TWST: Could we start with a history and overview of iEntertainment Network, Inc.?

Mr. Stealey: I came into the game industry in 1982 with Sid Meier, who is probably the best known and most famous game designer in the industry, even today. Sid and I started a company called MicroProse Software. We were internationally renowned for the best simulation games in the world. Sid and his development crew did the simulations. I made the simulations and Sid Meier famous, and he and I made a company. We actually took the company public. We sold the company to another company in 1993, it became part of Hasbro, and now it's part of Infogrammes, the large French game publisher. I retired for three years. I started this company, the predecessor to iEntertainment Network (IENT), called Interactive Magic, in 1995. We started out in the CD-ROM game distribution business. We got out of the CD-ROM business and went strictly into the Internet business about three years ago in the middle of the Internet boom. I left the company in 1999 during this transition. I have been doing online games since Sid Meier did the original online game back in 1986, or at least original for MicroProse. We shot at each other in tanks and had a great time doing it all over a network. We just didn't understand where the Internet was going, nor did we know how to get paid for it. If we had known how to make money, we would have been way ahead of everybody. We decided early at Interactive Magic back in 1996 that we needed to get some online games. We acquired two companies. The first was Interactive Creations of Grapevine, Texas, in 1997. ICI brought us a great and award-winning game called WarBirds. We acquired MPG Net of Key West, Florida, in 1998. MPG Net brought us a large number of mass-market advertising-supported games. Today, they make up the two primary sources of revenue for IENT. iEntertainment is an Internet survivor. Many of the people that we dealt with, many of the people that we brought products from, and many of the internet portals we provided mass market games for, are no longer in business. iEntertainment has found a way to survive all that. The company was recently re- capitalized. The investment group that accomplished this re- capitalization, bought enough shares that it had the ability to elect the directors. I was asked by those directors to become the Chairman and the CEO once again of the company. The company is close to a breakeven cash flow company, although we are not ready to report accounting profits yet. Profitability is one of our big objectives for this year. We have a number of weapons to use in search of our profitability goals. We publish one of the most well-recognized, worldwide, Internet flying games called WarBirds. We've got a brand new version coming of WarBirds that should be out on 1 March, Worldwide players from over 70 countries fly WarBirds in over 200 squadrons almost every night. So any time you want to blow something up, or shoot somebody from Japan, Sweden, or Houston down, you launch WarBirds. In the game, somebody will be there, in some language, who will be glad to go in a B17 or a Spitfire 9 to teach you to be a World War II aviator. Although the game generates considerable revenue each year, it's not as much as it was at one time. This type of game, originally hosted on the Genie Network, was Air Warrior, and was generating as much as $12 an hour from each player. I can assure you we don't get anything near that now, but it still gets us an average of higher than $9.95 per month from each one of the players we've got playing. So one of the objectives for us is to get more and more players.

TWST: What's the business model?

Mr. Stealey: It's a monthly subscription, come fly all you want. It used to be an hourly subscription, and at that time some people were paying $1,000 a month to play these kinds of games. I'm not sure many wives would be appreciative of that. Now, for $20 a month they can fly all they want, and the wives still don't like it because most of the guys would rather play with their Spitfire than they would their mates sometimes.

TWST: How many subscribers do you have?

Mr. Stealey: In our heyday we had in the 20,000s; now we're in the 10,000-15,000s right now. Not all of them pay the $20 a month; we have prices from $9.95 up to $25.

TWST: How do you market the product?

