<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C.  20549

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



                                    FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended: June 30, 1997        Commission File Number:  0-19463
                   -------------

                             SPECTRUM HOLOBYTE, INC.
                             -----------------------
              Exact Name of registrant as specified in its charter


Delaware                                                              52-1728656
-------------------------------                     ----------------------------
(State or other jurisdiction of                     (IRS Employer Identification
Incorporation or organization)                                           Number)


2490 Mariner Square Loop, Suite 100, Alameda, CA                           94501
------------------------------------------------                     -----------
(Address of Principal Executive Offices)                              (Zip Code)


                                 (510) 522-3584
             ------------------------------------------------------
               Registrant's telephone number, including area code

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
    ---      ---



     28,328,927 shares of Common Stock were outstanding as of July 31, 1997.


<PAGE>


                             SPECTRUM HOLOBYTE, INC.


                                TABLE OF CONTENTS




                                                                            PAGE
                                                                            ----

PART I - FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

          Consolidated Balance Sheets at June 30 and
             March 31, 1997                                                  3

          Consolidated Statements of Operations for the three
             months ended June 30, 1997 and 1996                             4

          Consolidated Statements of Cash Flows for the three
             months ended June 30, 1997 and 1996                             5

          Notes to Consolidated Financial Statements                         6

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS                      8

PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS                                                 18

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                  18

SIGNATURES                                                                  20

EXHIBITS                                                                    21


                                        2
<PAGE>


                             SPECTRUM HOLOBYTE, INC.

                           CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                         JUNE 30,      MARCH 31,
                                                           1997          1997
                                                        -----------   ----------
                                                        (UNAUDITED)
ASSETS
Current assets:
   Cash and cash equivalents                            $  41,163     $  47,110
   Accounts receivable, less allowances
     of $5,984 and $6,568 at June 30
     and March 31, 1997, respectively                       5,134         7,891
   Inventories                                              3,251         4,042
   Prepaid royalties                                        4,400         2,139
   Other current assets                                     1,281         1,958
                                                        ---------     ---------
   Total current assets                                    55,229        63,140

Property, plant and equipment, net                          7,860         7,802
Goodwill, net                                                 805           892
Investments                                                 3,445         6,050
Other assets                                                1,982         2,421
                                                        ---------     ---------
                                                        $  69,321     $  80,305
                                                        ---------     ---------
                                                        ---------     ---------
LIABILITIES, REDEEMABLE PREFERRED
  STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                     $   2,669     $   3,508
   Salaries, wages and related accruals                     4,224         6,337
   Royalties payable                                        1,578         1,840
   Other current liabilities                                7,529         7,122
                                                        ---------     ---------
   Total current liabilities                               16,000        18,807

Other liabilities                                           1,382         1,280
Long-term debt                                             32,499        32,739
                                                        ---------     ---------
Total liabilities                                          49,881        52,826
                                                        ---------     ---------

Redeemable preferred stock, $0.001 par value,
   4,000 shares designated Series A issued and
   outstanding, redemption and liquidation amount
   of $5,330 and $5,260 at June 30 and
   March 31, 1997, respectively                             5,881         5,881

Stockholders' equity:
   Preferred stock, $0.001 par value, 9,000 shares
     authorized (of which 4,000 shares have
     been designated Series A), 16 Series B-1
     convertible shares issued and outstanding at 
     June 30 and March 31, 1997                                -              -
   Common stock, $0.001 par value, 40,000 shares
     authorized, 28,329 and 28,287 shares issued
     and outstanding at June 30 and March 31, 1997,
     respectively                                              29            29
   Additional paid-in capital                             142,739       142,558
   Accumulated deficit                                   (128,780)     (120,468)
   Foreign currency translation adjustment                   (429)         (521)
                                                        ---------     ---------
   Total stockholders' equity                              13,559        21,598
                                                        ---------     ---------
                                                        $  69,321     $  80,305
                                                        ---------     ---------
                                                        ---------     ---------



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                        3
<PAGE>

                             SPECTRUM HOLOBYTE, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


                                                          THREE MONTHS ENDED
                                                               JUNE 30,
                                                       -------------------------
                                                         1997            1996
                                                       --------       ----------
Net revenue                                            $ 13,580       $ 13,072
Cost of revenue                                           5,778          4,899
                                                       --------       --------
Gross profit                                              7,802          8,173

Operating expenses:
     Sales and marketing                                  4,181          4,582
     General and administrative                           3,173          3,672
     Research and development                             5,863          5,688
                                                       --------       --------
              Total operating expenses                   13,217         13,942
                                                       --------       --------

Operating loss                                           (5,415)        (5,769)
Interest expense, net                                      (151)          (481)
Other income (expense), net                              (2,746)         2,067
                                                       --------       --------
Loss before extraordinary item                           (8,312)        (4,183)
Extraordinary item, net of tax effect                        -           2,668
                                                       --------       --------
Net loss                                               $ (8,312)      $ (1,515)
                                                       --------       --------
                                                       --------       --------

Per share data:
  Loss before extraordinary item                       $  (0.30)      $  (0.18)
  Extraordinary item, net of tax effect                      -            0.11
                                                       --------       --------
  Net loss                                             $  (0.30)      $  (0.07)
                                                       --------       --------
                                                       --------       --------

Number of shares used in computation of
  per share data                                         28,304         24,384
                                                       --------       --------
                                                       --------       --------



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                        4
<PAGE>

                             SPECTRUM HOLOBYTE, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                      JUNE 30,
                                                              -------------------------
                                                                 1997           1996
                                                              ----------     ----------
<S>                                                           <C>            <C>
OPERATING ACTIVITIES:
Net loss                                                      $ (8,312)      $ (1,515)
Adjustments to reconcile net loss to net cash used
  in operating activities:
    Depreciation and amortization                                1,031            906
    Minority interest in joint venture losses                      (18)            23
    Gain on sale of investment in FASA                               -         (1,895)
    Loss on write-down of investment in TEN                      2,605              -
    Extraordinary gain on extinguishment of long-term debt           -         (2,668)
    Changes in assets and liabilities:
       Accounts receivable                                       2,893          3,356
       Inventories                                                 854            250
       Prepaid royalties                                        (1,812)          (684)
       Other current assets                                        684            400
       Accounts payable                                           (868)          (840)
       Salaries, wages and related accruals                     (2,133)          (349)
       Royalties payable                                          (277)          (128)
       Other current liabilities                                   (23)           (99)
       Other liabilities                                           132            (19)
                                                              --------       --------
Net cash used in operating activities                           (5,244)        (3,262)

INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment                     (613)          (715)
Acquisition of certain net assets of
  Leisuresoft GmbH, net of cash acquired                             -           (820)
Proceeds from sale of investment
 in FASA Interactive Technologies                                    -            570
Investment in Virtual World Entertainment Group, Inc.                -           (570)
                                                              --------       --------
Net cash used in investing activities                             (613)        (1,535)

FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
  issuance costs                                                   181          9,744
Repayments under notes and lines of credit                        (122)          (504)
Principal payments on capital lease obligations                    (72)          (168)
                                                              --------       --------
Net cash provided by (used in) financing activities                (13)         9,072
Effect of exchange rate changes on cash                            (77)           (95)
                                                              --------       --------
Increase (decrease) in cash and cash equivalents                (5,947)         4,180
Cash and cash equivalents at beginning of period                47,110         35,369
                                                              --------       --------
Cash and cash equivalents at end of period                    $ 41,163       $ 39,549
                                                              --------       --------

SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest                                        $     41       $     19
Cash paid for income taxes                                          79              2
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.


