of the warrant was estimated on the date of the grant using the Black-Scholes pricing model. This resulted in the Company allocating $19,202,000 to the Preferred Stock and $798,000 to the warrant, which is included in paid in capital. The discount on the Preferred Stock was accreted over a one-year period as a dividend to the Preferred Stock in the amount of $532,000 and $266,000 during the year ended December 31, 2001 and 2000, respectively. As of December 31, 2001, the Company had accreted the full amount. In addition, Titus received a warrant for 50,000 shares of the Company's Common Stock exercisable at $3.79 per share, because the Company did not meet certain financial operating performance targets for the year ended December 31, 2000. The fair value of this warrant was recorded as additional interest expense. Both warrants expire in April 2010.

In August 2001, Titus converted 336,070 shares of Series A Preferred Stock into 6,679,306 shares of Common Stock. This conversion did not include accumulated dividends of $740,000 on the Preferred Stock, these were reclassified as an accrued liability as Titus had elected to receive the dividends in cash. In March 2002, Titus converted its remaining 383,354 shares of Series A Preferred Stock into 47,492,162 shares of Common Stock. This conversion did not include accumulated dividends of $1.2 million on the Preferred Stock, these were reclassified as an accrued liability as Titus had elected to receive the dividends in cash. Collectively, Titus has 62% of the total voting power of the Company's capital stock at December 31, 2004. There were no accrued dividends as of December 31, 2004.



Employee Stock Purchase Plan

Under this plan, eligible employees may purchase shares of the Company's Common Stock at 85% of fair market value at specific, predetermined dates. In 2000, the Board of Directors increased the number of shares authorized to 300,000. Of the 300,000 shares authorized for issuance under the plan, approximately 84,877

Shares reserved for future issuance

Common stock reserved for future issuance at December 31, 2004 is as follows:

|Stock option plans:          |                             |  |           
|---------------------------- | --------------------------- |  | ----------
|                             | Outstanding                 |  |           
|                             | Available for future grants |  |           
|Employee Stock Purchase Plan |                             |  | -         
|Warrants                     |                             |  | 9,587,068 
|Total                        |                             |  | 17,627,500

10. 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 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,                        
|--------------------------------------------------------------------- |  | ------------------------------------------------
|                                                                      |  | 2004                                            
|                                                                      |  | (Amounts in thousands, except per share amounts)
|Net income (loss) available to common stockholders                    |  | $ (4,730)                                       
|Interest related to conversion of secured convertible promissory note |  | -                                               
|Dilutive net income (loss) available to common stockholders           |  | $ (4,730)                                       
|Shares used to compute net income (loss) per common share:            |  |                                                 
|Weighted-average common shares                                        |  | 93,856                                          
|Dilutive stock equivalents                                            |  | -                                               
|Dilutive potential common shares                                      |  | 93,856                                          
|Net income (loss) per common share:                                   |  |                                                 
|Basic                                                                 |  | $ (0.05)                                        
|Diluted                                                               |  | $ (0.05)                                        

There were options and warrants outstanding to purchase 9,798,218 shares of common stock at December 31, 2004, which were excluded from the earnings per common share computation as the exercise price was greater than the average market price of the common shares. The dilutive stock equivalents in the above calculation related to the outstanding convertible debentures at December 31, 2004, which the Company utilized the "if converted" method pursuant to SFAS 128.

Due to the net loss attributable for the year ended December 31, 2004, on a diluted basis to common stockholders, stock options and warrants have been excluded from the diluted earnings per share calculation as their inclusion would have been antidilutive. Had net income been reported for the year ended December 31, 2004, an additional 13,694,739 shares would have been added to dilutive potential common shares. The weighted average exercise price at December 31, 2004, 2003 and 2002 was $1.84, $1.84 and $1.99, respectively, for the options and warrants outstanding.

In August 2000, the Company issued a warrant to purchase up to 100,000 shares of the Company's Common Stock. The warrant vested at certain dates over a one year period and had exercise prices between $3.00 per share and $6.00 per share. The warrant expired in August 2003 unexercised.

|                        | Years Ended December 31,
|----------------------- | ------------------------
|                        | 2004                    
|                        | Shares                  
|Warrants outstanding at |                         
|beginning of year       | 9,587,068               
|Granted                 | -                       
|Exercised               | -                       
|Canceled                | - nks,g a -             
|Warrants outstanding at |                         
|end of year             | 9,587,068               
|Warrants exercisable    | 9,587,068               

There were no warrants granted in 2004, 2003, and 2002 respectively.