Mr. Stealey: We have a demo disks that we can send out regularly. We send out a brand new version to every magazine, every reviewer, and every aviation historic site, Internet sites, and magazines quite often. In fact, the Smithsonian and similar historical sites and locations have helped us in the past to promote the product because of the product's historical accuracy. We have very specific and well-done models of 60 of the aircraft that flew in World War II. The flight models are perfect and the airplanes are perfect. Sometimes these simulations are too perfect because it's too hard for new players to get flying without getting shot down very quickly. The new players can also be challenged as they learn that a Focke-Wulf 190 was something that killed more pilots taxiing than it did flying. And I'm not sure that that's exactly the fact, but it was very difficult to fly these old airplanes. So we are trying to keep happy all our dedicated players, who produce 95% of our revenue right now, and find a way to grow the mass-market version of the simulation. We are having conversations with a number of large companies that don't really want to participate in the hard-core, dedicated player market. There is a much larger market (mass-market) for those who like to just fly around and shoot other airplanes. So our marketing challenge is to take that hard-core base and add a great mass- market base to increase revenue. We're doing that by new versions of the product. We're doing that with international partnerships. We were on the phone recently talking with a number of groups in Europe where the WarBirds product is very popular. At one time, we had servers in Europe and offices in Europe. I'm attempting to reestablish these relationships and playing communities Another revenue opportunity for IENT is to publish the simulation games at retail. We are implementing four versions of the WarBirds simulation game and expect to ship each game at retail. We are not going to publish these games internally. We are looking for a powerful, international publisher right now. We were in the publishing business very successfully for 10 years and less successfully for four years. So we believe that there are a lot of companies with greater marketing clout and better infrastructure to be in the publishing business than IENT. What we really want is to publish a great game, get great recognition for it, get customers to come and play online with us because they buy the retail version. We generate revenue from retail royalties and the increased online customer base.

TWST: As we look at this business, how big a market is this?

Mr. Stealey: We are actually in two markets. The market for retail games is very large. It has been estimated at over $8 billion. The subset that is the simulator market, which we refer to generically as the WarBirds market, is estimated at $1 billion. The advertising mass-market game market, which includes bingo, chess, casino games, trivia games, is also a very large. This market has been primarily an Internet advertising based revenue model. I think we know where the Internet advertising rates have gone. At one time that business was doing 10 times what it's currently doing in advertising revenue. We have seen some firming of that over the last three months. The last three months have been better than the average of the six months before that. We don't know why that is, even with September 11, we did very well in October, November and December. We are adding to the advertising supported games, incremental subscription revenue. We have new features, new functions. You can always play for free, we're always going to show you some ads, but if you want the special features, you can buy the VIP Feature for $7.95 per month. On a test of the new VIP program we had about 30% of our players sign up for the service. At IENT, we have over 800,000 registered players, I don't know how many of those are active, we've only been going for two weeks but it's got to be 50,000 at least, active, regular players. So we are hoping to generate significant additional subscription revenue with this new VIP program. Now, let's go back to the market for WarBirds Internet simulators. As I said, that market is very large. In fact, if you look at what some of the big companies have done in the role-playing area, it is rather impressive. I believe Electronic Arts has 100,000 people paying them $10 a month. I believe that's about $1 million a month of online revenue on one game. We don't have anything near that, as it's much easier to play a role-playing game than it is a flight simulator. We are going to take this WarBirds game and make four games currently out of it. We hope to generate significant revenue from each game.

TWST: Do you take that same game or do you have to create new games to keep the attraction going?

Mr. Stealey: The specific historical games like WarBirds will always have an attraction because, luckily, new people come in all the time and the old people seem to never go away until they get too old to handle a joystick. That's a good thing. But what we are creating is new historical periods. Four new games are being developed from the original WarBirds, a World War II flying game. We have a World War I game, Dawn of Aces, which is not completely finished. We are going to finish that. We are developing a Korean War game (Korean Conflict!). Korea introduced jets. When these aircraft came out in the 1950s, they were a very exciting upgrade to all the aviators in the world. We have a lot of people who are interested in playing that game. We've got Vietnam and Desert Storm to make new products for. We are also getting ready to consider doing Afghanistan and we are trying to find satellite data for the area. We can have you flying the Predator, an armed drone, over Afghanistan in a few weeks. Isn't that cool? That's with really accurate satellite map downloaded, just like you'd see on CNN or Fox. Give us the data for the terrain, and we'll have you flying right over that, whether it's in a marine helicopter, a C130, or an F-16. Pretty cool stuff. So you can go to Fox and watch it on TV, or you can come fly it at iEntertainment Network.

TWST: Do you market that to the same customer base that's doing the World War II stuff, or how do you attract new users?