                                        5
<PAGE>


                             SPECTRUM HOLOBYTE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1.  BASIS OF PRESENTATION

The consolidated financial statements are the unaudited historical financial
statements of Spectrum HoloByte, Inc. and subsidiaries (the "Company") and
reflect all adjustments (consisting only of normal recurring accruals) that, in
the opinion of management, are necessary for a fair presentation of interim
period results.  The consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997,
as filed with the Securities and Exchange Commission on June 30, 1997.  The
March 31, 1997 consolidated balance sheet included herein was derived from
audited financial statements, but does not include all disclosures, including
notes, required by generally accepted accounting principles.

The results of operations for the current interim period are not necessarily
indicative of results to be expected for the entire current year or other future
interim periods.

For the purposes of presentation, the Company has indicated its interim fiscal
periods as ended on June 30, 1997 and 1996 and its prior fiscal year as ended on
March 31, 1997.  As the Company's annual fiscal period is accounted for on a 52-
53 week year, the interim period financial statements included herein represent
interim results through June 27, 1997 and June 30, 1996, respectively, and the
end of the prior fiscal year included herein represents amounts as of March 30,
1997.


NOTE 2.  INVENTORIES

Inventories are stated at the lower of cost or market on a first-in, 
first-out (FIFO) basis.  Inventories at June 30, 1997 and March 31, 1997 
consisted of (in thousands):

                                      JUNE 30,      MARCH 31,
                                        1997          1997
                                      -----------------------
          Raw materials               $   509       $   413
          Finished goods                2,742         3,629
                                      -----------------------
                                      $ 3,251       $ 4,042
                                      -----------------------
                                      -----------------------


NOTE 3.  INVESTMENT

In fiscal 1996 and 1997, the Company made minority equity investments of $2.6 
million in Total Entertainment Network, Inc ("TEN"). These cost-basis 
investments were made pursuant to an investment and licensing arrangement 
whereby the Company committed to allow certain of the Company's future titles 
to be played over the Total Entertainment Network. In conjunction with the 
planned refinancing of TEN, the Company recorded a $2.6 million charge in the 
first quarter of fiscal 1998 to write-down its investment as management 
estimated that a decline in fair value had occurred that was other than 
temporary in nature. The charge is included in other income and expense in 
the accompanying consolidated statement of operations.

NOTE 4.  NET LOSS PER SHARE

Net loss per share has been computed by dividing the net loss by the weighted
average number of common shares outstanding during each period.  For the three-
month periods ended June 30, 1997 and 1996, cumulative preferred dividends on
Series A preferred stock of $70,000 have been added to the net loss in the
computation of net loss per share.  Common stock equivalents are excluded from
the computations of net losses per share for each period presented as their
effect would be antidilutive.


                                        6
<PAGE>


                             SPECTRUM HOLOBYTE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 5.  DERIVATIVES

The Company enters into foreign exchange forward contracts to hedge certain 
foreign currency denominated balances against changes in rates of exchange. 
These contracts require the Company to exchange foreign currencies and 
generally mature within three months. Contracts that are inversely correlated 
to the risk of the hedged item and are designated and effective as a hedge of 
transactions for which a firm commitment has been attained qualify for hedge 
accounting. Gains and losses on these contracts are deferred and recognized 
in income in the same period that the underlying transactions are settled. If 
an instrument ceases to qualify for hedge accounting, any subsequent gains 
and losses are recognized as income in the current period.  The Company does 
not use any derivatives for trading or speculative purposes.

NOTE 6.  RECENT PRONOUNCEMENT

In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
specifies the computation, presentation and disclosure requirements for earnings
per share. SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15
and is effective for financial statements issued for periods ending after
December 15, 1997. The Company will report its earnings per share in accordance
with this standard beginning with the three-month period ending December 31,
1997.


                                        7
<PAGE>

                             SPECTRUM HOLOBYTE, INC.


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

The following information should be read in conjunction with the consolidated
historical financial information and the notes thereto included in ITEM 1 of
this Quarterly Report and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997, as filed with the Securities
and Exchange Commission on June 30, 1997.

This Quarterly Report on Form 10-Q contains forward-looking statements which
involve risks and uncertainties.  The Company may, from time to time, make oral
forward-looking statements.  The factors discussed in "Risk Factors" below are
important factors that could cause actual results to differ materially from
those projected in any such forward-looking statements.

OVERVIEW

Spectrum HoloByte, Inc. ("the Company") derives revenue primarily from
publishing and distributing entertainment software. This software is generally
published by the Company for the following platforms:

-         Compact-Disc Read-Only Memory ("CD-ROM") for the personal computer
          ("PC").
-         Videogame consoles, which include 32-bit "next-generation" systems.

In addition, the Company generates revenue from the licensing of its products to
third-party publishers and the distribution of third-party software and related
products.

See additional discussion in "Risk Factors" below.

OPERATING RESULTS

Consolidated net revenue for the three-month periods ended June 30, 1997 and
1996 consisted of the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                      % OF CONSOLIDATED
                                             AMOUNT                                      NET REVENUE
                                     -----------------------                        ---------------------
                                       1997           1996          % CHANGE         1997           1996
                                     -----------------------       ----------       ---------------------
   <S>                               <C>            <C>            <C>              <C>            <C>
   By Territory:
     North America                   $  3,435       $  7,245         -52.6%          25.3%          55.4%
     International                     10,145          5,827          74.1%          74.7%          44.6%
                                     -----------------------                        ---------------------
     Consolidated                    $ 13,580       $ 13,072           3.9%         100.0%         100.0%
                                     -----------------------                        ---------------------
                                     -----------------------                        ---------------------

   By Platform/Type:
      CD-ROM                         $ 10,845       $  8,939          21.3%          79.9%          68.4%
      Videogame                           276          2,621         -89.5%           2.0%          20.0%
      Licensing/OEM                     1,080          1,512         -28.6%           8.0%          11.6%
      Distribution                      1,124              -             -            8.3%             -
      Floppy disk and other               255              -             -            1.8%             -
                                     -----------------------                        ---------------------
      Consolidated                   $ 13,580       $ 13,072           3.9%         100.0%         100.0%
                                     -----------------------                        ---------------------
                                     -----------------------                        ---------------------
</TABLE>