A detail of the warrants outstanding and exercisable as of December 31, 2004 is as follows:



|                         |   |                    |  | Warrants Outstanding and Exercisable    
|------------------------ | - | ------------------ |  | ----------------------------------------
|Range of Exercise Prices |   | Number Outstanding |  | Weighted Average Remaining Contract Life
|$1.56                    | - | $1.56              |  | 500,000                                 
|$1.75                    | - | $1.75              |  | 8,626,770                               
|$3.79                    | - | $3.79              |  | 460,298                                 
|$3.00                    | - | $6.00              |  |                                         
|$1.56                    | - | $6.00              |  | 9,587,068                               



11. 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 terminated.

The Company has treated the difference, if any, between the exercise price and the estimated fair market value as compensation expense for financial reporting purposes, pursuant to APB 25. Compensation expense for the vested portion aggregated $0, $0 and $0 for the years ended December 31, 2004, 2003 and 2002, respectively.

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

|                       | Year Ended December 31,
|---------------------- | -----------------------
|                       | 2004                   
|                       | Shares                 
|Options outstanding at |                        
|beginning of year      | 425,985                
|Granted                | 5,000                  
|Exercised              | -                      
|Canceled               | (219,835)              
|Options outstanding at |                        
|end of year            | 211,150                
|Options exercisable    | 171,686                



The following outlines the significant assumptions used to estimate the fair value information presented utilizing the Black-Scholes Single Option approach with ratable amortization. There were 5,000 and 130,000 options granted in 2004 and 2003, respectively. The 2004 grants of stock options were granted to a member of the Board of Directors at the time and have since been canceled.





|                                        | Year Ended December 31,
|--------------------------------------- | -----------------------
|                                        | 2004                   
|Risk free rate                          | 4.0%                   
|Expected life                           | 10                     
|Expected volatility                     | 160%                   
|Expected dividends                      | -                      
|Weighted- average grant-date fair value |                        
|of options granted                      | $ 0.08                 



A detail of the options outstanding and exercisable as of December 31, 2004 is as follows:

|                         |   |                    |  | Options Outstanding                      |                                 | Options Exercisable
|------------------------ | - | ------------------ |  | ---------------------------------------- | ------------------------------- | -------------------
|Range of Exercise Prices |   | Number
Outstanding |  | Weighted Average Remaining Contract Life | Weighted Average Exercise Price | Number
Outstanding 
|$ 0.09                   | - | $ 0.09             |  | 70,000                                   |                                 | 8.86               
|$ 0.68                   | - | $ 2.69             |  | 100,500                                  |                                 | 5.23               
|$ 3.25                   | - | $ 4.94             |  | 28,500                                   |                                 | 4.81               
|$ 8.00                   | - | $ 8.00             |  | 12,150                                   |                                 | 1.91               
|$ 0.09                   | - | $ 8.00             |  | 211,150                                  |                                 | 6.19               





Profit Sharing 401(k) Plan

The Company sponsors a 401(k) plan ("the Plan") for most full-time employees. The Company matches 50

12. Related Party Transactions

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

|                                  |                       |         | December 31, 2004      |                        | December 31, 2003
|--------------------------------- | --------------------- | ------- | ---------------------- | ---------------------- | -----------------
|                                  |                       |         | (Dollars in thousands) | (Dollars in thousands)
|Receivables from related parties: |                       |         |                       
|                                  | Titus TSC             |         | $ 327                  |                        | $ 313            
|                                  | Titus KK              |         | -                      |                        | $ 6              
|                                  | Titus SARL            | 18      |                        | 43                    
|                                  | VIE Acquisition group | 10      |                        |                       
|                                  | Avalon                |         | 2,025                  |                        | 893              
|                                  | Less Reserves         | (2,370) |                        | (691)                 
|                                  | Total                 |         | $ 10                   |                        | $ 564            
|                                  |                       |         |                        |                        |                  
|Payables to related parties:      |                       |         |                       
|                                  | Vivendi               |         | $ -                    |                        | $ 1,634          
|                                  | Total                 |         | $ -                    |                        | $ 1,634          



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.

The Company's operations involve significant transactions with its majority stockholder Titus and its affiliates. The Company has a major distribution agreement with Avalon, an affiliate of Titus.

TRANSACTIONS WITH TITUS

Titus presently owns approximately 58 million shares of Company common stock, which represents approximately 62% of the Company's outstanding common stock, its only voting security.

The Company performed certain distribution services on behalf of Titus for a fee. In connection with such distribution services, the Company recognized fee income of $0, $5,000, and $22,000 for the years ended December 31, 2004, 2003, and 2002.