Mr. Stealey: The World War II stuff is very much a community that has a finite size. That's why these new products get marketed through magazines, through PR. We have three or four hard-core WarBirds players who happen to work at major international publications, and they get us regular recognition there. We have secret WarBirds flyers everywhere. A very famous newsman who's on every night at 6 o'clock is one of our most important customers in terms of his interest. No names because I don't want to get anybody into trouble here. But he used to be an old game customer for us. He became very successful in the news business and, guess what, while he's not out plugging us every night at 6 o'clock, every once in a while he tells somebody and it really helps us out. iEntertainment Network has a lot going for it. It has two primary market segments. These segments are the WarBirds Internet Simulator side, from which we are going to make four games of in the near term; and the bingo advertising side, which has about 20 games, and is currently advertising supported. We're adding subscription revenue to complement the advertising revenue in this market segment. One of the best assets is that this little company is a public company. IENT survived the Internet debacle, with many companies going away around us. We continue to fight that battle every day, obviously, but we have a public stock. And I believe that the IPO market for small Internet-oriented companies is pretty small right now. We have only been at the company for a couple of weeks since the change of management. We have already had three proposals of merging with other companies that have what their Boards are calling 'trapped equity.' They've got considerable cash, they've got considerable revenues, they are making money, but they have no way to get to the public market. What a great opportunity for iEntertainment Network.

TWST: What was the problem with the company under the prior management?

Mr. Stealey: I don't know that there was a problem specifically. I think the issue was that the company attempted, when I first started it, to be a CD-ROM company. Our previous CD-ROM company, actually it was cassettes and disks, but we'll call it our first CD-ROM company, MicroProse, was very, very successful. MicroProse grew from zero to $50 million in 10 years. When we started the second company, Interactive Magic, the predecessor to iEntertainment Network, the market had become more competitive. The products were more expensive to produce, and the marketing requirements much larger. We were not terribly successful in the CD-ROM business the second time. We got up to, I think, $17-$18 million in revenue, but we weren't making money. The Board decided, and I was a member of that Board, and it was painful to me, but you've got to take business decisions, that we needed to be an Internet only company. All the Board members were watching all those stocks that went from a penny to a million. They all said, 'Let's get rid of the CD-ROM, it's costing us money, it's costing us $3-$4 million cash every year, let's just do the Internet. We will get paid every day, we don't have to worry whether the big retailers are not paying us, and everybody really likes that kind of company.' I left the active management of the company right after that decision was made. The CD-ROM business was sold and the company was turned over to another group of investors. Another gentleman who had put money in the company became Chairman of the company. He installed a management team that never got ahead of the Internet bubble, in terms of expenses and negative revenue growth. They would have, for example, $1 million in advertising revenue one month and the next month they would use that figure to determine what they would spend. In the next month, they would still be spending the $1 million but revenue would already be down to two-thirds that and going in the wrong direction. So the expenses were always way ahead of the revenue and they never got ahead of the problem. They did not seem to understand that you can't just take the customer for granted. You have to market to those customers all the time so you can add new customers to replace departing ones. When I was at McKinsey and Co., we had a famous story, The Fable of Joe. And The Fable of Joe was this supposedly really good manager who would come in a losing company and really cut all expenses. The next year the company would be profitable, and he'd leave. By the next year, the company would go bankrupt. The bottom line was, he cut marketing and product development and there was nothing to sell new the year after they made the company profitable for one year. That's what the previous management tried to do: cut the expenses, cut marketing expenses, cut development expenses, spend nothing on promoting the products, nothing on growing the community. That strategy may have been probably their only option because of the cash problems. We've been here only a few weeks, and we've already gotten ourselves a few press releases out. We've already gotten in front of all the European customers who used to be with us, we've already put announcements out in the community, we've already seen an increase in the usage on both sides of our revenue curve.

TWST: If you look down the road, can you grow this company in a meaningful way just on the simulation business or do you have to get into more mainline gaming like bingo and other things?

Mr. Stealey: We already have bingo, and about half our revenue comes from those mass-market games, and half our revenue comes from the simulator business. The simulator business itself could be a $10-$15 million business that was very nicely profitable in a few years. We have the technology, the base of players, and the market recognition. We need some international partners, we need some publishers to take these products to retail The last time we shipped one of these products in a retail box, we sold hundreds of thousands of them for very handsome revenue. We need to add to the simulator side a few more formats. Right now, we support the PC and the Mac. We'd like to support the Xbox and the PS2. Great markets, but we don't want to publish there. We know how to do the programming, we know how to do the marketing for the online version, and we know how to make the product, but we don't want to publish at retail. Too many risks, costs, and uncertainty there for a small company without market penetration at retail.