The increase in consolidated net revenue during the first quarter of fiscal 1998
was due largely to the release of STAR TREK: GENERATIONS, which accounted for
34% of consolidated net revenue, combined with the strong sales of the back-
catalogue titles GRAND PRIX II and SID MEIER'S CIVILIZATION II ("CIVILIZATION
II"). In the first quarter of fiscal 1997, the Company released two new
products, TOP GUN: FIRE AT WILL and GUNSHIP 2000 (both for the Sony PlayStation)
which combined, accounted for 17% of consolidated net revenue. The decline in
North American net revenue was due principally to the prior year success of
CIVILIZATION II (which was released in


                                        8
<PAGE>


                             SPECTRUM HOLOBYTE, INC.


the fourth quarter of fiscal 1996) and the U.S. release of the Sony 
PlayStation title TOP GUN: FIRE AT WILL in the first quarter of fiscal 1997. 
The increase in the amount and proportion of international net revenue was 
mostly due to European shipments of STAR TREK: GENERATIONS and GRAND PRIX II 
and distribution revenue generated from Leisuresoft GmbH ("Leisuresoft"), a 
majority-owned subsidiary acquired early in fiscal 1997.

The decline in videogame revenue in the first quarter of fiscal 1998 was due to
the release of two videogame console titles in the prior year as compared to no
titles released in fiscal 1998.  The two fiscal 1997 titles (both for the Sony
PlayStation) were TOP GUN: FIRE AT WILL and GUNSHIP 2000. The decline in first
quarter license/OEM revenue was due largely to the cancellation of a certain OEM
distribution agreement.

Distribution revenue includes shipments of computer software and related 
products published or manufactured by third parties and distributed by the 
Company.  Substantially all of the distribution revenue generated in the 
first quarter of fiscal 1998 related to shipments by Leisuresoft.

Net revenue in the first quarter of fiscal 1998 was also favorably impacted 
by a percentage decrease in the provisions recorded for returns and 
markdowns.  This decrease was due largely to a focused effort to better 
manage the Company's products in the distribution channel.

Gross profit for the three-month periods ended June 30, 1997 and 1996 consisted
of the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                      % OF CONSOLIDATED
                                              AMOUNT                                     NET REVENUE
                                     ------------------------                       ---------------------
                                       1997           1996          % CHANGE         1997           1996
                                     --------       ---------       --------        -------        ------
   <S>                               <C>            <C>             <C>             <C>            <C>
   Gross profit                       $ 7,802        $ 8,173          -4.5%          57.5%          62.5%
</TABLE>

Gross profit as a percent of consolidated net revenue declined in the first 
quarter of fiscal 1998 due primarily to the consolidation of Leisuresoft's 
lower-margin wholesale operation and a higher percentage of royalties paid to 
third-party developers, primarily for STAR TREK: GENERATIONS. This compares 
to a lower royalty rate associated with CIVILIZATION II, the top selling 
title in the first quarter of fiscal 1997.

Partially offsetting the decrease in gross profit were the reduced sales of
lower-margin Sony PlayStation titles and a reduction in the amount provided for
in-house and channel inventory reserves.  The Company believes that gross profit
could be adversely impacted in future periods by an increased proportion of
distribution revenue, increased license royalties and competitive pricing
pressures.

The following table sets forth operating expenses, interest and other income
(expense) and extraordinary items for the three-month periods ended June 30,
1997 and 1996 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                           % OF CONSOLIDATED
                                                   AMOUNT                                     NET REVENUE
                                           ----------------------                        ---------------------
                                             1997           1996         % CHANGE         1997           1996
                                           ----------------------        --------        ---------------------
<S>                                        <C>            <C>            <C>             <C>            <C>
Sales and marketing                        $ 4,181        $ 4,582          -8.8%          30.8%          35.1%
General and administrative                   3,173          3,672         -13.6%          23.3%          28.1%
Research and development                     5,863          5,688           3.1%          43.2%          43.5%
                                           ----------------------                        ---------------------
   Total operating expenses                $13,217        $13,942          -5.2%          97.3%         106.7%
                                           ----------------------                        ---------------------
Interest and other income (expense)        $(2,897)       $ 1,586             -          -21.3%          12.1%
                                           ----------------------                        ---------------------
Extraordinary item, net of tax effect            -        $ 2,668         100.0%             -           20.4%
                                           ----------------------                        ---------------------
                                           ----------------------                        ---------------------
</TABLE>


                                        9
<PAGE>


                             SPECTRUM HOLOBYTE, INC.


The decrease in sales and marketing expense in the first quarter of fiscal 
1998 was largely due to a decline in variable marketing costs, the 
consolidation of certain redundant domestic sales and marketing functions and 
the reduction of certain trade show costs.  The reduction in variable 
marketing costs was due to fewer new product releases in the first quarter of 
fiscal 1998 and higher fiscal 1997 promotional costs related to the launch of 
CIVILIZATION II (released late in fiscal 1996).

The reduction in general and administrative spending in the first three 
months of fiscal 1998 included decreased charges for bad debt expense 
($430,000) offset partially by an increase in European incentive 
compensation.  The prior year's bad debt provision included a domestic charge 
of $750,000 due to concerns regarding the credit-worthiness of certain 
domestic distributors.

The increase in research and development costs in the current year included
additional outside labor costs incurred as the Company increased its efforts to
release STAR TREK: GENERATIONS and recruiting and relocation costs related to
certain management positions.  These increases were partially offset by a
reduction in the write-off of development advances associated with projects
cancelled in the first quarter of the prior year.

The change in other income (expense) includes the following: 1) in the first 
quarter of fiscal 1998, a $2.6 million charge was recorded to write-down the 
Company's investment in Total Entertainment Network, Inc. due to management's 
estimate that a decline in fair value had occurred that was other than 
temporary in nature, 2) a $1.9 million gain was recorded in the same period 
of the prior year related to the sale of the Company's investment in FASA 
Interactive Technologies, Inc., and 3) lower interest costs were incurred in 
the first quarter of fiscal 1998 due to the retirement of $18.9 million in 
debt in the prior year.

The extraordinary item recorded in the prior year reflects the gain realized 
upon the conversion to equity of a portion of the Company's Subordinated 
Notes at a discount from face value.

LIQUIDITY AND CAPITAL RESOURCES

Working capital decreased to $39.2 million and cash decreased $5.9 million to
approximately $41.2 million during the first quarter of fiscal 1998. The main
uses of funds in the first quarter of fiscal 1998 were to fund operating losses
and short-term royalty advances.

