RESEARCH TRIANGLE PARK, N.C.--(BUSINESS WIRE)--May 20, 1999-- Company Continues to Execute Internet Only Strategy Interactive Magic, Inc. (NASDAQ: IMGK), a leading operator of Internet Entertainment Communities including the iMagic Entertainment Network (imagicgames.com), GameHub (GameHub.net) and MPG-Net (mpgn.net), today reported results of combined CD-ROM and Internet operations for the first quarter ended March 31, 1999. The first quarter of 1999 will be the last period in which Interactive Magic results will include its CD-ROM business. Beginning with its second quarter, Interactive Magic will report as an Internet only company, as it continues to implement its Internet Entertainment Community growth strategy. Net revenues for the first quarter of 1999 were $1.2 million, compared to $5.0 million in the first quarter of 1998. Net loss for the quarter was $4.5 million or $0.42 per basic and diluted share, compared to a net loss of $1.2 million or $0.32 per basic and diluted share for the same period last year. Most of the first quarters losses were attributable to the discontinued CD-ROM business and its associated overhead, marketing, and development expenses. The company has been negotiating to dispose of its CD-ROM business for cash, and expects that an announcement on that transaction is imminent. Since the end of the fourth quarter, the Company has significantly restructured its operations in order to leverage its core expertise in online entertainment. This restructuring has resulted in the significant consolidation of operations and a reduction in personnel by more than 75 employees. With the completion of the sale of the CD-ROM business as well as the consolidation of its Texas and Florida offices, the company will have approximately 70 employees solely focused on the Company's Internet Entertainment Community Management strategy. For the first quarter, more than 50% of the Company's revenue was from its growing Internet Community Management business. "Customer traffic, advertising impressions and advertising revenue are all growing steadily at all of Interactive Magic's Internet Entertainment Community websites: The iMagic Entertainment Network (iEN), GameHub, and MPG-Net," said Chairman J.W. Stealey. "The visitor traffic at our community sites from the end of last year of approximately 50,000 per month has risen to approximately 500,000 unique visitors each month. We have gone from negligible advertising impressions, to over 13 million per month in just one quarter. We intend to continue an aggressive Internet growth strategy as we add more products, strategic partners, promotions, and features for our Internet Communities customers." Interactive Magic (Nasdaq: IMGK) was founded in 1994 and became publicly traded on the Nasdaq exchange in 1998. Interactive Magic is a leading provider in hot Internet computer games and entertainment websites including iMagic Entertainment Network or iEN ( http://www.imagicgames.com ) and GameHub ( http://www.gamehub.net ) the preferred provider of online games for AT&T WorldNet's 1.6 million customers. Interactive Magic has strategic or OEM/bundling arrangements with numerous companies including AT&T (NYSE: T), America Online (NYSE: AOL), Earthlink (Nasdaq: ELNK), Columbia House, Software-Of-The-Month Club, Diamond Multimedia (Nasdaq: DIMD), Thrustmaster (Nasdaq: TMSR), CH Products and Logitech (Nasdaq: LOGIY). For more information, contact Lynne Beaman at lbeaman@imagicgames.com or call (919) 461-0722 ext. 3048. For Interactive Magic Investor Relations information please contact Nancy Campbell of Citigate Dewe Rogerson at (212) 688-6840. -Financials Attached - INTERACTIVE MAGIC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS,EXCEPT SHARE AND PER SHARE DATA) THREE MONTHS ENDED MARCH 31 1999 1998 Total net revenues $ 1,164 $ 4,965 Total cost of revenues 520 1,898 Gross Profit 644 3,067 Total operating expenses 4,739 3,621 Operating (loss) income (4,095) (554) Interest income (expense) (849) (567) Loss before income taxes and extraordinary item (4,944) (1,121) Income tax benefit (expense) (35) (128) Loss before extraordinary item (4,979) (1,249) Extraordinary gain on early extinguishment of debt 493 - Net loss $ (4,486) $ (1,249) Loss before extraordinary item per share $ (0.47) $ (0.32) Extraordinary item per share 0.05 - Basic net loss per share $ (0.42) $ (0.32) Shares used in computing amounts per share 10,555,466 3,954,558 Forward-Looking Statements: Except for the descriptions of historical facts contained herein, statements in this news release concerning future results, performance or expectations are forward-looking statements. Actual results, performance or developments could differ materially from those expressed or implied by such forward-looking statements as a result of known or unknown risks, uncertainties and other factors including those described from time to time in the company's filings with the Securities and Exchange Commission, under "Risk Factors" and elsewhere, including risks of delays in development and introduction of new products, dependence on new product introductions which achieve significant market acceptance and the uncertainties of consumer preferences, the rate and degree of market acceptance of online gaming, the ability to negotiate profitable terms for online gaming products and services, dependence on third party software developers for significant portion of new products, risks of rapid technological change and platform changes, intense competition, seasonality, dependence upon third party distribution and risks associated with international business and other risks. IMagic Entertainment Network, iEN and GameHub are trademarks and Interactive Magic is a registered trademark of Interactive Magic, Inc. All other trademarks are property of their respective owners. Copyright 1999 Interactive Magic, Inc. All rights reserved.  