TWST: You can find people to do it for you?

Mr. Stealey: We've already had a couple of them in here talking to us in the last couple of weeks. I don't know if anything will come about that, but we're working awfully hard. That's one of the things I spend most of my day on. In fact, when we get off this interview, we'll be doing it again. The bingo mass-market side, we are shying away from adding advertising-based products. We are looking for products that have dedicated user bases who are willing to pay $100 a year to be a member of that community. Almost every card game out there, bridge, chess, checkers, all have international and dedicated communities. We've had some conversations with people who are well known in those businesses, have hundreds of thousands of people on their databases, and they are all struggling looking for a way to continue to operate their Internet sites without revenue. And we are saying, Great, we'll do it. We believe we can put together 150,000-200,000 dedicated players, let's take a great game like chess, and have them pay $10 a month to be on the ladder, to be in the tournaments, to get recognition, to win some prizes, etc. This is the direction we are taking the mass-market side.

TWST: How about the more traditional casino games?

Mr. Stealey: We do those types of games already. We have a few of those types of games up on our site right now. We are going to watch very carefully what is really going to happen in the online internet gambling market. It's very unclear where the gambling laws are going in this country. We regularly run ads for international gambling companies on our free sites without participating in the gaming revenue. We're allowed to do that in the United States, we are just not allowed to participate. We have been approached by a couple of those companies to make investments in iEntertainment. We are reviewing that right now. We'd love for them to make an investment. We'd love to take our half-a- million customers who seem to come through our portal here on a regular basis and give them the opportunity to participate in the legal aspects of online gaming. This will be a really big market opportunity for IENT in the future. We are continuing to review the potential for being in the paid bingo business ourselves, but we have to be very careful, we don't want to violate any gambling laws. No one on our Board wants to go to jail. I went to the Air Force Academy, so we are going to be very strict about our understanding and interpretation of the law. We probably won't be skirting the edge, we call it 'quibbling' at the Air Force Academy, We will not be doing that. We do believe it's a big opportunity because if you talk to our bingo players, they'd be glad to pay $5 a night ' that's the survey we did ' for the chance to win $100. And most of them said, bring it on. But, again, we can't do that currently with the gambling laws, but we notice that there's a lot of change going on there and there are a few states that are actually allowing it. At least, our lawyers' initial look at that tell us that. So online gambling is a big, big thing in the future. The immediate future for IENT is taking the simulator business and the mass market and adding products there and growing that internally. The second opportunity is, as we get the stock price to a reasonable price, to make effective acquisitions. We already, as I mentioned, had people come to us and say, 'acquire us,' or 'give us some stock, let us put our revenue, our assets, our profitability in your company and we'll take what's a $0.10 stock and make it something worthwhile.' That scenario is very attractive to my Board.

TWST: So that's where you see the opportunity, to grow through acquisition?

Mr. Stealey: Yes. We're going to, one, make it profitable with the products that we've got. Two, get some very significant growth for those, but they are not big enough to make the stock $10 a share, okay? They are big enough to make the stock, you know, 10 times where it is today, but not big enough to make it $10 a share.

TWST: What's the risk here? What can go wrong?

Mr. Stealey: There's continuing risk that we get ahead of our britches, which is what the company did before. We saw revenue growing nicely, so we let expenses grow much faster than we let revenue grow. That's stupid. That was done. We've gone back the other way. Now we have to have the balance between being aggressive about marketing or being so head-down, please-don't-hit-me attitude that we don't grow the business, a continuing balancing act. Some of the problems that the company has is to live though taking care of past liabilities, and other deals they had. I'm right now trying to go through all those, find out what the real contractual obligations are. The company still has liabilities on its balance sheet from three or four years ago that no one's addressed, no one's called about, they should be written off. We've got to work on those. So we've got many past issues to fix. We abandoned Europe in a bad way, in my mind, and we've got to go back and mend some of those fences. So the first thing that happens when we're a breakeven cash flow, which is just a few months away I hope, and with a little luck it's closer than that, then the issue is managing through all the past issues while we try and grow the company. And I think as we start reporting a few profitable quarters, it's going to be a lot easier for people to be interested in this company. Right now we've got a lot of guys circling around because they see the stock price so low and they know that we'd like to raise some additional capital if they can get a fairly significant chunk of this company. And we're basically telling them no, unless they are going to bring something that grows the revenues significantly. So that's a balancing act as it is in every business.