The Company generated negative cash flows from operations during the first
quarter of fiscal 1998 mostly due to the net loss generated, net of the non-cash
loss on the write-down of the Company's investment in TEN. Operating cash was
also used to pay royalty advances to Team 17, a developer and publisher of
entertainment software, and annual employee bonuses earned in fiscal 1997.
Partially offsetting these decreases was an increase in cash due to a decline in
receivables from strong collections of revenue generated in the fourth quarter
of fiscal 1997 and the first quarter of fiscal 1998.

The Company has an overdraft/line of credit facility in the UK that is based
upon qualifying receivables and certain other bank requirements for amounts up
to a maximum credit limit of 1,850,000 pounds sterling (approximately $3.1
million at June 30, 1997).  This facility bears interest at the rate of 2.75%
over the bank's base rate, and expires September 10, 1997. There can be no
assurance that the Company will be able to renegotiate this facility upon its
expiration or that any additional borrowing facilities will be made available to
the Company on acceptable terms.

The Company has authorized 9,000,000 shares of preferred stock, $0.001 par 
value, of which 4,000,000 shares are designated Series A redeemable preferred 
stock (Series A Stock). At June 30 and March 31, 1997 there were 4,000,000 
shares of Series A Stock outstanding. The Series A Stock is convertible into 
196,078 shares of common stock and accrues dividends at an annual rate of 7%. 
Preferred stockholders receive one vote for each common share into which 
their preferred shares are convertible. The Series A Stock is redeemable for 
$1.00 per share plus all accumulated but unpaid dividends ($5.3 million as of 
June 30, 1997) (i) at any time by the Company, (ii) commencing on September 
24, 1997, for up to 50% of the Series A Stock until September 24, 1998, upon 
written demand of holders of the majority of Series A Stock, or (iii) in its 
entirety commencing on September 24, 1998, upon written demand of holders of 
the majority of Series A Stock.

Management believes that existing cash and cash equivalents, together with cash
generated from operations, will be sufficient to meet the Company's liquidity
and capital needs for at least the next 12 months.


                                       10
<PAGE>


                             SPECTRUM HOLOBYTE, INC.


RISK FACTORS

THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY AND ITS BUSINESS PROSPECTS.

OPERATING RESULTS.  The Company reported a net loss for the quarter ended June
30, 1997 of $8.3 million, or $0.30 per share. Although the Company reported net
income for the year ended March 31, 1997 of $8.0 million or $0.28 per share, the
Company had net losses of approximately $39.8 million and $18.1 million in
fiscal years 1996 and 1995, respectively. There can be no assurance that the
Company's business strategies and tactics will be successful and that the
Company will be able to generate profitability in future quarterly or annual
periods.

FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY.  The Company's operating results
have varied significantly in the past, and are expected to vary significantly in
the future.  This variability is a result of factors such as: 1) volume
shipments of significant new products, 2) the degree of market acceptance of the
Company's products, 3) the introduction of products competitive with those of
the Company, 4) the timing and market acceptance of new hardware and software
product introductions, 5) the size and growth rate of the consumer software
market, 6) the seasonality of sales, 7) development and promotional expenses
relating to the introduction of new products or new versions of existing
products, 8) product returns and markdowns, 9) changes in pricing policies by
the Company and its competitors, 10) the accuracy of retailers' forecasts of
consumer demand, 11) the timing of orders from major customers, 12) order
cancellations, 13) delays of shipment, and 14) write-offs of advance royalty
payments. Because a majority of the unit sales for a product typically occurs in
the first 90 to 120 days following the introduction of the product, the
Company's revenue may increase significantly in a period in which a major
product introduction occurs and may decline in following periods or in periods
in which there are no major product introductions. The Company's expenses are
based, in part, on expected future revenue. Certain overhead and product
development expenses are fixed and do not vary directly in relation to revenue.
Consequently, if net revenue is below expectations, the Company's operating
results are likely to be materially and adversely affected. In certain past
periods the Company's revenue or operating results were below the expectations
of, and certain new products were not introduced when anticipated by, public
market analysts and investors. These circumstances could recur in future
periods, and in such event, the prices of the Company's common stock and Notes
would likely be materially and adversely affected.

The entertainment software business is highly seasonal. Typically, net revenue
is highest during the last calendar quarter (which includes the holiday buying
season), declines in the first calendar quarter, is lowest in the second and
increases in the third calendar quarter. This seasonal pattern is due primarily
to the increased demand for entertainment software products during the year-end
holiday buying season. The Company's net revenue, however, is largely dependent
on releases of major new products and, as such, may not necessarily reflect the
seasonal patterns of the industry as a whole. The Company expects that its net
revenue and operating results will continue to fluctuate significantly in the
future.

SIGNIFICANT LEVERAGE.  As of June 30, 1997, the Company had outstanding
indebtedness for borrowed funds of approximately $32.5 million and cumulative
manditorily redeemable preferred stock of $5.9 million. This substantial
leverage will have several important consequences for the Company's future
operations, including the following: (i) a substantial portion of the Company's
cash flows from operations will be dedicated to the payment of interest on, and
principal of, its indebtedness; (ii) the Company's ability to obtain additional
financing in the future for capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired; and (iii) the Company's
ability to withstand competitive pressures, adverse economic conditions and
adverse changes in governmental regulations and to make acquisitions or
otherwise take advantage of significant business opportunities that may arise
may be negatively impacted.

The Company in the future may enter into lines of credit or other borrowing
arrangements, any of which would add to the total outstanding indebtedness of
the Company. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to financial, business and other factors
affecting the operations of the


                                       11
<PAGE>

                             SPECTRUM HOLOBYTE, INC.


Company, many of which are beyond its control. If the Company is unable to
generate sufficient cash flow from operations in the future to service its debt,
it may be required to convert or refinance all or a portion of such debt,
including the Notes (see below), or to obtain additional financing. However,
there can be no assurance that any refinancing would be possible or that any
additional financing could be obtained.

DEPENDENCE ON NEW PRODUCT INTRODUCTIONS; PRODUCT DELAYS.  A significant 
portion of the Company's fiscal year revenue is generated by products 
introduced during that fiscal year. The Company depends on both the timely 
introduction of successful new products or sequels to existing products to 
replace declining revenue from older products and continued revenue from 
back-catalogue products. If for any reason revenue from new products or other 
activities fails to replace declining revenue from existing products, or if 
revenue from back-catalogue titles declines significantly, the Company's 
business, operating results and financial condition may be materially and 
adversely affected.  In order to maintain or grow its current revenue levels, 
the Company believes it will be necessary to develop or obtain rights to new 
products that achieve and sustain market acceptance, are developed for the 
appropriate platforms and are introduced in a timely manner. The Company is 
continuing to devote considerable resources toward the development of new 
products and has secured rights to intellectual properties owned by third 
parties. As is typical in the industry, while the Company maintains 
internally developed release schedules, there can be no assurance that new 
products under development will be released on schedule or at all, or that 
any such products will generate significant revenue. Historically, the 
Company has frequently missed product release schedules. To the extent that 
major new products are not released on schedule, both net revenue and gross 
profit are likely to be materially and adversely affected. In addition, as 
access to distribution channels and retail shelf space becomes increasingly 
competitive, the Company's ability to produce and bring to market new and 
compelling products in a timely fashion plays an increasingly important role 
in the Company's ability to retain adequate access to these channels and 
retail shelf space.

