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Interplay: We may not be able to make Fallout Online

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Interplay has a shocking new 10-Q filing. Losing $1m last year, they have a gruesome capital and stockholder deficit of $2.8m. The future of Fallout Online, given the company's situation and the ongoing litigation with Bethesda, is in doubt.

We currently have some obligations that we are unable to meet without generating additional income or raising additional capital. If we cannot generate additional income or raise additional capital in the near future, we may become insolvent and/or be made bankrupt and/or may become illiquid or worthless.

As of December 31, 2010, our cash balance was approximately $3,000 and our working capital deficit totaled approximately $2,877,000 . 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 to fulfill its fiduciary duty that favor the interests of creditors at the expense of our stockholders. 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 may not be able to successfully develop a “Fallout” MMOG.

We plan to exploit the license that we hold to create a “Fallout” MMOG. We must satisfy various conditions to maintain our license. Although we believe that all such conditions have been met, our licensor Bethesda Softworks LLC filed a legal action attempting to terminate our license.

If we lose the pending litigation, our license to create a “Fallout”-branded MMOG may be terminated and we might not be able to successfully launch the game.

A sale or merger of the company is also being considered:

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had net loss of $1,034,000 in 2010. At December 31, 2010, the Company had a stockholders’ deficit of $2,843,000 and a working capital deficit of $2,877,000. The Company has historically funded its operations from licensing fees, royalty and distribution fee advances, and will continue to exploit its existing intellectual property rights in the Company's videogames to provide future funding.

In addition, the Company continues to seek external sources of funding including, but not limited to, a sale or merger of the Company, a private placement or public offering of the Company’s capital stock, the sale of selected assets, the licensing of certain product rights in selected territories, selected distribution agreements, and/or other strategic transactions sufficient to provide short-term funding, and potentially achieve the Company’s long-term strategic objectives. Although the Company has had some success in licensing or distributing sales of certain of its products in the past, no assurance can be given that the Company will do so in the future.

The Company expects that it will need to obtain additional financing or income to fund its current operations. However, no assurance can be given that funding can be obtained on acceptable terms, or at all. These conditions, combined with the Company’s historical operating losses and its deficits in stockholders’ equity and working capital, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that might result from the outcome of this uncertainty.
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