TWST: As we look out over the next couple of quarters, what are the key benchmarks that investors should watch for?

Mr. Stealey: I think you'll notice some reports of significant increases in revenue on both sides. The biggest milestone is when we get through enough of this accounting stuff and we report our first operating profit, which I don't think is too far away. That's the biggest one. I think as we make our first acquisition, which may be announced in a very short period, everybody will see where we're heading and how we're doing it in a very prudent way of giving some very low-priced stock, and then some milestones based on the company's performance so we don't give away a lot of low-priced stock. So we've got revenue increases, we've got operating profit, and we've got implementing the strategy of acquiring companies that can add significant revenue, profitability and assets to this company.

TWST: Do you have the balance sheet you need to carry you through to operating profitability?

Mr. Stealey: We do, but there's not a lot of wiggle room. The company must be very careful. We didn't put a lot of money in this company when we came in a month ago, we have some promises of some additional capital from current and past investors, we're reviewing all that. They see this very low stock price and they are all excited about getting lots. We're very reluctant to give lots and we're focusing on doing as many internal growth things we can do, without a lot of money. The balance sheet would not be something that I'd like to write to my mother and say, look how cool this is. My mother is a pretty savvy investor. But I will continue to work, the whole staff will continue to work to try and improve that over the next couple of months and I think we are going to have some announcements that will make a significant difference. The biggest thing that's going to happen is not giving away equity where we can resist. We have companies that want to license our games, and we're going to get cash out of them. These companies can license our online games for retail. They can license the games for specific markets geographically. These companies can license these same games for the specific game platforms that they support like the PS2 and the Xbox. The licensing opportunities would generate, I am hoping, a significant amount of additional cash, not equity, just cash, operating funds for the company. My old partner, Sid Meier, said, 'sometimes you've got to be very careful about giving away the family jewels, but sometimes you want to let somebody borrow them for a little bit.' So we are going to let these outside companies borrow our games for a nice piece of cash. This will help IENT grow and get additional capital and recognition for the company without giving away our products.

TWST: If you were sitting down with some potential investors, what two or three reasons would you give them today to take a look at the company?

Mr. Stealey: We're an Internet survivor, so we know how to do that. Two, we have some of the world's best technology and product in the WarBirds family of simulation Internet games. Three, we generate cash every day and we're very close to breakeven. And four, we're a public company that has survived and brings a $50 million tax loss carry forward, stock and operating management to those trapped equities out there that we can merge with. This is public vehicle that can really be attractive to some other companies and organizations that want to take advantage of it. I've had everybody from newspapers to media people to people in the game business interested in how they leverage what iEntertainment's got here. IENT is an attractive acquisition candidate, we've got attractive products, and we have a real potential for being a small but profitable Internet company for the next couple of years that should make our stock worth considerably more than it is right now. When IENT's stock price is at the low price it is now, you don't have to move very far to make it interesting. We will use that appreciated stock to make those acquisitions to really grow the company.

TWST: Does the current price just reflect the concern of whether you are going to survive or not?

Mr. Stealey: Correct, and the fact that they hadn't made a profit in five years.

TWST: That's a problem.

Mr. Stealey: But we're going to fix that, hopefully, this year.

TWST: Is there anything else that we should have touched on?

Mr. Stealey: We are an aggressive bunch, we're a friendly bunch, we have great customers, we've got a lot of work to do, but we have great potential. And if people want to get involved, we would love to hear from them. They can go flying with me in WarBirds. They can bring other companies to join our growth crusade. They can cheer and enjoy our online bingo and casino games. Most of all they can wish us luck and participate in our effort to make the IENT stock worth a lot more than it is now!

TWST: Thank you. (TM)

J.W. 'WILD BILL' STEALEY Chairman & CEO iEntertainment Network, Inc. 124 Quade Drive Cary, NC 27513 (919) 678-8301 (919) 678-8302 - FAX

Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include a Corporate Profile or other highlight material to be provided and sponsored by and for the company.

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