The Company's current production schedules contemplate that the Company will 
commence shipments of a number of new products in fiscal 1998 and 1999. As 
with any software product, however, until all aspects of the development and 
initial distribution of a game are completed, there can be no assurance of 
its release date. Release dates will vary depending on quality assurance 
testing and other development factors. If the Company were unable to commence 
volume shipments of a significant new product during the scheduled quarter, 
the Company's revenue and earnings would likely be materially and adversely 
affected in that quarter. In the past, the Company has experienced 
significant delays in the introduction of certain new products. It is likely 
in the future that certain new products will not be released in accordance 
with the Company's internal development schedule or the expectations of 
public market analysts and investors. A significant delay in the introduction 
of, or the presence of a defect in, one or more new products could have a 
materially and adversely effect on the ultimate success of such products and 
on the Company's business, operating results and financial condition, 
particularly in the quarter in which such products are scheduled to be 
introduced.

The process of developing software products such as those offered by the Company
is extremely complex and is expected to become more complex and expensive in the
future as consumers demand products with more sophisticated and elaborate
multimedia features and as new platforms and technologies are supported. At the
same time, the introduction of new technologies and competitive products, the
increase in competition for retail shelf space among software products and other
factors may cause the effective lives of the Company's products to become
shorter and the Company's ability to introduce new products on a timely basis to
become increasingly important. As the Company intends to focus its resources on
a smaller number of titles, its exposure to the risks of delays of any one title
will increase.

UNCERTAINTY OF MARKET ACCEPTANCE; UNPREDICTABLE PRODUCT LIFE CYCLES.  Consumer
preferences for entertainment software products are continually and rapidly
changing and are extremely difficult to predict. Few entertainment software
products achieve sustained market acceptance, for example, beyond one holiday
buying season. There can be no assurance that new products introduced by the
Company will achieve any significant degree of market acceptance, or that
acceptance, if achieved, will be sustained for any significant period. Further,
there can be no assurance that such products will not be subject to changes in
consumer preferences or that product life cycles will be sufficient to permit
the Company to recover development and


                                       12
<PAGE>

                             SPECTRUM HOLOBYTE, INC.


other associated costs. In addition, sales of any single title of the Company's
entertainment software products will decline over time. A majority of the unit
sales for a product typically occurs in the first 90 to 120 days after the
product is introduced. Therefore, the Company cannot rely on the sales of
current products to sustain its business in the future. Failure of new products
or platforms to achieve or sustain market acceptance would have a material and
adverse effect on the Company's business, operating results and financial
condition. In addition, the Company does not carry significant inventory of its
new products. As a result, significant production delays would have a material
and adverse effect on the Company's business and operating results. Further, if
demand for a particular product is greater than anticipated, the Company may not
have sufficient inventory to meet customer demands.

COMPETITION. The entertainment software industry is intensely competitive and 
in the process of consolidation. The Company's competitors vary in size from 
very small companies with limited resources to very large corporations with 
greater financial, marketing and product development resources than those of 
the Company. The Company competes primarily with other developers of PC 
entertainment and video game entertainment software. Significant competitors 
of the Company in the entertainment software industry include Electronic 
Arts, CUC International, Lucas Arts, Interplay, GT Interactive, Acclaim 
Entertainment, Broderbund Software, and Virgin Interactive. The success of 
one or more of these companies or the entry and participation of new 
companies, including diversified entertainment companies, may adversely 
affect the Company's future performance. The availability of significant 
financial resources has become a major competitive factor in the 
entertainment software industry, principally as a result of the technical 
sophistication of advanced multimedia computer game products requiring 
substantial investments in research and development and the increasing need 
to license products and rights to use other intellectual properties from 
third parties. Also, competitors with large product lines and popular titles 
typically have greater leverage with retailers and distributors and other 
customers who may be willing to promote titles with less consumer appeal in 
addition to such competitors' most popular titles.

Many of the Company's competitors are developing on-line interactive computer
games that will be competitive with the Company's products. As competition
increases, significant price competition and reduced profit margins may result.
In addition, competition from new technologies may reduce demand in markets in
which the Company has traditionally competed. Prolonged price competition or
reduced demand as a result of competing technologies would have a material and
adverse effect on the Company's business, financial condition and operating
results. There can be no assurance that the Company will continue to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not materially and adversely affect its business,
operating results and financial condition.

Retailers of the Company's products typically have a limited amount of shelf
space and promotional resources, and there is intense competition among consumer
software producers for adequate levels of shelf space and promotional support
from retailers. To the extent that the number of consumer software products and
computer platforms increases, this competition for shelf space may intensify.
Due to increased competition for limited shelf space, retailers and distributors
are increasingly in a better position to negotiate favorable terms of sale,
including promotional discounts and product return policies. Retailers often
require software publishers to pay fees in exchange for preferred shelf space.
The Company's products constitute a relatively small percentage of a retailer's
sales volume, and there can be no assurance that retailers will continue to
purchase the Company's products or provide the Company's products with adequate
levels of shelf space and promotional support.

As more consumers own multimedia PCs, the distribution channels for
entertainment software have changed, and are expected to continue to change, to
increasingly depend on mass merchandisers, online services and the Internet to
reach the broader market. In addition, while this trend has increased the number
of distribution channels, it has intensified competition for shelf space because
these new channels generally carry only top-selling titles. In addition, other
types of retail outlets and methods of product distribution, such as online
services and the Internet, may become important in the future, and it will be
important for the Company to gain access to these channels of distribution.
There can be no assurance that the Company will gain such access or that the
Company's access will allow the Company to maintain its historical levels of
sales volume.


                                       13
<PAGE>

                             SPECTRUM HOLOBYTE, INC.


CONCENTRATION OF CUSTOMER BASE; RISK OF CUSTOMER BUSINESS FAILURE; PRODUCT 
RETURNS.  The Company principally sells its products to retailers and 
distributors, who in turn resell the products to consumers. During the 
quarter ended June 30, 1997, sales to the top ten such customers represented 
approximately 52% of the Company's net revenue. Sales are typically made on 
credit, with terms that vary depending upon the customer and the nature of 
the product. The Company does not require collateral to secure payment. 
Retailers and distributors compete in a volatile industry and are subject to 
the risk of business failure. The business failure of a significant 
distributor or customer could have a material and adverse effect on the 
Company's business, operating results and financial condition.