As of December 31, 2004 and December 31, 2003, Titus and its affiliates excluding Avalon owed the Company $370,000 and $362,000, respectively. The Company owed Titus and its affiliates excluding Avalon $30,000 and $0 as of December 31, 2004 and December 31, 2003 respectively.



TRANSACTIONS WITH TITUS AFFILIATES

Transactions with Avalon, a wholly owned subsidiary of Titus

The Company has an International Distribution Agreement with Avalon, a wholly owned subsidiary of Titus. Pursuant to this distribution agreement, Avalon provides for the exclusive distribution of substantially all of the Company's products in Europe, Commonwealth of Independent States, Africa and the Middle East for a seven-year period ending February 2006, cancelable under certain conditions, subject to termination penalties and costs. Under this agreement, as amended, the Company pays Avalon a distribution fee based on net sales, and Avalon provides certain market preparation, warehousing, sales and fulfillment services on its behalf. In connection with the International Distribution Agreement with Avalon, the Company incurred distribution commission expense of $62,000 and $.9 million, and $.9 million, for the twelve months ended December 31, 2004, 2003, and 2002 respectively. In addition, the Company recognized overhead fees of $0, $0 and $.5 million for the twelve months ended December 31, 2004, 2003, and 2002 respectively. Also in connection with this International Distribution Agreement, the Company subleased office space from Avalon. Rent expense paid to Avalon was $0, $27,000 and $104,000 for the years ended December 31, 2004, 2003, and 2002. This agreement was terminated as a result of Avalon's liquidation in February 2005.

Transactions with Titus Software

In March 2003, the Company entered into a note receivable with Titus Software Corp., ("TSC"), a subsidiary of Titus, and advanced TSC $226,000. The note earns interest at 8% per annum and was due in February 2004. In May 2003, the Company's Board of Directors rescinded the note receivable and demanded repayment of the $226,000 from TSC. As of the date of this filing the balance on the note with accrued interest has not been paid. The balance on the note receivable, with accrued interest, at December 31, 2004 was approximately $254,000. The total receivable due from TSC is approximately $327,000 as of December 31, 2004. The majority of the additional $73,000 was due to TSC subletting office space and miscellaneous other items.

In May 2003, the Company paid TSC $60,000 to cover legal fees in connection with a lawsuit against Titus. As a result of the payment, the Company's CEO requested that the Company credit the $60,000 to amounts it owed to him arising from expenses incurred in connection with providing services to the Company. The Company's Board of Directors is in the process of investigating the details of the transaction, including independent counsel review as appropriate, in order to properly record the transaction.

Transactions with Titus Japan

In June 2003, the Company began operating under a representation agreement with Titus Japan K.K. ("Titus Japan"), a majority-controlled subsidiary of Titus, pursuant to which Titus Japan represents the Company as an agent in regard to certain sales transactions in Japan. This representation agreement has not yet been approved by the Company's Board of Directors and is currently being reviewed by them. The Company's Board of Directors has approved the payments of certain amounts to Titus Japan in connection with certain services already performed by them on the Company's behalf. As of December 31, 2004 the Company had a zero balance with Titus Japan. During the twelve months ending December 31, 2004 the Company's Japan subsidiary paid to Titus Japan approximately $209,000 in commissions and publishing and staff services. The Company's Japan subsidiary had approximately $369,000 in revenue in the twelve months ending December 31, 2004.

Transactions with Titus SARL

As of December 31, 2004 and 2003 the Company has a receivable of approximately $18,000 and $43,000 respectively for product development services that the Company provided. Titus SARL was placed into involuntary liquidation in January 2005.

Transactions with Titus GIE

In February 2004, the Company engaged the services of GIE Titus Interactive Group, a wholly owned subsidiary of Titus, for a three-month agreement pursuant to which GIE Titus or its agents shall provide to the Company certain foreign administrative and legal services at a rate of $5,000 per month. At December 31, 2004 the Company had payables and receivables of $0 to GIE Titus Interactive Group. The agreement was terminated in the fourth quarter of 2004. Titus GIE was placed into involuntary liquidation in January 2005

Transactions with VIE Acquisition Group

Approximately $42,000 and $0 was paid to VIE Acquisition Group for management services provided during the twelve months ended December 31, 2004 and 2003.

13. Concentration of Credit Risk

Avalon was the exclusive distributor for most of the Company's products in Europe, the Commonwealth of Independent States, Africa and the Middle East. The Company's agreement with Avalon was terminated following the liquidation of Avalon in February 2005. The Company subsequently appointed its wholly owned subsidiary Interplay Productions Ltd as its distributor for Europe.

