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Interactive Magic, Inc.
215 Southport Drive, Suite 1000, Morrisville, NC 27560 * (919) 461-0722

The company develops, publishes and distributes interactive, real-time, 3D entertainment software, focusing on simulation and strategy games for CD-ROM and online/Internet use.

Primary Underwriting Group
ManagerTierPhone
Bluestone Capital Partners, L.P.Lead Manager (212) 850-9428
Royce Investment Group, Inc.Co-manager (516) 393-8300

Offering Information
NASNTL:IMGK High-Tech: SIC 7372
Type of Shares:Common Shares Filing Date:5/28/98
U.S. Shares:2,600,000 Offer Date:7/22/98
Non-U.S. Shares:0 Filing Range:$8.00 - $10.00
Primary Shares:2,600,000 Offer Price:$8.00
Secondary Shares:0 Gross Spread:$0.56
Offering Amount: $23,400,000 Selling:$0.33
Expenses:$900,000 Reallowance:$0.10
Post-IPO Shares:9,593,699
Employees:121

Legal Counsel, Auditor and Registrar
Issuer's Law Firm: Dorsett, Mitchell & Jernigan, L.L.P.
Bank's Law Firm: Tenzer, Greenblatt, Fallon & Kaplan
Registrar/Transfer Agent: Wachovia Bank of North Carolina
Auditor: Ernst & Young

Selected Financial Data

Dollar amounts in U.S. millions except for per share data
3 Month Ending Financials
Full Year
Audited
Income
Latest
Unaudited
Income
Prior
Audited
Income
Balance
Sheet
12/31/97 3/31/98 3/31/97 3/31/98
Revenue:$16.50$4.91$3.96Assets:$9.21
Net Income:-$4.30-$0.62-$0.82Curr Assets:$7.99
EPS:-$0.68-$0.10Liabilities:$12.97
Prior EPS:Curr Liab:$7.19
Cash Flow/Oper:-$3.77-$1.33-$1.51Equity:-$3.76
Cash Flow/Fin:$5.09$1.72$1.68Cash:$0.12
Cash Flow/Inv:-$1.23-$0.63-$0.32Working Cap:$0.80

Competition
At present, the Company competes primarily against other companies offering high-end simulation and strategy products. In particular, the Company's competitors for its CD-ROM products include NovaLogic, Inc., Electronic Arts, Inc., MicroProse, Inc., Interplay Entertainment Corp., Activision, Inc. and Cendant Corp. (formerly CUC/Sierra On-Line). The Company also competes with companies providing online games, including Kesmai Corporation, VR1 Inc., Simutronics Corporation and NovaLogic, Inc. Many of the Company's existing and future competitors have greater financial, technical, marketing, sales and customer support resources, as well as greater name recognition and better access to consumers, than the Company. There can be no assurance that the Company will respond effectively to market or technological changes or compete successfully in the future.

Business Plan
The Company's objective is to become one of the world's leading providers of CD-ROM and real-time large-scale multiplayer online simulation and strategy games. Key elements of the Company's strategy are to: (I) Increase online recurring revenue, (ii) Focus on simulation and strategy games and expand brand recognition, (iii) Manage risk through internal and external product development, (iv) Expand worldwide distribution network, (v) Leverage core technologies and (vi) Expand operations through strategic acquisitions.

Use of Proceeds
The proceeds from the proposed offering will be used for repayment of indebtedness, sales and marketing, product development, equipment purchases, expansion of international operations, research and development, and working capital and general corporate purposes, including possible acquisitions.

Additional Underwriter Compensation
Warrant to purchase 2,800,000 shares/units at $280.00 per share/unit.

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