The Company is exposed to the risk of product returns from distributors and
retailers. The Company currently maintains a stock balancing policy that allows
distributors and retailers to return products subject to certain conditions. The
Company provides reserves for returns that it believes are adequate, and the
Company's agreements with various customers place certain limits on product
returns. However, new product introductions by the Company or its competitors,
or changes in consumer demand from that anticipated, could cause customers to
seek to return inventory to the Company. Due to the unpredictability of consumer
demand and the uncertainties associated with a rapidly changing market, there
can be no assurance that the Company or its customers will be able to forecast
demand accurately. Any significant amount of product returns or markdowns could
have a material and adverse effect on the Company's business, operating results
and financial condition.

DEPENDENCE UPON STRATEGIC RELATIONSHIPS.  The Company's business strategy relies
to a significant extent on its strategic relationships with other companies and
on its alliances with key developers. Certain agreements allow third parties to
approve a product prior to its release, and therefore, subject the product to
delay. There can be no assurance that these relationships will be successful or
that the Company will continue to maintain and develop strategic relationships,
or that licenses between the Company and any third party will be renewed or
extended at their expiration dates. The Company's failure to renew or extend a
key license or maintain its strategic relationships could materially and
adversely affect the Company's business, operating results and financial
condition. In addition, under certain key license agreements, the Company must
obtain approval on a timely basis from the licensor in order to market products
it develops under the license. There can be no assurance that the Company will
obtain such approval, and failure to do so could have a material and adverse
effect on the Company's operating results, financial condition and business
prospects.

The Company has made certain minority equity investments that it believes will
provide future access to products, technologies or distribution channels.
Management performs ongoing evaluations of the future realization of these
investments, and charges any declines in value that are other than temporary in
nature to other expense in its quarterly Consolidated Statements of Operations.
A write down of one or more of these investments could have a material adverse
impact on the Company's operating results and financial condition.

CHANGES IN TECHNOLOGY AND PRODUCT PLATFORMS.  The market for entertainment
software, including entertainment software platforms, is undergoing rapid
technological change. As a result, the Company must continually anticipate and
adapt its products to emerging platforms and evolving consumer preferences. The
introduction of new platforms and technologies can render existing products
obsolete and unmarketable. Development of entertainment software products for
new hardware platforms requires substantial investments in research and
development for technologies such as enhanced sound, digitized speech, music and
video and requires the Company to anticipate and develop products for those
platforms that will ultimately be successful. Such research and development
efforts, which generally require 12 to 24 months, must occur well in advance of
the release of new platforms in order to introduce products on a timely basis
following the release of such platforms. In addition, the Company expects that
the trend toward more complex multimedia products and increasing product
development costs will continue for the foreseeable future.


                                       14
<PAGE>
                             SPECTRUM HOLOBYTE, INC.


Although the Company intends to develop and market games for certain advanced
and emerging platforms, these development and marketing efforts may require
greater financial and technical resources than those currently possessed by the
Company. In addition, there can be no assurance that the platforms for which the
Company develops products will achieve market acceptance and, as a result, there
can be no assurance that the Company's development efforts with respect to such
new platforms will lead to marketable products or products that generate
sufficient revenue to offset research and development costs incurred in
connection with their development. There can be no assurance that the Company
will be successful in developing and marketing products for new platforms.
Failure to develop products for new platforms that achieve significant market
acceptance may have a material and adverse effect on the Company's business,
operating results and financial condition. The Company is developing games that
may be played interactively over on-line services and the Internet, but there
can be no assurance that the market for networked videogame play will evolve or
develop as anticipated. Consumer preferences change continually and are
extremely difficult to predict. Even if a market for networked videogame play
develops, no assurance can be given that the Company's products will meet the
requirements of such market and achieve market acceptance.

The Company is heavily dependent on the success of the entertainment software
developed for use on the PC. However, there are multiple, competing and
incompatible formats being introduced in this new market. There can be no
assurance that the Company's strategy of developing primarily for the PC or the
other platforms the Company chooses to support ultimately will be successful.
The development, marketing and distribution of products for game consoles the
Company chooses to support will involve substantial investment and risks. The
Company believes that the principal target audience for game consoles may be
younger than the Company's traditional customers, and there can be no assurance
that the Company's products will be successful with this different audience. In
addition, the Company anticipates that products in the game console market will
require substantially greater expenditures for marketing, advertising and
inventory buildup, often before the market acceptance of a product is known.
Inventory will be two or more times more expensive as a result of license fees
that are required to be prepaid to the manufacturers of the hardware platforms.
Further, game console products will be sold through channels that overlap with,
but are somewhat different from, the retail channels currently utilized by the
Company, and the Company will be competing in distribution against much larger
organizations with greater financial resources. There can be no assurance that
the Company will be successful in marketing and distributing software for game
consoles.

RISK OF SOFTWARE ERRORS OR FAILURES.  Software products as complex as those
offered by the Company may contain undetected errors when first introduced or
when new versions are released. In the past, the Company has discovered software
errors in certain of its product offerings after their introduction and has
experienced delays or lost revenue during the period required to correct these
errors. The Company's products must maintain compatibility with certain
hardware, software and accessories. Any changes that result in incompatibility
could result in significant product returns and customer service costs. In
particular, the PC hardware environment is characterized by a wide variety of
nonstandard peripherals (such as sound and graphics cards) and configurations
that make prerelease testing for programming or compatibility errors very
difficult and time consuming. There can be no assurance that, despite testing by
the Company, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could have a material and adverse effect on the Company's
business, operating results and financial condition. The risk of undetected
product errors can be expected to increase as products and their development
processes become more complex and as growing competition leads to increased
pressure to reduce time to market.

DEPENDENCE ON KEY PERSONNEL; MANAGEMENT CHANGES.  The Company's future success
depends in large part on the continued service of its key product development,
technical and management personnel and on its ability to continue to attract,
motivate and retain highly qualified employees, including additional management
personnel. The loss of certain key employees could have a material and adverse
effect on the Company's business. In addition, the Company depends on teams of
programmers, game designers and artists. Competition for these skilled employees
is intense, and the loss of the services of key development personnel could have
a material and adverse effect upon the Company's current business, new product
development efforts and prospects. There can be no assurance that qualified
personnel can be readily identified and hired wherever necessary, that any new
personnel will be successfully integrated into the


                                       15
<PAGE>
                             SPECTRUM HOLOBYTE, INC.


Company, its operations and culture, or that new personnel, if hired, will
improve the Company's business, operations or operating results. The Company
does not currently have key person life insurance on any employees.