Vivendi has exclusive rights to distribute the Company's products in North America and selected International territories. The Company's agreement with Vivendi will expire in August 2005 for most of its products.

The Company's revenues and cash flows could fall significantly and its business and financial results could suffer material harm if:

- The Company fail to replace Vivendi as our distributor; or
- Interplay Productions Ltd fails to effectively distribute the Company's products.

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

For the years ended December 31, 2004, 2003 and 2002, Avalon accounted for approximately 70%, 12% and 11%, respectively, of net revenues in connection with the International Distribution Agreement (Note 12). Vivendi accounted for 21%, 82%, and 71% of net revenues in the years ended December 31, 2004, 2003 and 2002, respectively.

14. Segment and Geographical Information

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

Net revenues by geographic regions were as follows:

|                 | Years Ended December 31, |                       
|---------------- | ------------------------ | ----------------------
|                 | 2004                     |                       
|                 | Amount                   |                       
|                 | (Dollars in thousands)   | (Dollars in thousands)
|North America    | $ 1,544                  |                       
|Europe           | 8,706                    |                       
|Rest of World    | 1,228                    |                       
|OEM, royalty and |                          |                       
|licensing        | 1,720                    |                       
|                 | $ 13,198                 |                       

15. Quarterly Financial Data (Unaudited)

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

|                                           | March 31                                         |  | June 30   |  | September 30 |  | December 31
|------------------------------------------ | ------------------------------------------------ |  | --------- |  | ------------ |  | -----------
|                                           | (Dollars in thousands, except per share amounts)
|Year ended December 31, 2004:              |                                                  |  |           |  |              |  |            
|Net revenues                               | $ 6,917                                          |  | $ 1,201   |  | $ 268        |  | $ 4,811    
|Gross profit                               | $ 3,326                                          |  | $ 1,783   |  | $ 679        |  | $ 583      
|Net income (loss)                          | $ (903)                                          |  | $ (1,954) |  | $ (1,467)    |  | $ (406)    
|                                           |                                                  |  |           |  |              |  |            
|Net income (loss) per common share basic   | $ (0.01)                                         |  | $ (0.02)  |  | $ (0.02)     |  | $ (0.00)   
|Net income (loss) per common share diluted | $ (0.01)                                         |  | $ (0.02)  |  | $ (0.02)     |  | $ (0.00)   
|                                           |                                                  |  |           |  |              |  |            
|Year ended December 31, 2003:              |                                                  |  |           |  |              |  |            
|Net revenues                               | $ 18,762                                         |  | $ 1,269   |  | $ 4,727      |  | $ 11,543   
|Gross profit                               | $ 11,777                                         |  | $ 155     |  | $ 2,878      |  | $ 8,371    
|Net income (loss)                          | $ 5,576                                          |  | $ (5,376) |  | $ (2,189)    |  | $ 3,301    
|                                           |                                                  |  |           |  |              |  |            
|Net income (loss) per common share basic   | $ 0.06                                           |  | $ 0.06    |  | $ (0.02)     |  | $ 0.04     
|Net income (loss) per common share diluted | $ 0.06                                           |  | $ 0.06    |  | $ (0.02)     |  | $ 0.04     



INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

(AMOUNTS IN THOUSANDS)



|                             | Trade Receivables Allowance   
|---------------------------- | ------------------------------
|Period                       | Balance at
Beginning of
Period
|                             |                               
|                             |                               
|                             |                               
|Year ended December 31, 2002 | $ 7,541                       
|                             |                               
|Year ended December 31, 2003 | $ 1,086                       
|                             |                               
|Year ended December 31, 2004 | $ 725                         





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

I, Hervé Caen, certify that:

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

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

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

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

a)	designed such disclosure controls and procedures, or caused such internal control over financial reporting to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	June 2, 2005

/s/ Hervé Caen		
Hervé Caen
Chief Executive Officer

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

I, Hervé Caen, certify that:

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

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

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

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

a)	designed such disclosure controls and procedures, or caused such internal control over financial reporting to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	June 2, 2005

/s/ Hervé Caen		
Hervé Caen
Interim Chief Financial Officer

EXHIBIT 99.1



CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,

UNITED STATES CODE)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Interplay Entertainment Corp., a Delaware corporation (the "Company"), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2004 as filed with the Securities and Exchange Commission (the "10-K Report") that:

1. the 10-K Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the 10-K Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	June 2, 2005

/s/ Hervé Caen
							Hervé Caen
							Chief Executive Officer and

Interim Chief Financial Officer