USE OF INDEPENDENT SOFTWARE DEVELOPERS.  In addition to marketing internally
developed software, the Company also markets entertainment software created by
independent software developers. The cost to retain independent developers is
increasing in the form of guaranteed advances and royalties. Additionally, the
Company has less control over the scheduling and the quality of work of
independent contractors than that of its own employees. Furthermore, the
Company's agreements to publish and market certain independent software
developers' titles will terminate after specified dates unless renewed. The
Company's business and future operating results will depend in part on the
Company's continued ability to attract and maintain relationships with skilled
independent software developers, and to enter into and renew product development
agreements with such developers. There can be no assurance that the Company will
be able to maintain such relationships or enter into and renew such agreements.

INTERNATIONAL REVENUE.  International net revenue represented approximately 75%,
64%, and 49% of the Company's net revenue for the first quarter of fiscal 1998,
and for fiscal years 1997 and 1996, respectively. The Company expects that
international net revenue will continue to account for a significant portion of
its net revenue in future periods. International revenue is subject to inherent
risks, including unexpected changes in regulatory requirements, tariffs and
other economic barriers, fluctuating exchange rates, difficulties in staffing
and managing foreign operations and the possibility of difficulty in accounts
receivable collection. The Company attempts to minimize its exposure to currency
fluctuations by entering into forward currency contracts, however, there can be
no assurance that the Company will be successful at mitigating currency risks.
In some markets, localization of the Company's products is essential to achieve
market penetration. The Company may incur substantial costs and experience
delays in localizing its products, and there can be no assurance that any
localized product will ever generate significant revenue. These or other factors
could have a material and adverse effect on the Company's future international
revenue and, consequently, on the Company's business, operating results and
financial condition.

RECOVERY OF PREPAID ROYALTIES AND GUARANTEES.  The Company, from time to time,
enters into agreements with licensors of intellectual property and developers of
games that involve royalty advances and guaranteed minimum royalty payments. If
the sales volumes of products subject to such arrangements are not sufficient to
recover such advances and guarantees, the Company will be required to write-off
unrecovered portions of such payments. The Company has been required to write-
off a material portion of these advances in past fiscal quarters and, if the
Company must write-off additional portions of such advances or accrue for the
guarantees, its results of operations may be materially and adversely affected.

INTELLECTUAL PROPERTY. The Company regards the software that it owns or licenses
as proprietary and relies primarily on a combination of copyrights, trade secret
laws, patent and trademark laws, nondisclosure agreements and other copy
protection methods to protect its proprietary rights to its products. It is the
Company's policy that all employees and third-party developers sign
nondisclosure agreements. There can be no assurance that these measures will be
sufficient to protect the Company's intellectual property rights against
infringement. The Company owns or licenses various trademarks and copyrights.
However, the Company has only standard "shrink wrap" license agreements or no
license agreements at all with the end users of its products and does not
copy-protect its software. The Company relies largely on the copyright laws to
prevent unauthorized distribution of its software. Existing copyright laws
afford only limited protection. It may be possible for unauthorized third
parties to copy the Company's products or to reverse engineer or otherwise
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and software piracy can
be expected to be a persistent problem. Further, the laws of certain countries
in which the Company's products are or may be distributed do not protect the
Company's products and intellectual rights to the same extent as the laws of the
United States.

The Company believes that its products, trademarks and other proprietary 
rights do not infringe on the proprietary rights of third parties. As the 
number of entertainment software products in the industry increases, the 
Company believes that software increasingly will become the subject of claims 
that such software infringes

                                       16
<PAGE>
                             SPECTRUM HOLOBYTE, INC.


upon the rights of others. From time to time, the Company has received
communications from parties asserting that features or content of certain of its
products may infringe upon intellectual property rights of such parties. The
Company believes such claims have been without merit. To date, no such claims
have had an adverse effect on the Company's ability to develop, market or sell
its products. There can be no assurance that existing or future infringement
claims against the Company will not result in costly litigation or require the
Company to license the intellectual property rights of parties. There can be no
assurance that such licenses will be available on reasonable terms or at all.

NASDAQ LISTING.  The Company was notified in February 1996 by the Nasdaq Stock
Market ("Nasdaq") that the Company was no longer in compliance with the net
tangible assets requirement of the National Association of Securities Dealers'
ByLaws for listing on the Nasdaq National Market.  Nasdaq granted the Company a
temporary exemption from the net tangible assets requirement.  The exemption
required that the Company achieve compliance with the listing on or before July
12, 1996.

The Company regained compliance with the Nasdaq National Market listing
requirements as of the end of the fiscal quarter ended June 30, 1996. There can
be no assurance that the Company will be able to maintain compliance with the
listing requirements of the Nasdaq National Market in the future.  If the
Company is unable to maintain compliance, it may qualify for listing under the
Nasdaq SmallCap Market.  If for any reason the Company is unable to achieve and
maintain compliance with the SmallCap listing requirements and is delisted from
both the Nasdaq National Market and the Nasdaq SmallCap Market, the holders of
the Company's 6.5% Convertible Subordinated Notes Due 2002 (the "Notes") would
be entitled to require the Company to repurchase all or any portion of such
holders' Notes for cash at a price equal to the principal amount plus accrued
interest.  In such event, the Company's business, results of operations and
financial condition would be materially and adversely affected.

VOLATILITY OF PRICE OF STOCK AND NOTES.  There has been a history of significant
volatility in the market prices of companies engaged in the entertainment
software industry, including the Company. It is likely that the market price of
the Company's common stock will continue to be highly volatile and the price of
the Company's Notes will also be subject to such fluctuations. Factors such as
the timing and market acceptance of new product introductions by the Company,
the introduction of new products by the Company's competitors, loss of key
personnel of the Company, variations in quarterly operating results or changes
in market conditions in the entertainment software industry may have a
significant impact on the market price of the Company's common stock and Notes.
In the past, the Company has experienced fluctuations in its operating results,
and it is likely that in some future quarter the Company's revenue or operating
results will be below the expectations of, and certain new products will not be
introduced when anticipated by, public market analysts and investors. In such
event, the price of the Company's common stock would likely be materially
adversely affected. Volatility in the price of the Company's common stock,
changes in prevailing interest rates and changes in perceptions of the Company's
creditworthiness may in the future adversely affect the price of the Notes.


                                       17
<PAGE>
                             SPECTRUM HOLOBYTE, INC.


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On July 9, 1996, a lawsuit entitled Acclaim Entertainment, Inc. v. Spectrum
HoloByte California, Inc. No. 96-2462 WHO, was filed in the United States
District Court for the Northern District of California.  MicroProse Software,
Inc. was also named as a defendant.  The complaint alleged various causes of
action related to an exclusive license Acclaim holds from Wizard of the Coast,
Inc. ("WOTC") to develop certain computer game products based on the world and
characters of the MAGIC: THE GATHERING card game.  Acclaim alleged that its
license was being infringed by the MAGIC: THE GATHERING computer game being
developed by the Company, which also holds an exclusive license from WOTC.

On September 20, 1996, the Company filed an answer and counterclaim denying the
allegations in the complaint and asserting claims for unfair competition,
copyright infringement, and interference with contract against Acclaim.

On November 4, 1996, the Company, MicroProse and Acclaim entered into an
agreement settling the lawsuit.  Under the terms of the settlement, the Company
is not required to make any monetary payment or alter its computer game product.
The parties have agreed to differentiate their respective titles in the
marketplace.  Acclaim agreed to market its product for Windows 95 under the name
MAGIC: THE GATHERING-BATTLEMAGE and to position the title as a real-time, multi-
player strategy game, based on the characters and scenarios of the fantasy
adventure world of MAGIC: THE GATHERING. The Company's agreed to release its
title under the MICROPROSE brand name and position it as an interactive version
of the MAGIC: THE GATHERING card game.  The parties also agreed to coordinate
the release dates for their respective products.

On January 23, 1997, the Company filed suit against Acclaim for violation of
certain terms of the settlement agreement.  On February 18, 1997, Acclaim filed
an answer and counterclaims for breach of contract and abuse of process.  On
April 30, 1997, Acclaim's counterclaim for abuse of process was dismissed
without leave to amend by the United States District Court for the Northern
District of California.  The Company believes that Acclaim's remaining
counterclaim is without merit.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  THE FOLLOWING EXHIBITS ARE FILED HEREWITH:


  EXHIBIT
  NUMBER       DESCRIPTION
  -------      -----------------------------------------------------------------
   3.1+        Certificate of Incorporation of the Registrant
   3.2+        Amended Bylaws of Registrant
   4.1+        Specimen Common Stock Certificate of the Registrant
   4.2+        Warrants issuable to the Grotech Investors and Corporate Venture
               Partners, L.P., dated as of October 17, 1991
   4.3+        Form of Warrant issuable to Paragon Investors, dated July 1992
   4.4+        Form of Warrant, issued to Ince & Co. (incorporated by reference
               to Exhibit 2.3 of Spectrum HoloByte, Inc.'s Quarterly Report on
               Form 10-Q, File No. 0-19463, filed on December 31, 1994)
   4.5+        Registration Rights Agreement, dated June 12, 1995 by and among
               Spectrum HoloByte, Inc. and Stephen Barcia and Maria Barcia
               (incorporated by reference to Exhibit 2.3 of Spectrum HoloByte,
               Inc.'s Current Report on Form 8-K, File No. 0-19463, filed on
               June 27, 1995)
   4.6+        Registration Rights Agreement, dated as of May 16, 1995, by and
               among Spectrum HoloByte, Inc. and IPWEL LTD (incorporated by
               reference to Exhibit 4.7 of Spectrum HoloByte, Inc.'s
               Registration on Form S-3, File No. 33-94580, filed October 24,
               1995)


                                       18
<PAGE>


                             SPECTRUM HOLOBYTE, INC.


  EXHIBIT
  NUMBER       DESCRIPTION
  -------      -----------------------------------------------------------------

   4.7+        Registration Rights Agreement, dated as of May 16, 1995, by and
               among Spectrum HoloByte, Inc. and GFL Advantage Fund Limited
               (incorporated by reference to Exhibit 4.8 of Spectrum HoloByte,
               Inc.'s Registration on Form S-3, File No. 33-94580, filed October
               24, 1995)
   4.8+        Registration Rights Agreement, dated as of August 28, 1995, by
               and among Spectrum HoloByte, Inc. and GFL Advantage Fund Limited
               (incorporated by reference to Exhibit 4.9 of Spectrum HoloByte,
               Inc.'s Registration on Form S-3, File No. 33-94580, filed October
               24, 1995)
   4.9+        Registration Rights Agreement, dated as of June 27, 1995, by and
               among Spectrum HoloByte, Inc. and Banque Scandinave en Suisse
               (incorporated by reference to Exhibit 4.10 of Spectrum HoloByte,
               Inc.'s Registration on Form S-3, File No. 33-94580, filed October
               24, 1995)
   4.10+       Registration Rights Agreement, dated as of August 25, 1995, by
               and among Spectrum HoloByte, Inc. and PJP International, Ltd.
               (incorporated by reference to Exhibit 4.11 of Spectrum HoloByte,
               Inc.'s Registration on Form S-3, File No. 33-94580, filed October
               24, 1995)
   4.11+       Registration Rights Agreement, dated as of May 16, 1995, by and
               among Spectrum HoloByte, Inc. and Tanner, Owen & Co. Incorporated
               (incorporated by reference to Exhibit 4.12 of Spectrum HoloByte,
               Inc.'s Registration on Form S-3, File No. 33-94580, filed October
               24, 1995)
   4.12+       Registration Rights Agreement, dated as of September 6, 1995, by
               and among Spectrum HoloByte, Inc. and Tanner, Owen & Co.
               Incorporated (incorporated by reference to Exhibit 4.13 of
               Spectrum HoloByte, Inc.'s Registration on Form S-3, File No. 33-
               94580, filed October 24, 1995)
   4.13+       Indenture, dated as of September 15, 1995, between Spectrum
               HoloByte, Inc. and Chemical Trust Company of California
               (incorporated by reference to Exhibit 3 of Spectrum HoloByte,
               Inc.'s Current Report on Form 8-K, File No. 0-19463, filed
               October 17, 1995)
   4.14+       Registration Rights Agreement, dated as of September 26, 1995, by
               and among Spectrum HoloByte, Inc. and Robertson, Stephens &
               Company, L.P., Jeffries & Company, Inc. and Piper Jaffray Inc.
               (incorporated by reference to Exhibit 4 of Spectrum HoloByte,
               Inc.'s Current Report on Form 8-K, File No. 0-19463, filed
               October 17, 1995)
   4.15+       Certificate of Designation for Series B Convertible Preferred
               Stock
   4.16+       Certificate of Designation for Series B-1 Convertible Preferred
               Stock
  10.1+        Form of Purchase Agreement, by and between Spectrum HoloByte,
               Inc. and certain investors, effective June 26, 1996 (incorporated
               by reference to Exhibit 4.3 of Spectrum HoloByte, Inc.'s
               Registration on Form S-3, File No. 333-08385, filed July 18,
               1996)
   11.1        Statement Re: Computation of Net Loss Per Share
   27.1        Statement Re: Financial Data Schedule

   +  Previously filed.

(b)  REPORTS ON FORM 8-K:

None.


                                       19
<PAGE>


                             SPECTRUM HOLOBYTE, INC.


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 13, 1997.


                                   SPECTRUM HOLOBYTE, INC.



                                   By: /s/ Stephen M. Race
                                      --------------------------------
                                       Stephen M. Race
                                       CHIEF EXECUTIVE OFFICER, ACTING CHIEF
                                       FINANCIAL OFFICER AND DIRECTOR


                                       20